First, the Court held that the FTB erred in concluding that the taxpayer did not qualify as an agricultural business under California Revenue and Taxation Code section 25128.  As a result of this finding, the taxpayer was entitled to apply the three-factor apportionment formula, which considers property, payroll, and sales, rather than being limited to the single-sales factor method.

Second, the Court held that the taxpayer successfully demonstrated that the application of the single-sales factor apportionment formula did not fairly represent the extent of its business activities in California.  Therefore, the taxpayer was permitted to use the three-factor apportionment formula for this reason as well.

Section 25128 requires businesses that derive more than 50 percent of their gross receipts from “agricultural business activity” to use a three‑factor formula consisting of property, payroll, and sales, rather than a formula based entirely on sales.

Smithfield argued that more than 50 percent of its gross receipts were derived from agricultural business activity because its core business involves raising and harvesting hogs.  It contended that Section 25128 focuses on business activities, e.g., the raising and harvesting of hogs, not on the character of the final product sold, e.g., bacon.  Downstream processing, the taxpayer argued, does not change the agricultural nature of the underlying activity generating the receipts.  In the alternative, even if it did not qualify as an agricultural business, Smithfield argued that the single-sales factor materially overstated its California business activity and alternative apportionment, in the form of a three-factor formula, was warranted to cure distortion.

The FTB defended its assessment by recasting Section 25128 as a product-based test and insisting that the taxpayer’s receipts were predominantly from sales of processed foods such as bacon, sausage, and other products, rather than “agricultural business activity.”  Relying on California Code of Regulations (“Regulation”) 25128-2, the FTB argued that once an agricultural product has been “processed,” the resulting receipts from that product are categorically treated as non-agricultural, even if the taxpayer raised and harvested the animals itself.

The Court rejected the FTB’s substantive arguments.  The Court held the statute governing agricultural businesses focuses on what the taxpayer does, not on whether the final product is processed.  Based on expert evidence presented at trial, the Court held that more than 50 percent of the taxpayer’s gross receipts were derived from agricultural business activity and therefore it was required to use the three-factor formula based on property, payroll, and sales.  In doing so, the Court held Regulation 25128-2 was invalid because it narrowed the scope of the statute by focusing on the taxpayer’s products, whereas the statute looked to the taxpayer’s activities.

The Court further held that even if the taxpayer did not qualify as an agricultural business, the standard single-sales factor formula did not fairly represent the taxpayer’s California business activity.  Only 1.02 percent of the taxpayer’s income-generating activities occurred in California, yet the sales factor produced an apportionment percentage of over 6.6 percent (a disparity of more than 600 percent).  The Court held this mismatch justified using the three-factor formula, which better reflected where Smithfield’s business operations actually took place.

The Court also rejected the FTB’s procedural defenses, which argued the taxpayer failed to exhaust administrative remedies, failed to raise certain arguments during the administrative process, and should be limited to the evidentiary record developed at audit.  The Court held that California tax refund suits are tried de novo, meaning a court is not limited to the audit record.  A taxpayer need only state the statutory grounds for refund in its administrative refund claim and is not required to present all evidence or fully develop legal theories during audit.  The Court declined to fix the evidentiary record at the audit level, noting that such a rule would effectively convert audits into full trials.

Following the Court’s Proposed Statement of Decision, the FTB raised multiple objections regarding the Court’s use of an activity-based approach, its interpretation of Regulation 25128-2, its method for calculating the agricultural sales threshold and corresponding refund, as well as its treatment of procedural defenses related to the matter.  In response, the taxpayer characterized the FTB’s objections as improperly rearguing the merits of the case but expressed willingness to address any or all of the FTB’s objections.  On April 28, 2026, the Court overruled the FTB’s objections, agreeing with the taxpayer and concluding that the FTB’s arguments were “largely … improper attempts to reargue the matter and/or … an effort to force the Court to explain the reasons for its findings in a more granular way than is required.”

The Court then issued a clarified and refined Statement of Decision, dated April 28, 2026.  This decision added language making it clear that the FTB’s interpretation and application of Section 25128 “ignores the plain language of the statute” and that the evidence presented at trial proved that the FTB “was not open to an evaluation of the distortion issue to the extent it varied from the single sales factor analysis.”  The Court added that it had reviewed all FTB testimony, which confirmed the FTB understood the taxpayer’s arguments.  The Court also emphasized its decision was based not on a lack of evidence by the FTB, but on the taxpayer’s evidence being more persuasive.  Finally, the Court dismissed any assertion of unfair surprise, stating that any issues arising at trial that were new to the FTB resulted from its own failure to pursue available information in a timely manner, rather than from improper litigation tactics by the taxpayer.

Although it is not certain whether the FTB will choose to appeal, this case stands out as an uncommon instance in which a taxpayer demonstrated that the standard single-sales factor apportionment formula was distortive and that the three-factor formula offered a reasonable alternative.  In addition, the case illustrates a successful challenge to the validity of an FTB regulation on the grounds that it conflicted with the scope of the underlying statute.

