1

Filed 12/31/15

IN THE SUPREME COURT OF CALIFORNIA

THE GILLETTE COMPANY et al., )

)

Plaintiffs and Appellants, )

) S206587

v. )

) Ct.App. 1/4 A130803

FRANCHISE TAX BOARD, )

) San Francisco County

Defendant and Respondent. ) Super. Ct. No. CGC-10-495911

[And five other cases.*] )

)

)

____________________________________)

Here we consider how California calculates income taxes on multistate 

businesses. In 1974, California joined the Multistate Tax Compact (Multistate 

Tax Com., Model Multistate Tax Compact (Aug. 4, 1967)) (Compact), which 

contained an apportionment formula and permitted a taxpayer election between the 

Compact‟s formula and any other formula provided by state law. (Former Rev. &

Tax. Code, § 38001 et seq., enacted by Stats. 1974, ch. 93, § 3, p. 193 and 

repealed by Stats. 2012, ch. 37, § 3.) The Legislature later amended the Revenue 

 

* The Proctor & Gamble Manufacturing Co. v. Franchise Tax Bd. (No. 

CGC-10-495912); Kimberly-Clark Worldwide, Inc. v. Franchise Tax Bd. (No. 

CGC-10-495916); Sigma-Aldrich, Inc. v. Franchise Tax Bd. (No. CGC-10-

496437); RB Holdings (USA) Inc. v. Franchise Tax Bd. (No. CGC-10-496438); 

Jones Apparel Group, Inc. v. Franchise Tax Bd. (No. CGC-10-499083). 
2

and Taxation Code to specify a different apportionment formula that “shall” apply 

“[n]otwithstanding” the Compact‟s provisions. (Rev. & Tax. Code,1 § 25128, 

subd. (a) (section 25128(a)).) Taxpayers here contend they remain entitled to elect 

between the new statutory formula and that contained in the Compact. We 

conclude the Legislature may properly preclude a taxpayer from relying on the 

Compact‟s election provision. 

I. BACKGROUND

A. Apportionment of Business Income in California Before the 

Compact

When a business earns income in multiple jurisdictions, apportionment is 

necessary to avoid tax duplication or other inequity. The Uniform Law 

Commission, also known as the National Conference of Commissioners on 

Uniform State Laws, is “a non-profit association of lawyers who draft model 

legislation regarding areas of law in which they believe it would be best to have 

uniformity of law among the states.” (Metso Minerals Industries v. FLSmidthExcel LLC (E.D. Wis. 2010) 733 F.Supp.2d 969, 973, fn. 5.) In 1957, this 

commission drafted the Uniform Division of Income for Tax Purposes Act (7A pt. 

1 West‟s U. Laws Ann. (2002) U. Div. of Income for Tax Purposes Act, § 1 et 

seq., p. 141) (the UDITPA or the Act). The Act was intended to provide a uniform 

guide for state laws and practices regarding multistate business taxation and to 

prevent taxation in multiple jurisdictions based “on more than [a business‟s] net 

income.” (7A pt. 1 West‟s U. Laws Ann., supra, prefatory note, p. 142; see 

ASARCO Inc. v. Idaho State Tax Comm’n (1982) 458 U.S. 307, 310, fn. 3.) Our 

Legislature codified the provisions of the UDITPA in 1966. (See § 25120 et seq.) 

 

1 Subsequent statutory references are to the Revenue and Taxation Code 

unless noted. 
3

The statutory scheme included an apportionment formula based on three factors: 

(1) The value of real property the business held in California (the property factor); 

(2) compensation paid to California employees (the payroll factor); and (3) gross 

California sales (the sales factor). Each factor was divided by the worldwide 

property holdings, payroll, and sales of the business. (§§ 25129, 25132, 25134.) 

Those three factors were added, then divided by three, yielding a California 

apportionment figure. (Former § 25128, as added by Stats. 1966, ch. 2, § 7, 

p. 179.) Under this approach, each constituent factor was given equal weight in 

calculating the ultimate apportionment figure. That figure was then multiplied by 

the business‟s worldwide income to determine its California income tax liability.2 

(§ 25101.) 

B. Promulgation of the Compact and its Adoption in California

The UDITPA was not widely adopted. States had scant motive to enact a 

uniform apportionment scheme benefitting multistate corporations. (See Ryan, 

Beyond BATSA: Getting Serious About State Corporate Tax Reform (2010) 67 

Wash. & Lee L.Rev. 275, 314, fn. 216 (Ryan); Swain, Reforming the State 

Corporate Income Tax: A Market State Approach to the Sourcing of Service 

Receipts (2008) 83 Tul. L.Rev. 285, 295; see also 61C West‟s Ann. Rev. & Tax. 

