FTB to Issue ‘Gillette’ Guidance on 1,300 Refund Claims

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By Laura Mahoney

Oct. 31 — The California Franchise Tax Board will advise about 1,300 corporate taxpayers how it will handle their income tax refund claims now that the Gillette case challenging the state’s income apportionment formula is final.

FTB Chief Counsel Jozel Brunett said Oct. 28 that in a notice, the board will say it will impose penalties “as applicable” on corporate taxpayers that sought a refund claiming they could use the apportionment formula in the Multistate Tax Compact despite the state’s adoption of an alternative formula.

The Nov. 1 notices will apply to about 1,300 claims for refund and about 36 protest or appeal cases that had been on hold while the Gillette case was pending. About $750 million is at issue.

Denials Coming

The FTB can deny the refund claims now that the U.S. Supreme Court said Oct. 11 that it won’t consider an appeal from Gillette Co., its corporate parent Procter & Gamble Manufacturing Co. and two other corporations ( Gillette Co. v. Calf. Franchise Tax Bd., U.S., No. 15-1442, 10/11/16 ).

With the high court’s denial of review, the California Supreme Court’s December 2015 ruling stands to allow the FTB to enforce California’s statutory apportionment formula over the compact’s formula.

Although the FTB will begin processing the claims, practitioners continue to question whether similar cases from other states challenging the validity of their apportionment formulas that varied from the Multistate Tax Compact could still have an impact on California taxpayers.

“Don’t give up yet,” Charles J. Moll, an attorney with Winston & Strawn LLP in San Francisco, told attendees of the California Tax Policy Conference. “We’ll know in a month or two if the Supreme Court will take any of those cases.”

Moll appeared on a panel with Brunett at the conference, which was sponsored by the State Bar of California Taxation Section.

Minnesota and Michigan are asking the high court to take their appeals, and similar cases from Oregon and Texas are still moving through courts in those states, leaving the compact election question unsettled.

Proceed With Caution

Brunett cautioned taxpayers against holding out for a different outcome in litigation from the other states.

“We’re going to be taking action on those cases” that are pending at the FTB, “so if you want to pursue your remedies in those cases don’t wait,” she said.

Bill Hilson, deputy chief counsel at the FTB’s Litigation and Settlement Bureau, told conference attendees Oct. 27 that waiting for a different outcome from the Supreme Court in the cases from Michigan, Minnesota or the other states is a long shot.

“The case got a good hard look by the U.S. Supreme Court before they decided to say no,” Hilson said.

The briefs in Gillette referenced the litigation in the other states, and those other cases are each technically different enough that they won’t bring California back into the fray, he said.

“I tend to think this is an uphill battle,” Hilson said.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif., at LMahoney@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

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