Title: Microsoft v. Franchise Tax Bd.

State: california

Issuer: California Supreme Court

Document:

1
Filed 8/17/06 (This opinion precedes companion case, S127086, also filed 8/17/06) 
 
 
 
IN THE SUPREME COURT OF CALIFORNIA 
 
 
 
MICROSOFT CORPORATION, 
) 
 
 
) 
 
Plaintiff and Respondent, 
) 
 
 
) 
S133343 
 
v. 
) 
 
 
) 
Ct.App. 1/3 A105312 
FRANCHISE TAX BOARD, 
) 
 
 
) 
City and County of San Francisco 
 
Defendant and Appellant. 
) 
Super. Ct. No. 400444 
___________________________________ ) 
 
Ours is a global economy.  In contrast, government, and the taxing 
authority used to fund it, is national and local.  This geographic disparity generates 
difficulties when each jurisdiction seeks its piece of the economic pie, a pie 
generated by economic activity that knows no borders. 
The Uniform Division of Income for Tax Purposes Act (UDITPA)1 
attempts to address these problems and fairly assess corporate taxes.  Adopted by 
the District of Columbia and 22 states, including California, it seeks to establish 
uniform rules for the attribution of corporate income, rules that in theory will 
result in an equitable taxation scheme—equitable to each jurisdiction, seeking its 
own fair share, and equitable to the taxpayer, who in the absence of uniform rules 
                                              
1  
Uniform Division of Income for Tax Purposes Act, 7A part 1 West’s 
Uniform Laws Annotated (2002) page 141. 
 2
faces the prospect of having the same income taxed by two, three, or more 
different states. 
The UDITPA’s application is not always clear.2  This case requires us to 
resolve how the UDITPA should apply to income arising from the redemption of 
marketable securities, a critical aspect of the operations of the treasury 
departments of many large corporations, including plaintiff Microsoft Corporation 
(Microsoft).  We conclude (1) the redemption of marketable securities at maturity 
generates “gross receipts” that are includible in the formula used to calculate a 
multistate entity’s tax, but (2) the Franchise Tax Board (the Board) has met its 
burden of establishing that, in this instance, an alternate formula should be used to 
calculate Microsoft’s tax. 
THE UDITPA 
The United States Constitution bars taxation of extraterritorial income.  
(Container Corp. v. Franchise Tax Board (1983) 463 U.S. 159, 164 (Container 
Corp.); ASARCO Inc. v. Idaho State Tax Com. (1982) 458 U.S. 307, 315; 
Barclay’s Bank Internat., Ltd. v. Franchise Tax Bd. (1992) 2 Cal.4th 708, 714 
(Barclay’s Bank).)  However, it permits taxation of “an apportionable share of the 
multistate business carried on in part in the taxing State” (Allied-Signal, Inc. v. 
Director, Div. of Taxation (1992) 504 U.S. 768, 778) and grants states some 
leeway in separating out their respective shares of this multistate income, not 
mandating they use any particular formula (Container Corp., at p. 164).  One 
                                              
2  
The UDITPA “was adopted by the States primarily to prevent federal 
legislation in [the area of allocating income among states], and as such, has the 
aspects of a shotgun wedding.”  (Keesling, The Combined Report and Uniformity 
in Allocation Practices (1974) in Multistate Tax Com., 7th Annual Rep. (1974) 
p. 34.) 
 3
constitutional method of apportionment, the unitary business/formula 
apportionment method, “calculates the local tax base by first describing the scope 
of the ‘unitary business’[3] of which the taxed enterprise’s activities in the taxing 
jurisdiction form one part, and then apportioning the total income of that ‘unitary 
business’ between the taxing jurisdiction and the rest of the world on the basis of a 
formula taking into account objective measures of the corporation’s activities 
within and without the jurisdiction.”  (Container Corp., at p. 165.)  The UDITPA 
is generally based on this method.  (Ibid.) 
Under the UDITPA, a unitary enterprise’s income is divided into “business 
income” and “nonbusiness income.”  (Hoechst Celanese Corp. v. Franchise Tax 
Bd. (2001) 25 Cal.4th 508, 518 (Hoechst); Rev. & Tax. Code, § 25120, subds. (a), 
(d).)4  With some exceptions, nonbusiness income is generally allocated directly to 
the taxpayer’s domiciliary state.  (Hoechst, at p. 518; §§ 25123-25127.)  In 
contrast, business income is apportioned among the states according to a formula.  
The portion of a taxpayer’s business income attributable to economic activity in a 
given state is determined by combining three factors:  payroll, property, and sales.  
(§ 25128.)  Each factor is a fraction in which the numerator measures activity or 
assets within a given state, while the denominator includes all activities or assets 
anywhere.  (§§ 25129, 25132, 25134.)  The combination of these fractions is used 
to determine the fraction of total global business income attributable to the given 
state.  (See Container Corp., supra, 463 U.S. at p. 170; Barclay’s Bank, supra, 2 
                                              
3  
“A unitary business is generally defined as two or more business entities 
that are commonly owned and integrated in a way that transfers value among the 
affiliated entities.”  (Citicorp North America, Inc. v. Franchise Tax Bd. (2000) 83 
Cal.App.4th 1403, 1411, fn. 5.) 
4  
All further statutory references are to the Revenue and Taxation Code 
unless otherwise indicated. 
 4
Cal.4th at p. 715.)5  This method provides a rough but constitutionally sufficient 
approximation of the income attributable to business activity in each state.  
(Container Corp., at pp. 170, 183-184; Barclay’s Bank, at pp. 718-721.) 
Only the sales factor is at issue here.  The sales factor is a ratio comparing 
sales in a given state to total sales everywhere.  (§ 25134.)  Sales are measured by 
counting a business’s “gross receipts.”  (§ 25120, subd. (e).)  Increases in in-state 
gross receipts will lead to a larger fraction, greater apportioned income, and higher 
tax; conversely, increases in out-of-state gross receipts will lead to a reduction in 
the fraction attributable to California and a reduction in California tax. 
The UDITPA contains a relief provision.  If application of the foregoing 
provisions fails to “fairly represent the extent of the taxpayer’s business activity in 
this state,” the taxpayer may seek or the Board may impose an alternate method of 
calculation to achieve an equitable result.  (§ 25137.) 
FACTUAL AND PROCEDURAL BACKGROUND 
Microsoft is an international software company with principal offices in the 
State of Washington.  Microsoft and its worldwide subsidiaries operate as a 
unitary business.  Microsoft’s business generates excess operating cash, which its 
                                              
