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California Supreme Court denies use of Multistate Tax Compact’s equally weighted three-factor apportionment election

The California Supreme Court on Dec. 31, 2015, unanimously reversed a 2012 decision reached by the California Court of Appeal and held that taxpayers are precluded from making the election under the Multistate Tax Compact to use the equally weighted three-factor apportionment formula for purposes of the California franchise (income) tax. After determining that the Compact is not a binding contract among its members, the Court concluded that the California legislature had the unilateral authority to eliminate the Compact’s election provision.

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