California: letter to state Supreme Court argues that tax penalty violates federal due process.

February 24, 2011

On February 24, 2011, Tax Executives Institute submitted the following letter to the California Supreme Court in Case S189996, California Taxpayers' Association v. Franchise Tax Board, urging the Court to hear a case challenging the constitutionality of California's 20-percent substantial corporate underpayment penalty. The letter was submitted under the aegis of TEI's State and Local Tax Committee, whose chair is Linda H. Dickens of Texas Instruments, Inc. Fellow Committee member Tov B. Haueisen of General Electric Company contributed materially to the preparation of the submission. Daniel B. De Jong of TEI's legal staff serves as staff liaison to the State and Local Tax Committee.

On behalf of Tax Executives Institute, I write to urge the Court to grant the pending Petition for Review by the California Taxpayers' Association in Supreme Court Case No. S189996. The case presents important constitutional and tax policy issues affecting business taxpayers--namely, the limits imposed by the Due Process Clause of the Fourteenth Amendment to the United States Constitution on California's ability to impose a retroactive strict liability assessment without providing taxpayers a mechanism to obtain a refund. A decision by the Court will provide much needed certainty about the validity of Revenue & Taxation Code section 19138, a provision with significant financial implications for businesses with operations in California.

Interest of the Applicant

Tax Executives Institute was founded in 1944 to serve the professional needs of business tax professionals. Today, the organization has 54 chapters in North America, Europe, and Asia, including several in California. Our nearly 7,000 members represent 3,000 of the largest companies in the world, many of which are either resident or do business in California. As the preeminent association of business tax professionals worldwide, TEI is dedicated to promoting the uniform and equitable enforcement of the tax laws, reducing the costs and burdens of administration and compliance to the benefit of both the government and taxpayers, and vindicating the Due Process Clause and other constitutional rights of all business taxpayers. As tax professionals who recognize the states' right to collect properly levied taxes and who respect the legitimacy of state assessments, TEI members have a significant interest in ensuring that state tax provisions comply with the protections accorded by the federal...