TEI files brief with the U.S. Supreme Court in California Multistate Tax Compact litigation.

• Position: TECHNICAL SUBMISSIONS

On June 30, 2016, TEI filed an amicus brief with the U.S. Supreme Court in support of the taxpayers' Petition for a Writ of Certiorari in The Gillette Company v. California Franchise Tax Board, No. 15-1442, also known as the California Multistate Tax Compact (Compact) litigation.

In the 1960s and 1970s, States persuaded Congress and the business community that then-imminent federal legislation mandating uniformity in state taxation was unnecessary because a number of States had enacted the Compact. The Compact is a complex interstate agreement, the most central provision of which entitles taxpayers to divide their income among States for tax purposes using either the State's apportionment formula or the Compact's equally-weighted, three factor apportionment formula. The Compact thus offers taxpayers the opportunity to achieve apportionment uniformity, ensuring multistate taxpayers will not be subject to double taxation caused by inconsistent state apportionment methodologies.

California, as well as several other Compact member States, now claim the Compact is a model law rather than a binding agreement and have sought to unilaterally eliminate taxpayers' right to use the Compact's apportionment election without amending the Compact's terms or individually withdrawing from the Compact. TEI maintains California's and other States' attempt to deny this right to taxpayers violates the Contract Clause of the U.S. Constitution because it impairs the most central provision of this interstate contract. This federal question will directly impact taxpayers litigating the Compact issue in California, Michigan, Minnesota, Texas, and Oregon.

TEI's brief was prepared under the aegis of TEI's State and Local Tax Committee, whose chair is Jamie Fenwick. TEI Tax Counsel Pilar Mata coordinated the preparation of the brief and was its principal author.

THE GILLETTE COMPANY, THE PROCTER & GAMBLE MANUFACTURING COMPANY, KIMBERLY-CLARK WORLDWIDE, INC., AND SIGMA-ALDRICH, INC., Petitioners,

v.

CALIFORNIA FRANCHISE TAX BOARD, Respondent.

IN THE SUPREME COURT OF THE UNITED STATES

On Petition for a Writ of Certiorari to the Supreme Court of California

BRIEF FOR TAX EXECUTIVES INSTITUTE, INC. AS AMICUS CURIAE IN SUPPORT OF PETITIONERS

A. PILAR MATA

Counsel of Record

W. PATRICK EVANS

ELI J. DICKER

TAX EXECUTIVES INSTITUTE, INC.

1200 G Street, N.W., Suite 300

Washington, D.C. 20005-3814

202.464.8346

pmata@tei.org

Counsel for Amicus Curiae

June 30, 2016

TABLE OF CONTENTS TABLE OF AUTHORITIES STATEMENT OF INTEREST SUMMARY OF REASONS FOR GRANTING THE PETITION REASONS FOR GRANTING THE PETITION I. States Enacted the Compact to Forestall Federal Legislation Mandating Uniformity for Multistate Taxpayers II. The California Supreme Courts Decision Is Inconsistent with the Terms of the Compact, its Purpose, and its History A. The Compact Is a Binding Agreement B. California's Unilateral Revocation of the Compacts Apportionment Election Provision Is Inconsistent with the Compacts Purposes and History III. The Compact's Apportionment Election Reflects Sound Tax Policy CONCLUSION TABLE OF AUTHORITIES

CASES

Gillette Commercial Ops. N. Am. & Subs. v. Dep't of Treasury, 312 Mich. App. 394 (2015) Graphic Pckg. Corp. v. Hegar, No. 15-0669, Tx. Sup. Ct. (appeal pending)

Health Net Inc. v. Dep't of Revenue, No. S063625, Or. Sup. Ct. (appeal pending) International Business Machines Corp. v. Department of Treasury, 496 Mich. 642 (2014) Kimberly-Clark Corp. & Subs. v. Com. of Revenue, No. A15-1322, Min. Sup. Ct. (Jun. 22, 2016) Montana v. Wyoming, 131 S. Ct. 1765 (2011)

Northwestern States Portland Cement Company v. State of Minnesota, 358 U.S. 450 (1959) Rock Island, A. & L.R. Co. v. United States, 254 U.S. 141 (1920)

Tarrant Regional Water Dist. v. Herrmann, 133 S. Ct. 2120 (2013)

Texas v. New Mexico, 482 U.S. 124 (1987) The Gillette Company v. Franchise Tax Board, 62 Cal. 4th 468 (2015)

The Gillette Company v. Franchise Tax Board, 147 Cal. Rptr. 3d 603 (2012), revd at 62 Cal. 4th 468 (2015)

Title Ins. Co. v. State Bd. of Equalization, 4 Cal. 4th 715 (1992)

CONSTITUTION AND STATUTES:

U.S. Const., Art. I, [section] 10, cl. 1

15 U.S.C. 381-84

Cal. Rev. & Tax. Code [section] 25120 et seq

Cal. Rev. & Tax. Code [section] 25128

Cal. Rev. & Tax. Code [section] 38006

OTHER AUTHORITIES:

Amy Hamilton, MTC Counsel Predicts U.S. Supreme Court Won't Take Gillette, State Tax Today (May 26, 2016)

Arthur D. Jr. Lynn, The Uniform Division of Income for Income Tax Purposes Act, Ohio State Law Journal, Vol 19, No. 1 (1958) 41 Comment, Hobsons Choice and Similar Practices in Federal Taxation (1935) 48 Harv. L.Rev. 1281

Caroline N. Broun et al, The Evolving Use and the Changing Role of Interstate Compacts (ABA 2006) [section] 1.2.2

Estoppel of State or Local Government in Tax Matters (1983) 21 A.L.R.4th 573

H.R. 11798, 89th Cong., 2nd Sess. (1965)

H.R. 16491, 89th Cong., 2nd Sess. (1966) Multistate Tax Com., First Annual Rep., Period Ending Dec. 31, 1968

Multistate Tax Com., Summary of Meeting, Jun. 15, 1967

80 Ops. Cal. Atty. Gen. 213 (1997)

Restatement (Second) of Contracts [section] 203(b) (1979)

State Taxation of Interstate Commerce, Report of the Special Subcommittee on State Taxation of Interstate Commerce, H.R. Rep. No. 1480 (88th Cong., 2d Sess. (1964)

Thomas S. Miller, "Taxation of Interstate Commerce," The Tax Executive, Vol. 26, No. 1 (1973) 81-82

The Original Multistate Tax Compact Uniform Division of Income for Tax Purposes Act

STATEMENT OF INTEREST

Pursuant to Rule 37 of the Rules of this Court, Tax Executives Institute, Inc. (TEI or the Institute) submits this brief as amicus curiae in support of the Petition for a Writ of Certiorari. (1) TEI is a voluntary, nonprofit association of business executives, managers, and administrators responsible for the tax affairs of their employers. (2) The Institute is dedicated to developing sound tax policy, promoting the uniform and equitable enforcement of tax laws, reducing the costs and burdens of tax administration and compliance to the benefit of the government and taxpayers, and defending the constitutional rights of taxpayers.

TEI's members represent a broad cross section of the business community. As individuals who must contend daily with the interpretation and administration of the Nation's tax laws, TEI and its members have much at stake to ensure the tax system is fair, administrable, and efficient. This need is particularly profound in the area of state and local taxation, where taxpayers must navigate the myriad of state tax statutes, regulations, and ordinances that affect their businesses.

The California Supreme Court's decision in The Gillette Company v. Franchise Tax Board, 62 Cal. 4th 468 (2015) (Gillette), allows States that entered into the Multistate Tax Compact (Compact) to unilaterally revoke their obligation to allow taxpayers to...