5  
During the tax year at issue, 1991, California simply averaged the three 
fractions: 
  CA Property 
  CA Payroll 
  CA Sales 
Total Property 
+ 
Total Payroll 
+ 
Total Sales 
3 
 x Total Income 
= 
Taxable Income 
(Barclay’s Bank, supra, 2 Cal.4th at p. 715, fn. 2; former § 25128, added by Stats. 
1966, ch. 2, § 7, p. 179, repealed by Stats. 1993, ch. 946, § 1, p. 5441.)  California 
has since amended the formula to give double weight to the sales factor for most 
business activity.  (§ 25128.) 
 5
treasury department invests in various short-term marketable securities.6  Some of 
these securities Microsoft resells to third parties; others it holds and redeems at 
maturity.  These investments are generally short-term; in 1991, the tax year at 
issue, approximately 80 percent of investment receipts came from securities held 
for 30 days or less. 
In an amended 1991 California tax return, Microsoft reported the income of 
its treasury department as business income and the entire amount it received from 
sales and redemptions of marketable securities, $5.7 billion, as gross receipts.  In 
its audit, the Board accepted the treatment of treasury department income as 
business income and allowed the inclusion of securities sales as gross receipts, but 
disallowed the return of capital for securities redemptions.  That is, for securities 
held to maturity, it counted as gross receipts only the price differential between the 
redemption price and the purchase price.  Because redemptions of securities were 
credited to Microsoft’s treasury department in Washington State and contributed 
to Microsoft’s sales factor denominator but not its sales factor numerator, 
inclusion of the full price in the sales factor would have had the effect of diluting 
that factor (from roughly 11 percent to 3 percent) and cutting Microsoft’s 
California income tax nearly in half, while inclusion of only the net price 
differential had the effect of increasing Microsoft’s sales factor and its state tax.  
(See § 25134.) 
                                              
6  
During 1991, these securities included commercial paper, corporate bonds, 
United States Treasury bills and notes, discount notes, United States money 
market preferred securities, United Kingdom money market preferred securities, 
fixed rate auction preferred securities, floating rate notes, loan participations, 
municipal bonds, and loan repurchase agreements. 
 6
Microsoft exhausted its administrative remedies without success and filed a 
refund suit.  After a bench trial, the trial court ruled for Microsoft, holding that the 
entire amount received when Microsoft redeemed its securities at maturity counted 
as gross receipts.  The trial court further held that the Board had failed to carry its 
burden of showing that a section 25137 modification to the formula used to 
compute Microsoft’s tax was necessary to achieve a fair representation of 
Microsoft’s California business. 
The Court of Appeal reversed, deciding the case solely on section 25137 
grounds.  It held that inclusion of Microsoft’s securities redemptions in its gross 
receipts would seriously distort the formula’s representation of Microsoft’s 
California business and that the Board’s proposed exclusion of the returned capital 
portion of these redemptions was authorized under section 25137.  We granted 
review. 
DISCUSSION 
I.   Redemptions as Gross Receipts 
Microsoft asks us to apply a substantial evidence standard of review to the 
question whether the full amount or net price difference of its redemptions 
constitutes gross receipts for purposes of the UDITPA, arguing that both the 
nature of its investments and the extent of its activity here and out-of-state involve 
factual issues.  We decline.  The factual attributes of Microsoft’s transactions are 
undisputed.  Similarly, the parties have stipulated to the relevant facts concerning 
the scope of Microsoft’s activities in California and elsewhere.  While the parties 
dispute the proper legal characterization of Microsoft’s transactions under the 
UDITPA, “[t]he application of a taxing statute to uncontradicted facts is a question 
of law, and this court is accordingly not bound to accept the trial court’s findings 
of fact made from the uncontradicted facts shown in the parties’ stipulation and 
 7
the documentary evidence.”  (Communications Satellite Corp. v. Franchise Tax 
Bd. (1984) 156 Cal.App.3d 726, 746.) 
As with any issue of statutory interpretation, we begin with the text of the 
relevant provisions.  If the text is unambiguous and provides a clear answer, we 
need go no further.  (Hoechst, supra, 25 Cal.4th at p. 519.)  If the language 
supports multiple readings, we may consult extrinsic sources, including but not 
limited to the legislative history and administrative interpretations of the language.  
Where, as here, the Legislature has adopted a uniform act, the history behind the 
creation and adoption of that act is also relevant.  (Ibid.) 
Under section 25120, subdivision (e), “ ‘Sales’ means all gross receipts of 
the taxpayer not allocated [as nonbusiness income] under Sections 25123 through 
25127 of this code.”  (Italics added.)  The term “gross receipts” is undefined.  
Microsoft argues that gross receipts include the entire amount received upon 
redemption of a marketable security.  The Board argues that gross receipts include 
only the net difference between the amount received and the original purchase 
price. 
We agree with Microsoft that the meaning of “gross receipts” in the 
UDITPA more naturally includes the entire redemption price of marketable 
securities.  “Gross” implies the whole amount received, not just the amount 
received in excess of the purchase price.7  To only consider the net price 
                                              
7  
  See, e.g., Black’s Law Dictionary (8th ed. 2004) pages 722-723 (gross 
receipts are “[t]he total amount of money or other consideration received by a 
business taxpayer for goods sold or services performed in a year, before 
deductions,” citing 26 U.S.C. § 448); American Heritage Dictionary (2d college 
ed. 1982) page 578 (gross means “[e]xclusive of deductions; total”); County of 
Sacramento v. Pacific Gas & Electric Co. (1987) 193 Cal.App.3d 300, 309 (plain 
meaning of gross receipts is total amount received, without deduction); 
section 6012 (defining gross receipts for sales and use tax purposes as “the total 
 
(footnote continued on next page) 
 8
difference as “gross receipts” is an awkward fit with the statutory language, at 
best.  To the extent the language is ambiguous, we generally will prefer the 
interpretation favoring the taxpayer.  (Edison California Stores, Inc. v. McColgan 
(1947) 30 Cal.2d 472, 476.) 
The Board, however, argues that only amounts received as consideration 
count as gross receipts, only the net price difference is consideration, and thus 
only the net difference should be treated as a receipt.  We disagree.  In the 
purchase of a 28-day Treasury bill at 99 and its redemption at 100,8 for example, 
the investor exchanges money now for a larger sum of money in 28 days.  The 
Federal Reserve’s consideration is the entire amount it receives now; the 
investor’s consideration is the entire larger, but deferred, amount it receives upon 
redemption.  The transaction occurs because the Federal Reserve views the money 
it receives now as more valuable than the money it must pay later, while the 
investor views the money it will receive later as more valuable than the money it 
has now.  The difference between the purchase and redemption price is a measure 
of either gross income or net receipts, not a measure of consideration.  (Cf. Gray v. 
Franchise Tax Bd. (1991) 235 Cal.App.3d 36, 42 [gross income is “the excess of 
the sales price over the cost of goods sold”]; MCA, Inc. v. Franchise Tax Bd. 
(1981) 115 Cal.App.3d 185, 197-198 [gross receipts differs from gross income in 
that the latter subtracts the cost of goods sold].) 
                                                                                                                                                              
