Stanford Law School - Robert Crown Law Library

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.
1

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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.)
2

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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.
3

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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 x Total Income = Taxable Income
3
(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.)
4

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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.
5

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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
6

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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)
7

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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.
8

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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
9

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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.
10

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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.
11

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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
12

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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)
13

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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.
14

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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).
15

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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)
16

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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.
17

---

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,
18

---

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.
19

---

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
20

---

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 x Total Income = Taxable Income
3
(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
x
x Total Income = Taxable Income
3
Total Sales
which is the same as
1
Total Income
x
x CA Sales = Taxable Income
3
Total Sales
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
21

---

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).)
22

---

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
23

---

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.)
24

---

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.
25

---

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).
26

---

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.)
27

---

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.
28

---

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

---

Opinion Information

Date:	Docket Number:
Thu, 08/17/2006	S133343

Disposition
Aug 17 2006	Opinion: Affirmed

Dockets
Apr 26 2005	Note:   On 3-23-2005, the Court of Appeal ordered their Opinion Modified With Change in Judgment.
Apr 26 2005	Petition for review filed   by Respondent Microsoft Corporation
Apr 26 2005	Record requested
May 4 2005	Received Court of Appeal record   file jacket/briefs/accordian file/one box
May 13 2005	Answer to petition for review filed   by Appellant Franchise Tax Board
May 31 2005	Application for relief from default filed   by appellant (Microsoft) to file late reply to the answer to the petition for review. [Appellant attempted to file reply to answer on Friday, 5-27-05, without application for relief.]
Jun 1 2005	Reply to answer to petition filed   (with permission)
Jun 8 2005	Petition for review granted (civil case)   Chin and Brown, JJ., were recused and did not participate. Votes: George, C.J., Kennard, Baxter, Werdegar, and Moreno, JJ.
Jun 21 2005	Certification of interested entities or persons filed   by Respondent.
Jul 8 2005	Certification of interested entities or persons filed   by James P. Kleier of Reed Smith LLP, counsel for Respondent Microsoft Corporation.
Jul 8 2005	Request for extension of time filed   Microsoft Corp. (respondent) requesting to July 15, 2005 to file opening brief on the merits.
Jul 11 2005	Extension of time granted   On application of respondents and good cause appearing, it is ordered that the time to serve and file the answer brief on the merits is extended to and including September 28, 2005.
Jul 12 2005	Note:   Order filed July 11, 2005 is incorrect in it's entirety. Corrected order to be filed granting extension to July 15, 2005 to file the opening brief on the merits.
Jul 14 2005	Order filed   The order filed July 11, 2005 is hereby amended to read in its entirety: "On application of respondent and good cause appearing, it is ordered that the time to serve and file the opening brief on the merits is extended to and including July 15, 2005."
Jul 15 2005	Opening brief on the merits filed   by Respondent Microsoft Corporation
Jul 19 2005	Received:   Letter from Reed Smith dated 7-18-2005 to correct address of firm name and address of counsel of record for James P. Kleier to Reed Smith, Two Embarcadero Center, Suite 2000, San Francisco, CA 94111-3922 -- (415) 543-8700 / Fax (415) 391-8269
Aug 3 2005	Request for extension of time filed   to September 12, 2005, to file appellant's answer brief on the merits.
Aug 4 2005	Extension of time granted   On application of appellant and good cause appearing, it is ordered that the time to serve and file the answer brief on the merits is extended to and including September 12, 2005.
Sep 9 2005	Request for extension of time filed   to 9-27-2005 to file appellant's (FTB) Answer Brief on the Merits.
Sep 13 2005	Extension of time granted   On application of appellant and good cause appearing, it is ordered that the time to serve and file the answer brief on the merits is extended to and including September 27, 2005.
Sep 27 2005	Answer brief on the merits filed   By counsel for appellant {Franchise Tax Board}.
Oct 13 2005	Request for extension of time filed   to November 1, 2005, to file respondent's reply brief on the merits
Oct 14 2005	Extension of time granted   On application of respondent and good cause appearing, it is ordered that the time to serve and fle Respondent's Reply Brief on the Merits is extended to and including November 1, 2005.
Oct 27 2005	Request for extension of time filed   to November 15, 2005, to file respondent's reply brief on the merits.
