Multistate Tax Alert: California Court of Appeal Issues New Opinion Upholding MTC Election
On October 2, 2012, in The Gillette Company, et al., v. California Franchise Tax Board (“Gillette”), the California Court of Appeal upheld the right of the taxpayers to elect to apportion and allocate income to California using the Multistate Tax Compact (“Compact”). The Compact, contained in California Revenue and Taxation Code Section 38006, includes an equally-weighted three-factor apportionment formula (property, payroll, and sales), rather than the three-factor formula with a double-weighted sales factor generally applicable under the standard apportionment provisions. The Court of Appeal’s October 2nd decision held that electing to use the Compact was a valid option for the taxpayers during the years in question and that the State was bound by the Compact and its election provision. Although the holding in the case remained unchanged from the court’s prior decision that had been vacated by the court’s motion for rehearing, in its October 2nd decision the court clarified some aspects of the case related to issues raised in briefs filed by the parties after the initial opinion was issued.
This alert provides some procedural background on Gillette and summarizes those items clarified in the court’s analysis.