Gillette has sent shockwaves through the state tax community. Unexpectedly, a California Court of Appeal ruled that a taxpayer could elect to file income tax returns using UDITPA’s three-factor apportionment rather than California statutory apportionment because California signed the Multistate Tax Compact, which provides for optional apportionment using UDITPA. The court’s decision has nationwide ramifications and likely impacts most multistate businesses. The decision also raises a host of interesting questions. Perhaps most obviously, what will happen next in California? California has repealed its membership in the Multistate Tax Compact and has signed retroactive legislation designed to bar taxpayers from filing refund claims electing to use UDITPA apportionment. Moreover, the California FTB is likely to appeal the decision to the California Supreme Court. Accordingly, the war may be far from over in California. What impact will Gillette will have in other states? Nineteen jurisdictions are currently full members of the Multistate Tax Compact. Litigation could potentially ensue in those jurisdictions on the same issue (if it has not already). From a tax planning perspective, a question is how aggressively to read Gillette. In Gillette, the taxpayer sought three-factor apportionment, but there may be other reasons for taxpayers to seek to take advantage of UDITPA apportionment and allocation besides wanting to take advantage of UDITPA’s three-factor apportionment formula. An upcoming webinar will explore these and other questions. Upon completion of this program, participants will know:
Kendall Houghton, Alston & Bird; Matthew Hedstrom, Alston & Bird; Jeffrey Reed, Mayer Brown
Up to 1.5 CPE / CLE Credits depending on actual program length