WASHINGTON – The Gillette Company is out of options in their
case against California Franchise Tax Board after the United States Supreme
Court denied their appeal.
Multistate Tax Compact ruled nonbinding | Shutterstock
question involved with this case was whether Gillette could pay its taxes
using the Multistate Tax Compact three-factor apportionment formula or if it was required to use California’s four-factor apportionment formula.
Multistate Tax Compact was first created in 1966 because taxpayers were
frequently being doubled-taxed by being required to pay taxes in multiple
states. The compact originally had 10 states join including California,
Oregon, Michigan, Minnesota and Texas. It used a formula that calculated tax by
looking at property, payroll and sales taxes that could unilaterally be applied to
taxpayers in all of the states who were part of the compact.
1993, California opted to change its formula to double weight sales
when calculating tax. This different formula raised red flags for Gillette in
taxpayers at Gillette said, ‘We’re paying a lot of taxes in California when we
don’t even have facilities there,’” Mark Nachbar, principal at Ryan, an
award-winning global tax services firm, told the Northern
took the California Franchise Tax Board to the California Court of Appeals to decide
whether the Multistate Tax Compact was binding or rather just advisory to
states. The court of appeals ruled the tax compact is binding.
decision was reversed by California Supreme Court. “Taxpayers recognize that
the Compact does not have the force of federal law. It was never ratified by
Congress as required under the compact clause,” the decision states.
has a different insight as to why the court ruled the way they did. “The
decision was an economic decision,” Nachbar said. “The state would have to pay
billions of dollars back to taxpayers.”
filed a writ of certiorari to the United States Supreme Court, but it denied
hearing the case.
Supreme Court doesn’t like to hear business cases, especially state tax cases,”
“P&G is disappointed that the Court did
not grant review of the issues in this case,” the Gillette Company said in a
the Michigan Supreme Court, a similar case was heard and the court ruled the tax
compact is binding. However, the Michigan Legislature decided to retroactively
pull out of the Multistate Tax Compact.
one court ruling the tax compact is binding and another court ruling against
the compact, the future of the Multistate Tax Compact is up in the air.
got two contradicting decisions at the state supreme court level and the United
States Supreme Court doesn’t want to hear the case,” Nachbar said.
cases are being heard in Texas, Oregon and Minnesota. Taxpayers in those states
are still able to file claims until decisions are handed down. However, Nachbar
believes that like California, those states will likely find that the compact
is nonbinding due to economic reasons.
California Franchise Tax Board said in a statement they are “developing
guidance for any potentially affected taxpayers, and will release that shortly.”