Taxation and State Taxation -- 2016

Gillette Co. v. California Franchise Tax Board   (U.S. Supreme Court)

Challenging California's partial withdrawal from Multistate Tax Compact

For the last fifty years, a number of states have been part of the Multistate Tax Compact, which creates a uniform system of taxation for companies with business in multiple states. California signed onto this agreement and many businesses expanded into the state, relying on the promise of a reasonable, predictable tax system.

Like any contract, the Multistate Tax Compact places some obligations on states along with the Compact’s many benefits. For example, joining the Compact requires that states provide taxpayers with the option of apportioning their multistate income according to a common three-factor, equal-weighted formula. The Compact was developed as an alternative to forestall congressional intervention with federal legislation, and was intended to establish a baseline level of uniformity to facilitate job growth and state tax collections.

However, the California Franchise Tax Board tried to rid itself of its obligations under the Compact while reaping the benefits of membership in it. Companies that brought their business to California relying on a predictable, uniform system now find themselves facing complicated tax bills and double taxation. Several manufacturers challenged the state’s action, and the case was appealed to the U.S. Supreme Court. The Manufacturers’ Center for Legal Action filed an amicus brief in support of review, opposing California’s attempt to change the rules in the middle of the game. We argued that long-term tax predictability is of immense business importance, that the Multistate Tax Compact offers such predictability and uniformity, and that California should honor the agreement it joined.

On Oct. 11, 2016, the Court declined to hear this appeal.

Related Documents:
NAM amicus brief  (June 30, 2016)


© 2019 National Association of Manufacturers