Articles Posted in California

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Following the IRS’s announcement of tax relief for 41 California counties* affected by severe winter storms, the California Franchise Tax Board (FTB) and California Department of Tax and Fee Administration (CDTFA) announced similar relief for state-level taxes and fees.https://seesalt.pillsburylaw.com/files/2020/05/250px-Seal_of_California.svg_.png

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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 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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California Supreme Court holds that courts can entertain arguments that a BID assessment scheme violates certain provisions of Proposition 218 when raised by a party who did not articulate these objections in public hearings held to consider protests.https://seesalt.pillsburylaw.com/files/2020/05/250px-Seal_of_California.svg_.png

On December 20, 2021, the California Supreme Court reversed the court of appeal which had concluded that petitioners failure to present their objections to proposed business improvement districts (“BIDs”) and related assessment schemes at the appropriate public hearings meant they had not exhausted their extrajudicial remedies, a lapse that prevented the court from deciding petitioners’ claims on the merits.  Hill RHP Housing Partners, L.P. et al. v. City of Los Angeles, No. S263734.

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This week, Governor Newsom vetoed Senate Bill 792 (Glazer), which would have required large online retailershttps://seesalt.pillsburylaw.com/files/2020/05/250px-Seal_of_California.svg_.png to include with their sales tax returns an additional schedule that reports gross receipts based on the “ship to” or destination location.  The bill targeted online retailers with over $50 million in annual sales of tangible personal property.  Qualifying online retailers that failed to report this information would have been subject to a penalty of $5,000.

California imposes a statewide sales tax on retailers for the privilege of selling tangible personal property at retail within the state, measured by the gross receipts from each sale.  An additional sales tax of 1.25% (the Bradley-Burns Tax) is imposed on sales subject to the statewide sales tax, of which 1% is allocated to localities to use at their discretion and the remainder is distributed to county local transportation funds to support transportation programs. Continue Reading ›

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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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The California Department of Tax and Fee Administration (Department) has given notice that it proposes to amend California Code of Regulations, title 18, section (Regulation) 1706, Drop Shipments.  Regulation 1706, subdivision (c) provides that a drop shipper making a drop shipment must report and pay tax measured by the retail selling price of the property paid by the California consumer to the true retailer, unless the sale and use of the property are otherwise exempt.  The proposed amendments clarify that marketplace sales are generally not drop shipment transactions and provide more guidance about how a person can overcome the presumption they are a drop shipper. https://seesalt.pillsburylaw.com/files/2020/05/250px-Seal_of_California.svg_.png Continue Reading ›

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