This advisory discusses the recently approved Proposition 39, a California ballot initiative that requires corporations conducting a multistate business to apportion their income using a single-sales factor apportionment formula beginning January 1, 2013. Two other recent developments in California raise significant questions regarding the effectiveness of Proposition 39’s single-sales factor apportionment requirement. In Gillette Co. v. Franchise Tax Board, the Court of Appeal of California held that a corporate taxpayer could elect to apportion its income using either the statutory formula or the equally weighted, three-factor Multistate Tax Compact formula. The California Assembly attempted to eliminate that election by enacting legislation, SB 1015, shortly before Gillette was issued. However, there are serious concerns regarding the validity of that legislation. It therefore remains to be seen whether corporate taxpayers will indeed be required to apportion their income in accordance with Proposition 39 or may instead elect to apportion under the Compact’s equally weighted, three-factor formula.
The advisory is provided in PDF on the Alston & Bird website: