United States

California: FTB Issues Notice on Pending Compact Election Claims

Feb 29, 2016
From KPMG TaxWatch

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On December 31, 2015, the California Supreme Court held that several taxpayers could not elect to apportion their income to California using the allocation and apportionment provisions contained in the Multistate Tax Compact (Compact) in lieu of the apportionment formula mandated under state law. In the court’s view, the Compact was not a binding reciprocal agreement among states, and the legislature’s 1993 repeal of the election was effective, even if California had not withdrawn from the Compact entirely. The court also rejected the appellate court’s holding that California’s reenactment rule was offended when the legislature adopted a double-weighted sales apportionment formula in 1993, but did not repeal the Compact. Shortly after the decision, the attorneys for Gillette and the other taxpayers announced their intent to appeal the decision to the U.S. Supreme Court.

In recent FTB Notice 2016-01, the FTB addressed how it will handle cases involving the Compact election pending the outcome of the litigation. First, the FTB will take no action on Compact election refund claims until the Gillette litigation has been fully resolved by either a denial of a petition for cert before the U.S. Supreme Court or any final state court action after a decision by the high court. Likewise, the FTB will defer all administrative appeals before the State Board of Equalization until the litigation concludes. Audits will proceed as usual, but proposed assessments or denials of claims for refunds related to the Compact election will generally not be issued. The FTB notes that taxpayer can make tax deposits to stop the accrual of interest in cases where interest will continue to accrue until the litigation is concluded. Finally, the Notice states that penalties will be imposed on a case-by-case basis after the conclusion of the litigation in accordance with applicable state law. Please contact Steve Sims at 916-551-3133 with questions on FTB Notice 2016-01.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.