The Gillette Company v. The California Franchise Tax Board (FTB) addresses whether taxpayers may elect to use the apportionment formula outlined in the Multistate Tax Compact (codified in former Revenue & Taxation Code Section 38006) rather than the double-weighted sales factor required by the prior version of Revenue & Taxation Code Section 25128. On December 31, 2015, the California Supreme Court held that an election was not available as a matter of law.
On February 23, 2016, the California Franchise Tax Board (“FTB”) released Notice 2016-01 in response to the California Supreme Court’s decision, advising Taxpayers on the FTB’s intended course of action on compact election cases. Notice 2016-01 supplements FTB Notice 2012-01.
Although the State Court litigation on this matter has concluded, the Gillette Company has indicated it intends to appeal this matter to the United States Supreme Court, which will continue the litigation. Notice 2016-01 is intended to advise taxpayers how it will handle cases involving the compact election issue during the pendency of litigation, including claims for refund, protests and administrative appeals before the BOE, audits, stopping accrual of interest on deficiency assessments, and penalties.
Highlights from the Notice include:
• Claims for Refund. The FTB will take no action on claims for refund that have been made to avoid the bar of refunds by the statute of limitations. Once the Gillette case has been fully resolved will the FTB take action on those claims.
• Audits. The FTB will proceed with audits in which the compact election is an issue.
• Penalties. For cases involving the compact election issues, penalties will be imposed on a case-by-case basis after the conclusion of the litigation.