(footnote continued from previous page) 
amount of the sale or lease or rental price,” without deduction for the cost of the 
property sold). 
8  
Prices for securities such as Treasury bills are quoted based on a par value 
of 100.  Thus, a $10,000 Treasury bill sold at 99 would be sold for 1 percent less 
than the face redemption value of the bill, i.e., $9,900. 
 9
While the language of section 25120 supports Microsoft’s interpretation, it 
is not unambiguous and does not by itself preclude either side’s proposed 
interpretation.  Thus, we turn to extrinsic interpretive aids. 
The legislative history behind the UDITPA favors Microsoft’s position.  As 
in Hoechst, supra, 25 Cal.4th at pages 522-523, because the Legislature adopted 
the UDITPA almost verbatim, we look to the drafting history of the UDITPA.  An 
early version of the UDITPA defined “sales” as “all income of the taxpayer” not 
otherwise allocated, but this provision was amended to define “sales” instead as 
“all gross receipts of the taxpayer” not otherwise allocated.  (Compare 
Proceedings of Com. of Whole for UDITPA, transcript of Aug. 22, 1956, p. 5 
[“income” definition] with Proceedings of Com. of Whole for UDITPA, transcript 
of July 9, 1957, p. 28 [“gross receipts” definition].)  This amendment suggests the 
choice of “gross receipts” was intentional and the drafters had in mind a definition 
of “sales” that encompassed more than just gross income. 
Agency interpretation of section 25120 likewise supports Microsoft, albeit 
in a more limited fashion.  (See Hoechst, supra, 25 Cal.4th at pp. 523-525 [relying 
on State Board of Equalization (SBE) decisions to interpret the UDITPA].)  
Consistent with Microsoft’s interpretation of the statute, the SBE has interpreted 
gross receipts to include the full amount of any redemptions.  In Appeals of Pacific 
Telephone & Telegraph (May 4, 1978) [1978-1981 Transfer Binder] Cal.Tax Rptr. 
(CCH) ¶ 205-858, page 14,907-36 (Pacific Telephone & Telegraph), as here, the 
taxpayer’s treasury department invested idle cash in short-term securities such as 
Treasury bills, government obligations, certificates of deposit, and commercial 
paper, selling some but holding most investments to maturity.  The SBE concluded 
“the gross receipts from these activities come within the literal definition of ‘sales’ 
that are includible in the sales factor.”  (Id. at p. 14,907-42.)  However, because 
the inclusion of sales and redemptions in gross receipts was not a major point of 
 10
contention or analysis, we do not place great weight on this decision.9  (See 
Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 14-15.) 
In deciding how to apply section 25120, we look as well to the economic 
reality of the taxed transaction.  For purposes of taxation, what matters is 
substance, not form.  “In applying this doctrine of substance over form, the 
[United States Supreme] Court has looked to the economic realities of a 
transaction rather than to the particular form the parties employed.”  (Frank Lyon 
Co. v. United States (1978) 435 U.S. 561, 573.)  Thus, we focus on the actual 
rights and benefits acquired, not the labels used.  When we consider the economic 
reality of a security redemption, it becomes clear Microsoft is correct:  “gross 
receipts” include the entire redemption price. 
The key is the similarity between the sale and the redemption of a 
marketable security.  The Board concedes that when an investor sells a marketable 
security to a third party, the entire sale price is includible as gross receipts, just as 
it would be for the sale of any other tangible or intangible property.  But from the 
perspective of the taxpayer, economically a sale and a redemption are 
indistinguishable.  In the sale of a security one day before maturity, the investor 
relinquishes the bundle of rights that go with the security in exchange for, let us 
say, a sale price of 99.98.  In a redemption upon maturity, the investor relinquishes 
the identical bundle of rights on the maturity date for the full par value of 100.  
                                              
9  
A second case relied on by Microsoft, Appeal of Merrill, Lynch, Pierce, 
Fenner & Smith, Inc. (June 2, 1989) [1986-1990 Transfer Binder] Cal.Tax Rptr. 
(CCH) ¶ 401-740, page 25,549 (Merrill Lynch), provides no additional support.  In 
Merrill Lynch, the taxpayer sold securities and included the entire sale price in its 
gross receipts.  Thus, the case involved sales, not redemptions.  Moreover, the 
Board did not contest the taxpayer’s categorization of the entire price as gross 
receipts, and so the SBE assumed it to be correct. 
 11
From the perspective of the investor’s balance sheet, the transactions are identical 
(the minor price differential aside), notwithstanding that different labels apply.  
The difference between the transactions exists only with respect to the other side 
of the transaction, that of the recipient:  in one case, a third party acquires the same 
bundle of rights the investor had, and in the other, because the recipient is the 
original issuer of the security, the security is retired.  Because from a tax 
perspective we are concerned only with the economic activity of the 
taxpayer/investor, we can discern no reason to treat the two transactions 
differently.  We conclude the full redemption price, like the full sale price, must be 
treated as gross receipts. 
This rule is consistent with the application of “gross receipts” to a wide 
range of other transactions that include a return of capital.  Thus, for example, 
when a taxpayer enters into a cost plus fixed fee contract, pursuant to which the 
taxpayer is reimbursed for its outlay of costs and paid a fee in addition, the entire 
amount received—both the fee and the reimbursed costs—is included in gross 
receipts.  (See Cal. Code Regs., tit. 18, § 25134, subd. (a)(1)(B).)10  When a 
taxpayer sells off equipment used in its business—a truck, for example—the entire 
sale price, not just the sale price less cost of goods and adjustments for 
depreciation, constitutes gross receipts.  (Id., subd. (a)(1)(F).)  We see no reason to 
treat redemptions on maturity differently for gross receipts purposes. 
The Board argues, and the Court of Appeal intimated, that differential 
treatment is justified because in one instance, the sale to a third party, there is a 
“sale,” while in the other there is no sale.  This argument promotes form over 
                                              
