Bradley W. Joondeph (Santa Clara, SSRN), Florida v. California and the Fair Apportionment of Corporate Income, 120 Tax Notes State 7 (Mar. 31, 2026):

The Supreme Court is unlikely to grant Florida leave to file its complaint, in large part because Florida appears to lack standing to assert its claims in federal court. (It is unclear how Florida, as a state, is injured by California’s corporate income tax in a way that is sufficiently concrete and particularized to satisfy the requirements of Article III of the U.S. Constitution.) But even if the dispute were justiciable, Florida’s claims should fail on the merits.

The Constitution places two basic constraints on a state’s taxation of corporate income. First, state tax schemes cannot discriminate against interstate commerce: They cannot disadvantage out-of-state economic interests relative to in-state interests merely because they are out of state. Second, states cannot tax extraterritorially: As a general matter, they can tax only income that is attributable to the taxing state. California’s apportionment scheme satisfies both requirements.

The point is not that California’s apportionment scheme is necessarily the best way to divide the income of multistate corporations. The question is simply whether California’s method of apportionment is constitutionally permissible. It is: It does not discriminate against interstate commerce; it includes only income organically connected to a corporation’s business activities in California in the taxpayer’s apportionable tax base; and it calculates the fraction of a corporation’s income attributable to California according to a formula that is rationally related to the taxpayer’s income-producing activities in the state. Despite the dust kicked up by Florida’s attorney general — as well as several amici curiae, such as the U.S. Chamber of Commerce and American College of Tax Counsel — California’s method of apportioning corporate income is perfectly constitutional.

Perhaps California’s approach to apportioning corporate income is suboptimal as a matter of tax policy. Perhaps it would make more sense for the state to consider other factors in the attribution of income, beyond a taxpayer’s gross receipts from nonoccasional or insubstantial sales. But the Supreme Court has been clear: The Constitution does not require states to do so. And if schemes like California’s pose problems for other states, the solution should come from Congress, not the courts.