Code (2004 ed.) p. 456 [UDITPA adoption table].) The incentive arose with the 

specter of federal intervention. The United States Supreme Court held in 

 

2 For example, if a taxpayer had 40 percent of its property in California, paid 

30 percent of its payroll to California employees, generated 20 percent of its gross 

receipts from California sales, and had $10 million of worldwide business income, 

the taxpayer would: (1) Calculate its apportionment factor by adding the property 

factor (40%), the payroll factor (30%), and the sales factor (20%), and dividing by 

three (90% divided by three equals 30%); then (2) calculate its taxable income by 

multiplying the apportionment factor (30%) by its total business income ($10 

million) to arrive at a total taxable California income of $3 million. 
4

Northwestern States Portland Cement Co. v. Minnesota (1959) 358 U.S. 450, that 

a state income tax could be levied on an out-of-state corporation based upon its instate activities. “[T]he entire net income of a corporation, generated by interstate 

as well as intrastate activities, may be fairly apportioned among the States for tax 

purposes by formulas utilizing in-state aspects of interstate affairs.” (Id. at p. 

460.) This decision “prompted Congress to enact a statute . . . which sets forth 

certain minimum standards for the exercise of that power.”

3

 (U.S. Steel Corp. v. 

Multistate Tax Comm’n (1978) 434 U.S. 452, 455, fn. omitted (U.S. Steel).) 

Congress also authorized a study to recommend legislation regulating state 

taxation of interstate business income. (Ibid.) 

That study, known as the “Willis Report,” “recommended a uniform twofactor apportionment formula based on the amount of property and payroll in each 

state, as well as a blanket nexus standard that limited income tax jurisdiction to 

states in which a business had either real property or payroll.” (Ryan, supra, 67 

Wash. & Lee L.Rev. at pp. 311-312, fns. omitted; see Judiciary Special Subcom. 

on State Taxation of Interstate Commerce, H.R.Rep. No. 89-952, 1st Sess., pp. 

1135-1136 (1965).) Starting in 1965, several congressional bills proposed a 

comprehensive tax scheme for interstate business income. (U.S. Steel, supra, 434 

U.S. at p. 456, fn. 4.) Most states objected to the loss of sovereignty inherent in 

the Willis Report recommendations. Some states also feared the proposals would 

cause lost revenue. (See McLure, Jr., The Difficulty of Getting Serious About 

State Corporate Tax Reform (2010) 67 Wash. & Lee L.Rev. 327, 337.) 

 

3 The statute prohibits states from imposing an income tax where the only 

activity in the state is the solicitation of sales fulfilled outside the state. (See 15 

U.S.C. § 381(a).) 
5

The Willis Report and subsequent congressional action spurred an 

“unprecedented special meeting of the National Association of Tax 

Administrators” in January 1966, at which “the idea of a multistate tax compact 

was envisioned.” (Multistate Tax Com., First Annual Rep., Period Ending Dec. 

31, 1968, p. 1.) A draft of the Compact was presented to the states in January 

1967. It provided an alternative to potential federal legislation restricting state 

taxation power. Nine states adopted it within six months. (Id. at p. 2.) 

The Compact includes two central features. The first is the creation of the 

Multistate Tax Commission (Commission). The Commission is empowered to: 

(1) study state and local tax systems; (2) recommend proposals to increase 

uniformity or compatibility of state and local tax laws, thus improving tax law and 

administration; (3) compile and publish information to assist the implementation 

of the Compact; and (4) do anything “necessary and incidental to the 

administration of its functions pursuant to this compact.” (Compact, art. VI, § 3.) 

While the Commission may adopt uniform regulations interpreting the tax laws of 

its member states, these regulations are not binding. (Compact, art. VII; U.S. 

Steel, supra, 434 U.S. at p. 457.) The Compact also empowers a member state to 

ask the Commission to conduct audits, but only if the state has enacted enabling 

legislation. (Compact, art. VIII.) 

The second central feature is the adoption of the UDITPA‟s equal-weighted

apportionment formula. (Compact, art. IV.) The formula is designed to address 

the lack of uniformity among the various states‟ apportionment schemes. (Com., 

Third Annual Rep. (Fiscal Year July 1, 1969-June 30, 1970) p. 2.) The Compact 

contains an election provision. A taxpayer subject to apportionment of income “in 

two or more party States may elect to apportion and allocate his income in the 

manner provided by the laws of such State . . . .” (Compact, art. III, § 1.) 
6

Alternatively, the taxpayer may elect to rely on the Compact‟s apportionment 

formula. (Ibid.) 

In 1974, the Legislature passed former section 38006, which included the 

entire text of the Compact, and made California a member state. (Stats. 1974, ch. 

