PHOENIX — California officials are urging the U.S. Supreme Court to butt out of their dispute with ÃÛèÖÖ±²¥ over how California imposes its taxes on some of this state’s residents and businesses.
In new legal filings, Joshua Patashnik, the California deputy solicitor general, defended the way his state’s Franchise Tax Board decides whether certain limited liability companies from ÃÛèÖÖ±²¥ are effectively doing business in California. That determines whether they are subject to California’s $800 minimum “doing business†tax.
But Patashnik told the justices they need not even decide whether the California statutes are fair and legal as applied.
He said anyone unhappy with the assessment has a variety of ways to appeal a decision of the Franchise Tax Board, both before the tax is paid and afterward.
“Indeed, a number of taxpayers are currently pursuing claims in California comparable to the ones ÃÛèÖÖ±²¥ seeks to assert on behalf of ÃÛèÖÖ±²¥ companies,†Patashnik wrote.
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The Supreme Court does tend to be the arbiter of disputes between sovereign states. And ÃÛèÖÖ±²¥ Attorney General Mark Brnovich, in asking them to intercede, has posed the issue in that way.
Patashnik disagreed.
“Cases like these are not appropriate for the court’s original jurisdiction because they are pecuniary disputes regarding taxation of private parties, not a substitute for the diplomatic settlement of controversies between sovereigns,†he wrote.
Brnovich contends that California is assessing its “doing business†tax in a way where it reaches companies that are not conducting actual business in that state. The connection being seized upon by California is that these are ÃÛèÖÖ±²¥ limited liability companies that have what Brnovich contends are “purely passive investments in California companies.â€
Brnovich said he is interceding on behalf of ÃÛèÖÖ±²¥ LLCs and their owners because it isn’t worth the time or effort of any one of them to challenge what amounts to an $800 charge.
But the overall effect, he said, is massive.
Brnovich estimates that ÃÛèÖÖ±²¥ investors are paying about $10.6 million a year to California under what he said is that state’s illegal scheme.
And he said ÃÛèÖÖ±²¥ itself is being hurt: Any taxes paid by an ÃÛèÖÖ±²¥ LLC to another state are generally considered deductible business expenses on ÃÛèÖÖ±²¥ income taxes. The result, Brnovich said, is that ÃÛèÖÖ±²¥ loses more than $484,000 a year.
Patashnik said the sheer scope of the claim being made by Brnovich is a good reason for the justices to send the ÃÛèÖÖ±²¥ official packing.
He said if they were to accept the case, it would effectively put them in a situation where they would have to “wade through the corporate records and individual circumstances of thousands of businesses to determine which of them might be entitled to a state tax refund.â€
The justices have set no date to decide whether to intercede.
