The California Supreme Court has ruled that the state's interstate tax law is unconstitutional. The law, which was passed in 2011, required out-of-state businesses to pay income tax if they had a certain level of sales in the state. The court found that the law violated the Commerce Clause of the U.S. Constitution, which prohibits states from discriminating against interstate commerce.
California was the first state to adopt the Multistate Tax Commission’s revised interpretation of Pub. L. No. 86-272, a federal law that levies restrictions on state taxes of interstate businesses. The San Francisco Superior Court on February 14, 2024, held that the California Franchise Tax Board did not follow required procedures under the state’s Administrative Procedures Act in adopting it.
Read a February 2024 report* [PDF 190 KB] prepared by KPMG LLP that discusses the implications of the decision.
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