Corporate Close-Up: Prospects Dimming for Taxpayer-Friendly Compact Election Ruling

The Minnesota Supreme Court recently rejected Kimberly-Clark Corp.’s refund claim based on the company’s assertion that it was entitled to apportion income to the state under the Multistate Tax Compact’s three-factor apportionment formula. The ruling in Kimberly-Clark Corp. v. Comm'r of Revenue, Minn., No. A15-1322, 6/22/16 marks another win for the states in the compact election cases that are being litigated across the country. It also casts doubt on the likelihood that the U.S. Supreme Court will grant the petition for certiorari pending in Gillette Co. v. Cal. Franchise Tax Bd., U.S., No. 15-1442, cert. petition filed 5/27/16.

In Gillette, the most notable case on the matter, the taxpayers are seeking to overturn the California high court’s decision to reverse the intermediate appellate court’s ruling that taxpayers could opt to apportion income under the compact’s three-factor formula instead of the statutorily mandated single-sales factor formula.

Minnesota’s Kimberly-Clark ruling for the state is consistent with the outcomes on the issue in cases being litigated in Michigan, Oregon and Texas. The absence of conflicting rulings among the states may dampen the high court’s interest in weighing in on the controversy. 

The U.S. Supreme Court’s refusal to hear Gillette would likely doom the chances of similar challenges pending in other states from being considered by the high court. “The first case that goes up very often sets the tone,” Richard Pomp, professor of law at the University of Connecticut told Bloomberg BNA’s Paul Stinson in the Weekly State Tax Report. “The court is very unlikely to deny cert. in the California case and then say ‘Ah, the Texas case raises a wrinkle that was not in the California case, we’re going to grant cert. in the Texas case.’”

Pomp’s sentiment was echoed by the Multistate Tax Commission counsel Sheldon Laskin, who said in May “that he anticipates the remaining state supreme court cases will become functionally moot should the U.S. Supreme Court deny certiorari in Gillette” and allow the ruling for California to stand, according to a recent story by Bloomberg BNA’s Mark Wolski.

What will the compact election controversy ultimately mean to taxpayers and state governments? “Not much,” former Multistate Tax Commission Executive Director Joe Huddleston and Ernst & Young’s Rebecca Helmes concluded in a recent article for Bloomberg BNA.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What will be the lasting outcome of the compact election controversy?

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