Arizona v.
California
California and the California Franchise
Tax Board apply an exceptionally broad definition to what constitutes “doing
business” in California, with the effect that more and more out-of-state
companies and individuals are obligated to file California tax returns and of
course pay taxes to Sacramento. A particular application of this rule is that
companies organized outside of California that are themselves members of
California LLCs are required to qualify to transact business in California
In March, 2019, the State of
Arizona filed a lawsuit in the United States Supreme Court pursuant to the
“original jurisdiction” thereof against California, alleging that California practice
of so broadly requiring qualification is unconstitutional. On February 24 of
this year, the US Supreme Court denied leave to file that complaint; in
consequence that lawsuit will not go forward.
Justice Thomas, joined by Justice Alito, filed a dissent from the denial
of the motion for leave to file the complaint, asserting, inter alia, that the original jurisdiction of the Supreme Court is mandatory
and the Court does not have the discretion to refuse to hear the issue,
essentially leaving Arizona with no judicial forum for resolution to its
complaint.
But for now that is what has
happened.
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