The post California Trial Court Finalizes Ruling for Taxpayer in Smithfield Apportionment Dispute appeared first on SeeSALT Blog.

On May 6, Breann will present “Intangibles Update: Post-Olympic and Georgia Partners Decision” during the 2026 Spring Webinar.

Participants will enjoy an insightful discussion and earn up to seven hours of education credits for attending this virtual event.

For more information and to register, please visit the event page.

The post IAAO-LA 2026 Spring Webinar appeared first on SeeSALT Blog.

Zack will be presenting on a State & Local Taxation panel covering sales tax, income tax, and legislative developments.

Registration for the Wall Street Tax Association, in co-sponsorship with the Wall Street Tax Educational Corporation, is now open. The conference will be held in person on Wednesday, May 13, 2026, at the Marquis Marriott hotel, 1535 Broadway, New York.

For more information or to register, please visit the event page.

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The post New York Imposes Shareholder-Level Tax on Corporate Asset Sale appeared first on SeeSALT Blog.

Evan Hamme – The Evolving Landscape of SALT Litigation and Legislation – Key Issues and Insights
Tuesday, April 21
This opening session will provide a discussion of the significant issues and trends that are emerging from current SALT litigation and legislative matters. This session will cover all SALT tax types and will cue everyone in on the trends in this field.

Aruna Chittiappa – When One Size Doesn’t Fit All: The Limitations of the Single Sales Factor
Tuesday, April 21
The single sales factor apportionment method has become the rule not the exception. This method raises significant questions about fairness, distortion and unconstitutional consequences. The challenges increase when combined with the complexities of taxing foreign source income. This session will discuss how to address the limitations of the single sales factor method.

This Conference will feature presentations on the most recent income and sales tax developments, initiatives and case law updates, and include breakout sessions that will provide in-depth discussions of specific topics for maximum coverage of the hottest income and sales tax issues.

For more information and to register, please visit the event page.

The post 2026 COST Spring Conference appeared first on SeeSALT Blog.

The proposed constitutional amendment is intended to curtail local taxes by:

• Reinstating a two-thirds voter approval requirement for all local special taxes, including those placed on the ballot through the citizen initiative process. This is in response to court rulings that allowed citizen-initiated special taxes to pass with a simple majority following California Cannabis Coalition v. City of Upland.
• Restoring the traditional statewide cap on local real estate transfer taxes at $1.10 per $1,000 of property value and repealing local transfer taxes that exceed the cap within two years, including measures like Los Angeles’s Measure ULA.  If passed as written, the amendment would also prohibit charter cities from adopting transfer taxes above that cap.

Supporters argue the measure would restore taxpayer safeguards and voter control over local taxation, while opponents contend it would constrain local government revenues and significantly reduce local tax receipts annually.

The post California Groups File Signatures for Initiative to Curtail Local Taxes appeared first on SeeSALT Blog.

Jack and his fellow panelists will be speaking on the topic “The Invisible Customer: Navigating State Look-Through Sourcing.” TEI’s Midyear Conference, running from March 15-18, 2026, is the premier event for in-house tax professionals to stay ahead by addressing the policy, technology, and practical challenges shaping today’s corporate tax function.

For more information or to register, please visit the event page.

The post TEI’s 2026 Midyear Conference appeared first on SeeSALT Blog.

1. VVF Intervest: Rejection of the Continuous Delivery Theory

VVF contract-manufactured products in Kansas for its customer, High Ridge Brands (HRB). At its Kansas manufacturing facility, VVF loaded the finished products onto trucks, arranged by HRB, which were then transported to a third-party distribution center in Columbus, Ohio. The products were warehoused there until they were ordered by HRB’s national retailer customers. At that point, the products were transported by third-party carriers (again arranged by HRB) to the customers’ locations. Approximately 97% of the warehoused products were ultimately transported outside Ohio.

VVF argued that its receipts from sales of products to HRB that were ultimately transported outside Ohio should not be sitused to Ohio, because the Columbus distribution center was merely an interim stop in a continuous delivery process that ultimately ended outside the state. The Board of Tax Appeals agreed with VVF, concluding that Ohio was just one leg in a single transportation chain for purposes of Ohio Revised Code (R.C.) section 5751.033(E). This section provides in relevant part that (i) gross receipts from the sale of tangible personal property are sitused to Ohio if the property is received there by the purchaser, and (ii) when tangible personal property is delivered by motor carrier or other means of transportation, the place at which the property is ultimately received after all transportation has been completed is considered the place where the purchaser receives the property. To the Board, the receipts associated with products that were ultimately shipped from the warehouse to destinations outside Ohio could not be taxed by Ohio.

But the Board’s ruling proved to be only an interim stop in the dispute. On appeal, the Ohio Supreme Court rejected the “continuous delivery theory,” emphasizing that the statute focuses on where the purchaser receives the property from the seller, not on where the property ultimately ends up after subsequent resales by the purchaser. The court held that HRB, as the purchaser, received VVF’s products in Ohio when they arrived at the Columbus distribution center. What HRB did with the products afterward (i.e., reselling and shipping them to retailers outside Ohio), the court explained, was a separate transaction and inconsequential for purposes of situsing VVF’s receipts. Once HRB received the goods in Ohio and took control over storage and later shipments, Ohio became the situs of VVF’s receipts.

