By Dan Walters
Multistate corporations scored a major victory Tuesday in their long-running legal battle with California tax authorities over how they are to be taxed, one that could cost the state treasury hundreds of millions of dollars.
The 1st District Court of Appeal unanimously ruled that California must abide by a long-standing multistate compact that apportioned corporate taxable income on the basis of three equally weighted factors: payroll, sales and property. To do otherwise, it said, would, in effect, violate a contract.
The decision gives the corporations relief from a 1993 state law that gave double weight to sales, thereby increasing corporate income taxes on out-of-state corporations doing business in California while giving those based in the state some tax relief.
More recently, in fact, state officials have sought to eliminate the three-factor system altogether and go to a "single-sales" system that would, they believe, raise revenues from out-of-state corporations by more than a billion dollars a year.
Assembly Speaker John A. Pérez has proposed such a change to expand college aid, while a pending November ballot measure, Proposition 39, would do the same for energy efficiency.
The lawsuit before the court, brought by a group of corporations headed by the Gillette consumer products company, had been rejected by a lower court. The Franchise Tax Board, which defended the state's position, now must decide whether to appeal to the state Supreme Court.