Today, the United States Supreme Court denied review of the
California Supreme Court's decision in The Gillette Company
& Subs. v. California Franchise Tax Board.1 The
issue was whether Gillette was required to use the state's
four-factor, double-weighted sales apportionment formula or, as
Gillette argued, the equally-weighted, three-factor apportionment
formula under the Multistate Tax Compact (the
A California Court of Appeal originally found in favor of
Gillette. But the California Supreme Court
reversed.2 Gillette filed a petition for writ of
certiorari with the United States Supreme Court, but that petition
was rejected today. The case for Gillette is now over.
If you are a taxpayer who filed a California refund claim, you
may be wondering what to do with that claim now. The California
Franchise Tax Board has been holding the claims pending the
ultimate decision in Gillette. We encourage taxpayers not
to withdraw those claims voluntarily for two reasons.
First, although the national momentum currently appears to be
shifting against taxpayers claiming the right to elect the
Compact's three-factor formula, that momentum could still shift
back. Other Compact election cases are still pending in other
states. For example, a decision of the Oregon Tax Court is still
being reviewed by the Oregon Supreme Court, with oral argument
heard September 19. If a court in another state permits the Compact
election, the United States Supreme Court may see a split in
authority and have reason to accept review of this issue.
Second, although the Compact election may be unavailable in
California, taxpayers that claimed the right to make the election
may still be able to take advantage of other potential issues. For
example, for tax years starting 2013, Proposition 39 purportedly
requires most corporate taxpayers to use a single sales factor for
apportionment, determined by using market sourcing. But Proposition
39's validity is questionable in light of California
Constitutional requirements that tax increases be passed by the
two-thirds vote of the legislature. Thus, taxpayers should consider
continuing their refund claims for at least the 2013 and 2014
Thus, although the taxpayer in Gillette may have
exhausted its appeal rights, the refund claims filed by other
taxpayers may still have value. For more information on the
Gillette case and its impact on refund claims and filing
returns, contact the authors of this Alert or another member of the
Reed Smith State Tax Group.
The election of President Donald J. Trump, combined with Republican control of Congress, makes fundamental U.S. federal income tax reform more likely than at any time since the enactment of the Tax Reform Act of 1986.
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