SeeSALT Blog
The California Franchise Tax Board (FTB), California Department of Tax and Fee Administration (CDTFA) and California Employment Development Department (EDD) announced tax relief for certain California counties affected by severe winter storms.
Articles Posted in Income Tax
Got Remote Workers? Supreme Court of Ohio Upholds Pandemic Rule for Municipality Tax
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The Supreme Court of Ohio has held the Ohio legislature did not violate the Due Process Clause of the U.S. Constitution by directing an Ohio citizen to pay taxes to the municipality where the employee’s principal place of work was located rather than to where the employee actually worked.
California Trial Court Denies FTB’s Motion to Vacate and Modify Judgment that Declared Technical Advice Memorandum 2022-01 and FTB Publication 1050 Invalid
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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.
New York State Tax Appeals Tribunal Rejects Sourcing of Partnership Income to that Partnership’s Operating Location
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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.
Try, Try Again—NY’s Convenience of the Employer Rule Sources Nonresident Wages to NY Even During the Pandemic
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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]
California Credit Claim Denials: California OTA Issues Two Opinions Rejecting Taxpayers’ Submitted Evidence to Substantiate Claimed California R&D Tax Credits
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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.
California Trial Court Grants Industry Trade Association’s Motion for Summary Adjudication, Declaring Technical Advice Memorandum 2022-01 and FTB Publication 1050 Invalid
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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.
Maine Expressly Requires Express Scripts to Apportion Services Receipts Using a Look-Through Approach
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On November 7, 2023, the Supreme Judicial Court of Maine held a taxpayer’s receipts from the performance of pharmacy benefit management (PBM) services should be apportioned using a look-through approach. Specifically, the court held such services receipts should be apportioned to the state where the prescription drug is dispensed by retail pharmacies to individual members (i.e., the market member method), rather than the state where the taxpayer’s client’s primary commercial and administrative headquarters is located (i.e., the market client method).
No Sugarcoating: The California Office of Tax Appeals Limits the California FTB’s Application of Legal Ruling 2006-01
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In the Appeal of Southern Minnesota Beet Sugar Cooperative (2023-OTA-342P) (Beet Sugar), the California Office of Tax Appeals (OTA) issued a precedential opinion holding the California Franchise Tax Board (FTB) is not entitled to apply its FTB Legal Ruling 2006-01 (Apr. 28, 2006) to prohibit taxpayers from including in their apportionment factors property, payroll, and sales that generated statutorily deductible income. The OTA’s guidance on the FTB’s interpretation and application of Legal Ruling 2006-01 in this opinion also has implications beyond the specific issue in Beet Sugar, as the FTB has been attempting to expand the application of the limited legal ruling to other inapplicable situations. For example, an opinion by the OTA in the Appeal of Microsoft Corporation & Subsidiaries (OTA Case Number 21037336) is also anticipated to be issued soon, which appeal concerns whether the FTB is entitled to apply Legal Ruling 2006-01 to prohibit taxpayers from including in their apportionment sales factors statutorily deductible foreign dividend amounts.
Big Things Have Small Beginnings: New Jersey Broadens Definition of Unitary Business
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On July 3, 2023, Governor Phil Murphy signed into law A.B. 5323, enacting important revisions to New Jersey’s Corporation Business Tax (CBT)[1] including expanding the definition of what constitutes a “unitary business.” The expanded definition now includes affiliated entities that may not have previously met the requirements for combined group membership for CBT purposes. 