2. Jones Apparel Group/Nine West: No Contemporaneous Knowledge Requirement, but Proof Still Required

Only weeks later, the court addressed a different distribution-center scenario in Jones Apparel Group/Nine West Holdings v. Harris. Jones Apparel sold merchandise to DSW, which shipped all such merchandise to its distribution center in Columbus, Ohio, before redistributing it to its retail stores nationwide. Unlike in VVF Intervest, there was no intervening resale by the purchaser. On the basis of later-obtained evidence, Jones Apparel maintained that receipts attributable to sales of merchandise that DSW ultimately transported to its retail stores outside Ohio could not be sitused to Ohio under the CAT.

The case initially appeared to break in the taxpayer’s favor. The Ohio Supreme Court rejected the Tax Commissioner’s view that CAT situsing turns on the seller’s contemporaneous knowledge—at the time of the sale—of the goods’ ultimate destination. The Commissioner had seized upon Jones Apparel’s shipping labels and bills of lading reflecting delivery to Ohio, as well as the taxpayer’s apparent lack of awareness, at the time those documents were created, of whether the merchandise would later be delivered outside the state. Instead, the court held that the Commissioner’s argument “fail[ed] for a simple reason: The contemporaneous-knowledge requirement she claim[ed] to exist in R.C. 5751.033(E) is not there.” Accepting the Commissioner’s position, the court explained, would mean reading a requirement into the statute that the General Assembly did not enact.

But ultimately, the court affirmed the denial of the refund sought by Jones Apparel on evidentiary grounds. The court found that the company had failed to provide documentary evidence quantifying the amount of the refund it sought, i.e., the actual gross receipts attributable to merchandise ultimately received outside Ohio, as required by the refund procedures in R.C. 5751.08(A). The taxpayer’s proffered estimates, data sampled from a limited time period postdating the period at issue, and economic inferences were deemed insufficient.

3. Reading the Cases Together

VVF Intervest underscores that Ohio courts will apply a transaction-by-transaction approach to situsing sales of tangible personal property for CAT purposes, even where evidence shows that the property ultimately comes to rest outside Ohio. Jones Apparel Group/Nine West Holdings, in turn, makes clear that taxpayers seeking refunds on the basis of situsing receipts outside Ohio must precisely quantify such receipts with documentary evidence, rather than estimates, inferences, or limited data samplings. Taxpayers selling to companies that rely on Ohio distribution centers should therefore reassess their CAT exposure and their documentation practices.

The cases are VVF Intervest, L.L.C. v. Harris, Slip Op. No. 2025-Ohio-5680 (Dec. 24, 2025), available at https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2025/2025-Ohio-5680.pdf and Jones Apparel Group/Nine West Holdings v. Harris, Slip Op. No. 2026-Ohio-74 (Jan. 14, 2026), available at https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2026/2026-Ohio-74.pdf.

The post Not the CAT’s Meow: Ohio Supreme Court Reins in the Continuous Delivery Theory for Situsing Receipts appeared first on SeeSALT Blog.

Carley will be speaking on the topic “Factor Fiction: Navigating Denominator Dilemmas.” With many states shifting to a single sales factor to apportion taxable income, determining what is included in the sales factor has become a critical battleground for taxpayers. Among other things, changes by the TCJA (and OBBBA) have caused states to focus on the composition of the sales factor denominator. Recent court decisions and administrative guidance are constantly reshaping which receipts must be included in the “everywhere” denominator, significantly impacting a company’s overall state tax apportionment. This panel will discuss the latest developments, trends and controversies surrounding the sales factor denominator.

For more information or to register, please visit the event page.

The post 2026 ABA-IPT Advanced State Income Tax Seminar appeared first on SeeSALT Blog.

Lauren’s experience includes variety of state and local tax matters, including multistate litigation, planning, audit defense and controversy issues.

She joins Pillsbury’s New York office as an associate.

5 Questions with Lauren:

1. Who inspires you?

My family (and my friends that are like family) – I would not be where I am today without their support and words of wisdom along the way.

2. What drew you to the law?

I have always enjoyed research and writing as well as helping people. For me, law was the intersection of those interests.

3. What aspect of State and Local Tax law do you find most interesting?

I was actually an English major in college and have always had more of a “right sided” brain. In previous role at KPMG (my first role out of law school), I was introduced to the world of SALT for the first time by incredibly talented mentors who taught and encouraged me to use that side of by brain to think creatively and “outside the box” about SALT law and potential solutions for clients under those laws. I enjoy that the complexities of SALT law allow for that kind of creative thinking in addition to analytical thinking.

4. How do you re-center yourself?

Hanging out with friends and family, particularly down the Jersey Shore during the summer, where my family has had a house since I was born.

5. What is your go-to comfort food? Any interesting facts?

I played rugby in college.

The post Welcome to Pillsbury SALT, Lauren! appeared first on SeeSALT Blog.