Constitutionality of California's interest offset rule.

February 23, 1998

On February 23, 1999, Tax Executives Institute urged the California Supreme Court to review two cases involving the constitutionality of the State's so-called interest offset rule. In two cases pending before the court -- Hunt-Wesson, Inc. v. Franchise Tax Board, Cal. Supreme Court No. S096104, and F.W. Woolworth Co. v. Franchise Tax Board, Cal. Supreme Court No. S076083 -- the issue is whether the offset provision, which reduces a nondomiciliary company's interest expense deduction, dollar-for-dollar, for dividends received from nonunitary subsidiaries, discriminates against out-of-state companies and therefore violates both the Commerce and Due Process Clauses of the United States Constitution. The Institute's submission, which took the form of a letter to the Chief Justice and Associate Justices of the Court and was prepared under the aegis of the Institute's State and Local Tax Committee, whose chair is Amy J. Eisenstadt of the General Electric Company, recommends that the court review local court decisions upholding the statute.

Pursuant to Rule 14(b) of the California Rules of Court, Tax Executives Institute ("TEI" or "the Institute") submits this letter in support of the petitions for review in the above-captioned cases.

Nature of Amicus Curiae's Interest

Tax Executives Institute is a voluntary, nonprofit association of corporate and other business executives, managers, and administrators who are responsible for the tax affairs of their employers. The Institute was organized in 1944 and currently has approximately 5,000 members who represent 2,800 of the leading businesses in the United States and Canada, nearly all of which are engaged in interstate commerce and, indeed, in commerce with California.

The members of the Institute represent a cross-section of the business community in North America, with nearly 650 of TEI's members belonging to chapters in California. The Institute is dedicated to promoting the uniform and equitable enforcement of the tax laws throughout the Nation, to reducing the costs and burdens of administration and compliance to the benefit of both the government and taxpayers, and to vindicating the due process and Commerce Clause rights of business taxpayers.

Tax Executives Institute's members have a vital interest in the resolution of these cases, which involve the validity of the so-called interest offset rule in section 24344 of the California Revenue and Taxation Code. Many of the...