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On May 30, 2012, California Assembly Bill (AB) 2323 (Perea) passed the Assembly floor by a vote of 47-19. AB 2323 would require the State Board of Equalization (BOE) to issue written decisions in cases involving amounts in controversy of $500,000 or more, excluding consent items. If enacted, the BOE could decide the type of…

Please join Sutherland’s State and Local Tax Team for a webinar to discuss recent developments regarding California’s sales and use tax treatment of sales of intangible property bundled with tangible property and sold subject to the seller’s patent or copyright interest.

California’s special tax provisions, known as technology transfer agreements (TTAs), have widespread application and have…

The Massachusetts Department of Revenue ruled that a California lubricant and cleaning products manufacturer was a manufacturing corporation, even though 70% of its production activities were outsourced to third parties. As a result, the Department permitted the company to use a single sales factor to apportion its taxable net income to Massachusetts. Mass. Ltr. Rul. 11-8: Qualification as a Manufacturing Corporation under G.L. c. 63, s. 38(I) (Dec. 16, 2011).

Under Massachusetts Law, a “manufacturing corporation” that has income from business activity that is taxable both in Massachusetts and outside the state is required to apportion its net income to Massachusetts using a single sales factor. There are two requirements to be a “manufacturing corporation.” First, the corporation must be engaged in manufacturing during the year, and second, the manufacturing activity must be substantial. A corporation’s manufacturing activities are substantial if the corporation meets one of the five statutorily enumerated tests. The first test is that the corporation derives 25% or more of its receipts for the taxable year from the sale of manufactured goods that it manufactures.Continue Reading Massachusetts Greases the Skids for Lubricant Manufacturer to Use Single Sales Factor

Understanding states’ various approaches to accountant-client privileges can make the difference in protecting communications from disclosure in litigation. In this edition of A Pinch of SALT, Sutherland SALT’s Pilar Mata and Melissa Smith examine the scope and breadth of accountant-client privileges that have been adopted by some states.

Read “Demystifying Accountant-Client Privileges in State…

A recently released California Chief Counsel Ruling authorized a corporate taxpayer to use its customers’ billing addresses as a proxy for the customers’ “commercial domicile” in calculating the taxpayer’s sales factor numerator. Chief Counsel Ruling 2011-01 (Aug. 23, 2011, rel. Dec. 28, 2011).

For sales factor purposes, California sources the sales of intangibles and services using costs of performance (COP) apportionment. The sales of intangibles and services are attributable to California if a greater proportion of the income-producing activity is performed in California than in any other state, based on COP. Before 2008, taxpayers could not include payments to agents and independent contractors as part of the taxpayer’s COP analysis. But beginning in 2008, California began to require taxpayers to take into account payments made to agents and independent contractors in calculating COP. As part of the analysis, the taxpayer must determine the location of the income-producing activity, and the regulations provide a comprehensive list of cascading rules to determine the appropriate location of the income-producing activity. See Cal. Code Regs. tit. 18, § 25136.Continue Reading We Know Where You Live: California’s Billing Address Sourcing

The California Franchise Tax Board recently released Legal Division Guidance 2012-03-02, concluding that taxpayers may not simultaneously report tax under a single sales factor election and the standard three-factor formula to avoid application of the Large Corporate Understatement Penalty. For full details, read our legal alert, “Single Sales Factor Election May Create Exposure…

The California State Board of Equalization (BOE) has provided guidance regarding the application of sales and use tax to purchases of tangible property from retailers using certificates such as Groupon or LivingSocial coupons. Special Notice L-297, California State Board of Equalization (Nov. 2011). In particular, the BOE addressed transactions in which retailers contract with Internet-based…

On December 1, 2011, the California Franchise Tax Board (FTB) approved Proposed Regulation 25136-2, which implements a market rule for sourcing receipts from sales of services and intangibles for those taxpayers electing a single sales factor apportionment formula. The Proposed Regulation now moves to the Office of Administrative Law to be finalized. The FTB’s decision follows a nine-month interested parties process and a regulatory process that began in June 2011.

Proposed Regulation 25136-2 applies a series of cascading rules, establishing separate rules for receipts from: 

  1. Sales of services to individual customers; 
  2. Sales of services to businesses; 
  3. Complete sales of intangibles; and 
  4. The licensing, leasing, rental, or other use of intangibles.

Continue Reading California Franchise Tax Board Decides Fate of Proposed Market Sourcing Regulation