SAN FRANCISCO -- California's franchise tax board (FTB) has announced actions it will take in cases that were being held up pending a decision in the Gillette Company & Subs v. California Franchise Tax Board case.
The case arose when the Gillette Company challenged California’s tax structure for businesses in 2012. California is part of the Multistate Tax Commission, a group of 10 states that came together in 1966 in order to create a uniform system of taxing companies that operated in multiple states.
Pending refund claims will be addressed by Franchise Tax Board. Shutterstock
“The idea is to not disadvantage someone for being in business in multiple states,” Stephen Moskowitz, senior partner with the tax law firm Moskowitz LLC told the Northern California Record.
The multistate tax compact calculates tax based on property, payroll and sales of the company. In 1993, California decided to double the sales when calculating the tax. Gillette took the California FTB to the California Court of Appeals where the court came down on the side of Gillette.
While this battle was being fought in the courts, many other companies with operations in California were hoping that if the courts ruled in favor of Gillette, they could get refunds for the extra tax they paid in California.
“Many companies said, ‘If that’s going to be a viable option, we’d like to file refunds,’” Norman Scott, deputy chief counsel of multistate and business entity tax for the California FTB told the Northern California Record.
The decision, however, was reversed in the California State Supreme Court. The FTB chose not to take any action on the claims following the decision because of the possibility the case could be heard by the United States Supreme Court.
The United States Supreme Court denied the writ of certiorari, solidifying the California Supreme Court decision that said the multistate tax compact is just advisory and the state has the right to decide how it will structure its taxes.
"Most practitioners expected this decision in the Supreme Court,” Scott said.
They didn’t want to take the risk of denying the refunds, however, until they knew for certain what the final decision would be, he said.
“Financially, it means status quo will be maintained,” Scott said.
Now that the decision is final, the FTB will begin addressing the claims. On Nov. 1, the FTB released a notice on possible actions that could be taken including processing refund claims, placing administrative protests involving the compact into active status, processing audits and imposing penalties.
For companies experiencing accrual of interest on deficiency assessments, the notice suggests taxpayer may, “make tax deposits pursuant to Revenue and Taxation Code section 19041.5, or may pay proposed deficiency assessments.”
With approximately 1,300 pending corporate taxpayer claims, the process could take some time.
“There is no one size fits all on when it will happen or how it will happen,” Scott said.
Although California isn’t losing money now by paying back the refunds, Moskowitz believes there could be financial repercussions down the line with companies choosing to leave that state because of the decision.
“More and more companies have left California,” Moskowitz said. “It’s more expensive for companies to be here.”