California - State Supreme Court agrees to review apportionment case 

January 17: The California Supreme Court on January 16, 2013, agreed to review the California Court of Appeal decision in Gillette Co. v. Franchise Tax Board.

In Gillette, the California Court of Appeal held that a taxpayer could apportion its income to California using the Multistate Tax Compact’s evenly weighted three-factor formula, despite statutory language mandating the use of a three-factor, double-weighted sales formula for most corporations for the years at issue.


The court’s ruling was based entirely on case law regarding interstate compacts and its view that when California became a signatory to the Multistate Tax Compact, it entered into a binding agreement with other signatory states that—absent repeal of the Compact in its entirety—obligated it to offer multistate taxpayers the option of using the Compact’s allocation and apportionment provisions.


See TaxNewsFlash-United States: California - Appeals court again upholds election to apportion income under Multistate Tax Compact

KPMG observation

While taxpayers can only speculate as to whether the decision will be affirmed on appeal, a decision from California’s high court would obviously be of interest to California taxpayers as well as to taxpayers making the election in other states.


In its petition for review, the Franchise Tax Board estimated that the decision would cost the state of California over $750 million if allowed to stand.


Also, note that Michigan Supreme Court was recently asked to review International Business Machines Corp. v. Dep’t of Treasury in which the appeals court (in stark contrast to the Gillette court) held that the taxpayer could not elect to use the Compact’s allocation and apportionment provisions in filing in Michigan Business Tax returns. See the discussion “Michigan (apportionment)” in TaxNewsFlash- United States: KPMG reports - Idaho (hedging transactions); Michigan (apportionment); Michigan (tax base); Missouri (airlines); Tennessee (patents)



For more information, contact a tax professional with KPMG’s State and Local Tax practice:


Doug Bramhall

(480) 459-3491

Scott Salmon

(202) 533-4202

John Harper

(213) 593-6704




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