A lawsuit by Kimberly-Clark Corporation against Minnesota’s taxing authorities is now before the eight Justices of the Supreme Court, who will decide whether to hear the appeal next week. The outcome could have a significant impact on states that join the Multistate Tax Compact, which created a uniform system of taxation of companies doing business in multiple states.
Minnesota signed onto this agreement in 1983, and businesses relied on the Compact’s consistency and predictability. However, the state later repealed one of the Compact’s principles – the key provision giving taxpayers the option of apportioning their multistate income using a three-factor, equal-weighted formula. This formula determines how much of a business’s nationwide income should be attributed to a particular state. If a state can simply disregard the formula and use a different one, some companies will owe more in income taxes than they ever anticipated.
Other states across the country are taking similar action, and state courts in Oregon, Texas, Michigan, and California so far have upheld their action. Without uniformity in state enforcement, the original intent of the multistate compact will be undermined, making certain states less attractive for business and hurting job prospects.
The Manufacturers’ Center for Legal Action filed an amicus brief in support of review, opposing Minnesota’s attempt to change the rules in the middle of the game. We argued that long-term tax predictability is of immense business importance, that the Multistate Tax Compact offers such predictability and uniformity, and that Minnesota should honor the agreement it joined. We hope that the Supreme Court will accept this case for review and prevent states from taking a dysfunctional, uncoordinated approach to taxation.