Brown

Three investment companies and a class of their investors brought this action to invalidate the imposition of income tax by the Franchise Tax Board on distributions of income originating in federal securities. The trial court decreed that this income was immune from state taxation, and that the Board must refund the sums collected. On appeal, the Board contends that this ruling was incorrect and that the court erred in adopting certain procedures for resolving individual claims. We find no error, and affirm.

I. Background

Plaintiff Sandra Brown represents the class of investors who paid the challenged tax. Plaintiffs Capital Preservation Fund (Fund), Capital Preservation Fund II (Fund II), and Capital Preservation Treasury Note Trust (Trust) are registered investment companies. Fund and Fund II are organized as share-issuing corporations and appear in their own names, while Trust is organized as a trust and appears by its trustees. There is little need to distinguish here between these three plaintiffs, and for the most part we refer to them collectively as Companies.

During tax years 1978 through 1981, all money managed by Companies was invested in federal…