Tax Insight

California trial court grants alternative apportionment relief from single-sales factor

Insight
5 minute read
March 03, 2026

What happened?

The California Superior Court for the County of Los Angeles issued a proposed statement of decision on February 26 granting a corporate income tax refund based on applying a three-factor formula of property, payroll, and sales, rather than the general statutory single-sales factor method.

[Smithfield Packaged Meats Corp. v. California Franchise Tax Bd., Cal. Superior Ct., Los Angeles County, No. 21STCV39637, 2/26/2026]

Why is it relevant?

While the court found that the taxpayer was eligible for three-factor apportionment as an “agricultural business,” it also found that the taxpayer “presented substantial evidence at trial demonstrating that the single sales factor produces a distortive and unfair result.” This result is based on the alternative apportionment statutory language found in many state statutes. Therefore, this decision potentially could have broad applicability to taxpayers seeking alternative apportionment because the prevailing single-sales factor formula – both the standard formula in California and in many other states – does not fairly represent the extent of their in-state business activities.

Actions to consider

Taxpayers that generate income through substantial investment in property and payroll in concentrated locations, such as manufacturing facilities, should consider whether state single-sales factor formulas fairly represent the extent of their business activities in the state. This decision stands for the proposition that apportioning income based on sales alone may be distortive, and that the standard Uniform Division of Income for Tax Purposes Act (UDITPA) formula could provide a reasonable alternative.