Supreme Court Denies Review of ‘Gillette’Tax Compact Case

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By Laura Mahoney

Oct. 11 — The U.S. Supreme Court won’t consider the leading case among corporate challenges to five states preventing them from using the income apportionment formula in the Multistate Tax Compact, but may get another request as other cases reach the justices ( Gillette Co. v. Cal. Franchise Tax Bd., U.S., No. 15-1442, 10/11/16 ).

The court’s denial Oct. 11 of a petition for review from Gillette Co., its corporate parent Procter & Gamble Manufacturing Co.; Kimberly-Clark Worldwide Inc.; and Sigma-Aldrich Inc. lets stand a 2015 California Supreme Court ruling against the companies.

The California court ruled in December in favor of the Franchise Tax Board that the state could enforce its statutory apportionment formula over the compact’s formula, despite the state’s adoption of the compact. With the issue being litigated in at least four other states, at least $3 billion in corporate tax payments across the country are at stake, according to the companies.

FTB Guidance Coming

In California, the FTB will begin to address the thousands of taxpayers who have about $750 million in refund claims on hold while the case was pending.

“We are gratified that the Supreme Court agreed with California and brought an end to this litigation,” FTB spokesman Chris Smith told Bloomberg BNA in an Oct. 11 e-mail. “The Franchise Tax Board is developing guidance for any potentially affected taxpayers, and will release that shortly.”

Nationally, the Supreme Court’s denial without comment wasn’t a surprise to court watchers and tax practitioners, some of whom predicted the court wouldn’t take the case for lack of a federal question.

“The petitioners tried to convince the court that there was a federal question beyond the issues with which the state courts had dealt, namely a broader national issue of compact law,” the tax and accounting firm of Ernst & Young LLP said in a prepared statement to Bloomberg BNA Oct. 11. The Supreme Court “seldom addresses state tax issues and this was one more case that the court decided not to hear.”

More Cases Pending

However, the issue of whether Multistate Tax Compact member states can require corporations to use an income apportionment formula that differs from the formula in the compact may come back to the court in pending appeals related to cases from Oregon, Minnesota, Michigan or Texas. Minnesota has until Oct. 20 to ask the U.S. Supreme Court to review a June decision from that state’s high court in favor of the Minnesota Commissioner of Revenue ( (187 DTR K-2, 9/27/16)).

State-Specific Issues

Multistate Tax Commission General Counsel Helen Hecht told Bloomberg BNA in an Oct. 11 e-mail that the review denial confirms the MTC’s position that no federal question was at issue, but also has no impact on the other cases still pending.

Other tax attorneys watching the case agreed.

“The litigation going on in other states involves state-specific issues,” Richard D. Pomp, professor at the University of Connecticut School of Law, told Bloomberg BNA in an Oct. 11 e-mail. “That litigation will run its course, unaffected by the denial of cert.”

Clarity Needed

Joseph D. Henchman, vice president of legal and state projects at the Washington, D.C.-based Tax Foundation, said a Supreme Court review would have been a welcome end to litigation and could have clarified the uncertain role of the compact.

“We now have a California Supreme Court opinion that’s at odds with the general understanding of compacts, and other cases in various stages of being appealed,” he said. “We also have a Multistate Tax Commission that is a compact when it wants to be and an advisory committee when it wants to be.”

Charles A. Rothfeld, an attorney with Mayer Brown in Washington representing Gillette and the corporate plaintiffs, declined to comment Oct. 11.

Pendulum Swing

Gillette and the other companies filed their lawsuit in 2010, seeking $34 million in refunds. The California trial court ruled against the companies, but an appellate court ruled in their favor in July 2012. The pendulum swung back in the state’s favor on appeal to the California Supreme Court, and the U.S. Supreme Court has affirmed that swing.

For its part, the FTB argued the compact is an advisory agreement, and not a binding, all-or-nothing proposition that they must maintain every aspect of the compact or renounce all of it by repealing it.

The Gillette ruling bolsters recent rulings in Michigan, Minnesota, Oregon and Texas that have undermined the corporate taxpayers’ argument that the compact is a binding contract, with several courts ruling it is merely advisory.

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

To contact the editor responsible for this story: Ryan C. Tuck at

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