In addition to its strong corporate multistate expertise, our California team has significant experience in certain personal income tax matters, including residency cases, the sourcing for the sale of intangibles under Cal. Rev. &Tax. Code (CRTC) Section 17952, and basis disputes.
Our California lawyers are deeply connected with California’s taxing agencies and use these connections to proactively approach California tax law by participating in the regulatory process, often commenting on proposed regulations and providing testimony concerning regulatory and policy efforts.
In addition to our lawyers’ deep California tax experience, they are also involved in local tax matters, such as business taxes (for example, the San Francisco Gross Receipts Tax), property taxes, and transfer taxes.
Here is a brief summary of a few of the California issues and opportunities we are working on for our clients:
Apportionment
We have deep expertise in California’s written and unwritten apportionment rules and policies. Our experience includes developing industry and business tailored sourcing approaches for the sourcing for receipts from sales of services and intangibles; establishing ultimate destination sourcing methods for tangible personal property, as well as application of California’s throwback provisions; deriving and arguing creative alternative apportionment methodologies; as well as representing taxpayers in Variance Hearings under CRTC Section 25137 (California’s version of UDITPA section 18).
Significant Acquisitions and Dispositions
We regularly engage in unitary and instant unitary analyses for corporate clients engaging in mergers and acquisitions, including assisting in documenting integration planning and advising on tax effects and aspects of forced combination. Furthermore, we have significant experience in the application of California’s Occasional Sales rule, which removes receipts from substantial sales from the sales factor.
Application of California’s Three-Factor Computation Method for Financial, Extractive, and Manufacturing Companies
We have deep knowledge of California’s three-factor methodology, including its application under CRTC 25128 for banks, financials, and extractive companies. Furthermore, we have argued that manufacturers are entitled to use an evenly weighted three-factor apportionment formula to fairly reflect business activity in California.
Research Credits and Net Operating Losses (NOLs)
We have experience unlocking additional research credits for businesses. For example, we believe that the Constitution requires businesses to determine California qualified research expenses by apportioning the expenses to California based on the business’s California apportionment factor. We also assist clients in maximizing the value of tax attributes, such as NOLs. For example, we represent clients in challenges to the FTB’s position that California NOLs generated by a unitary group are “siloed” in certain members of the group based on their relative contribution to the unitary group’s California apportionment factor in the year of the loss, and can only be used to offset the income of those members going forward. Instead, we believe that the statute allows such NOLs to be used by the unitary group on a combined group basis.
Sales Tax on Software
Companies that paid sales or use tax on purchases of software may be entitled to a refund of tax they paid – even if the software is canned and even if it was delivered on tangible media.
Tax Policy and California State Tax Intelligence
We are uniquely poised to comment on California’s ever changing tax policy landscape. As part of our full service for clients with California tax issues, we maintain a fully searchable database of unpublished authority, including decisions of the California State Board of Equalization and the California Office of Tax Appeals, unpublished trial court decisions, and unpublished legal briefs. We also maintain regular and direct lines of communication with high-level state officials involved in all areas of California taxation.