93, § 3, p. 193.) This action resulted in no immediate apportionment change 

because, as noted, existing California law had previously adopted the UDITPA 

formula.4 

C. Change in the Apportionment Formula: Amendment of Section 

25128

This situation changed in 1993 when the Legislature adopted a different 

apportionment formula. It amended section 25128(a) to provide: 

“Notwithstanding Section 38006 [i.e., the provisions of the Compact], all business 

income shall be apportioned to this state by multiplying the business income by a 

fraction, the numerator of which is the property factor plus the payroll factor plus 

twice the sales factor, and the denominator of which is four . . . .”5 (§ 25128(a), as 

amended by Stats. 1993, ch. 946, § 1, p. 5441, italics added.) Under this new 

formula, in-state sales were double-counted. Those sales, then, amounted to half 

the calculation rather than the one-third used under the UDITPA approach. The 

1993 legislation did not withdraw California as a member state or otherwise 

 

4 In 2015, the Commission passed a resolution modifying article IV of the 

model Compact to delete the UDITPA formula and to allow the adopting member 

state to replace it with any state apportionment formula. (See Model Compact, art. 

IV, § 9, as revised by the Multistate Tax Com. on July 29, 2015, available online 

at <http://www.mtc.gov/getattachment/Uniformity/Article-IV/Model-CompactArticle-IV-UDITPA-2015.pdf.aspx> [as of Dec. 31, 2015].) 

5 Section 25128 has subsequently been amended in ways not pertinent here. 

(See Stats. 1994, ch. 861, § 15, pp. 4269-4271; Stats. 1996, ch. 952, § 52, pp. 

5447-5449; Stats. 1997, ch. 605, § 108, pp. 4025-4027.) 
7

modify the Compact‟s election provision or apportionment formula set out in 

former article III, section 38006. (Compact, art. III, § 1, art. IV.) 

D. The Current Litigation

Between 1993 and 2005, six multistate corporations (Taxpayers) paid 

income tax calculated under the new formula. They then sought a refund, arguing

that the Compact gave them the right to choose between the new legislative

formula or the UDITPA approach. They claimed that under the UDITPA formula, 

they had overpaid their income tax by approximately $34 million. After the 

Franchise Tax Board (FTB) denied their claims, they filed a refund action. The 

trial court sustained the FTB‟s demurrer, concluding the Legislature could, 

consistent with the Compact, eliminate the election provision. The Court of 

Appeal reversed, reasoning in part that the Legislature could not unilaterally 

repudiate mandatory terms of the Compact, which permitted election.

6 We 

granted the FTB‟s petition for review.

II. DISCUSSION

The FTB contends section 25128(a)‟s new apportionment formula should 

control, arguing that when member states entered the Compact their intent “was to 

allow them to change their state laws to establish alternate mandatory 

apportionment formulas.” Taxpayers do not dispute that the Legislature has 

authority to enact an alternate formula. They argue instead that the Compact 

 

6 In the wake of the Court of Appeal‟s decision, the Legislature passed a bill 

repealing the Compact. (Stats. 2012, ch. 37, § 3.) An uncodified portion of the 

bill also provided that “an election affecting the computation of tax must be made 

on an original timely filed return for the taxable period for which the election is to 

apply and once made is binding,” and this doctrine is declaratory of existing law. 

(Stats. 2012, ch. 37, § 4, subds. (a), (c).) This case does not involve application of 

that subsequent legislative action. 
8

explicitly permits election and the Legislature is bound to allow it. This case turns 

on whether the Legislature is so bound. We conclude it is not and California‟s 

statutory formula governs. 

A. The Compact Constitutes State Law

Taxpayers recognize that the Compact does not have the force of federal 

law. It was never ratified by Congress as required under the compact clause. (See 

U.S. Const., art. I, § 10, cl. 3.) Even so, the United States Supreme Court held in 

U.S. Steel that states could enter into an agreement with each other without such 

ratification so long as the agreement was not “ „directed to the formation of any 

combination tending to the increase of political power in the States, which may 

encroach upon or interfere with the just supremacy of the United States.‟ ” (U.S. 

Steel, supra, 434 U.S. at p. 468, quoting Virginia v. Tennessee (1893) 148 U.S. 

503, 519.) U.S. Steel concluded the Compact did not run afoul of the compact 

clause: “[T]he test is whether the Compact enhances state power quoad the 

National Government. This pact does not purport to authorize the member States 

to exercise any powers they could not exercise in its absence. Nor is there any 

delegation of sovereign power to the Commission; each State retains complete 

freedom to adopt or reject the rules and regulations of the Commission. 

Moreover, as noted above, each State is free to withdraw at any time.” (U.S. Steel, 

at p. 473.) 

The Legislature ordinarily has authority to repeal or modify any enactment. 

“[T]he legislative power the state Constitution vests is plenary,” and “[a] corollary 

of the legislative power to make new laws is the power to abrogate existing ones. 

What the Legislature has enacted, it may repeal.” (California Redevelopment 

Assn. v. Matosantos (2011) 53 Cal.4th 231, 254, 255; see Cal. Const., art. IV, § 1.) 

