California 2004 State and Local Tax: Important Developments

Franchise Income Tax: Apportionment and Allocation of Business and Nonbusiness Income
In General Motors Corp. v. Franchise Tax Board, the first of the six “gross receipts” cases in court in California to be decided in the Court of Appeal, the Second Appellate District addressed the issue of what the term “sales” means, as used and defined in Revenue and Taxation Code sections 25120 and 25134. The court affirmed the ruling of the trail court that:

“the return of the principal from securities transactions in the repurchase agreements and maturities categories should not be included as ‘gross receipts’ in the denominator of the sales factor in apportioning income to California. The reason for this conclusion is that such return of principal does not arise out of a sales transaction.”

(The remainder of this article can be accessed in the 2005 edition of the ABA’s State and Local Tax Lawyer.)