Policy and Legislation

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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 Washington Department of Revenue (Department) determined that an out-of-state mail order retailer (Taxpayer) had substantial nexus with the state based on the activities of an in-state affiliate (Affiliate), and therefore, upheld an assessment of business and occupation tax (B&O Tax) and sales tax. Determination No. 10-0057 (released Dec. 20, 2011). The Taxpayer sold tangible…

Estimated state tax assessments are based on assumptions that typically favor state tax authorities. In this A Pinch of SALT, Sutherland SALT’s Eric Tresh and Madison Barnett examine the potential impact and recommended course of action for taxpayers facing estimated assessments.

Read “State Audit Guessing Games: When Can States Issue Estimated Assessments?” reprinted…

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…

llinois enacted legislation on December 16, 2011, that includes several new tax provisions, some of which benefit only Illinois-based companies. SB397 gives two Illinois taxpayers—CME Group and Sears Holdings—a tax incentive to stay in the state after Illinois’s recent significant tax rate increases. SB397 also extends and broadens the Illinois research and development tax credit…

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

On December 1, 2011, the Franchise Tax Board (FTB) decided to begin a formal regulatory process on numerous proposed regulations¸ including Proposed Regulation 25106.5, implementing the Finnigan Rule, codified in Cal. Rev. & Tax. Code § 25135(c); and Proposed Regulation 25106.5-1, modifying the rules governing Deferred Intercompany Stock Accounts (DISAs). The FTB staff’s…