State Tax Day - Current, S.2, California—Corporate Income Tax: Pesticide Manufacturer Could Not Use Apportionment Formula for Agricultural Businesses, (Sep 11, 2026)

An Arizona-based pesticide design, development, and manufacturing company that earned income in multiple states did not derive more than 50% of its gross business receipts from agricultural business activity. Thus, it could not apportion its business income to California for tax purposes using the equally weighted three-factor formula for agricultural businesses. In evaluating whether the company engaged in agricultural business activity, the Office of Tax Appeals (OTA) looked only at the activities performed or engaged in by the company itself, and not the nature of the products or the activities of the company’s customers. The OTA found that the taxpayer’s research, design, development, manufacture, production, regulatory approval, patenting, labeling, storing, marketing, selling, and shipping of chemical compounds and biologicals related to developing, producing, and selling products, and not to cultivating the soil or raising or harvesting any agricultural or horticultural commodity. Further, the legislative history suggested that the special apportionment formula for agricultural businesses was intended to benefit businesses that have no choice as to their manufacturing location, and the company did not show that it did not have a choice as to its manufacturing (and other operational) locations. The company argued that the special apportionment formula was also intended to benefit out-of-state businesses that cannot shift their sales out of California, but the legislative history did not support this contention.

Yorick, Inc. et al., California Office of Tax Appeals, 2026-OTA-456, July 14, 2026, ¶408-120