In this episode we discuss three recent developments, including an electricity tax matter in California (City of Arcata v. Pacific Gas & Electric Co.) a Texas unclaimed property matter (CKD Homes Direct, Ltd v. Comptroller) and a Utah income tax matter.




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On Aug. 11, the California Franchise Tax Board (FTB) held the latest Interested Parties Meeting (IPM) in its three-year long project to amend the state’s alternative apportionment petition regulation. The meeting covered changes in the latest proposed regulation language (PDF) and provided taxpayers with the opportunity to voice concerns regarding potential gaps and ambiguities with the draft language. Once finalized, the regulation will help settle significant uncertainty regarding how taxpayers can preserve their rights and privacy during the alternative apportionment petition process.

Project Background

California Revenue and Taxation Code Section 25137 and FTB Regulation 25137 allow for relief where the standard apportionment formula does not result in a fair representation of a corporate taxpayer’s business activity in California (typically an unusual situation). However, neither the statute nor the current regulation offer taxpayers any guidance on the process for petitioning for such relief.

On June 30, 2017, the FTB held its first interested parties meeting to discuss potential amendments to Regulation 25137 to provide more guidance regarding the Section 25137 Petition process. Follow-up meetings were held on Nov. 26, 2018 and Dec. 4, 2019. The meeting held on Aug. 11 was the latest IPM in this years-long process, but signaled progress in clarifying a few significant taxpayer concerns.

Key Takeaways from the Latest Section 25137 Petition IPM

Highlights from the IPM include:

  • Confidentiality: Regulation amendments clarify that the California Public Records Act and the Bagley-Keene Act apply to the decision of the three member FTB board (“the FTB, itself”), and records submitted to the FTB, itself, by the taxpayer or the FTB staff. Accordingly, the decision and any such records are subject to public disclosure. Records that are not submitted directly to the FTB, itself, remain subject to the confidentiality provisions of Cal. Rev. & Tax. Code § 19542.
  • Right to a Hearing: The FTB clarified that nothing entitles a taxpayer to a Section 25137 Petition hearing. The decision whether to conduct such a hearing remains with the FTB, itself.
  • Outstanding Exhaustion Issues: A subsequent iteration of the regulation may address whether taxpayers need to go to the FTB, itself, before filing an appeal to the Office of Tax Appeals. Similarly, a taxpayer at the IPM requested a “deemed denial” provision that would allow taxpayers to appeal the FTB’s inaction on a Section 25137 Petition.
  • Notice Concerns: One taxpayer voiced concern regarding the lack of a requirement to notify a taxpayer of a Section 25137 Petition hearing. A FTB representative said that taxpayers will be notified 30 days before any hearing before the FTB, itself, but more notice is impracticable given the sporadic nature of board meetings.

For an in-depth look at California’s alternative apportionment process and the FTB’s efforts to amend the Section 25137 Regulation, please see the recent 3-part series in Bloomberg Tax by Eversheds Sutherland SALT partner Timothy A. Gustafson and associate Justin T. Brown:

On Aug. 11, the California Assembly Appropriations Committee held a hearing on S.B. 972, a controversial bill that authorizes the disclosure of otherwise confidential taxpayer information.

S.B. 972 requires the Franchise Tax Board (FTB) to compile an annual list of all taxpayers, including combined reporting groups, subject to California’s Corporation Tax Law with gross receipts over $5 billion (less returns and allowances). The taxpayer list would contain the following information:

  • Taxpayer name;
  • Tax liability;
  • Taxable year for which the return was filed;
  • Total gross receipts for that taxable year; and,
  • The amount and types of credits claimed for that taxable year.

The bill requires the FTB to publish this information on or before April 1, 2021 and on or before April 1 every year thereafter.

According to the Appropriations Committee report published on Aug. 9 (PDF), the primary purpose of S.B. 972 is to provide public data so lawmakers can evaluate the effectiveness of the state’s tax credit and incentives programs, such as the Research and Development (R&D) Tax Credit. Specifically, the data will purportedly help lawmakers determine whether the R&D credit is used to create jobs or promote certain business activities. However, in an Aug. 10 written statement against the bill (PDF), the Council on State Taxation (COST) noted that policymakers already have access to the information covered by the bill on an aggregate basis to inform policy decisions. Accordingly, “the only rational basis for this “list” is to publicly shame large corporate taxpayers,” COST concluded.

