Part of California’s tax policy has been ruled unconstitutional. The decision is being seen by some as a win for out-of-state businesses and, more specifically, individuals who might be interested in buying Harley-Davidson motorcycles in the state.
The ruling stems from a lawsuit by the Wisconsin-based manufacturer against the California Franchise Tax Board. At the heart of the case was the fact that Harley-Davidson owns and operates various businesses. Some of those businesses deal with selling motorcycles to consumers in California and other states. Another of the businesses is a non-California-based company that provides financing.
According to one report about the case, Harley-Davidson properly reported its income from California sales in 2000 and 2002 and paid the necessary tax due. It did not report the income earned by the out-of-state finance company.
California businesses that have similar operations are allowed to file separate returns for each individual business. It’s a strategy that allows them to reduce overall tax obligations. But the Franchise Tax Board demanded that Harley-Davidson file a single return for all of the businesses and ordered the company to pay an additional $1.8 million.
The company met the burden as part of this tax dispute but immediately filed suit. The trial judge threw the case out at the request of the state’s attorney general. But the Court of Appeal reversed that decision.
In its unanimous opinion last month, the court said the state’s tax policy in this case discriminated against out-of-state businesses and violated the federal constitutions protections of commerce.
The state could appeal the decision to the state Supreme Court. If it doesn’t, the lower court is under direction to reexamine the matter with an eye toward making sure that tax policy doesn’t improperly favor California businesses.
Source: CalCoastNews, “Harley-Davidson thumps California’s Franchise Tax Board,” Stew Jenkins, June 4, 2015