U.S. Supreme Court turns away companies in California tax dispute

October 11, 2016 10:01 AM EDT

U.S. Supreme Court is seen in Washington, U.S., October 3, 2016. REUTERS/Yuri Gripas

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By Lawrence Hurley

WASHINGTON (Reuters) - The U.S. Supreme Court on Tuesday rejected a challenge by Procter & Gamble Co and other companies to the way California imposes taxes on businesses that operate in multiple states.

The justices left in place a December 2015 ruling by the California Supreme Court that California is not bound by a 1967 agreement between states that set a formula for calculating taxes. California, which joined the Multistate Tax Compact in 1974, changed the formula in 1993.

California has since withdrawn from the state compact.

Several companies, including two Procter & Gamble subsidiaries, Kimberly-Clark Worldwide Inc and Merck KGaA subsidiary Sigma-Aldrich Corp, sued in 2010 after being denied refunds for the tax they paid between 1993 and 2005. The companies said they overpaid their taxes by $34 million.

Lawyers for the companies had said $750 million in potential tax refunds in California and additional amounts in other states were at stake in the case.

Many states have moved away from the Multistate Tax Compact formula. To favor and attract businesses within their borders, these states have rearranged the way they tax business income so that in-state businesses pay less and out-of-state businesses pay more.

(Reporting by Lawrence Hurley; Editing by Will Dunham)

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