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    State & Local Tax


    Jeffrey M. Vesely
    San Francisco   
    Federal Rule and Ninth Circuit Opinion Create Huge Opportunities on Indian Land
    Lessees of Indian land can pursue refunds of property taxes paid on their permanent improvements and should appeal future assessments.
    Authors: Matthew F. Burke, Blaine I. Green
    In a set of comprehensive regulations affecting non-agricultural leasing on Indian land, the Department of the Interior, Bureau of Indian Affairs made sweeping changes and largely exempted property taxes on permanent improvements, possessory interest taxes on leasehold interests held by non-tribal members, and other state and local taxes on activities conducted by non-members on leased Indian land. In addition, a recent Ninth Circuit Court of Appeals decision affirmed that the taxes on permanent improvements were never lawful. Taxpayers in California that lease tribal land should immediately consider filing suits for refund and assessment appeals after receiving their tax bills.
    Go-Biz Announces California Competes Tax Credit Application Period – And It Ends in Less Than One Month
    Author: Michael J. Cataldo
    On March 18, 2014, Go-Biz notified the public that it will only accept California Competes Credit applications for the current fiscal year between March 19, 2014 and April 14, 2014.
    70 Days and Counting: Clock Is Ticking to Claim Embedded Software Tax Exemption
    Authors: Lawrence L. Hoenig, Craig A. Becker, Richard E. Nielsen, Dianne L. Sweeney
    The amount of non-taxable embedded software being taxed in California is a staggering number. While companies own assets with millions of dollars of embedded software, few companies are maximizing their property tax savings through the embedded software exemption. The good news is that it is not too late to dig in and maximize your potential tax savings. Most businesses have until May 7, 20141 to file their annual Business Property Tax Statements (Form 571-L) with California counties.
    Deadline Approaching for California’s New Employment Credit
    Author: Michael J. Cataldo
    Beginning January 1, 2014, California has replaced the Enterprise Zone Hiring Credit with the New Employment Credit and the California Competes Credit1, each of which may be used to offset the Personal Income Tax and Corporation Tax.
    GO-Biz Finalizes Proposed California Competes Tax Credit Regulations
    Authors: Michael J. Cataldo
    The Governor’s Office of Business and Economic Development (“GO-Biz”) releases final proposed regulations on the California Competes Tax Credit.
    GO-Biz Releases California Competes Tax Credit Draft Proposed Regulations
    “This article was subsequently published in the Council on State Taxation’s email publication on December 20, 2013.”
    Author: Michael J. Cataldo
    On November 27, 2013, the Governor’s Office of Business and Economic Development (“GO-Biz”) released draft proposed regulations on the recently enacted California Competes Tax Credit, and has scheduled workshops throughout California for public comment.
    California Tax Board Provides Guidance on the Broadened Definition of ‘Retailer Engaged in Business in This State’
    Authors: Annie H. Huang, Jeffrey M. Vesely, Paul T. Casas
    On May 30, 2012, the State Board of Equalization (“SBE”), approved pro-posed amendments to the California Code of Regulations, Title 18, section 1684 (“Proposed Regulation”). The Proposed Regulation attempts to provide guidance as to the meaning of the broadened statutory definition of “retailers engaged in business in this state.” The statutory definition now includes retailers who are members of “commonly controlled groups,” as well as retailers who enter into agreements with “a person or persons in this state” who meet certain minimum thresholds.
    California’s Latest Tax Amnesty Program Begins August 1, 2011
    Author: Michael J. Cataldo
    The Franchise Tax Board (“FTB”) will begin implementing California’s recently-enacted Voluntary Compliance Initiative for reporting Abusive Tax Avoidance Transactions (“ATATs”) and certain offshore financial arrangements (“OFAs”) on August 1, 2011.1
    US Supreme Court Gives Green Light to Class Action Waivers in Consumer Contracts
    Authors: Christine A. Scheuneman, Brian D. Martin, Bruce A. Ericson, Kevin M. Fong, Amy L. Pierce, Nathaniel R. Smith
    On April 27, 2011, the U.S. Supreme Court, ruling in a five-to-four decision, in AT&T Mobility LLC v. Concepcion et ux., held that California's Discover Bank rule—a rule that largely invalidated class action waivers in arbitration provisions in consumer contracts in California and other states following similar rules—is preempted by the Federal Arbitration Act because it "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." The ruling clears the way for class arbitration waivers in consumer arbitration agreements within the FAA's scope.
