California fight tests U.S. states' compact on business taxes

Fri Dec 14, 2012 1:13am EST
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By Nanette Byrnes

(Reuters) - A landmark agreement forged 45 years ago to make corporate taxation more uniform among U.S. states is at the center of a court fight between California and Gillette Co, potentially leading to more tax conflict between states and big businesses.

Gillette, the razor giant owned by Ohio-based Procter & Gamble Co, wants to be able to use the 1967 Multistate Tax Compact (MTC) to determine how much tax it owes California. This would cut Gillette's 1997-2004 tax bill by more than $4 million. The company is seeking a rebate of taxes already paid.

California wants Gillette to abide by more recent tax rules the state has written and, as a result of the dispute, has withdrawn from the MTC, reducing its membership to 18 states and raising questions about the compact's future.

At a time of tight state budgets, the case is being closely watched across the country. Early next year, the California Supreme Court will decide whether to take the case under review. Whether or not it does, more litigation is expected.

A victory for Gillette in California - which has by far the largest economy among the 50 states - could unleash $750 million in new California tax rebate claims, according to the state.

Similar disputes involving other companies are pending in Michigan, Oregon and Texas. Experts expect more states to become involved next year.


The case dates to January 2010. That was when Gillette and other companies filed claims saying California, as an MTC member, must honor the MTC formula for apportioning state taxes, and not impose its own formula. The claims were consolidated.   Continued...