Supreme Court Stays Out of Florida’s Tax Dispute With California

The US Supreme Court declined to take the unusual step of hearing a tax dispute among two states—in this case, Florida alleging a California rule deprives it of tax and investment revenue.

Florida filed a motion for leave to file a bill of complaint asking the high court to block California’s requirement that businesses exclude proceeds from “substantial and occasional” sales from their state tax returns, which Florida says distorts the taxable income California can lay claim to regarding multi-state businesses.

The court rarely takes original jurisdiction cases, and even more rarely takes original jurisdiction cases related to tax. The justices declined in 2021 to hear the last such dispute, in which New Hampshire sued Massachusetts over the latter’s policy of taxing nonresidents who once worked in the state but who were forced to work from their out-of-state homes during the Covid-19 pandemic.

The California Franchise Tax Board rule that Florida challenged excludes from the apportionment formula sales of fixed assets or property used in the regular course of business—such as a factory, patent, or affiliate’s stock—if those receipts are substantial. A sale is “substantial” if its exclusion results in a 5% or greater decrease in the sales factor denominator.

Excluding out-of-state sales from a company’s total nationwide earnings allows California to tax profits earned elsewhere in violation of the US Constitution’s commerce, import-export, and due process clauses, Florida argued.

California urged the justices not to take the case, arguing that the issues Florida presents can be adequately litigated by multistate corporations that are actually subject to the challenged rule.

Justice Clarence Thomas, joined by Justice Samuel A. Alito Jr., dissented, arguing that federal law doesn’t give the court discretion to decline to decide cases within its original jurisdiction.

The case is Florida v. California, U.S., No. 22o163, review denied 6/1/26.