    New Jersey Tax Court Decides in Favor of Taxpayer in First Interest Addback Case
    Authors: Jeffrey M. Vesely, Annie H. Huang
    On August 31, 2010, the New Jersey Tax Court issued a memorandum decision in Beneficial New Jersey, Inc. v. Director, Division of Taxation,1 concluding that the taxpayer satisfied one of the enumerated exceptions to the interest addback statute under N.J.S.A. 54:10A-4(k)(2)(I), and was thus entitled to its interest expense deductions.
    New California Sales and Use Tax Audit Procedures
    Authors: Richard E. Nielsen
    California Sales and Use Tax Regulation 1698.5, which sets forth comprehensive procedures for sales and use tax audits, has been approved by the California Office of Administrative Law. The new regulation, which was proposed by the California Board of Equalization (“BOE”), goes into effect August 18, 2010. According to the BOE, the regulation was necessary to clearly establish taxpayers’ and BOE staff’s responsibilities and duties during the audit process in order to ensure that BOE staff completes audits in a timely and efficient manner and to help taxpayers better understand and avoid confusion regarding the BOE audit process.
    FTB Approves Single Sales Factor Election Regulations, But Election in Jeopardy
    Authors: Michael J. Cataldo
    On June 22, 2010, the three-member Franchise Tax Board (“FTB”) authorized its legal staff to proceed with the formal process to adopt final regulations governing the recently enacted annual single-sales factor apportionment formula election available to most corporate taxpayers. However, the existence of the single-sales factor election is at risk of repeal by several pending bills that propose to make the single-sales factor method of apportionment mandatory. Additionally, Proposition 24, if approved by the voters this November, would repeal the single-sales factor method of apportionment altogether, along with other corporate tax provisions enacted in 2009.
    New California Deadlines for Disclosing Certain Proposition 13 Changes in Ownership
    Authors: Craig A. Becker, Lawrence L. Hoenig
    Effective January 1, 2010, California will require any entity undergoing a merger, acquisition or other transaction constituting a Proposition 13 change in ownership under Revenue and Taxation Code (“R&TC”) section 64(c) or 64(d) to file an appropriate change in ownership statement (BOE Form 100-B) within 45 days of the transaction or face a 10% penalty. Cal. SB 816, 2009 Stats. Chap. 622. The new provisions also tighten penalty enforcement, as described below. Currently, no penalties are imposed unless the disclosure statement is not filed within 45 days after California State Board of Equalization (“BOE”) requests the filing.
    Draft California Ballot Measures Would Cut Prop 13 Protection for Commercial Properties
    Authors: Craig A. Becker, Lawrence L. Hoenig
    On November 5, 2009, two ballot initiatives to remove certain Proposition 13 property tax protections for California commercial property were filed with the state’s Attorney General.
    California Considers Business Net Receipts Tax System—Proposal Likely in New Report
    Authors: Lawrence L. Hoenig, Alexis M. Petas
    Gov. Schwarzenegger and the state legislature tasked the Commission on the 21st Century Economy (“COTCE” or the “Commission”) with suggesting major reforms of the state's tax structure aimed at solving California’s budgetary problems. Specifically, COTCE was told to come up with solutions that would reduce the volatility of California’s revenue, as well as improve the ability to compete with other states and countries for jobs and investments.
    New Local Tax Developments Affect Online Travel Companies and Hotel Room Resellers
    Author: Richard E. Nielsen
    Effective September 1, 2009, resellers will become responsible for New York City's Hotel Occupancy Tax on the net amount paid for any hotel room booked by a "room remarketer."
    Tax Provisions of the 2009-2010 California Budget
    Author: Michael J. Cataldo
    After protracted negotiations, California has enacted a budget for the 2009-2010 fiscal year. Many recently enacted tax provisions, including a net operat­ing loss carryback deduction, credit sharing among unitary affiliates, and an annual single sales factor election were considered for repeal, but were ultimately left intact.1
    California Property Taxes: The Time to Act for 2009 Savings is Now!
    Authors: Craig A. Becker, Thomas F. Chaffin, Lawrence L. Hoenig
    • 2009 presents a unique opportunity for property tax savings for many investors, building owners, and tenants.