10  
All further references to Regulations are to the California Code of 
Regulations, title 18, unless otherwise indicated. 
 12
substance.  We care about the nature of the transaction, not the label attached.  We 
use different labels to distinguish a third party sale from a redemption on maturity 
because, as noted above, for the security’s recipient the transactions have different 
consequences.  From the perspective of the taxpayer/investor, however, they are 
identical; hence, from the perspective of tax law, they should be treated 
identically.  Moreover, we note that under Regulation section 25134, subdivision 
(a)(1), gross receipts include payments arising not just from sales but from 
“transactions and activity in the regular course of” the taxpayer’s business as well.  
Thus, we place no great emphasis on the significance of the label “sale.” 
The Board further argues that a sale the day before redemption is different 
because it carries with it an additional risk of loss—the risk the security might be 
sold for less than the purchase price.  The Board, however, fails to explain why 
this difference would justify treating a sale and redemption differently for gross 
receipts purposes, nor do we discern any reason it would. 
The Board argues that its position is supported by a different source of 
administrative interpretation than the agency decisions relied on by Microsoft, to 
wit, Regulation section 25134, subdivision (a)(1)(A), which includes in gross 
receipts “all interest income.”  This means, the Board argues, that by negative 
implication gross receipts exclude a return of principal.  The surrounding text 
demonstrates the error in this interpretation:  “Gross receipts for this purpose 
means gross sales, less returns and allowances and includes all interest income, 
service charges, carrying charges, or time-price differential charges incidental to 
such sales.”  (Ibid.)  This subdivision thus includes interest in addition to the 
principal price for any sale of goods or products.  It does not support a reading of 
gross receipts that includes interest but excludes the principal sale price. 
The Board also points to two judicial decisions it contends support its 
interpretation of gross receipts.  (City of Los Angeles v. Clinton Merchandising 
 13
Corp. (1962) 58 Cal.2d 675 (Clinton Merchandising); County of Sacramento v. 
Pacific Gas & Electric Co., supra, 193 Cal.App.3d 300.)  In Clinton 
Merchandising, we addressed whether a municipal tax on gross receipts should 
apply to the principal of intracompany loans made within a family of affiliated 
corporations.  We concluded it should not.  (Clinton Merchandising, at p. 681.)  
That decision is of little help.  We treated repayment of corporate loans between 
affiliates as the functional equivalent of a principal reimbursing its agent for 
monies advanced by the agent.  Thus, we held that money collected or paid out by 
an agent on behalf of its principal did not constitute gross receipts.  (Id. at p. 682.)  
Here, we are presented not with intracompany loans between Microsoft affiliates, 
but receipts from investments made with third parties. 
In County of Sacramento v. Pacific Gas & Electric Co., supra, 193 
Cal.App.3d at pages 309-312, the Court of Appeal addressed whether a franchise 
fee assessed against gross receipts should apply to the intracompany use of gas 
and electricity and concluded it should not because nothing was received.  Like 
Clinton Merchandising, County of Sacramento involved intracompany 
transactions in which nothing was received from outside the taxed entity.  It sheds 
no light on the proper understanding of gross receipts in the context of payments 
received from outside Microsoft. 
Finally, the Board asks us to follow out-of-state decisions concluding that 
gross receipts under the UDITPA apply only to the net difference between sale or 
redemption price on the one hand, and purchase price on the other.  However, we 
find a split of authority.  While many courts have adopted the Board’s position,11 
                                              
11  
See Walgreen Ariz. Drug Co. v. Ariz. Dept. of Revenue (Ariz.Ct.App. 2004) 
97 P.3d 896, 899-902; Sherwin-Williams Co. v. Ind. Dept. of State Revenue 
(Ind.Tax 1996) 673 N.E.2d 849, 851-853; American Telephone & Telegraph Co. 
 
(footnote continued on next page) 
 14
others have adopted Microsoft’s.12  On balance, we find the latter cases better 
reasoned than the former.  The progenitor of the former line of cases, AT&T, 
supra, 476 A.2d 800, rests its holding on the notion that interpreting New Jersey’s 
receipts factor to include all receipts from short-term securities investments would 
produce “absurd results.”  (Id. at p. 802.)  The cases following AT&T reason 
similarly.  (See Walgreen Ariz. Drug Co. v. Ariz. Dept. of Revenue, supra, 97 P.3d 
at pp. 899-900; Sherwin-Williams Co. v. Ind. Dept. of State Revenue, supra, 673 
N.E.2d at p. 852.)  There are two problems with these “absurd results” cases.  
First, they do violence to the language of the statutes they interpret.  In each case, 
the same language governs both sales of off-the-shelf products and sales of 
securities.  AT&T and its progeny offer no explanation why in one instance that 
language should require inclusion of gross proceeds and in the other require 
inclusion of only net proceeds.  Second, they overlook the fact no absurd result is 
required.  As the Tennessee Court of Appeals has explained:  “With deference to 
sister jurisdictions, this court is reluctant to apply the same ‘absurd result 
standard.’  An absurd result is not necessary for, in spite of the plain language of 
[the sales factor statute], the commissioner may opt for a different scheme of 
assessment whenever the resulting apportionment does not fairly represent the 
taxpayer’s business in this state.”  (Sherwin-Williams Co. v. Johnson, supra, 989 
                                                                                                                                                              
(footnote continued from previous page) 
v. Director, Div. of Taxation (N.J.Super.Ct.App.Div. 1984) 476 A.2d 800, 802-
803 (AT&T). 
12  
See American Telephone & Telegraph Co. v. State Tax Appeal Bd. (Mont. 
1990) 787 P.2d 754, 757-759; Sherwin-Williams Co. v. Dept. of Revenue (Or. 
2000) 996 P.2d 500, 501; Sherwin-Williams Co. v. Johnson (Tenn.Ct.App. 1998) 
989 S.W.2d 710, 712-715; United States Steel Corp. v. Wis. Dept. of Revenue 
(Wis.Tax Appeals Com. 1985) 1985 Wis. Tax LEXIS 89, *23-*24. 
 15
S.W.2d at p. 715.)  The UDITPA contains an equitable relief provision so that, in 
cases where application of the statutory sales definition results in excessive 
distortion, an “absurd result” may be avoided.  (See § 25137.) 
Nor do we find a legislative consensus over whether in a redemption of 
securities the full or net price constitutes gross receipts.  Some states retain the 
same partially ambiguous language as California.13  Other states expressly 
acknowledge that redemptions generate gross receipts, then exclude them by 
statute.14  Still other states define gross receipts in a way that expressly includes 
only the net gain from redemptions or excludes them entirely.15  The lack of 
consensus is even clearer when we consider that some of the foregoing statutes 
have been amended since 1991, the tax year at issue here.  During that year, 
certainly no legislative consensus obtained as to the treatment of redemptions. 
This legislative and judicial division of opinion offers no persuasive reason 
to reject the interpretation of gross receipts most naturally suggested by the text of 
the statute, the economic reality of sales and redemptions, and agency 
                                              
