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California Supreme Court Rules Against Taxpayers in Multistate Tax Compact Apportionment Case
Reversing the California Court of Appeal in a case in which the issue was whether, for years between 1993 and 2005, multistate businesses (Taxpayers) could elect the standard, i.e., equal-weighted, 3-factor apportionment formula set forth in the Multistate Tax Compact (Compact) for purposes of apportioning their business income to California or were required to use the double-weighted sales factor apportionment formula set forth in Cal. Rev. & Tax. Cd. § 25128(a), the California Supreme Court has held that the Taxpayers could not elect the standard 3-factor formula. The Legislature may and did properly preclude them from electing it. In reaching its decision, the court determined that the Compact constitutes state law, that the Compact is not a binding reciprocal agreement among the states that are a party to it, that the reenactment rule did not bar the Legislature from amending Cal. Rev. & Tax. Cd. § 25128(a), and that the Legislature not only could eliminate the Compact’s election provision but also intended to eliminate it. As a result of the Supreme Court’s decision, the Taxpayers are not entitled to an income tax refund of approximately $34 million, the amount of refund to which they would have been entitled had they been able to use the standard 3-factor formula for the years at issue. (The Gillette Co., et al. v. Franchise Tax Bd., Cal. S. Ct., Dkt. No. S206587, 12/31/2015. )
By Peter Schneiderman, RIA
Read the entire publication here: State and Local Taxes Weekly (RIA).