Jim Beam Brands Co. v. Franchise Tax Board

Jim Beam Brands Co. (Jim Beam) appeals from a grant of summary judgment in favor of the Franchise Tax Board (FTB) in a tax refund action. Jim Beam brought the action below after the State Board of Equalization (SEE) ruled that the gain from Jim Beam’s sale of the stock of a wholly-owned subsidiary constituted “ ‘[bjusiness income’ ” within the meaning of Revenue and Taxation Code section 25120, subdivision (a). The trial court sustained the SBE’s decision and held that income from the sale was apportionable to California. In this court, Jim Beam argues that the income from the sale of its subsidiary does not qualify as “business income” under the statute. In the alternative, Jim Beam contends that even if the gain was business income, it is entitled to an adjustment of its tax basis in the stock to reflect certain undistributed earnings and profits. We disagree with both arguments and affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Jim Beam is a distiller of bourbon whiskey. It also produces, or imports, and markets a wide variety of distilled spirits, including bourbon and other whiskeys, cordials, gin, and vodka. Prior to December 1987, Jim Beam was part of a unitary…