Florida Challenges California’s Corporate Tax Formula at the Supreme Court
Whether or not the Court takes the case, Florida’s challenge puts the constitutionality of single-sales-factor formulas squarely in the national spotlight.
Florida has invoked the U.S. Supreme Court’s original jurisdiction to challenge California’s corporate income tax apportionment rule.
The complaint argues that California’s single-sales-factor formula and its exclusion of “substantial and occasional” property sales from the apportionment denominator are unconstitutional tariffs that shift tax revenue and investment from other states into California.
The dispute marks the first state-against-state tax case at the Court since New Hampshire v. Massachusetts (2021).
The Law in Play
At issue is California Code Regs. tit. 18, §25137(c)(1)(A), which directs corporations to apportion income to California based solely on in-state sales. The rule excludes receipts from one-time or extraordinary property sales if excluding them changes the denominator by 5% or more.
Florida claims this structure violates the Commerce Clause, the Import-Export Clause, and Due Process, arguing that it penalizes companies operating or manufacturing in other states. California defends the rule to prevent distortions in apportionment from irregular transactions and maintain a fair reflection of business activity within the state.
Timeline
Oct. 28, 2025: Florida files its bill of complaint directly with the Supreme Court, asserting that California’s formula “operates as a tariff on goods manufactured in other States.”
The complaint cites recent California Office of Tax Appeals decisions denying relief to out-of-state sellers—an Alaska car dealership, a Virginia medical device company, and a North Carolina garage door manufacturer—whose large asset sales were excluded from the sales-factor denominator.
Florida argues these rulings illustrate how California’s approach “exerts hydraulic pressure on interstate businesses to locate property and payroll in California.”
California’s Franchise Tax Board declined comment; the California Attorney General’s Office has not yet responded.
The Larger Story
The suit revives a dormant category of litigation: state-to-state tax disputes invoking the Court’s original jurisdiction. Such cases are rare, partly because they require one state to claim direct injury from another’s tax policy—a high threshold often ends in dismissal.
Observers, including University of Connecticut tax scholar Richard Pomp, described the filing as “political performance,” suggesting the case may spotlight, more than resolve, tensions over how states compete for business tax bases. Still, the filing highlights ongoing friction among states over the shift toward single-sales-factor apportionment, a method many jurisdictions have adopted to attract in-state investment.
What It Means for Practice
For multistate taxpayers, the complaint underscores the uneven landscape of apportionment rules and the potential for double taxation when states adopt inconsistent formulas.
Practitioners should:
Review apportionment computations for exposure under California’s §25137 exclusions.
Track potential amicus activity, especially from states with similar formulas.
Prepare for renewed scrutiny of how “extraordinary transactions” affect the sales-factor denominator.
Anticipate taxpayer arguments invoking interstate commerce limits if California’s rule survives.
Next Steps
The Supreme Court will decide whether to grant Florida’s motion for leave to file the complaint. If accepted, the case would proceed to a briefing on jurisdiction and merits before a potential special master is appointed. No schedule has yet been set.
Citation
Florida v. California, U.S. Supreme Court, motion for leave to file bill of complaint (Oct. 28, 2025).