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In the Matter of Product of Conagra Foods Ingredient Co., New Mexico Administrative Hearing Office, Dkt. No. 17-39, September 15, 2017


The New Mexico Office of Administrative Hearings granted Conagra Foods’ Motion for Summary Judgment concluding the interest earned on notes was properly characterized as non-business income.

Conagra is a packaged food corporation headquartered in Omaha.  The company in March 2008 entered into an agreement to sell its Food Trading and Merchandise business.  The purchaser issued PIK Notes to Conagra as part of the sale proceeds.  Upon completion of the sale and receipt of the proceeds, Conagra totally exiled the Trading Merchandise business and grain storage operations.  The gain recognized on the disposition was reported to New Mexico as apportionable business income.

The issue before the Administrative Hearing Office was whether the interest income subsequently earned by Conagra on the PIK Notes was allocable or apportionable income.  In holding for Conagra, the Hearing Office analyzed both the constitution and statutory requirements for characterizing income.

The Hearing Officer determined that New Mexico could only tax the interest income earned on the PIK Notes if:

  1. Conagra and the purchaser were engaged in a unitary business or
  2. The PIK Notes were used in Conagra’s unitary business operations in New Mexico.

Applying these principles to the facts, the Hearing Officer concluded that the interest income did not arise from transactional activity which occurred in Conagra’s regular business operations and were not the proceeds from the disposition of a line of business.  Although, the PIK Notes were part of the purchase financing mechanism of the business, the interest income was not proceeds from the disposition because Conagra had fully reported the disposition gain in the year of sale.  Further, Conagra and the purchaser were not unity in nature.  Thus, the neither statutory nor constitutional tests for characterizing the interest income as business income were met.


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