Gillette Reinstated. If Compact is Elected, LCUP Penalty Shouldn't Apply

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The First Appellate District of the California Court of Appeal has once again held that California taxpayers may avail themselves of the Multistate Tax Compact (the Compact) election, which allows for taxpayers to file returns using the standard Uniform Division of Income for Tax Purposes Act (UDITPA) three-factor formula with equally weighted property, payroll, and sales factors.1 This published opinion is virtually the same as the opinion the same court issued July 24, 2012, and later vacated. The new opinion contains updated language to reflect the Legislature’s attempt to repeal the Compact in a Senate Bill that was passed prior to the first opinion.

1. Background and Summary of the Court’s Decision

The Gillette decision involves the validity of the election provided in section 380062 to apportion and allocate income using the method set forth in the Compact as an alternative to any method otherwise provided by law. The Compact method includes a three-factor apportionment formula giving equal weight to the property, payroll, and sales factors. In 1993, the California Legislature attempted to circumvent the Compact method by amending section 25128, which doubled-weighted the sales factor.

As we discussed in our July 24, 2012 alert, the court held that the Compact election was valid because California had not properly repealed section 38006 and had withdrawn from the Compact. The holding in the court’s updated opinion issued October 2, 2012, is unchanged.

Please see full Alert below for further information.

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Topics:  Franchise Tax Board, Gillette v Franchise Tax Board, LCUP, Multistate Tax Compact, Sales Factor, UDITPA

Published In: Administrative Agency Updates, Business Organization Updates, General Business Updates, Constitutional Law Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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