The California Supreme Court has scheduled for October 6, 2015, oral arguments in a case concerning whether a taxpayer could avail itself of the election available in Article III of the Multistate Tax Compact and choose to apportion its income to California using the evenly weighted three factor formula provided for in Article IV of the Compact, despite contrary statutory language mandating the use of a double-weighted sales factor for general corporations.
It has been almost three years since the California Court of Appeal issued its decision in Gillette Co. v. Franchise Tax Board. In that October 2012 opinion, the appeals court held that a taxpayer could avail itself of the election available in Article III of the Multistate Tax Compact (Compact) and choose to apportion its income to California using the evenly weighted three factor formula provided for in Article IV of the Compact, despite contrary statutory language mandating the use of a double-weighted sales factor for general corporations. The court’s decision was based entirely on federal case law regarding interstate compacts. In the court’s view, when California became a signatory to the Compact, it entered into a binding agreement with other signatory states and, absent repeal of the Compact in its entirety, California was obligated to offer multistate taxpayers the option of electing the Compact’s allocation and apportionment methodology.
Following the appeals court’s decision, the Franchise Tax Board petitioned for review before the California Supreme Court. Review was granted on January 16, 2013.
For the last several months, the case has been fully briefed, awaiting the state high court to schedule oral arguments. It has been announced that oral arguments will be held on October 6, 2015, in San Francisco.
After oral arguments, the California high court must issue its written opinion within 90 days, and the court’s decision will become final 30 days after it is issued.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.