“We thus start from the premise that the Legislature possesses the full extent of the 
9

legislative power and its enactments are authorized exercises of that power. Only 

where the state Constitution withdraws legislative power will we conclude an 

enactment is invalid for want of authority.” (Matosantos, at p. 254.) Similarly, 

“the Legislature is supreme in the field of taxation, and the provisions on taxation 

in the state Constitution are a limitation on the power of the Legislature rather than 

a grant to it.” (Delaney v. Lowery (1944) 25 Cal.2d 561, 568; see Santa Clara 

County Local Transportation Authority v. Guardino (1995) 11 Cal.4th 220, 247.) 

Taxpayers acknowledge the lack of congressional approval but argue

“interstate compacts (approved or not) take precedence over other state laws” 

because “they are both contracts and binding reciprocal statutes among sovereign 

states.” Taxpayers thus contend section 25128 violates the contract clauses of the 

federal and state Constitutions because it impairs an obligation created by an 

interstate compact. (See U.S. Const., art. I, § 10, cl. 1; Cal. Const., art. I, § 9.) We 

need not decide whether an interstate compact not approved by Congress 

necessarily takes precedence over other state law. Instead, we evaluate whether 

this Compact is a binding contract among its members. We conclude it is not. 

B. The Compact is Not a Binding Reciprocal Agreement

The Commission, which was created by the Compact, has filed an amicus 

curiae brief here. In the Commission‟s own view, the Compact is not binding. 

“Rather, it is an advisory compact that contains two apportionment provisions, the 

UDITPA formula and the election provision . . . which are more in the nature of 

model uniform laws.” To support this interpretation, the Commission urges a test 

derived from Northeast Bancorp v. Board of Governors, FRS (1985) 472 U.S. 159 

(Northeast Bancorp). That case involved an attempt by several out-of-state banks 

to acquire banks in New England. Federal law prohibited the acquisition of local 

banks by out-of-state banks unless expressly authorized by state law. (See 12 
10

U.S.C., former § 1842(d).) Some states passed laws permitting such acquisitions, 

but only if the home-state law contained a reciprocity provision allowing 

acquisitions by banks from the foreign state in question. Other states also allowed 

acquisitions only by banks from a particular geographic area. (Northeast Bancorp, 

at pp. 163-165.) The out-of-state banks claimed these state laws violated the 

compact clause because they failed to garner congressional approval. Northeast 

Bancorp expressed “doubt as to whether there is an agreement amounting to a 

compact.” (Id. at p. 175.) The court reasoned “several of the classic indicia of a 

compact are missing. No joint organization or body has been established to 

regulate regional banking or for any other purpose. Neither statute is conditioned 

on action by the other State, and each State is free to modify or repeal its law 

unilaterally. Most importantly, neither statute requires a reciprocation of the 

regional limitation.” (Ibid.) The Commission asserts the Compact does not satisfy 

any of the indicia of binding interstate compacts noted in Northeast Bancorp. We 

agree.7 

1. Reciprocal Obligations

We begin with the “[m]ost important[]” factor: whether the Compact 

created reciprocal obligations among member states. (Northeast Bancorp, supra,

472 U.S. at p. 175.) The Commission argues the Compact creates no reciprocal 

 

7 Taxpayers argue in passing that the U.S. Steel decision determined the 

Compact was a binding one, and “[i]f the Court had a doubt about whether the 

Compact was a binding interstate compact, it would have said so.” The argument 

is unpersuasive. U.S. Steel concluded only that the compact clause did not require 

Congress to approve the Compact for it to be valid. (See U.S. Steel, supra, 434 

U.S. at pp. 472-478.) The court had no occasion to decide whether the Compact 

constituted a binding agreement that could not be unilaterally amended by its 

members. Indeed, U.S. Steel predated Northeast Bancorp, wherein the high court 

first articulated the factors to consider in determining the binding nature of an 

interstate agreement. 
11

obligations, especially with respect to maintaining the election provision. Like 

Northeast Bancorp, U.S. Steel emphasized the importance of reciprocity when 

determining whether a binding interstate compact exists. “[T]he mere form of the 

interstate agreement cannot be dispositive” of whether the compact clause applies. 

(U.S. Steel, supra, 434 U.S. at p. 470.) It went on to explain “[a]greements 

effected through reciprocal legislation may present opportunities for enhancement 

of state power at the expense of the federal supremacy similar to the threats 

inherent in a more formalized „compact.‟ ” (Ibid., fn. omitted.) Conversely, as 

U.S. Steel suggested, simply because an agreement is labeled a “compact” is not 

dispositive of whether it is binding unless it contains key features, such as 

reciprocity. (See Northeast Bancorp, supra, 472 U.S. at p. 175.) 

Taxpayers admit that “party states do not perform or deliver obligations to 

one [another]” and “have no incentive to enforce the Compact,” which “is not the 

type of contract where the parties exchange obligations and are in a meaningful 

position to gauge each other‟s compliance.” Nevertheless, they argue the member 

states‟ commitment to the UDITPA formula is what prevented congressional 

intervention, and maintenance of that formula is mutual, reciprocal, and “critical to 

the effectiveness of the Compact.” 

