Reed Smith Client Alerts

Authors: Kyle O. Sollie

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 “Compact”).

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 years.

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.

  1. U.S. Supreme Court Dkt. No. 15-1442.
  2. Gillette Co. v. Franchise Tax Board, 62 Cal.4th 468 (2015).


Client Alert 2016-270