Opinion ID: 3166818
Heading Depth: 3
Heading Rank: 2

Heading: Conditional or Unilateral Action

Text: 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 12 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) 13 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.