13  
E.g., Idaho Code section 63-3027, subdivision (a)(5); Kentucky Revised 
Statutes Annotated section 141.120, subdivision (1)(g); Montana Code Annotated 
section 15-31-302, subdivision (5); New Mexico Statutes Annotated section 7-4-2, 
subdivision (F); North Dakota Century Code section 57-38.1-01, subdivision (6); 
Utah Code Annotated section 59-7-302, subdivision (5). 
14  
E.g., Florida Statutes Annotated section 220.15, subdivision (5)(a); 
Massachusetts General Laws, chapter 63, section 38, subdivision (f); Oregon 
Revised Statutes section 314.665, subdivision (6)(a); 72 Pennsylvania Statutes 
section 7401, subdivision (3)2(a)(1)(E). 
15  
E.g., Colorado Revised Statutes section 39-22-303, subdivision (4)(b); 
Connecticut General Statutes section 12-218, subdivision (c)(2)(C)(3); North 
Carolina General Statutes section 105-130.4, subdivision (a)(7)(d); Rhode Island 
General Laws section 44-11-14, subdivision (a)(2)(v); Wisconsin Statutes section 
71.04, subdivision 7(f)(5). 
 16
interpretation.  In any event, there is another way to achieve uniformity, as we 
discuss in part II, post. 
II.   Section 25137:  Fair Representation of Microsoft’s Business Activity 
 
A.   The scope of section 25137 
Our conclusion that the full redemption price constitutes gross receipts does 
not end matters.  The UDITPA includes a relief provision for dealing with any 
unreasonable calculations rote application of the three-factor formula may yield.  
Section 25137 provides:  “If the allocation and apportionment provisions of this 
act do not fairly represent the extent of the taxpayer’s business activity in this 
state, the taxpayer may petition for or the Franchise Tax Board may require, in 
respect to all or any part of the taxpayer’s business activity, if reasonable:  
[¶] (a) Separate accounting; [¶] (b) The exclusion of any one or more of the 
factors; [¶] (c) The inclusion of one or more additional factors which will fairly 
represent the taxpayer’s business activity in this state; or [¶] (d) The employment 
of any other method to effectuate an equitable allocation and apportionment of the 
taxpayer’s income.”  Here, the Board argues that inclusion of the full price does 
not fairly represent the extent of Microsoft’s business activity in California.  As 
the party invoking section 25137, the Board has the burden of proving by clear 
and convincing evidence that (1) the approximation provided by the standard 
formula is not a fair representation, and (2) its proposed alternative is reasonable.  
(See § 25137; Colgate-Palmolive Co. v. Franchise Tax Bd. (1992) 10 Cal.App.4th 
1768, 1786; In the Matter of the Appeal of Crisa Corp. (June 20, 2002) [2000-
2003 Transfer Binder] Cal.Tax Rptr. (CCH) ¶ 403-295, pp. 30,352, 30,358 (Crisa 
Corp.).)16  We agree with the Court of Appeal that the Board has done so. 
                                              
16  
Both Microsoft and amicus curiae General Motors Corporation erroneously 
suggest the Board must show “ ‘the income attributed to that State is in fact “out 
 
(footnote continued on next page) 
 17
In language we find persuasive, the SBE has interpreted section 25137 to 
allow correction of distortions arising from the operation of a large corporate 
treasury department.  In Pacific Telephone & Telegraph, supra, Cal.Tax Rptr. 
(CCH) ¶ 205-858, page 14,907-36, as here, the taxpayer corporate group 
maintained an out-of-state treasury department that invested in short-term 
securities.  These investments produced less than 2 percent of the company’s 
business income, but 36 percent of its gross receipts.17  The SBE described the 
sales factor as intended to “reflect the markets for the taxpayer’s goods or 
services” and asked whether inclusion of all investment receipts would serve that 
function.  (Id. at p. 14,907-43.)  It answered in the negative:  “The inclusion of this 
enormous volume of investment receipts substantially overloads the sales factor in 
favor of New York, and thereby inadequately reflects the contributions made by 
all other states, including California, which supply the markets for the . . . services 
provided by [taxpayer].  Moreover, we are unable to accept, even for a moment, 
the notion that more than 11 percent of [taxpayer’s] entire unitary business 
activities should be attributed to any single state solely because it is the center of 
working capital investment activities that are clearly only an incidental part of one 
                                                                                                                                                              
