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https://seesalt.pillsburylaw.com/files/2020/05/250px-Seal_of_California.svg_.pngThe May Revision of California’s 2024-2025 state budget seeks to block refund claims, worth approximately $1.3 billion for historical tax years, and $200 million per year going forward, by codifying informal guidance recently rejected by the Office of Tax Appeal’s (OTA) decision in the Matter of the Appeal of Microsoft Corporation & Subsidiaries (Appeal of Microsoft) and by granting the Franchise Tax Board’s (FTB) quasi-legislative rulemaking authority exempt from the procedural protections afforded by the Administrative Procedure Act.  The May Revision also proposes to suspend net operating loss (NOL) deductions and limit tax credit utilization to $5 million per year for tax years 2025-2027; however, the legislature proposes to apply the changes to tax years 2024-2026 instead.

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On April 5, 2024, the New Jersey Division of Taxation issued guidance discussing New Jersey’s adoption of the federal centralized partnership audit regime enacted as part of the federal Bipartisan Budget Act of 2015, P.L. 114-74. The guidance was released over a year after the Senate and General Assembly of the State of New Jersey approved P.L. 2022, c. 133 on December 22, 2022. This law applies to any adjustments to a taxpayer’s federal taxable income on or after January 1, 2020.

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Under a new bill signed into law on March 11, 2024, the South Carolina Department of Revenue will have to satisfy additional standards before it may force affiliated corporate taxpayers to file a unitary combined return. These new standards, enacted as part of Senate Bill 298, are expected to rein in the Department’s aggressive use of forced combination, which has led to considerable tax controversy in the state.

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OTAThe California Office of Tax Appeals (OTA), in a decision marked “not precedential” in the Matter of the Appeal of Microsoft Corporation & Subsidiaries, held 100 percent of repatriated dividends under the Tax Cuts and Jobs Act (TCJA) must be included in the taxpayer’s sales factor denominator.

  • First, the OTA rejected the “matching principle” included in FTB Ruling 2006-01, and supported its holding based primarily on the plain language of Cal. Rev. & Tax. Code § 25120(f)(2), and legislative history.
  • Second, the OTA rejected the FTB’s argument that repatriated dividends constitute a substantial and occasional sale of property under FTB Regulation 25137(c)(1)(A).
  • Last, the OTA determined the FTB failed to carry its burden to show the taxpayer’s inclusion of 100 percent of repatriated dividends in the sales factor denominator is distortive under Cal. Rev. & Tax. Code § 25137.
  • Anyone may submit a request to the OTA requesting the decision be marked “precedential.”

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