Title: Gillette Co. v. Franchise Tax Bd.
Citation: N/A
Docket Number: S206587
State: California
Issuer: California Supreme Court
Date: December 31, 2015

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repealed by Stats. 2012, ch. 37, § 3.)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. FLSmidth-
Excel 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 in-
state 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 two-
factor 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-Compact-
Article-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) 
 
 [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