General Mills v. Franchise Tax Board

This appeal presents the issue of whether commodity futures sales that are made to hedge against price fluctuations should be included in the sales factor of the Uniform Division of Income for Tax Purposes Act (Rev. & Tax. Code, § 25120 et seq.; UDITPA) apportionment formula. We conclude that, in the tax years at issue, the full sales price of these futures contracts (number of bushels times price per bushel) are gross receipts within the meaning of the UDITPA sales factor and we vacate the trial court’s denial of the taxpayer’s claims for refund.

Background

General Mills and its subsidiary corporations (hereafter, General Mills) seek refunds from California’s Franchise Tax Board for the tax year ending May 31, 1992, through the tax year ending May 25, 1997. Because General Mills is a unitary group of corporations operating both within and outside of California, the proportion of its income that is subject to California taxation is determined by the UDITPA. The Franchise Tax Board calculates General Mills’s total business income (as distinguished from its nonbusiness income), and uses an apportionment formula to determine the percentage of the income that will be…