California and Multistate

Transcription

1 California and Multistate Chapter 6 1 Conformity Conformity in General FTB Information Letter See text in outline. 2

2 Conformity references R&T (a) reference to IRC includes all amendments as enacted 1/1/09 for TY beg on or after 1/1/10 Also (d) When applying the Internal Revenue Code for purposes of this part, regulations promulgated in final form or issued as temporary regulations by "the secretary" shall be applicable as regulations under this part to the extent that they do not conflict with this part or with regulations issued by the Franchise Tax Board. Also (d) FTB website search for conformity 3 R&T (a) There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence) (1) Of property used in the trade or business; or (2) Of property held for the production of income. (b) Except as otherwise provided in subdivision (c), for taxable years ending after December 31, 1958, the term "reasonable allowance" as used in subdivision (a) shall include, but shall not be limited to, an allowance computed in accordance with regulations prescribed by the Franchise Tax Board, under any of the following methods: (1) The straight-line method. (2) The declining balance method, using a rate not exceeding twice the rate that would have been used had the annual allowance been computed under the method described in paragraph (1). (3) The sum of the years-digits method. (4) Any other consistent method productive of an annual allowance that, when added to all allowances for the period commencing with the taxpayer's use of the property and including the taxable year, does not, during the first two-thirds of the useful life of the property, exceed the total of those allowances that would have been used had those allowances been computed under the method described in paragraph (2). Nothing in this subdivision shall be construed to limit or reduce an allowance otherwise allowable under subdivision (a). 5

3 R&T No deduction shall be allowed for both of the following: (a) Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. This subdivision shall not apply to: (1) Expenditures for the development of mines or deposits deductible under Section 616 of the Internal Revenue Code. (2) Soil and water conservation expenditures deductible under Section (3) Expenditures for farmers for fertilizer, etc., deductible under Section (4) Research and experimental expenditures deductible under Section (5) Expenditures for which a deduction is allowed under Section (6) Expenditures for removal of architectural and transportation barriers to the handicapped and elderly that the taxpayer elects to deduct under Section (b) Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made Section 263A of the Internal Revenue Code, relating to capitalization and inclusion in inventory costs of certain expenses, shall apply, except as otherwise provided. 6 FTB new process for getting answers to legal questions Is not a written notice

4 1031 reporting form Form 3840, California Like Kind Exchanges Law change in 2013 If exchange CA property for property located outside of state In year of exchange and so long as hold replacement property (or its replacement if do another exchange), need to file form or be penalized

5 2014 Indexed Doing Business Factors R&T Doing Business Broad! FTB Legal Ruling (7/22/14) Business Entities that are Members of Multiple-Member Limited Liability Companies Classified as Partnerships for Tax Purposes Various reminders, including Partners are doing business in CA, if partnership is doing business in CA. Why it s as if each partner is doing the business of the entity One exception if entity only registered or organized in CA but not doing business Also discusses check the box

6 FTB Legal Ruling more Situation 1 LLC only Registered to do Business in CA Situation 2 LLC only Organized in CA Situation 3 LLC Commercia lly Domiciled in CA Situation 4 LLC Doing Business in CA Situation 5 LLC is Manager- Managed LLC Doing Business in CA Situation 6 LLC where CA sales exceed sales factor threshold LLC F, T F, T F, T F, T F, T F, T Corp that is LLC member with 15% interest N N F, FT F, FT F, FT F, FT Legend: F = filing requirement in CA T = subject to LLC tax and fee FT = subject to franchise tax N = no filing or tax obligation 17 Doing business - minor LLC ownership Sept 2013 FTB Litigation Roster 18

7 Superior Court decision (11/13/14) Sought refund of min tax ($1,106 incl interest and penalty) for y/e 6/30/10 Iowa corp No business activity or physical presence in CA 1/2/07 made $50K investment in Cypress LLC, a manager-managed fund Managed by CA corp Owned 0.2%, no authority to manage FTB per R&T 23101, doing business in CA Swart Enterprises, Inc. v. FTB, Superior Court, Fresno County, No. 13CECG0217; 19 Court s holding and rationale Passively holding an investment does not appear to constitute doing business or actively engaged in a transaction for gain or profit. Purchase of securities not enough This is not part of no indication that any security investment = doing business mere receipt of dividends and interest by a corporation is not doing business 20

8 Is Swart a partner? FTB Swart is like a general partner So, active v passive LLC member n/a Court only relevant for income taxes Appeals of Amman & Schmid Finanz AG (1996) BOE foreign corps not subject to min tax if only connection with CA is ltd p/s interests Inactive participants so not actively engaged in profitseeking transactions, no mgmt. authority, no liability Also supported by FTB TAM (12/22/00) 21 FTB LLC not like ltd p/s FTB LLC members have right to participate in mgmt. of the business Even though Cypress is manager-managed, owners have right to delegate mgmt. power Court: Swart was not a founding member Only had 0.2% ownership interest no influence Ck the box doesn t override state law making LLC separate from its owners 22

9 Swart relevance Superior Court of Fresno Low precedence Will FTB appeal? Similar client? File claim for refund. Year predates change to on economic nexus approach. 23 FTB contacting non-filers 24

10 E-filing expanded AB 2754 (Chapter 478; 9/19/14) Various changes, including R&T Require that for tax years beginning on or after 1/1/14, business returns prepared using tax prep software are to be filed electronically. Otherwise, unless obtained waiver or have reasonable cause, penalties apply starting after 1/1/17 For returns required to be filed on or after January 1, New R&T &

11 More on new e-file mandate All business entities incl tax-exempt Can manually request waiver from FTB if unable to comply Penalty starts 2017 $100 for initial failure $500 thereafter Unless have reasonable cause FTB to have robust education campaign

