California – FTB Files Petition for Review of Gillette Decision

SALT Report 1902 – The Franchise Tax Board has filed a petition with the California Supreme Court to review the Court of Appeal’s decision in Gillette v The Franchise Tax Board.  As previously reported in SALT Report 1766, the Appeals Court’s decision on July 24, 2012 held that taxpayers had the right to use the Multistate Tax Compact’s equally-weighted apportionment formula when determining their franchise and income tax liabilities.

In their petition, the FTB asserts that the Appeals Court’s decision that the Compact was a contract between states, thereby prohibiting states from imposing different apportionment provisions unless the state fully withdraws from the Compact, was premature.

The FTB notes that at the time that California signed the Compact, Florida, which was a member of the Compact, had adopted a statute that repealed the Compact’s election and apportionment provisions. The Multistate Tax Commission acknowledged Florida’s actions and confirmed Florida’s good standing as a member of the Compact and the Commission. Therefore, California and other Compact members interpreted that to mean that states could partially repeal portions of the Compact without withdrawing from the Compact.

Further, the FTB claims that if the Appeals Court’s decision is upheld California will be liable for more than $750 million in refunds which will place an excessive financial burden on the state.

For Further Information:

California Supreme Court Case Number S206587 – Petition for Review

Court of Appeals of California First District – Docket Number A130803