As described ante, there is little doubt that, decades ago, the possibility of 

congressional action helped spur adoption of the Compact. But Taxpayers do not 

explain how a state‟s elimination of the UDITPA formula renders the Compact 

less “effective.” More importantly, whether it does or not is a completely different 

question from whether the Compact constitutes a reciprocal obligation among 

members. The Compact‟s provision of election between the UDITPA or any other 

state formula does not create an obligation of member states to each other. Even 

if maintenance of the election provision in one member state might benefit 

taxpayers in another state, that benefit to the taxpayer applies whether the taxpayer 
12

is from a member or nonmember state. This application is more akin to the 

adoption of a model law rather than the creation of any mutual obligations among 

Compact members. We note the Commission, in its amicus curiae brief, does not 

urge that California‟s decision to discontinue use of the UDITPA formula in any 

way undermines the effectiveness of the Compact. 

Indeed, as noted, the UDITPA was promulgated as a model law, and our 

Legislature adopted it years before joining the Compact. Clearly, the Legislature 

is free to amend its own legislation even if it is based on a model law. (See 

Microsoft Corp. v. Franchise Tax Bd. (2006) 39 Cal.4th 750, 772 [noting the 

Legislature was “free” to amend the UDITPA].) Nothing in the language of the 

Compact, nor California‟s enactment of it, suggested any change in the 

Legislature‟s authority to modify the apportionment formula. The Legislative 

Counsel commented that the Compact did not “alter any state tax.” (Ops. Cal. 

Legis. Counsel, No. 11600 (May 27, 1973) Multistate Tax Compact (Assem. Bill 

No. 1304) (1973-1974 Reg. Sess.) 5 Sen. J. (1973-1974 Reg. Sess.) p. 8250.) 

2. Conditional or Unilateral Action

Other indicia of a binding compact include whether its effectiveness 

depends on the conduct of other members and whether any provision prohibits 

unilateral member action. With respect to the former, the Compact has not 

required efficacious member action since 1967. By its terms, the Compact became 

effective once it had been “enacted into law by any seven States.” (Compact, art. 

X, § 1.) Nine states other than California enacted the Compact within six months 

of its initial draft. (Com., First Annual Rep., supra, at p. 2.) Thereafter, the 

Compact was effective “as to any other State upon its enactment thereof.” 

(Compact, art. X, § 1.) Thus, the Compact had long been effective when 
13

California joined it in 1974. No action by existing members was required to admit 

California. 

Any state may join the Compact simply by enacting its provisions into law. 

As U.S. Steel observed, “each State is free to withdraw at any time.” (U.S. Steel, 

supra, 434 U.S. at p. 473; see Compact, art. X, § 2.) Thus, any state may join or 

leave the Compact without notice. This ability of member states to unilaterally 

come and go as they please militates against a finding that the Compact is a 

binding interstate agreement under Northeast Bancorp. (See Seattle Master 

Builders v. Pacific Northwest Elec. Power (9th Cir. 1986) 786 F.2d 1359, 1372 

(Seattle Master Builders).)

Contrary to the Taxpayers‟ arguments, the presence of a withdrawal 

provision says nothing about a member state‟s ability to unilaterally modify the 

Compact. Indeed, no express language of the Compact or any California enabling 

statute proscribes unilateral amendment of our own state law. As the FTB 

observes, the history of the Compact is replete with examples of unilateral state 

action. Florida was one of the first states to enact the Compact in 1967. Yet it

later passed statutes eliminating Compact articles III and IV from Florida law. 

The Commission subsequently resolved that, in spite of that action, Florida was 

recognized “as a regular member in good standing of the Multistate Tax Compact 

and the Multistate Tax Commission.” (Com., Minutes of Meeting, Dec. 1, 1972, 

p. 2.) Numerous member states have subsequently enacted different 

apportionment formulae. Currently, only seven of the Compact‟s 16 members

employ the equal-weighted UDITPA formula.8 

 

8 Those states are Alaska, Hawaii, Kansas, Missouri, Montana, New Mexico, 

and North Dakota. (See Federation of Tax Administrators, chart, State 

Apportionment of Corporate Income, available online at 

(footnote continued on next page)
14

Member state adoption of different formulae, coupled with the Compact‟s 

express grant of authority to join or leave the Compact at will, confirms that the 

Compact did not prohibit unilateral state action. The freedom of members to 

engage in such unilateral conduct is inconsistent with the type of binding 

agreement contemplated by Northeast Bancorp. 

3. Regulatory Organization

The Taxpayers argue that the establishment of the Commission is “a classic 

characteristic of an interstate compact.” The argument ignores an important point. 

