Capitol politicians have been wrangling for decades over taxing multistate and multinational corporations doing business in California.

In 1974, the state joined a multistate compact to bring uniformity to corporate taxation, the chief feature of which was using three equal factors – payroll, property and sales – to determine state taxable income.

Jerry Brown began his first governorship a year later and was hammered by multinationals – particularly the Japanese and the British – over the state's insistence that they open their books to state tax officials to determine how much of their income should be taxed.

Initially, Brown backed that insistence, but then did one of his famous flip-flops, taking the corporations' side while accusing the state's top tax official of using "flaky data" and getting him ousted.

The issue simmered until the multinationals eventually won some relief.

In 1993, the Legislature and then-Gov. Pete Wilson decided to tax out-of-state firms more and in-state corporations less by doubling the weight given to sales. But a corporate coalition led by the Gillette Co. complained that it violated the multistate compact and eventually sued.

Three years ago, as part of a budget deal, the Legislature and then-Gov. Arnold Schwarzenegger changed the formula again to use only sales as the determining factor but gave corporations an option to use the three-factor formula.

The issue has burned ever since, with critics saying the option is a loophole that costs the state as much as a billion dollars a year in revenue.

Assembly Speaker John A. Pérez has legislation to make the single sales factor mandatory to finance college scholarships. Proposition 39, on the November ballot, would also make the change to finance energy projects.

Amid all this, a state appellate court in San Francisco declared last week that the 1993 doubling of the sales factor did, in fact, violate the interstate tax compact and therefore was invalid. The state would have had to formally withdraw from the compact to make the switch legal, the court ruled.

The ruling could result in hundreds of millions, or perhaps billions, of dollars in refunds to Gillette and other corporations. It could also invalidate Pérez's bill and Proposition 39.

Perhaps in anticipation of the ruling, legislative leaders slipped into a budget trailer bill in June language to repeal the interstate tax compact. But the political and legal intrigue doesn't end there.

The repeal bill was passed by a simple majority vote, but some business groups are contending that in doing that, the Legislature violated Proposition 26, a 2010 ballot measure that requires "any change in state statute which results in any taxpayer paying a higher tax" to receive a two-thirds vote.

Where will it all wind up? Nobody knows.

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