    • Property tax payments may be lowered by as much as 50% in 2009.
    • The key is to file a timely property tax appeal in 2009 — the deadline is September 15 in many counties and November 30 in others.
    California Franchise Tax Board Releases Revised Guidance on the New Twenty-Percent Strict Liability Corporate Understatement Penalty
    Authors: Michael J. Cataldo
    The California Franchise Tax Board has released FTB Notice 2009-03, revised Frequently Asked Questions (“FAQs”), and a report on a recent interested parties meeting relating to filing amended returns under the cure provision of the large corporate understatement penalty imposed upon corporations with understatements of tax in excess of $1 million.  These materials can be accessed on a newly created webpage dedicated exclusively to the penalty.
    California Suspends Net Operating Loss Deduction, Increases Carryover Period, and Allows Carryback Deductions
    Authors: Michael J. Cataldo
    By enactment of Assembly Bill 1452, California has temporarily suspended the net operating loss carryover deduction for two years, increased the net operating loss carryover period to twenty years, and will phase in a deduction for net operating loss carrybacks.
    Action Required to Reduce Property Taxes During the Real Estate Downturn
    Author: Lawrence L. Hoenig
    Businesses that own or lease real property in California need to know that declining property values could entitle them to substantial property tax savings this year. The current fair market values on many properties have fallen below such properties' base year values, as established under Proposition 13. State tax law provides that the tax assessment for the current year is to be based on the lower of these two values. Property owners—especially those with large holdings of commercial, industrial or investment properties—should move quickly to seek relief in April or May—i.e., before July 1, when the assessed values will be placed on the tax roll. Challenging assessments after July 1 requires the filing of a formal appeal before September 15, 2009 (or November 30 in some counties).
    FTB Intends to Depart from IRS Treatment of Bad Loan Losses for Acquired Banks
    Author: Michael J. Cataldo
    The Franchise Tax Board ("FTB") announced its intention to reject the position of the IRS set forth in Notice 2008-83, and instructed legal staff to draft regulations specifying that banks will continue to be subject to post-acquisition loss limitations for California tax purposes.
    Taxpayers Object to FTB’s Interpretation of New California Understatement Penalty
    Author: Michael J. Cataldo

    The Franchise Tax Board ("FTB") held an interested parties meeting on Friday, December 5, to elicit public comments on the implementation of California's new understatement penalty. The new penalty applies to corporations with an understatement of tax in excess of $1 million for taxable years beginning on or after January 1, 2003. For taxable years 2003 through 2007, taxpayers can file an amended return and pay the tax shown on the amended return by May 31, 2009 to reduce or eliminate any potential understatement of tax.

    FTB to Hold Interested Parties Meeting on California's New Understatement Penalty
    Author: Kerne H. O. Matsubara
    The Franchise Tax Board (FTB) has announced that it will hold an interested parties meeting on December 5, 2008 to discuss California’s new 20 percent understatement penalty on corporate taxpayers. The new penalty applies to corporations with an understatement of tax in excess of $1 million for taxable years beginning on or after January 1, 2003.
    San Francisco Supervisors Propose Increase in Real Property Transfer Tax
    Authors: Craig A. Becker, Richard E. Nielsen, Jonathan A. Mikhalevsky
    On July 22, 2008, the San Francisco Board of Supervisors voted 10-1 to place Supervisor Aaron Peskin’s proposal to increase the city’s Real Property Transfer Tax on the November ballot. The proposal expands the definition of “realty sold” and increases the tax on real estate transfers of $5 million and above, applying a tax of 1.5% on the full amount of the purchase.
    San Francisco May Impose Payroll Tax on Profits Paid by Pass Through Entities
    Authors: Craig A. Becker, Richard E. Nielsen, Jonathan A. Mikhalevsky
    On July 22, 2008, the San Francisco Board of Supervisors voted 10-0 to place a proposal to increase the tax on “pass through entities” under the Payroll Expense Tax Ordinance on the November ballot. The proposal seeks to tax profits paid to owners of pass through entities—including trusts, partnerships, limited liability companies and limited liability partnerships and S Corporations—who perform work or render services within the city.
    Pillsbury’s Tax Controversy Brochure
    Clients facing tax challenges expect the best possible results delivered in the most efficient manner. That is our goal, too. Attorneys with decades of experience—representing clients in every administrative and judicial forum—power our successful team.

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