Although the Compact established the Commission, that body has no authority 

ordinarily associated with a regulatory organization. Article VI of the Compact 

authorizes the Commission to “[s]tudy State and local tax systems and particularly 

types of State and local taxes,” “[d]evelop and recommend proposals for an 

increase in uniformity or compatibility of State and local tax laws with a view 

toward encouraging the simplification and improvement of State and local tax law 

and administration,” and “[c]ompile and publish such information as would, in its 

judgment, assist the party States in implementation of the compact and taxpayers 

in complying with State and local tax laws.” (Compact, art. VI, § 3, subds. (a)-(c), 

italics added.) As the Commission observes, these powers “are strictly limited to 

an advisory and informational role.” 

The Commission may also promulgate administrative regulations “in the 

event that two or more States have uniform provisions relating to specified types 

of taxes.” (U.S. Steel, supra, 434 U.S. at p. 457; see Compact, art. VII.) However, 

 

(footnote continued from previous page)

<http://www.taxadmin.org/assets/docs/Research/Rates/apport.pdf> [as of Dec. 31, 

2015].) 
15

as U.S. Steel observed: “These regulations are advisory only. Each member State 

has the power to reject, disregard, amend, or modify any rules or regulations 

promulgated by the Commission. They have no force in any member State until 

adopted by that State in accordance with its own law.” (U.S. Steel, at p. 457.) 

While these regulations may play a persuasive role in shaping policy, the 

Commission‟s inability to bind member states to adopt them further confirms it is 

not a regulatory organization within the meaning of Northeast Bancorp. 

Similarly, the Commission may conduct taxpayer audits but only if the 

member state has passed separate authorizing legislation and expressly requests

the audit. (Compact, art. VIII.) In such a case, the Commission acts as “the 

State‟s auditing agent” and any power of compulsory process derives from the 

authority vested by the laws of the requesting member state. (U.S. Steel, supra, 

434 U.S. at p. 457; Compact, art. VIII, § 4.) Further, although the Commission 

may “require the attendance of persons and the production of documents in 

connection with its audits,” it “has no power to punish failures to comply” and 

“must resort to the courts for compulsory process, as would any auditing agent 

employed by the individual States.” (U.S. Steel, at p. 475; Compact, art. VIII, 

§§ 3-4.) 

Finally, the Compact authorizes the Commission to provide for binding 

arbitration of disputes between member states. (Compact, art. IX, § 1.) However, 

the Commission has never adopted such a regulation and no arbitration provisions 

are currently effective. (See U.S. Steel, supra, 434 U.S. at p. 457, fn. 6.) Indeed, 

California hesitated to join the Compact due, in part, to concerns that such an 

arbitration provision would not only displace California institutions as the forum 

for tax disputes, but that “easy access to arbitration” would lead to “erosion of the 

state‟s tax base.” (Assem. Com. on Rev. & Tax., analysis of Assem. Bill No. 1304 

(1973-1974 Reg. Sess.) as amended June 14, 1973, p. 3.) The Legislature 
16

approved California‟s membership upon explicit condition that the Commission 

not make the arbitration provision effective. An uncodified portion of our 

enacting statute provided that California would automatically withdraw from the 

Compact if the Commission changed its voting rules or if the arbitration provision 

was made effective. (Stats. 1974, ch. 93, § 5, p. 208.)9 

As discussed, U.S. Steel held the Compact did not encroach on federal 

authority in any way that would require congressional approval under the compact 

clause. The U.S. Steel court observed there is no “delegation of sovereign power 

to the Commission; each State retains complete freedom to adopt or reject the 

rules and regulations of the Commission.” (U.S. Steel, supra, 434 U.S. at p. 473.) 

The Commission simply has no binding regulatory authority upon member states. 

Whatever power the Commission has to promulgate regulations or conduct audits 

exists solely at the pleasure of each member state. Further, the only express 

powers of the Commission independent of authority granted by each member is 

 

9 Section 5 of the enacting statute provided: “This act is hereby repealed and 

shall have no further force or effect, and this state is withdrawn from the 

Multistate Tax Compact as set forth in Section 38006 of the Revenue and Taxation 

Code, on the 10th day after the occurrence of any of the following events after the 

operative date of this act: [¶] (1) The Multistate Tax Commission adopts any 

regulation placing in effect Article IX of the Multistate Tax Compact, or any part 

thereof, as set forth in Section 38006 of the Revenue and Taxation Code, or [¶] (2) 

The Multistate Tax Commission places in effect any bylaw or regulation or 

parliamentary ruling for the conduct of its business which permits any matter 

voted upon to be adopted other than by receiving a majority of the number of 

member states and a majority of the total population of all the member states 

according to the current United States Statistical Abstract, or [¶] (3) The entry of a 

final judgment by any court of competent jurisdiction requiring the Multistate Tax 

Commission to place in effect Article IX of the Multistate Tax Compact as set 

forth in Section 38006 of the Revenue and Taxation Code, or requiring or 

approving any matter to be adopted by the Multistate Tax Commission by the 

employment of a different manner of voting than that set forth in subparagraph (2) 

of this section.” (Stats. 1974, ch. 93, § 5, p. 208.) 
17

purely advisory. It may study tax laws, make proposals, and publish data. 

