Pillsbury SALT associate Breanna Zagorski will be presenting at the 2025 TEI Annual Conference on Oct. 28, 2025.
Articles Posted in Issues
32nd Annual Paul J. Hartman State & Local Tax Forum
Pillsbury SALT partners Carley Roberts, Zachary Atkins and Aruna Chittiappa will be presenting at the 32nd Annual State and Local Tax Forum taking place Oct. 27–29, 2025.
Sourced and Settled: California FTB Finalizes its Long-Awaited Market-Sourcing Regulation, Applicable to Tax Year 2026 and Beyond
After nearly a decade in development, the California Franchise Tax Board (FTB) has finalized its amended market-based sourcing regulation under Regulation Section 25136-2, which governs the sourcing of receipts from services and intangible property.
The regulation was approved by the Office of Administrative Law and filed with the Secretary of State on August 27, 2025. The revised rules will apply to tax years beginning on or after January 1, 2026. Among the most significant changes to the regulation are:
- For purposes of population-based reasonable approximation, taxpayers are limited to populations of specific foreign jurisdictions or geographic areas where sales can be substantiated, rather than the broader population of the country. The regulation does not resolve whether California’s population—the numerator—may similarly be confined to the localities where sales occur.
- A new framework and examples for sourcing receipts from services, beginning with a presumption of where the benefit of the service is received depending on whether the service primarily relates to real property, tangible personal property, intangible property, or individuals.
- The location of the benefit is then substantiated through cascading rules: (1) contracts or the taxpayer’s books and records, (2) all other sources of information, (3) reasonable approximation, or (4) the customer’s billing address.
- For services provided to the U.S. government, if none of the first three rules apply, the receipts are sourced based on the ratio of California’s population to the national population.
- New examples address logistics services (sourced to the tangible property delivery location), pharmaceutical development services (sourced to the clinical trial testing location), digital advertising services (sourced via look-through to the individual ad viewer’s location), and call center services (sourced via look-through to the customer’s own individual customers).
- New definitions, sourcing methodology and examples for asset management services, assigning receipts based on the average value of assets held by investors or beneficial owners domiciled in California.
- New definitions, sourcing methodology and examples for select types of professional service providers with more than 250 customers.
- Use of reasonable approximation to determine the location where an intangible is to be used following a complete transfer of property rights.
- New rules and an example for bundled sales of services and tangible and intangible property.
- Definition of “customer” of marketable securities, excluding intermediaries.
- New rule that the taxpayer’s reasonable approximation method or location of the customer for marketable securities will be accepted unless the FTB can prove by a preponderance of the evidence that it is unreasonable.
COST 56th Annual Meeting
Join Pillsbury SALT partners Zachary Atkins and Evan Hamme for their presentations at COST’s 56th Annual Meeting.
California Updates Tax Regulations on Technology Transfer Agreements
In a move to untangle the complexities surrounding sales and use tax in technology transfer arrangements, California’s tax regulator has laid out three major proposals.
SALT attorneys Jeff Vesely and Richard Nielsen dissect these changes—from adding clarification to introducing rebuttable presumptions—that could dial down uncertainty at the crossroads of sales/use tax and tech licensing agreements.
Welcome back to Pillsbury SALT, Annie!
Pillsbury SALT is excited to welcome back Annie H. Huang to the team!
Annie’s experience focuses on state and local tax matters, including corporate franchise and income, personal income, sales and use, and gross receipts and other local taxes.
Annie brings not only strong legal experience but also a genuine enthusiasm for building relationships and supporting clients through complex challenges.
She joins Pillsbury’s San Francisco office as a partner. Read more here.
Putting Regulations to the Test: California Taxpayers Cleared to Challenge Regulations in OTA Appeals
The California Attorney General has confirmed the Office of Tax Appeals (OTA) may decline to apply a tax regulation in a taxpayer appeal if it conflicts with the relevant statute. OTA must afford appropriate deference to the issuing agency, but its authority extends to setting aside the regulation for that appeal. OTA lacks authority to invalidate or repeal the regulation more broadly or to apply its conclusions outside the specific appeal.
NYU Introduction to State and Local Tax
Pillsbury SALT partner Aruna Chittiappa will be speaking at NYU’s Introduction to State and Local Tax program.
2025 Summer Tax Institute
Pillsbury SALT partner Robert P. Merten III will be an instructor for the 2025 Summer Tax Institute, hosted by the UC Davis School of Law.