On June 4, 2021, the California Franchise Tax Board (“FTB”) held its sixth interested parties meeting (“IPM”) to discuss the latest proposed amendments to FTB’s market-based sourcing regulation, Cal. Code Regs., Title 18, Section 25136-2.  At the IPM, FTB staff provided an explanation of the newly-proposed regulation language, which includes:

  1. A definition of “asset management services;”
  2. A definition of “professional services” that includes “management services, tax services, payroll and accounting services, … legal services, business advisory consulting services, [and] technology consulting services,” among others;
  3. A special assignment rule for “professional services” providing for the use of a customer’s billing address where the taxpayer provides “substantially similar professional services” to more than 250 customers;
  4. A change to the applicability date of the amendments to taxable years beginning on or after January 1, 2023; and
  5. The removal of a proposed election to apply the amendments retroactively.

Responding to a comment that some taxpayers already have taken return positions consistent with the proposed amendments based on the now-deleted retroactive election provision, Staff reiterated that under the latest draft, the amendments are intended to apply prospectively only.

Please see our previous posts here and here for additional background on FTB’s proposed amendments to the market-based sourcing regulation.  FTB will accept written comments on the proposed regulation language until July 5th and will release a summary of the comments received after that date.  There was no discussion about whether FTB’s next step will be to issue another round of proposed amendments or proceed to the formal rulemaking process.