A state appellate court affirmed its own earlier ruling that California must allow corporate taxpayers to apportion multistate income based on a formula that tax administrators argued was repealed in 1993, leaving the viability of the Multistate Tax Compact underpinning the case in doubt, Bloomberg BNA Correspondent Laura Mahoney reports in this week’s issue of the Weekly State Tax Report.
The court's new ruling makes two clarifications that reflect issues raised by the Franchise Tax Board and Gillette Co., the taxpayer in the case, in court filings since the court's original ruling in July.
In the new 22-page ruling, the court clarified that the compact is no longer part of state law.
California lawmakers repealed the compact in June as a hedge against an unfavorable ruling in Gillette and a potential loss of at least $500 million in tax revenue. They enacted the repeal between the time that oral arguments were presented to the court in May and the court issued its original ruling in July.
The new ruling reflects that the compact was repealed by referring to it as a former state statute. The court did not evaluate the law repealing the compact, S.B. 1015, which was enacted with a majority vote of the Legislature. The repeal will likely face a legal challenge based on an argument that S.B. 1015 required a two-thirds vote of the Legislature because it increased taxes.
The court also addressed an issue the FTB raised in a petition for rehearing filed Aug. 8, asking the court to clarify why the 1993 alternative apportionment formula was unconstitutional.
Mahoney’s complete look at this development can be read in its entirety here . Sutherland SALT’s take on the development, A Close Shave: California Court of Appeal Rules on Multistate Compact election, can be read here .
In other developments…
Mail en route to Division of Taxation destroyed in September 11 fire , New Jersey advises.
Monday Map: EITC recipients by state, by Nick Kasprak of the Tax Foundation.
Morrison & Foerster's October issue of its New York Tax Insights looks at, among other things, the state tax department’s proposed amendments to its combined return regulations.
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