(Compact, art. VI, § 3.) Because the Commission lacks any binding authority over 

the member states, it is not a joint regulatory organization as contemplated by 

Northeast Bancorp. (Northeast Bancorp, supra, 472 U.S. at p. 175.)10 

Nothing in the language of former section 38006, the circumstances of its 

enactment, the subsequent conduct of other members states, or the position taken 

by the Commission, indicate our Legislature intended to be bound by the taxpayer 

election provision. 

C. The Reenactment Rule Does Not Bar the Legislature’s Amendment 

of Section 25128

Taxpayers alternatively argue that the Legislature‟s amendment of section 

25128 is invalid because it violates the reenactment rule. That rule derives from 

article IV, section 9 of our Constitution, stating: “A statute shall embrace but one 

subject, which shall be expressed in its title. If a statute embraces a subject not 

expressed in its title, only the part not expressed is void. A statute may not be 

amended by reference to its title. A section of a statute may not be amended 

unless the section is re-enacted as amended.” (Italics added.) One purpose of this 

provision “is to „make sure legislators are not operating in the blind when they 

amend legislation, and to make sure the public can become apprised of changes in 

the law.‟ ” (St. John’s Well Child and Family Center v. Schwarzenegger (2010) 

 

10 See also In re Manuel P. (1989) 215 Cal.App.3d 48, 66-67 (statute 

regarding the deportation of minor wards did not create an interstate agreement 

within the meaning of Northeast Bancorp); compare with Seattle Master Builders, 

supra, 786 F.2d at p. 1363 (concluding the Pacific Northwest Electric Power and 

Conservation Planning Council constituted a compact agency within the meaning 

of Northeast Bancorp). 
18

50 Cal.4th 960, 983, fn. 20; Hellman v. Shoulters (1896) 114 Cal. 136, 152 

(Hellman).) 

Generally, the reenactment rule does not apply to statutes that act to 

“amend” others only by implication. (Hellman, supra, 114 Cal. at p. 152.) We 

reasoned long ago in Hellman: “To say that every statute which thus affects the 

operation of another is therefore an amendment of it, would introduce into the law 

an element of uncertainty which no one can estimate. It is impossible for the 

wisest legislator to know in advance how every statute proposed would affect the 

operation of existing laws.” (Ibid.) The Legislature‟s 1993 amendment of section 

25128 replaced the equal-weighted UDITPA apportionment formula with a 

different formula double-counting the sales factor. This amendment expressly 

referenced the Compact, stating that it applied “[n]otwithstanding Section 

38006 . . . .” (§ 25128(a) as amended by Stats. 1993, ch. 946, § 1, p. 5441.) 

Although Taxpayers note that the legislative bill analyses of the amendment did 

not refer to the Compact or the election provision expressly, reference to the 

Compact in section 25128(a) itself is strong evidence that the Legislature acted 

with the Compact in mind. “Even without a re-enactment, the legislators and the 

public have been reasonably notified of the changes in the law.” (White v. State of 

California (2001) 88 Cal.App.4th 298, 315; see Brosnahan v. Brown (1982) 32 

Cal.3d 236, 256-257.) So too here. Even without a reenactment of section 38006 

to eliminate the election language, the amendment of section 25128 did not violate 

the reenactment rule. 

D. The Legislature Intended to Supersede the Compact’s Election 

Provision

Having concluded the Legislature had the unilateral authority to eliminate 

the Compact‟s election provision, we must determine whether it intended to do so. 
19

Taxpayers suggest it did not, arguing that the Legislature intended section 25128‟s 

double-sales factor formula to apply only “if the Compact Formula is not elected.” 

Both the language of section 25128 and its legislative history defeat such a 

claim. First, section 25128(a) explicitly provides that “all business income shall 

be apportioned to this state by” using the formula it sets out, “[n]otwithstanding

Section 38006 [i.e., the Compact] . . . .” (Italics added.) There is no ambiguity in

this language. The Assembly Committee on Revenue and Taxation‟s analysis of 

the bill explained the need for the amendment: “California and most other states 

have used an equal weighted three-factor apportionment formula for many years. 

This formula has been retained largely out of a belief that uniformity among states 

is the best way to ensure that corporations are not subject to double taxation or that 

some income „falls through the crack‟. While any apportionment formula may be 

somewhat arbitrary, supporters of the current system argue that it is still in 

California‟s best interest to remain uniform with other states. [¶] However, while 

uniformity in apportionment methods existed between states in the 1960‟s and 

may still be a desirable principle, this uniformity has been eroded significantly in 

recent years by the actions of other states. Currently twenty-five other states at 

least provide an option to certain taxpayers to place an additional weight on the 

sales factor in their apportionment formulas . . . . [¶] Proponents believe that 

California‟s continued reliance upon the three-factor apportionment system results 

in discriminatory taxation against California-based companies, particularly given 

the additional weight given to sales factors by other states.” (Assem. Com. on 

Rev. & Tax., analysis of Sen. Bill No. 1176 (1993-1994 Reg. Sess.) as introduced 

Mar. 5, 1993, pp. 2-3; see also Sen. Com. on Rev. & Tax., analysis of Sen. Bill 

No. 1176 (1993-1994 Reg. Sess.) as introduced Mar. 5, 1993, p. 2.) In light of the 

statute‟s language and this legislative history, there is no credible argument that 

the Legislature intended to retain the Compact‟s election provision. 
20

III. DISPOSITION

The Court of Appeal‟s judgment is reversed. 

