Florida excludes from its sales factor gross revenue from hedging transactions, but includes certain net hedging revenue

July 2012


A taxpayer engaged in three types of hedging activities: (1) hedges on materials related to its inputs; (2) hedges related to the commodity it sells; and (3) hedges unrelated to items it purchases or sells. To determine whether such gross or net hedging revenue is included in the Florida sales factor, the Florida Department of Revenue in TAA 12C1-007 advances a standard measured by whether a "true" or "actual" sale exists.In reaching its conclusion, the Department reviewed a variety of factors, including: how the item was treated for accounting purposes, whether the taxpayer attributed gains or losses to a particular facility location, and whether the hedging transactions were related to the taxpayer's underlying business.

The ruling concludes that gross receipts from the three hedging transactions are excluded from the sales factor.Net receipts from input hedges and hedging unrelated commodities are also excluded. However, net receipts from hedging on commodities the taxpayer sells are considered "sales" and included in the sales factor because the taxpayer is engaged in the sale of the underlying commodity and the net receipts from output hedges are incorporated into the sale of the commodity.

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