12 FAQs at FTB website 29 CA Tax Incentives 31

13 SB R&T 41- Accountability This bill would require any bill, introduced on or after January 1, 2015, that would authorize a personal income or corporation tax credit to contain, among other provisions, specified goals, purposes, and objectives that the tax credit will achieve and detailed performance indicators, including data collection requirements, to measure whether the tax credit is meeting those goals, purposes, and objectives. This bill would provide that taxpayer information collected pursuant to these new requirements is subject to the limitation on the collection and use of that information. Chapter 845 (9/29/14) 32 California Business Investment Guide July 2014 tax and non-tax reasons to do business in California 46 pages 33

14 CA Competes next round Includes FAQs that continue to be updated, proposed regulations and more. 37 Application Guide Revised 9/25/14) 38

15 CA Competes and Accountability 39 New CA Competes Credit item how consultant paid Per application guide: Modification to prop regs at 10/31/14 at 8030(g)(2)(H) on Phase II evaluation factors

16 CA New Employment Credit Expanded FTB website Annual certification tool added REMEMBER must recertify eligible employees annually on or before 15 th day of 3 rd month of employers current tax year! 41 Final reg (9/25/14) Manufacturing and Research & Development Equipment Related to new exemption at R&T AB 93 (Stats. 2013, Chap 69), amended by SB 90 (Stats. 2014, Chap 70) Discussed at 4/22/14 BOE meeting Effective 7/1/14, through 6/30/22 Need special exemption certificate 42

17 43 Partial exemption 3 conditions to meet 1. Be engaged in certain types of business, also known as a qualified person. NAICS must begin with any code from to for manufacturers, or must be or In prior financial year, either derive 50% or more of gross revenue (including inter-company charges) from, or expend 50% or more of operating expenses in a qualifying line of business. Alternatively, establishment primarily engaged if, in prior financial year, it allocates, assigns or derives 50% or more of either of following to a qualifying line of business: (1) employee salaries and wages, (2) value of production, or (3) number of employees based on a full-time equivalency. 2. Purchase qualified property. 3. Use qualified property for uses allowed by this law. 44

18 SB 798 Charity bonus scheme College Access Tax Credit Adds R&T and Credit for TY beg on or after 1/1/14 and before 1/1/17 for donations to College Access Tax Credit Fund. Apply against net tax 60% for 2014, 55% for 2015 and 50% for 2016 Cash donations. Aggregate credit capped at $500 million for each year. Excess carries to next year, but ends in 2016 Procedures to be established for certification of the donations. Helps donor and state Full donation deductible on 1040 Reduced state taxes though Helps more if in federal AMT 46 College Access Tax Credit Fund Opens Regulations and form available. Applications available: For /3/14 For /2/15 For /2/

19 Film credits AB 1839 (Chapter 413; 9/18/14) Extends amount, allocation, and type of film covered Through 2020 Possible to also use against sales tax and for other member of unitary group LAO report of April 2014 Suggested proceed cautiously 37 states have credits > 50% movie production jobs in CA 54 Documentary Transfer Tax Highlighted AB 1888 (Chap 20, 6/4/14) County records may no longer show DTT on separate paper attached to deed So, now easier to find amount of tax Easier to compute sales price of the property Effective for transfers after

20 Documentary Transfer Tax 926 North Ardmore Avenue, LLC v. County of Los Angeles, B (2 nd App District, LA County Super. Ct, 9/22/14) LLLP owns LLC (Ardmore) that owns apt building LLLP owners sell 90% interest Thus, have really sold apt building DTT applies due to change in ownership of the bldg. Supported by case law and legislative activity to help assessors know of the entity changes

21 Multistate 65 Michigan and MTC In response to IBM Corp. v Dept of Treasury (Docket No , 7/14/14) finding that 3- factor apportionment of compact is permissible Despite 2011 change for sales factor only SB 156 (9/11/14) Repeals Public Act 343 of 1969 which enacted Multistate Tax Compact Retroactive to 1/1/08! Effort to avoid paying over $1 billion of MBT refunds

22 Texas Software Sales Tax Nexus Ruling H Utah company (T) Sells computer programs and digital content mostly over Internet, but also via snail main delivery using USPO or common carrier Typical software license terms No reverse engineering, etc. T retains all rights to the licensed products Texas tax auditors say have nexus for sales tax purposes 71 Why? T earned $************** from sales of licensed SW and digital downloads to Texas customers Texas treats SW as tangible personal property T retained rights and interests in products it licensed to Texas users Relevant law Complete Auto Transit Quill 72

23 Interesting statement nexus is not automatically conferred by the statutory characterization of a computer program as taxable tangible personal property. The substantial physical presence requirement is determined by the character of the rights and interest Petitioner retained in the software and digital images downloaded by users located in Texas. Yet noted that T did not object to TPP label 73 What about EE visits to Texas? 3 employees had attended 2 educational conferences in Texas T was not an exhibitor Held no Scripto or Tyler Pipe problem Did not solicit orders or drum up sales Employees presence was not considered to be significantly associated with T s ability to establish and maintain a market in Texas. If they HAD been in state to generate sales - nexus 74

24 Marketplace Fairness Act Update House Judiciary Committee hearing 3/12/14 Exploring Alternative Solutions on the Internet Sales Tax Issue including: SSUTA for remote sales only Origin sourcing Reporting (like Colorado) Something similar to International Fuel Tax Agreement 75 ITFA States and localities are prohibited from imposing ``[t]axes on Internet access'' or ``[m]ultiple or discriminatory taxes on electronic commerce.'' Was extended to 10/1/15 76

25 Other state actions by Congress Mobile Workforce State Income Tax Simplification Act Modernize PL th anniversary of Willis Commission Report Others?