A July 24 report from the Assembly Committee on Revenue and Taxation notes that many significant California business groups have already registered their opposition to S.B. 972, including:

  • Bay Area Council
  • Biocom
  • Calaveras County Taxpayers Association
  • California Bankers Association
  • California Business Properties Association
  • California Business Roundtable
  • California Cable & Telecommunications Association
  • California Chamber of Commerce
  • California Life Sciences Association
  • California Manufacturers and Technology Association
  • California Retailers Association
  • California Taxpayers Association
  • CompTIA
  • Council on State Taxation
  • Family Business Association of California
  • Inland Action
  • Kern County Taxpayers Association
  • Orange County Taxpayers Association
  • San Gabriel Valley Economic Partnership
  • Santa Maria Valley Chamber of Commerce
  • Silicon Valley Leadership Group
  • Solano County Taxpayers Association
  • Sutter County Taxpayers Association
  • TechNet
  • Western States Petroleum Association

After Tuesday’s hearing, S.B. 972 was placed in the suspense file. However, the bill may move out of committee as early as next week.

On remand from the Maryland Court of Special Appeals, the Maryland Tax Court held that an unauthorized insurance company owned by Macy’s, was exempt from Maryland corporate income tax. During the years at issue, Leadville, a Vermont captive, did not earn any Maryland insurance or reinsurance premiums but had substantial interest income from intercompany loans with Macy’s. Under Maryland law, unauthorized insurance companies are subject to a premium receipt tax under title 4 instead of “all other state taxes.” The Maryland Comptroller argued that even if Leadville had paid Maryland premiums tax, it should be taxed on all its income as a financial institution because the insurance company exclusion for “all other state taxes” applied only to premiums related income, or alternatively, only to sales and use taxes. However, the Tax Court determined that it was commonplace for insurance companies to earn nonpremium related investment income and disagreed with the Comptroller, holding that the phrase “all or any” in tax statutes is meant to be broad and expansive rather than qualified or restrictive.

Leadville Ins. Co. v. Comptroller of the Treasury; Appeal No. 13-IN-OO-0035 (M.D.Tax.Ct. July 13, 2020).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This Week’s Question:
What state has the most reported False Claims Act qui tam cases?

E-mail your response to

The prize for the first response to today’s question is a $20 UBER Eats gift card.

Answers will be posted on Saturdays in our SALT Weekly Digest. Be sure to check back then!

On July 28, 2020, the D.C. Council approved the Fiscal Year 2021 Budget Support Act of 2020 (“BSA”), which establishes the budget’s tax provision changes.  The prior week, the D.C. Council approved the Fiscal Year 2021 Local Budget Act of 2020, which sets the budget’s expenditures.  This year’s most notable event was the advertising service tax near miss.  But the budget still contains numerous less-discussed tax changes, including amendments to personal property tax exemptions, the sales tax base, and the Qualified High Technology Company program incentives.  And beyond this year’s budget, taxpayers should expect further changes later this year to account for the ongoing COVID-19-sized revenue gap.

What’s In the Budget?

This year’s substantial tax changes include:

  • Greatly limiting Qualified High Technology Company incentives, including: (1) repealing the personal property tax exemption; (2) requiring QHTCs to have 10 (increased from 2) or more qualified employees in the District; and (3) repealing the reduced corporate franchise tax rate;
  • Imposing sales tax on off-premises sales of spirituous or malt liquors, beers, and wine at the rate of 9%;
  • Exempting from personal property tax certain computer software;
  • For the unincorporated business franchise tax, including in “taxable income” “gain from the sale or other disposition of any assets, including tangible assets and intangible assets, including real property and interests in real property, in the District, even when such a sale or other disposition results in the termination of an unincorporated business”;
  • Delaying the FAS 109 deduction until 2025;
  • Imposing a tax and a local transportation surcharge on motor vehicle fuels sold or otherwise disposed of by an importer or by a user, or used for commercial purposes;
  • Providing income tax benefits to taxpayers that invest in a Qualified Opportunity Fund (“QOF”), including the deferral of a capital gains tax payment for investing in a QOF, reduction of capital gains tax liability through a 10% step-up in basis, and abatement of capital gains tax on an investment of capital gains in a QOF;
  • Abating real property tax for affordable housing in high-need affordable housing areas;
  • For a decedent whose death occurs after December 31, 2020, reducing the amount of the unified credit for the estate tax to $1,545,800 (previously $2,185,800), increased annually, beginning with the year commencing on January 1, 2022, by the cost-of-living adjustment; and
  • For a decedent whose death occurs after December 31, 2020, reducing the estate tax zero bracket amount to $4 million (previously $5.6 million), increased annually, beginning with the year commencing on January 1, 2022, by the cost-of-living adjustment.