CORRIGAN, J. 

WE CONCUR:

CANTIL-SAKAUYE, C. J.

WERDEGAR, J.

LIU, J. 

CUÉLLAR, J.

KRUGER, J. 

MURRAY, J. *

_______________________________________________________

* Associate Justice of the Court of Appeal, Third Appellate District, assigned 

by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
See last page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion The Gillette Company v. Franchise Tax Board

__________________________________________________________________________________

Unpublished Opinion

Original Appeal

Original Proceeding

Review Granted XXX 209 Cal.App.4th 938

Rehearing Granted

__________________________________________________________________________________

Opinion No. S206587

Date Filed: December 31, 2015

__________________________________________________________________________________

Court: Superior

County: San Francisco

Judge: Richard A. Kramer

__________________________________________________________________________________

Counsel:

Silverstein & Pomerantz, Amy L. Silverstein, Edwin P. Antolin, Johanna W. Roberts, Charles E. Olson and 

Lindsay T. Braunig for Plaintiffs and Appellants.

Jeffrey B. Litwak; BraunHagey & Borden and Matthew Borden as Amici Curiae on behalf of Plaintiffs and 

Appellants.

Wm. Gregory Turner for Council on State Taxation as Amicus Curiae on behalf of Plaintiffs and 

Appellants.

Keith G. Landry; Reed Smith, Brian W. Toman, Mardiros H. Dakessian, Muhammad I. Shaikh and Erin J. 

Mariano for Institute for Professionals in Taxation as Amicus Curiae on behalf of Plaintiffs and Appellants.

Law Offices of Miriam Hiser, Miriam Hiser; Masters, Mullins & Arrington and Richard L. Masters for 

Interstate Commission for Juveniles and Association of Compact Administrators of the Interstate Compact 

on the Placement of Children as Amici Curiae on behalf of Plaintiffs and Appellants.

Kamala D. Harris, Attorney General, Susan Duncan Lee, Acting State Solicitor General, Edward C. 

DuMont, State Solicitor General, Kathleen A. Kenealy, Chief Assistant Attorney General, Paul D. Gifford, 

Assistant Attorney General, W. Dean Freeman, Joyce E. Hee and Lucy F. Wang, Deputy Attorneys 

General, for Defendant and Respondent.
Page 2 – S206587 – counsel continued

Counsel:

Gregg Abbot, Attorney General (Texas), Mark L. Walters and Daniel T. Hodge, Assistant Attorneys 

General, Jonathan F. Mitchell, Solicitor General, Rance Craft, Assistant Solicitor General; Luther Strange, 

Attorney General (Alabama); Michael C. Geraghty, Attorney General (Alaska); Dustin McDaniel, Attorney

General (Arkansas); John W. Suthers, Attorney General (Colorado); Irvin B. Nathan, Attorney General 

(District of Columbia); David M. Louie, Attorney General (Hawaii); Lawrence G. Wasden, Attorney 

General (Idaho); Derek Schmidt, Attorney General (Kansas); Bill Schuette, Attorney General (Michigan); 

Lori Swanson, Attorney General (Minnesota); Chris Koster, Attorney General (Missouri), Timothy C. Fox, 

Attorney General (Montana); Catherine Cortez Masto, Attorney General (Nevada); Gary K. King, Attorney 

General (New Mexico); Wayne Stenehjem, Attorney General (North Dakota); Ellen F. Rosenblum, 

Attorney General (Oregon); John E. Swallow, Attorney General (Utah); and Robert W. Ferguson, Attorney 

General (Washington) as Amici Curiae on behalf of the states of Texas, Alabama, Alaska, Arkansas, 

Colorado, Hawaii, Idaho, Kansas, Michigan, Minnesota, Missouri, Montana, Nevada, New Mexico, North 

Dakota, Oregon, Utah, Washington and the District of Columbia.

Joe Huddleston, Shirley K. Sicilian and Sheldon H. Laskin for Multistate Tax Commission as Amicus 

Curiae on behalf of Defendant and Respondent.
Counsel who argued in Supreme Court (not intended for publication with opinion):

Amy L. Silverstein

Silverstein & Pomerantz

12 Gough Street, 2nd Floor

San Francisco, CA 94103

(415) 593-3500

Edward C. DuMont

State Solicitor General

455 Golden Gate Avenue, Suite 11000

San Francisco, CA 94102-7004

(415) 703-5202