(footnote continued from previous page) 
of all appropriate proportions to the business transacted . . . in that State,” 
[citation], or has “led to a grossly distorted result,” [citation].’ ”  (Container Corp., 
supra, 463 U.S. at p. 170.)  This is the constitutional standard for striking down a 
tax under the due process and commerce clauses.  However, section 25137’s 
application is not confined to correcting unconstitutional distortions.  (See 
Twentieth Century-Fox Film Corp. v. Department of Revenue (Or. 1985) 700 P.2d 
1035, 1039-1040 [interpreting identical UDITPA relief provision].)  The Board 
need only satisfy the lesser statutory standard quoted in the text. 
17  
By comparison, the distortional impact is even greater here; Microsoft’s 
short-term investments produced less than 2 percent of the company’s income, but 
73 percent of its gross receipts. 
 18
of America’s largest, and most widespread, businesses.  We conclude, therefore, 
that UDITPA’s normal provisions ‘do not fairly represent the extent of the 
taxpayer’s business activity in this state,’ and that [the Board] is authorized, under 
section 25137, to require a deviation from the normal rules.”  (Ibid.)  If one 
substitutes “Washington” for “New York” and “24 percent” for “11 percent,” 
these words are equally applicable to this case. 
More recently, in Crisa Corp., supra, Cal.Tax Rptr. (CCH) ¶ 403-295, page 
30,352, the SBE reiterated that operation of a large treasury department unrelated 
to a taxpayer’s main business is a paradigmatic example of circumstances 
warranting invocation of section 25137.  It included in a nonexclusive list of such 
circumstances that “[o]ne or more of the standard factors is biased by a substantial 
activity that is not related to the taxpayer’s main line of business.  For example, 
the taxpayer continuously reinvests a large pool of ‘working capital,’ generating 
large receipts that are allocated to the site of the investment activity.  However, the 
investments are unrelated to the services provided by the taxpayer as its primary 
business.”  (Id. at p. 30,360.) 
In contrast, in Merrill Lynch, supra, Cal.Tax Rptr. (CCH) ¶ 401-740, page 
25,549, the SBE rejected application of section 25137.  The taxpayer bought and 
sold securities as its principal business, both as an agent/broker (throughout the 
country) and as a principal/underwriter (primarily in New York), and included the 
underlying cost of the securities in its gross receipts.  (Id. at p. 25,551.)  The Board 
objected to inclusion of full gross receipts for securities bought as a 
principal/underwriter, but the SBE rejected that argument.  The taxpayer’s sale of 
securities on its own account was not qualitatively different from its main 
business, and the resulting quantitative difference between the standard formula 
and the Board’s proposed formula was on the order of 23 to 36 percent.  (Id. at 
p. 25,554.)  This case is analogous to Pacific Telephone & Telegraph, supra, 
 19
Cal.Tax Rptr. (CCH) ¶ 205-858, page 14,907-36, not Merrill Lynch; here, 
Microsoft’s treasury functions are qualitatively different from its principal 
business, and the quantitative distortion from inclusion of its investment receipts is 
substantial. 
A salutary effect of the conclusion that section 25137 applies here is that it 
achieves uniformity, a central goal of the UDITPA.  (See Hoechst, supra, 25 
Cal.4th at p. 526; § 25138 [UDITPA “shall be so construed as to effectuate its 
general purpose to make uniform the law of those states which enact it”]; Keesling 
& Warren, California’s Uniform Division of Income for Tax Purposes Act, Part I 
(1968) 15 UCLA L.Rev. 156, 156.)  While there is a nationwide split over whether 
the return of investment capital is included in gross receipts, those states that do 
include it and have addressed the further application of UDITPA’s relief provision 
uniformly allow use of that provision to ameliorate resulting distortions.18 
In Sherwin-Williams Co. v. Johnson, supra, 989 S.W.2d 710, the taxpayer’s 
Ohio treasury department generated short-term investment receipts that exceeded 
the gross receipts from its principal paint business.  The court concluded that, 
though under the plain language of the UDITPA, as adopted by Tennessee, these 
investment receipts were gross receipts, UDITPA’s relief provision allowed the 
State of Tennessee to exclude the return of capital from investment receipts in 
order to cure distortion and fairly represent the taxpayer’s activities in and out of 
                                              
18  
Amicus curiae the Multistate Tax Commission, an administrative agency 
charged with promoting uniform state income tax laws, argues that the 
overwhelming majority of states exclude from gross receipts the return of capital 
from short-term investment receipts, but do so in different ways, some by 
excluding it from the definition of gross receipts, others by concluding that 
inclusion can be distortive, and urges us to adopt either approach to achieve 
uniformity.  We adopt the latter approach. 
 20
state.  (Id. at pp. 715-716; Tenn. Code. Ann. § 67-4-812, subd. (a) [parallel 
provision to Cal. Rev. & Tax. Code, § 25137].) 
Similarly, in American Telephone & Telegraph Co. v. State Tax Appeal 
Bd., supra, 787 P.2d 754, the Montana Supreme Court upheld application of 
UDITPA’s relief provision to short-term investment receipts generated by the 
taxpayer’s New York treasury department.  Though these receipts fell within the 
statutory definition of “sales” as “all gross receipts,” their inclusion would skew 
the results of the standard formula and underallocate income to states outside New 
York.  Consequently, application of the relief provision was appropriate.  (Id. at 
pp. 757-759; see Mont. Code Ann. § 15-31-312 [parallel provision to Cal. Rev. & 
Tax. Code, § 25137].) 
The SBE and these sister-state courts implicitly recognize that the problem 
arising from inclusion of the full sale or redemption price of a short-term security 
is not that the full price is not gross receipts.  Rather, the problem is one of scale:  
short-term securities investments involve margins (i.e., differences between cost 
and sale price) that may be several orders of magnitude different than those for 
other commodities.  When a short-term marketable security is sold or redeemed, 
the margin will often be, in absolute terms, quite small (though of course the 
annualized returns may well be perfectly respectable).  Microsoft’s treasury 
activities provide a perfect illustration.  Its 1991 redemptions totaled $5.7 billion, 
while its income from those investments totaled only $10.7 million—a less than 
0.2 percent margin.  In contrast, its nontreasury activities produced income of 
$659 million and gross receipts of $2.1 billion, for a margin of more than 31 
percent, roughly 170 times greater. 
This situation, when one mixes apples—the receipts of low-margin sales—
with oranges—those of much higher margin sales―presents a problem for the 
UDITPA.  The UDITPA’s sales factor contains an implicit assumption that a 
 21
corporation’s margins will not vary inordinately from state to state.  This can be 
seen by examining the statutory formula.  Recall the general formula: 
  CA Property 
  CA Payroll 
  CA Sales 
Total Property 
+ 
Total Payroll 
+ 
Total Sales 
3 
 x Total Income 
= 
Taxable Income 
(Ante, fn. 5; former § 25128, added by Stats. 1966, ch. 2, § 7, p. 179, repealed by 
Stats. 1993, ch. 946, § 1, p. 5441.)  Setting the payroll and property factors to zero 
in order to focus on the role of the sales factor gives the following: 
1 
  CA Sales 
3 
x 
Total Sales 
 x 
Total Income 
= 
Taxable Income 
which is the same as 
1 
  Total Income 
3 
x 
Total Sales 
 x 
CA Sales 
= 
Taxable Income 
Because (Total Income/Total Sales) is essentially a company’s average worldwide 
margin, this formula in effect estimates the income attributable to a state by 
multiplying the average worldwide margin by the in-state receipts to approximate 
the in-state income. 
This approximation works well enough in the absence of huge variations in 
state-to-state margins.  It also provides a necessary antidote to strictly geographic 
accounting that may overlook the interdependence of operations across state lines 
or be susceptible to manipulation.  However, modern corporate treasury 
departments whose operations are qualitatively different from the rest of a 
corporation’s business and whose typical margins may be quantitatively several 
orders of magnitude different from the rest of a corporation’s business pose a 
problem.  Under the UDITPA, the operations and gross receipts of a treasury 
department are properly attributed to the state where the department operates—
here, Washington.  (See § 25136.)  The nature of these operations means that 
 22
Microsoft’s true margin for its Washington operations will be much, much lower 
than the worldwide average, and its margin for every other state will be much 
higher than the worldwide average.19  Thus, rotely applying the worldwide 
average margin (Total Income/Total Sales) to each state’s gross receipts would 
result in severely underestimating the amount of income attributable to every state 
except the state hosting the treasury department, for which state the income would 
be correspondingly severely overestimated.  In such circumstances, rote 
application of the standard formula does not fairly represent the extent of a 
taxpayer’s activity in each state, except in the rare instance when corresponding 
imprecision in the payroll and property factors may happen to balance out this 
distortion.20 
Microsoft argues that comparison of the income and receipts from its short-
term investments in marketable securities against those from the rest of its 
                                              
