As a result of a recent court decision, Canadian companies doing
business in the U.S. may be entitled to tax refunds for 2007 and
later tax years in the following jurisdictions:
District of Columbia
On July 24, 2012, the California Court of Appeal decided in
The Gillette Co. et al. v. Franchise Tax Board
that taxpayers should have the option of electing to single-weight
(as opposed to double-weight) their sales factor to compute their
California apportionment fraction.
California is a member of the Multistate Tax Compact (the
Compact). The Compact requires member states to give taxpayers the
option of electing the three-factor equally weighted apportionment.
Having entered into the Compact, California cannot, by subsequent
legislation, unilaterally alter or amend its terms.
California can avoid this apportionment requirement only by
withdrawing from the Compact. Because it did not withdraw from the
Compact, the equally weighted apportionment election should always
have been available to taxpayers.
The effect of the California Court of Appeal decision is to
invalidate California's requirement for taxpayers to
double-weight the proportion of in-state sales in computing
California taxable income.
On August 9, 2012, as a result of political pressure, the
California appellate court announced that it will revisit its July
24 ruling. This judicial review is expected to take approximately
Notwithstanding that this is a California court decision, the
jurisdictions listed above are in a position similar to
California's, in that they are members of the Compact but have
unilaterally altered their apportionment rules, and in doing so
have failed to give taxpayers the option of electing a three-factor
equally weighted apportionment.
What should you do?
If your company has:
positive taxable income; and
state property and payroll factors that are less than their
you should file protective refund claims for any tax years that
may become statute-barred during the course of the judicial review
of the Gillette case.
Relevant tax years may become statute-barred as early as October
15, 2012, so you should consider whether action is required as soon
You should also consider making an election to use the
single-weighted sales factor for any 2011 returns that have not yet
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).