Articles Posted in Income Tax

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In the Appeal of Sheward, 2022-OTA-228P (May 25, 2022), the California Office of Tax Appeals (OTA) held the California Franchise Tax Board (FTB) failed to follow its own market-based sourcing apportionment regulation by prematurely using reasonable approximation to source the income of a multistate unitary business.  During the tax year 2017, the taxpayer operated a business providing in-person services as a horse racetrack judge in California and Minnesota but failed to file a California return.  Related to such services, the taxpayer received Form 1099s from the State of California, the State of Minnesota, and Minnesota Harness Racing, Inc.

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The American Catalog Mailers Association (ACMA), which describes itself as the nation’s leading industry trade association advocating for catalog, online, direct mail, and other remote-selling merchants and their suppliers, has filed suit against the California Franchise Tax Board (FTB) in the San Francisco County Superior Court of California.

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ACMA’s complaint seeks a judicial declaration that the FTB’s 2022 publicly-issued guidance related to Public Law 86-272 (PL 86-272) – specifically, Technical Advice Memorandum (TAM) 2022-01 and FTB Publication 1050 – are invalid because (1) they contradict PL 86-272 and the U.S. Constitution; and (2) the FTB did not properly follow the California Administrative Procedure Act’s required rulemaking process before publishing such guidance.  In the alternative, ACMA seeks a judicial declaration that the FTB’s new guidance applies on a prospective basis only.  ACMA also seeks attorney’s fees and costs of suit for bringing the action to enforce an important right affecting the public interest.

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The Pennsylvania Governor signed H.B. 1342 to enact changes to the state’s corporate income tax.[1]  Pennsylvania-PA-State-SealThe legislation modifies the corporate income tax in three ways: (1) adopts a bright-line economic nexus standard; (2) adopts market sourcing for receipts from intangibles; and (3) reduces the corporate tax rate and gradually continues to reduce the rate over the next eight years. Continue Reading ›

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The California Court of Appeal held a nonresident S corporation shareholder’s pro rata share of gain on the sale of goodwill classified as business income by the S corporation has a California source and is subject to tax for personal income tax purposes to the extent of the S corporation’s California apportionment formula and is not sourced 100 percent to the nonresident shareholder’s domicile. Continue Reading ›

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California Governor Gavin Newsom has signed legislation (i.e., S.B. 113) to, among other things, reinstate business tax credits and net operating loss (NOL) deductions originally limited by the enactment of A.B. 85 in 2020.

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In One Technologies LLC v. Franchise Tax Board, an out-of-state California corporate taxpayer filed suit in California trial court challenging the state’s mandatory single sales factor apportionment formula on the basis its passage in 2012 via voter initiative Proposition 39 unconstitutionally violated the “single subject rule.”

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