HOECHST CELANESE v. Franchise Tax Bd.

Plaintiff Hoechst Celanese Corporation (hereafter Celanese), a Delaware corporation, seeks refund of $292,142 in corporate franchise taxes plus interest paid for the year ending December 31, 1985. The trial court denied the refund, finding the apportioned share of a $388 million pension reversion to Celanese from a qualified pension trust constituted business income under the Uniform Division of Income for Tax Purposes Act (UDITPA). (Rev. & Tax Code, § 25120 et seq.) [1]

On appeal, Celanese contends there is no separate, functional test for business income under section 25120, subdivision (a), and, in any event, the pension reversion does not satisfy the functional test, even if it applies. Celanese also argues taxation of the pension reversion is unconstitutional. [2]

We conclude section 25120, subdivision (a) includes both a transactional test and a functional test to determine what constitutes business income for purposes of the UDITPA. In this case, however, the record does not support a determination the pension reversion was business income under either test. We therefore reverse the judgment, and need not address Celanese's constitutional…