Florida deserves its day in court to challenge California’s taxes on interstate commerce, we wrote in a brief filed with the U.S. Supreme Court on January 2.
In this rare state-vs-state “original jurisdiction” action in the Supreme Court, Florida argues that certain California tax policies deliberately grab more than a fair share of interstate commerce, essentially taxing activity occurring outside of California. Florida points to a California regulation, Cal. Code Regs., tit. 18, § 25137(c)(1)(A), that allows state tax officials to exclude what they deem substantial occasional sales from the formula divvying up business income among various states. As we note in our brief, this distorted formula increases California’s share of taxable income at the expense of other states.
Our brief also explains this is just the first of several challenges to California, New Jersey, and New York policy that are bubbling up. NTU is challenging a California law that “declares” tax officials’ to be right in a deduction dispute with taxpayers, and that applies retroactively with no limit. My colleague Andrew Wilford has monitored New Jersey and New York moving forward with regulations gutting limits on state authority to tax out-of-state companies guaranteed by the Interstate Income Act of 1959 (P.L. 86-272).
Florida is also uniquely impacted, we note. Numerous studies have found Florida’s tax and regulatory system to be far more competitive and conducive to economic growth than California’s, New Jersey’s and New York’s. Our own report on migration trends finds a sharp inflow to Florida—in fact, Florida gains a new resident from one of those three states once every nine minutes. The New York Times recently observed that “California’s tax agency is known for its aggressive pursuit of revenue . . . ” Florida can’t fight California’s aggressive tax policies with its own punitive counterpolicies, since that would undermine Florida’s reputation for being low-tax and pro-business. So its only recourse is a lawsuit like this one.
We hope the Court will allow Florida the opportunity to make its case. The case is Florida v. California and Franchise Tax Board of California, U.S. No. 22O163. Two other briefs were filed in the case, by the U.S. Chamber of Commerce and the American College of Tax Counsel.