Florida Attorney General James Uthmeier today announced that he has filed a bill of complaint with the United States Supreme Court against the State of California, challenging its corporate taxation rules.
Florida argues that a specific California tax regulation unconstitutionally targets and over-taxes multi-state businesses, particularly those operating across state lines, which Florida claims is directly harming its economy and discouraging companies from relocating or expanding to freer states.
Attorney General Uthmeier called California’s system a punishment for economic liberty.
“California has created a tax system that punishes economic freedom,” said Attorney General James Uthmeier. “We will not tolerate California over-taxing revenue earned in Florida. The Newsom regime is obviously attempting to punish business owners who have fled California due to its disastrous policies.”
The legal challenge focuses on a specific provision in California’s tax regulations—a “special rule” that governs how the state calculates the taxable income of multi-state corporations.
The complaint alleges that California’s formula for apportioning business income unfairly manipulates a corporation’s tax share by arbitrarily excluding certain large transactions, such as the sale of property or a factory, from the denominator used in the sales factor calculation.
- The Allegation: Florida contends that by excluding these “occasional” and “substantial” sales—which are most likely to occur where a corporation’s physical property and payroll are located (i.e., outside of California if the business has relocated)—the rule effectively inflates the portion of the company’s overall income that California can tax.
- The Purpose: The complaint asserts that the purpose of this rule is to disincentivize companies from relocating their operations, payroll, and property outside of California, thus serving as a “tariff” against out-of-state business.
Constitutional Violations Claimed
Florida’s bill of complaint argues that this “special rule” violates three key provisions of the U.S. Constitution:
- The Commerce Clause: It argues the rule discriminates against interstate commerce by favoring in-state businesses and imposing an “undue burden” on companies operating across state lines. The tax fails the Complete Auto Transit test by not being fairly apportioned and by taxing activity that has no substantial nexus with California.
- The Import-Export Clause: Florida argues the tax functions as an unconstitutional state-level tariff or duty on sales made by out-of-state corporations.
- The Due Process Clause: The complaint states that the rule is a clear due process violation because it is not rationally related to the income generated within California, irrationally taxing out-of-state sales based on the occurrence of unrelated sales in California.
Harm to Florida’s Economy
Florida claims standing to sue on multiple grounds, including as a sovereign State. It alleges that California’s tax scheme directly harms Florida by:
- Depriving it of tax revenue by discouraging corporations from moving their payroll and property from California or other states to Florida.
- Diminishing investment revenues for the State Board of Administration (SBA)—which manages funds for the Florida Retirement System and other state assets—as the SBA holds stock in companies over-taxed by the Special Rule.
- Acting parens patriae to protect the significant segment of its population that owns stock or has ownership interests in these over-taxed corporations.
Attorney General Uthmeier asked the Supreme Court to declare California’s “special rule” unconstitutional and issue a permanent injunction blocking its enforcement. Since this is a dispute between two states, the case falls under the Supreme Court’s original and exclusive jurisdiction.
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