Weekly Round-Up: Assessing Taxpayer Risks While Gillette Litigation Continues to Unfold

In Gillette Co. et al. v. California Franch. Tax Bd., t he California Court of Appeal held that the formula under the Multistate Tax Compact for allocating and apportioning income remains available to California multistate taxpayers, notwithstanding the state's attempt to repeal and supersede the Compact formula with a double-weighted sales factor for most business activity.

The case has sent shock waves through California and other states that are members of the Multistate Tax Compact. The California Franchise Tax Board (FTB) responded on Nov. 13, 2012, by filing a Petition for Review to the California Supreme Court. Should the court decide to take discretionary review and ultimately rule in favor of the taxpayers (thereby upholding their right to elect allocation and apportionment under the Compact), California could owe $750 million in refunds, and hundreds of state statutes could be called into question.

There are 18 states that have adopted the Compact; 19 counting the District of Columbia. Any state that has enacted the Compact could face challenges similar to those in Gillette.

For example, in Oregon, in Health Net Inc. v. Oregon Dept. of Rev., t he taxpayer has asserted the right to elect the Compact's three-factor formula instead of Oregon's single-sales-factor apportionment. While Oregon has not repealed the Compact nor purported to do so, the Oregon Department of Revenue is deferring action on all protective claims until the outcome of the litigation is known.

In this week’s issue of the Weekly State Tax Report, BBNA’s Deborah Swann takes a closer look at these and other issues following in the wake of Gillette[ full text article available here ].

In other developments…

Sutherland issues a legal alert on the California Court of Appeal’s decision in Microsoft.

Alabama Tax Developments: 2012 Year in Review , by Bradley Arant Boult Cummings. LLP

How personal income tax Increases affect small business , by Nick Kasprak of the Tax Foundation.

Mobile Workforce State Income Tax Simplification Act of 2012 , by PricewaterhouseCoopers LLP.

Compiled by Priya D. Nair
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