Oct 28 2005	Extension of time granted   On application of respondent and good cause appearing, it is ordred that the time to serve and file the reply brief on the merits is hereby extended to and including November 15, 2005.
Nov 10 2005	Request for extension of time filed   By respondent requesting a 20-day extension to and including December 5, 2005 to file respondent's reply brief on the merits.
Nov 14 2005	Extension of time granted   On application of respondent and good cause appearing, it is ordered that the time to serve and file respondent's reply brief on teh merits is hereby extended to and including December 5, 2005.
Nov 30 2005	Request for extension of time filed   to December 12, 2005 (additional seven days) to file respondent's reply brief on the merits
Dec 1 2005	Extension of time granted   On application of respondent and good cause appearing, it is ordered that the time to serve and file Respondent's Reply Brief on the Merits is extended to and including December 12, 2005.
Dec 12 2005	Received:   Respondent's application to file oversized reply brief on the merits containing 7699 words, in excess of the 4200 word limit (CRC 29.1(c)(4), or 3,499 words over the word limit. Respondent's Reply Brief o the Merits received separately.
Dec 16 2005	Order filed   The application of respondent for permission to file reply brief on the merits containing 7,699 words, that exceeds the 4200 word limit prescribed by California Rules of Court rule 29.1(c)(1) by 3,499 words is hereby GRANTED.
Dec 16 2005	Reply brief filed (case fully briefed)   Respondent Microsoft Corporation
Jan 11 2006	Received application to file Amicus Curiae Brief   General Motors Corporation, Applicant in support of Respondent by Charles J. Ajalat, Counsel
Jan 13 2006	Permission to file amicus curiae brief granted   General Motors Corporation in support of respondent.
Jan 13 2006	Amicus curiae brief filed   General Motors Corporation in support of respondent. Answer is due within twenty days.
Jan 17 2006	Received application to file Amicus Curiae Brief   Multistate Tax Commission in support of appellant (brief separate)
Jan 17 2006	Application to appear as counsel pro hac vice filed   Shirley Klenda Sicilian of the State of Kansas [Kansas No. 12336] in association with Frank Katz, General Counsel, Amicus Curiae Multistate Tax Commission, 444 North Capitol Street, N.W., Suite 425, Washington, D.C. 2001-1538 (202) 624-8699
Jan 19 2006	Permission to file amicus curiae brief granted   The application of Multistate Tax Commission for permission to file an amicus curiae brief in support of appellant is hereby granted. An answer thereto may be served and filed by any party within twenty days of the filing of the brief.
Jan 19 2006	Amicus curiae brief filed   Multistate Tax Commission in support of appellant.
Jan 19 2006	Application to appear as counsel pro hac vice granted   The applicationo f Shirley Klenda Sicilian of the State of Kansas for admission to appear as counsel pro hac vice on behalf of Amicus Curiae Multistate Tax Commission is hereby granted. (See Cal. Rules of Court, rule 983.)
Jan 26 2006	Request for extension of time filed   to March 6, 2006 to file Appellant Franchise Tax Board's response to the Amicus Curiae Brief of General Motors Corporation
Jan 30 2006	Extension of time granted   On application of appellant and good cause appearing, it is ordered that the time to serve and file the Appellant Franchise Tax Board's Response to Amicus Curiae Brief of General Motors Corporation is hereby extended to and including March 6, 2006.
Feb 2 2006	Request for extension of time filed   to March 6, 2006 to file respondent's answer to the Amicus Curiae Brief of Multistate Tax Commission
Feb 7 2006	Extension of time granted   On application of respondent and good cause appearing, it is ordered that the time to serve and file respondent's answer to the amicus curiae brief of Multistate Tax Commission is hereby extended to and including March 6, 2006.
Mar 1 2006	Request for extension of time filed   Joint Application for an extension of time to and including March 20. 2006, to file responses to amici curiae briefs.
Mar 7 2006	Extension of time granted   On joint application of counsel for both parties and good cause appearing, it is ordered that the time to serve and file their responses to the amici curiae briefs of General Motors Corporation and the Multistate Tax Commission is extended to and including March 20, 2005. No further extensions of time will be granted.
Mar 20 2006	Response to amicus curiae brief filed   Franchise Tax Board, Appellant by Julian O. Standen, counsel
Mar 20 2006	Response to amicus curiae brief filed   Microsoft Corporation, Appellant. by James P. Kleier and J. Pat Powers, counsel
Mar 30 2006	Justice pro tempore assigned   Justice Richard D. Huffman (4th Appellate Dist., Div. 1) (Chin, J., recused) Justice Harry E. Hull, Jr. (3rd Appellate Dist.) (Corrigan, J., recused)
May 2 2006	Case ordered on calendar   June 2, 2006, at 9:00 a.m., in San Francisco
May 11 2006	Request for judicial notice granted   Appellant's
May 19 2006	Filed:   Supplemental brief addressing new authority Microsoft Corp., defendant and appellant Michael Boyle, J. Powers, James Kleier, counsel
Jun 2 2006	Cause argued and submitted
Aug 17 2006	Opinion filed: Judgment affirmed in full   Judgment of the Court of Appeal. Opinion by: Werdegar, J. -- Joined by George, C.J., Kennard, Baxter, Moreno, Huffman, J.*, Hull,J.** * Hon. Richard D. Huffman, Associate Justice, Court of Appeal, Fourth Appellate District, Division One, assigned. ** Hon. Harry E. Hull, Jr., Associate Justice, Court of Appeal, Third Appellate District, assigned.
Sep 1 2006	Rehearing petition filed   Franchise Tax Board, Appellant by Julian O. Standen, counsel
Sep 7 2006	Time extended to consider modification or rehearing   to and including November 15, 2006.
Sep 14 2006	Received:   Late (3 days) Respondent's Answer to Petition for Rehearing [Received application for relief from default]
Sep 15 2006	Application for relief from default filed
Sep 15 2006	Answer to rehearing petition filed   Respondent Microsoft Corporation [PERM]
Oct 25 2006	Rehearing denied   Chin and Corrigan, JJ., were recused and did not participate.
Oct 25 2006	Remittitur issued (civil case)
Dec 6 2006	Received:   Acknowledgment of receipt of remittitur from First District, Division 3, signed for by Jacqueline Alameda, Deputy Clerk.

Briefs
Jul 15 2005	Opening brief on the merits filed
Sep 27 2005	Answer brief on the merits filed
Dec 16 2005	Reply brief filed (case fully briefed)
Jan 13 2006	Amicus curiae brief filed
Jan 19 2006	Amicus curiae brief filed
Mar 20 2006	Response to amicus curiae brief filed
Mar 20 2006	Response to amicus curiae brief filed

If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website