California Franchise Tax Board Recognizes Taxpayers Will Appeal Gillette Ruling

Since the Gillette Co. v. Franchise Tax Board ruling plans to be appealed in the United States Supreme Court, the California FTB is recommending taxpayers and their representatives to wait until the conclusion of litigation before taking action on cases regarding the Multistate Tax Compact election issue.

On December 31, 2015, the California Supreme Court supported a state law which rearranged income taxes on multistate businesses which benefited those located in California at the expense of out-of-state companies. The state Supreme Court held in Gillette that the compact and its provisions are not binding. The justices noted that the Multistate Tax Commission, which supervises the compact, determined their standards to be “advisory.”

However, the six companies and their taxpayers are gearing towards filing a petition with the U.S. Supreme Court.

Los Angeles tax lawyer Marty Dakessian of Dakessian Law Ltd., who coauthored the amicus brief filed in Gillette on behalf of the Institute of Tax Professionals, stated that taxpayers might be waiting for a long time until they receive notification that the U.S. Supreme Court will oversee their case.

“I would not count Gillette out, given the extensive discussion of federal law affecting compacts in the California Supreme Court’s opinion,” Dakessian declared. “That has left the door open for the high court, and the FTB can’t be please about that.”

The Los Angeles tax lawyer expressed his shock about how the FTB is still open to enforcing penalties on taxpayers for making the compact election. He believes no penalties should be imposed, whatsoever.

“At the very least, the FTB must agree that reasonable minds can differ on the subject after we had the lower court in California rule in favor of the taxpayer.”

A lower court had originally overturned the $34 million tax bill, ruling that states do not possess the authority to change the tax-appointment formula authorized by the Multistate Tax Compact. However, the state’s high court declared these standards to be mere guidelines.