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.

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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

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On April 6, the Third District California Court of Appeal decided Morning Star Packing Company v. California Air Resources Board, which challenged the state’s cap-and-trade auction process as an unconstitutional tax. View this latest edition of A Pinch of SALT, by Eversheds Sutherland (US) attorneys Eric Coffill and Robert Merten, which discusses:

  • Background on the California cap-and-trade case
  • The Morning Star opinion
  • What’s next?

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SACRAMENTO—Eversheds Sutherland (US) LLP is pleased to announce that state and local tax (SALT) attorneys Carley A. Roberts and Eric J. Coffill were selected as top Northern California attorneys by Super Lawyers. The designations are the result of an annual survey conducted by the publication, which focuses on professional achievement and peer recognition.

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On June 15, the California Legislature passed Assembly Bill 102, the Taxpayer Transparency and Fairness Act of 2017, which divests the California State Board of Equalization (BOE) of several key functions and creates two new government agencies—the California Department of Tax and Fee Administration and the Office of Tax Appeals—to perform many of the BOE’s previous duties. Effective July 1, 2017, the Act:

  • Confers all of the BOE’s collection and administrative responsibilities related to various taxes and fees, such as tobacco taxes, cannabis taxes, and sales and use tax, on the California Department of Tax and Fee Administration.
  • Grants the Office of Tax Appeals the authority to perform the BOE’s appellate duties.
  • Maintains the BOE’s duties as provided in the California Constitution including reviewing and adjusting certain property tax assessments and setting certain tax rates.

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Traditionally, mandatory worldwide combined reporting was the state corporate tax issue of most concern to companies engaged in international business. States are now moving toward a water’s-edge unitary combination method for both US and foreign-based companies.

In his article for the Spring 2017 edition of Partnering Perspectives, Eversheds Sutherland (US) Senior Counsel Eric Coffill covers four trends towards increasing the tax base of a state by expanding the water’s-edge.

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On January 30, 2017, the California Legislature Assembly Committee on Revenue and Taxation held an informational hearing on “Life after Lucent: Administering California’s Technology Transfer Agreement Law.” The California State Board of Equalization and the Board’s staff are currently wrestling with the meaning of the Technology Transfer Act provisions in sections 6011 and 6012 of the Revenue and Taxation Code in connection with implementation of the California Court of Appeal decision in Lucent Technologies v. Board of Equalization, 241 Cal. App. 4th 19 (2015). The January 30 hearing demonstrates that the Legislature is now apparently interested in this issue. 

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By Eric Coffill

FTB announced that it will pay 1% interest on corporation tax overpayments for the period July 1, 2017 through December 31, 2017. Previously, the last time FTB paid interest on corporation tax overpayments (i.e., refunds) was for the period ending June 30, 2009 (for which the interest rate on overpayments was 2%). Under California Revenue and Taxation Code section 19521, interest rates are re-set every six months in accordance with provisions (as modified) of the Internal Revenue Code. Jan. 12, 2017 Memorandum from FTB Economic and Statistical Research Bureau.

By Robert Merten and Madison Barnett

The San Diego County Superior Court  determined that California’s combined filing regime—which requires interstate taxpayers to use combined reporting but permits intrastate taxpayers to choose between combined or separate reporting—does not violate the US Constitution’s Commerce Clause. The court acknowledged that (1) the interstate and intrastate unitary businesses were being treated differently, and (2) a triable issue of fact existed on whether such differential treatment resulted in discrimination against interstate businesses. The court nevertheless upheld the constitutionality of California’s statute granting intrastate taxpayers the option to file a separate return. The court reasoned that, even if discrimination against interstate taxpayers could be shown, the statute would survive strict scrutiny because the state has a legitimate interest “in preventing the manipulation and hiding of taxable income” by requiring combined reporting “to ensure that all business income from interstate business is accurately accounted for and that it is fairly apportioned.” 

The court’s order was issued on remand from a 2015 Court of Appeal opinion that reversed the trial court’s previous order dismissing the taxpayer’s constitutional challenge. The taxpayer has appealed this order, bringing the case back to the Fourth District Court of Appeal for further disposition. Harley Davidson, Inc. v. California Franchise Tax Board, Minute Order, Case No. 37-2011-00100846-CU-MC-CTL (Oct. 31, 2016), on remand from, 187 Cal. Rptr. 3d 672 (Cal. App. 4th 2015), appeal docketed, Case No. D071669 (Cal. App. 4th Dec. 27, 2016).