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A California trial court denied the Franchise Tax Board’s (FTB) motion to vacate and modify the judgment declaring FTB Technical Advice Memorandum (TAM) 2022-01 and FTB Publication 1050 invalid underground regulations adopted in violation of the Administrative Procedure Act.FTB

 

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The New York State Tax Appeals Tribunal (Tribunal) held that a taxpayer’s distributive share income from a partnership was intangible income properly sourced to the taxpayer’s residence and not to the location of the partnership’s underlying operations. In the Matter of Greenberg, the taxpayer was a New York resident partner in a partnership operating an investment fund from Connecticut. The taxpayer sought to credit her tax paid to Connecticut against her 2014 and 2015 New York State personal income tax liability. On audit, the New York State Department of Taxation and Finance (Department) disallowed the credit, asserting that a partner’s “carried interest” income (i.e., a partner’s compensation based on the performance of the fund’s investments) is sourced as intangible income to the taxpayer’s residence. The Department thus asserted that the taxpayer was not eligible for the credit because the income was sourced to the taxpayer’s New York residence and not to Connecticut where the partnership operated.

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A New York nonresident taxpayer, Edward Zelinsky, recently filed a notice of exception to a Division of Tax Appeals’ (DTA) determination that he must allocate all his wages to New York under the so-called “convenience of the employer” rule.[1] Zelinsky, a Connecticut resident who had previously challenged New York’s controversial sourcing rule, petitioned the DTA after the Department of Taxation and Finance (Department) denied his personal income tax refund claims for the 2019 and 2020 tax years. Although he was required to work from his Connecticut residence during the COVID-19 pandemic, which covered most of the 2020 tax year, the DTA upheld the rule allocating all Zelinsky’s wages to New York.[2] 

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OTA

The California Office of Tax Appeals (OTA) recently issued two opinions addressing the burden of proof taxpayers must meet to substantiate entitlement to California’s research and development (R&D) tax credit for qualified expenditures under California Revenue and Taxation Code section 23609. In both opinions, the OTA ruled in favor of the California Franchise Tax Board, holding each taxpayer failed to meet its respective burden to substantiate the R&D tax credit claimed.

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A California trial court granted summary adjudication in the American Catalog Mailers Association’s (ACMA) action against the Franchise Tax Board (FTB), invalidating FTB guidance that says certain online activities exceed the protections of Public Law 86-272 for state income tax purposes. This follows the court’s denial of ACMA’s first motion for summary adjudication, which we discussed in detail in an earlier blog post, where the court found ACMA did not carry its burden to show FTB Technical Advice Memorandum (TAM) 2022-01 and amendments to FTB Publication 1050 are facially invalid because they contradict PL 86-272.

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