This is the eleventh edition of the Eversheds Sutherland SALT Scoreboard, and the third edition of 2018. Each quarter, we tally the results of what we deem to be significant taxpayer wins and losses and analyze those results. This edition of the SALT Scoreboard includes a discussion of California combined reporting, insights regarding the Washington bad debt deduction, and a spotlight on apportionment cases.

View our Eversheds Sutherland SALT Scoreboard results from the third quarter of 2018!

The California Court of Appeals affirmed a trial court’s holding that the California Franchise Tax Board can require interstate unitary businesses to use combined reporting, even though combined reporting is optional for intrastate unitary businesses. The taxpayer, a motorcycle retailer, argued that the differential treatment of interstate and intrastate business gave a direct commercial advantage to intrastate unitary companies and therefore discriminated against interstate commerce in violation of the Commerce Clause of the United States Constitution. The appellate court rejected the taxpayer’s argument and held that the legitimate state interest to accurately measure and tax all income attributable to California outweighed any possible discriminatory effect.


Harley-Davidson, Inc. v. California Franchise Tax Bd., Dkt. No. D071669 (Cal. Ct. App. Aug. 22, 2018).

During the second half of 2017, California expanded its partial sales and use tax manufacturing and research and development exemption to include electric generation and distribution equipment. The legislative changes are particularly favorable to businesses engaged in electric generation through the use of renewable energy sources.

The California Department of Tax and Fee Administration (CDTFA) has issued a notice inviting stakeholders to participate in an interested parties meeting (IPM) scheduled for April 11, 2018, to discuss whether the CDTFA should undertake a regulatory project to amend its corresponding regulation to implement and apply the statutory changes and, if so, to what extent.

In their article for Law360, Eversheds Sutherland attorneys Carley Roberts, Robert Merten and Jessica Allen summarize the sales and use tax exemption’s scope and qualifying requirements, the 2017 legislative changes to the exemption, the CDTFA’s proposed amendments and why stakeholders may want to participate in the IPM process.

View the full article.

On January 10, 2017, California Assembly member Phil Ting introduced and read Assembly Bill (“AB”) 102 for the first time. Introduced as a placeholder bill, AB 102 consisted of a single section and sentence: “SECTION 1. It is the intent of the Legislature to enact statutory changes relating to the Budget.” 

Then, in less than two weeks in June 2017, the California Legislature gutted and amended this innocuous bill into a 19-page plan to drastically alter the landscape of California’s tax system. As signed by the governor, AB 102 stripped the California State Board of Equalization of all but its constitutional powers, created a new agency named the California Department of Tax and Fee Administration, and created a second new agency named the Office of Tax Appeals. Three months later, clean-up legislation in AB 131 made further changes. 

In his article for the January 2018 edition of the Journal of Multistate Taxation and Incentives, Eversheds Sutherland attorney Eric Coffill discusses the history and events leading up to those changes and provides a glimpse of the (somewhat uncertain) California tax landscape going forward.

View the full article.

Under notice dated December 26, 2017, the California Office of Tax Appeals (OTA) released its Final Draft Emergency Regulations on the Rules for Tax Appeals (Emergency Regulations), which will be submitted to the Office of Administrative Law for review in the coming days.

  • The Emergency Regulations are largely based on the Board of Equalization’s prior Rules for Tax Appeals but contain some notable differences.
  • For example, the OTA is authorized to remove the precedential status of BOE opinions and designate its own opinions as precedential if the opinion establishes a new interpretation of law, resolves an apparent conflict in the law, or makes a significant contribution to the law, among other reasons.
  • The Emergency Regulations also outline procedures for requesting a closed hearing and/or sealed records in appeals from both the California Department of Tax and Fee Administration and the California Franchise Tax Board.

View the full Legal Alert.

By Liz Cha and Carley Roberts

The California Court of Appeal held that the entire value of an air taxi company’s jets were subject to the County of Los Angeles 1% personal property tax, despite the fact that the jets spent 40% of their time outside of California. The court reasoned that the brief touchdowns of the jets in out-of-state airports were insufficient for other states to acquire situs over the jets such that California could no longer tax the full value of the aircraft. The court further stated that the landing-based situs rule for aircraft under California Revenue & Tax Code section 1161(b) only applies to fractionally owned aircraft and thus declined to extend this special situs rule to all aircraft. Jetsuite Inc. v. Los Angeles, No. B279273 (2d Dist. 2017).

On September 16, 2017, California Governor Jerry Brown signed Assembly Bill 131, a budget trailer bill clarifying a number of provisions related to the roles of California’s two new tax agencies, the California Department of Tax and Fee Administration (CDTFA) and the Office of Tax Appeals (OTA), which were created to perform many of the California State Board of Equalization’s (BOE) previous duties by the Taxpayer Transparency and Fairness Act of 2017. Key clarifications include:

  • The CDTFA will conduct appeals conferences related to sales and use taxes in the same manner as the BOE had prior to July 1, 2017, and will apply the BOE’s rules regarding appeals conferences.
  • The OTA is not to be construed as a tax court so non-lawyers will be allowed to appear on behalf of taxpayers at appeals hearings.
  • The standard of review for taxpayer appeals of OTA decisions is trial de novo in Superior Court.

View the full Legal Alert.

On Aug. 28, 2017, in California Cannabis Coalition v. City of Upland, the California Supreme Court held local taxes imposed by taxpayers via initiative are subject to less stringent requirements than taxes imposed by local governments pursuant to Proposition 218. In their article for Law 360, Eversheds Sutherland attorneys Eric Coffill and Robert Merten discuss that this opinion has far-flung ramifications on how local taxes can be imposed in California.

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Rarely does a subject as mundane as a documentary transfer tax become worthy of its own article. However, the June 29, 2017, decision of the California Supreme Court in 926 North Ardmore Avenue LLC v. County of Los Angeles is a worthy exception. Read this Law360 article by Eversheds Sutherland (US) attorneys Eric Coffill, Robert Merten and Nicholas Kump, which discusses:

  • Three criteria that must be met in order for California’s documentary transfer tax to be imposed
  • Background on the state’s Documentary Transfer Tax Act
  • The California Supreme Court’s ruling in North Ardmore v. County of Los Angeles
  • What’s to come

View the full article