19  
As noted above, Microsoft’s 1991 margin for its Washington treasury 
operations was 0.2 percent, and its margin for its nontreasury operations was more 
than 31 percent, roughly 170 times greater.  Its average worldwide margin 
(including both elements) was 8.6 percent ($670 million/$7.8 billion). 
20  
In an article written shortly after California adopted the UDITPA, John S. 
Warren, California’s representative to the National Conference of Commissioners 
on Uniform State Laws, which approved the UDITPA, recognized precisely this 
problem with the sales factor.  He posited a scenario in which a company has 
$1 million in income that, under ordinary application of the three-factor formula, 
would be split equally between two states, X and Y.  It sells a building in state X 
for $1 million, but the sale generates no income.  Inclusion of the $1 million in 
receipts is technically required by UDITPA’s explicit definition of sales and will 
greatly increase attribution of income to state X, even though the sale has had little 
or no effect on the company’s actual income.  In this scenario, Warren and co-
author Frank Keesling acknowledged, strict application of the section 25120, 
subdivision (e) sales definition distorts the proper attribution of income.  (Keesling 
& Warren, California’s Uniform Division of Income for Tax Purposes Act, Part II 
(1968) 15 UCLA L.Rev. 655, 669-670 (hereafter Keesling & Warren II).) 
 23
business activities is a separate accounting analysis foreclosed by our and the 
United States Supreme Court’s previous decisions.  We disagree.  The analysis 
suffers neither of the vices we and the United States Supreme Court have 
condemned; it involves neither a separate jurisdiction-by-jurisdiction accounting 
that overlooks the interdependence of operations in different jurisdictions 
(Container Corp., supra, 463 U.S. at p. 181; John Deere Plow Co. v. Franchise 
Tax Bd. (1951) 38 Cal.2d 214, 225-227) nor a separate entity-by-entity accounting 
that ignores the interdependence (and non-arms’-length dealing) between members 
of the unitary group (Butler Bros. v. McColgan (1942) 315 U.S. 501, 507-508; 
Edison California Stores, Inc. v. McColgan, supra, 30 Cal.2d at pp. 479-483).  
Rather, the analysis simply underscores the qualitative recognition that the 
different nature of short-term investments means that mixing short-term gross 
receipts with gross receipts from other types of business activity involves an 
apples-to-oranges comparison that may require correction. 
Microsoft further argues that Revenue and Taxation Code section 25137 
can apply only to unique, nonrecurring situations.  (See Regs., § 25137, subd. (a) 
[“[Revenue and Taxation Code s]ection 25137 may be invoked only in specific 
cases where unusual fact situations (which ordinarily will be unique and 
nonrecurring) produce incongruous results under the apportionment and allocation 
provisions”].)  The frequency with which the issue of large corporate treasury 
department receipts arises, it contends, renders the issue nonunique and 
disqualifies this situation from treatment under Revenue and Taxation Code 
section 25137.  Again, we disagree.  Systematic oversights and undersights are 
equally a matter of statutory concern.  Nothing in the language of Regulation 
section 25137 persuades us otherwise.  While Revenue and Taxation Code section 
25137 “ordinarily” applies to nonrecurring situations, it does not apply only to 
such situations; the statutory touchstone remains an inquiry into whether the 
 24
formula “fairly represent[s]” a unitary business’s activities in a given state, and 
when it does not, the relief provision may apply.  (See Crisa Corp., supra, Cal.Tax 
Rptr. (CCH) ¶ 403-295, at pp. 30,358-30,360; Pacific Telephone & Telegraph, 
supra, Cal.Tax Rptr. (CCH) ¶ 205-858, p. 14,907-36; Union Pacific Corp. v. 
Idaho State Tax Com. (Idaho 2004) 83 P.3d 116, 120-121 [applying relief 
provision to recurring situation, sales of accounts receivables].)21 
Moreover, as the Board correctly notes, declining to apply UDITPA’s relief 
provision to this type of situation would create a significant loophole exploitable 
through subtle changes in investment strategy.  By shifting investments to shorter 
and shorter maturities, a unitary group could reduce its state tax liability to near 
zero, particularly if it placed its treasury department in a state that statutorily 
excluded the return of investment capital from gross receipts. 
 
B.   Application 
The stipulated evidence establishes that mixing the gross receipts from 
Microsoft’s short-term investments with the gross receipts from its other business 
activity seriously distorts the standard formula’s attribution of income to each 
state.  These transactions generated minimal income (just under 2 percent of 
                                              
21  
Commentators share this view.  Professor William J. Pierce, the original 
drafter of the UDITPA, viewed the sale of intangibles as a problem area and 
acknowledged, “[T]here are many unusual fact situations connected with this type 
of income and probably the general provisions of [UDITPA] Section 18 [the relief 
provision, codified in section 25137] should be utilized for these cases.”  (Pierce, 
The Uniform Division of Income for State Tax Purposes (1957) 35 Taxes 747, 
780.)  More generally, he saw section 18 of the UDITPA as necessary to deal with 
potentially unconstitutional results, but also as a provision that gave “both the tax 
collection agency and the taxpayer some latitude for showing that for the 
particular business activity, some more equitable method of allocation and 
apportionment could be achieved.”  (Pierce, at p. 781; see also Keesling & Warren 
II, supra, 15 UCLA L.Rev. at p. 675 & fn. 81.) 
 25
Microsoft’s business income for 1991) but enormous receipts (approximately 
73 percent of gross receipts for 1991).  Their inclusion in the standard formula 
would result in reducing roughly by half the estimated income attributed to 
California, and likely every state other than Washington, depending on property 
and payroll factors.  The distortion the Board has shown here is of both a type and 
size properly addressed through invocation of section 25137; application of the 
standard formula does not fairly represent the extent of Microsoft’s business in 
California.  Like the Court of Appeal, we hold the trial court’s contrary conclusion 
was not supported by substantial evidence.22 
This leaves only the question whether the Board’s proffered alternative is a 
reasonable one.  The Board proposes to include in the denominator of the sales 
factor only the net receipts from Microsoft’s redemptions.  Because the net 
receipts are so small in comparison with Microsoft’s nontreasury income and 
receipts, the inclusion of net receipts here is reasonable.  If the Board’s proposal is 
reasonable, we are not empowered to substitute our own formula.  (See § 25137; 
McDonnell Douglas Corp. v. Franchise Tax Bd. (1968) 69 Cal.2d 506, 514-515.)  
We caution, however, that in other cases the Board’s approach may go too far in 
the opposite direction and fail the test of reasonableness.  By mixing net receipts 
                                              