 What’s Out of the Budget?

On July 28th, the D.C. Council formally eliminated the advertising service and personal information sales tax proposal.  Since this tax expansion became public on July 6th and voted on for the first time on July 7th, it faced massive scrutiny from the business community.  Ultimately, the D.C. Council opposed the tax because of its deleterious impact on small, local newspapers.

What’s Next for the Budget?

The BSA will next be sent to the Mayor for approval or veto.  It will then be sent to Congress for a 60-day period of passive review.  But the D.C. Council expects to revisit the budget in a couple of months after it understands the full impact of the COVID-19 pandemic.  It is an open question which tax changes the D.C. Council might propose at that time.  Given the strong opposition to the advertising services tax, it is unlikely that it would resurface for so long as it impacts local media.  But there is a risk that the D.C. Council would pursue personal income tax rate increases (which Councilmember Allen had proposed as an amendment to the BSA on July 7th).

The Eversheds Sutherland SALT Team will continue to track the District of Columbia’s tax changes this year, as the D.C. Council may soon need to choose between tax increases, budget cuts, or both.

In a forthcoming article in State Tax Notes, Eversheds Sutherland SALT partner Jeff Friedman and associate Dennis Jansen explore the issues with A.B. 2570 – California’s latest attempt to extend the state’s whistleblower statute to tax claims.

The bill is purportedly designed in increase revenues by targeting tax fraud. However, instead of exposing tax cheats, this proposal likely will primarily benefit a cottage industry of law firms that specialize in filing predatory shakedown lawsuits against unsuspecting businesses.

A.B. 2570, would amend the California False Claims Act (CFCA) to allow private parties to bring lawsuits on behalf of the state alleging tax violations, known as qui tam actions. These types of lawsuits are ripe for abuse because businesses will be coerced to settle or face the prospect of the CFCA’s financially devastating penalties and the legal costs associated with responding even to frivolous claims. A similar bill, A.B. 1270, failed last year after widespread opposition from California’s business community.

Lawmakers say that A.B. 2570 will increase tax collections, citing $470 million collected by New York after it extended its whistleblower statute to tax claims in 2010, and revenues generated by the IRS’s whistleblower program. However, for the reasons explored in this article, A.B. 2570 is unlikely to meet its lofty revenue projections. Similar measures in other states have failed to generate meaningful revenues while miring both businesses and the state in costly litigation.

Late last month, the Ohio Department of Taxation updated its existing sourcing bulletin to provide that marketplace facilitator sales into the state are sourced for sales and use tax purposes at the location where a consumer receives an order or service. The change allows marketplace facilitators to apply the same destination-based sourcing rules to both facilitated and non-facilitated sales (i.e., direct sales by the marketplace).

On July 22, the Tennessee Governor signed into law S.B. 1778, which requires short-term rental unit marketplace facilitators to collect and remit local occupancy tax. The bill, as amended, defines “short-term rental unit marketplace” to mean any person or entity that provides a platform for compensation, through which a third party offers to rent a short-term rental unit to an occupant. “Short-term” refers to rentals of less than thirty days. It does not affect hotels or bed and breakfasts. The changes go into effect January 1, 2021.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This Week’s Question: 

The Supreme Court recently determined that the eastern half of this state primarily consists of Native American reservations, which could have significant SALT implications.

E-mail your response to

The prize for the first response to today’s question is a $20 UBER Eats gift card.

Answers will be posted on Saturdays in our SALT Weekly Digest. Be sure to check back then!