The California Franchise Tax Board has issued a chief counsel ruling stating that a registered broker-dealer must include the entire sales price received from the sale of securities—including the return of capital—in the sales apportionment factor. Interestingly, the chief counsel determined that California’s alternative apportionment provisions do not apply to the combined group’s intrastate apportionment result.
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.)
Income and Franchise Taxation: Apportionment/Allocation and Business/NonBusiness Income
In Appeal of Polaroid Corp., the State Board of Equalization (SBE) held that proceeds received by the taxpayer from apatent infringement lawsuit were business income and must be included in the (numerator and the denominator of the) sales factor. The SBE also held that only net income from the taxpayer’s investment of excess short-term financial instruments may be included in the sales factor
(The remainder of this article can be accessed in the 2004 edition of the ABA’s State and Local Tax Lawyer.)
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