22  
Microsoft argues any distortion resulting from inclusion of redemption 
gross receipts is partially counterbalanced by a distortion resulting from the failure 
of the standard formula to include intangible property in the property factor.  
However, Microsoft conceded at trial it was not challenging the Legislature’s (and 
UDITPA’s) decision to disregard intangible property when estimating business 
activity in each state (see § 25129) and, even if we were to assume the omission of 
intangible property could be a relevant offset, Microsoft failed to establish the 
extent of any resultant distortion.  The Board had to establish a source of 
distortion; having done so, it did not have to disprove the existence of every other 
conceivable source of distortion. 
 26
for a particular set of out-of-state transactions with gross receipts for all other 
transactions, it minimizes the contribution of those out-of-state transactions to the 
taxpayer’s income and exaggerates the resulting California tax.23  If, unlike here, 
treasury operations provide a substantial portion of a taxpayer’s income, this 
exaggeration may result in an apportionment that does not fairly represent 
California business activity. 
In closing, we note the Court of Appeal’s argument that policy reasons 
favor systematic exclusion of the return of capital from investment redemptions, 
rather than a requirement that the Board document distortions resulting from 
application of the standard formula on a case-by-case basis.  Absent a global 
redefinition of gross receipts to exclude such returns, smaller distortions 
insufficient to trigger a reappraisal under section 25137 may slip through the 
cracks, resulting in underestimation of the tax owed California.  This concern may 
well be valid.  Recognizing this problem, numerous other state legislatures have 
amended their respective income apportionment statutes to expressly exclude 
investment returns of capital from the definition of gross receipts.24  Amicus 
curiae the Multistate Tax Commission has proposed model regulations to likewise 
                                              
23  
Consider two sales:  a sale for $10 that yields $1 in income in state X, and a 
sale for $10,000 that yields $1 in income in state Y.  If one includes gross receipts 
from both sales, one concludes that state Y’s contribution to sales is 1,000 times 
greater than state X’s.  On the other hand, if one corrects for this by including only 
the net receipts from the second sale—the $1—one concludes that state X’s 
contribution to sales is 10 times greater than state Y’s contribution.  The truth 
doubtless lies somewhere in between. 
24  
E.g., Florida Statutes Annotated, section 220.15, subdivision (5)(a); 
Massachusetts General Laws, chapter 63, section 38, subdivision (f); Oregon 
Revised Statutes, section 314.665, subdivision (6)(a); 72 Pennsylvania Statutes, 
section 7401, subdivision (3)2(a)(1)(E); Wisconsin Statutes, section 71.04, 
subdivision 7(f)(5). 
 27
exclude investment returns of capital from gross receipts.25  The Legislature is free 
to follow these leads.26  In the absence of legislative action, however, we are not 
free judicially to amend the UDITPA to achieve this result. 
DISPOSITION 
For the foregoing reasons, we affirm the judgment of the Court of Appeal. 
 
 
 
 
 
 
WERDEGAR, J. 
WE CONCUR: 
GEORGE. C. J. 
KENNARD, J. 
BAXTER, J. 
MORENO, J. 
HUFFMAN, J.∗ 
                                              
25  
Multistate Tax Com., Model Regulations, regulations IV.2(a)(5) (excluding 
return of capital from investment redemption receipts), IV.18(c)(4) (excluding 
return of capital from investment sale receipts). 
26  
Indeed, legislation has been introduced that would prospectively change the 
treatment of investment returns of capital under the UDITPA.  (See Assem. Bill 
No. 1037 (2005-2006 Reg. Sess.) as amended Aug. 7, 2006, § 1.) 
 28
HULL, J.∗∗ 
 
 
                                                                                                                                                              
(footnote continued from previous page) 
∗  
Honorable Richard D. Huffman, Associate Justice, Court of Appeal, Fourth 
Appellate District, Division One, assigned by the Chief Justice pursuant to article 
VI, section 6 of the California Constitution. 
∗∗  
Honorable Harry E. Hull, Jr., Associate Justice, Court of Appeal, Third 
Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of 
the California Consitution.  
 
 
See next page for addresses and telephone numbers for counsel who argued in Supreme Court. 
 
Name of Opinion Microsoft Corporation v. Franchise Tax Board 
__________________________________________________________________________________ 
 
Unpublished Opinion XXX NP opn. filed 2/28/05 – 1st Dist., Div. 3 
Original Appeal 
Original Proceeding 
Review Granted 
Rehearing Granted 
 
__________________________________________________________________________________ 
 
Opinion No. S133343 
Date Filed: August 17, 2006 
__________________________________________________________________________________ 
 
Court: Superior 
County: San Francisco 
Judge: Donald S. Mitchell 
 
__________________________________________________________________________________ 
 
Attorneys for Appellant: 
 
Bill Lockyer, Attorney General, Randall P. Borcherding and Julian O. Standen, Deputy Attorneys General, 
for Defendant and Appellant. 
 
Frank Katz and Shirley Sicilian for Multistate Tax Commission as Amicus Curiae on behalf of Defendant 
and Appellant. 
 
 
__________________________________________________________________________________ 
 
Attorneys for Respondent: 
 
Michael P. Boyle, Michael J. Bernard, Kurt A. Lamp; Baker & McKenzie, J. Pat Powers; Preston Gates & 
Ellis, Reed Smith, James P. Kleier, Brian W. Toman, Charles R. Zubryzcki and John R. Messenger for 
Plaintiff and Respondent. 
 
Ajalat, Polley & Ayoob, Charles R. Ajalat and Christopher J. Matarese for General Motors Corporation as 
Amicus Curiae on behalf of Plaintiff and Respondent. 
 
 
 
 
 
 
 
 
Counsel who argued in Supreme Court (not intended for publication with opinion): 
 
Julian O. Standen 
Deputy Attorney General 
455 Golden gate Avenue, Suite 11000 
San Francisco, CA  94102-7004 
(415) 703-5535 
 
James P. Kleier 
Reed Smith 
Two embarcadero Center, Suite 2000 
San Francisco, CA  94111-3922 
(415) 543-8700