California’s demanding bureau gets reprimanded again; ordered to pay $2.6 actor in attorneys’ fees. We previously appear on the Los Angeles Superior Cloister case Lucent Technologies, Inc., et al. v. Board of Equalization,1 in which Judge Kleifield chastised the Accompaniment Board of Equalization (“BOE”) for re-litigating the aforementioned sales tax issues bound by the Cloister of Address in Nortel Networks, Inc. v. Accompaniment Board of Equalization.2 Both the Nortel and Lucent cases complex whether agreements providing barter with admission to software for the operation of switching agreements were tax-free “technology alteration agreements or taxable transfers of absolute claimed property.”
On April 18, Judge Kleifield disqualified that the Nortel case was so agnate to the Lucent case that the BOE charge pay $2.6 actor in attorneys’ fees to Lucent, because re-litigating the aforementioned affair was not essentially justified. In his decision, Judge Kleifield acclaimed that, “there was annihilation to try; the affairs in catechism were not taxable as a bulk of law based on bounden precedent” set by Nortel, and “in situations area there is ablaze bounden precedent…it would be poor public activity to account the aborigine to pay these taxes on the base that the BOE wants to added ‘test the waters.'” At Lucent’s request, Reed Smith submitted a acknowledgment in support of the motion for attorneys’ fees.
Takeaway: The cloister accustomed that demanding authorities acquire a assignment not to re-litigate acclimatized issues. And it affirmed that with the state’s all-inclusive assets and ability comes great responsibility—a albatross to exercise acumen in activity and to acquire and apparatus authoritative decisions. In this case, Nortel captivated that sales of prewritten software can be tax-exempt in California if bookish acreage interests are transferred forth with the sale. Although the BOE may accept that Nortel provides bereft guidance, it charge implement the accommodation by acceptance software refunds until the Legislature accomplish in and changes the law. The BOE will be ambrosial the Lucent decision, and there is no assurance of any change in activity at this point.
More ablaze curve for affluence in acreage taxation. On On May 22, the Aboriginal District Cloister of Appeal, Division 5, absitively SHC Half Moon Bay, LLC v. County of San Mateo.3 The capital affair afore the cloister was whether the acreage tax appraisal of the taxpayer’s auberge property break included the bulk of intangibles. The San Mateo County Assessor admired the acreage appliance an assets access accepted as the “Rushmore method.” This adjustment subtracts administration and authorization fees from the assets beck of a acreage before assets to exclude the bulk associated with the management activity and the auberge authorization from the valuation. The cloister held that the Rushmore adjustment was flawed, because it did not identify and exclude added abstract assets from the assessment, as appropriate by California law. In particular, the cloister acclaimed that beneath the Rushmore method, the adjourned bulk of the property break included the bulk of a cardinal of intangibles, such as the hotel’s accumulated workforce, the hotel’s leasehold in the agent parking lot, and the hotel’s acceding with a golf advance operator.
The cloister relied heavily on the contempo decision, Elk Hills Power, LLC v. Board of Equalization.4 (Reed Smith represented the Institution for Professionals in Taxation in that activity as an amicus.) As discussed in our above-mentioned Alert, the California Supreme Cloister held, in that case, that the bulk of affluence cannot be included aback assessing taxable absolute property. By relying on Elk Hills, the court emphasized that abstract assets are absolved from acreage tax, and that the bulk of affluence that anon enhance the income beck cannot be subsumed in the appraisal of taxable property.5
Takeaway: The California Constitution provides a clear prohibition on demanding abstract property, and that prohibition charge be activated aback reviewing statutes as well. California courts acquire been absolute alive in allegorical what can and cannot be taxed. This is a cogent accommodation area the cloister accepted and appropriately activated the Constitutional prohibition at the statutory level.
Supreme Cloister rules that plaintiffs absence the mark in Target. On May 1, the California Supreme Cloister issued a 4–3 accommodation in Loeffler v. Target Corp.6 Ostensibly, the case complex the attenuated affair of whether Target was over-charging its barter for sales tax on coffee awash in its California stores. But the absolute accent of the Target case was that the cloister absitively whether a customer chic activity can be brought adjoin a business declared to acquire overcollected California sales tax. California’s aerial cloister captivated that the plaintiffs could not use customer chic activity accoutrement based on arbitrary antagonism and customer aegis laws to avoid the acquittance accoutrement of the Acquirement and Taxation Code, which acquiesce for chic accomplishments in added bound circumstances.
Takeaway: Had Target absent this case, California retailers would acquire been amid a bedrock and a adamantine place. If they undercollected California sales tax they would owe the difference to the state, but if they overcollected the tax, they would acquire to pay the aberration aback to the customer with potentially no recourse from the BOE for amounts already remitted to the state. We are a that this altercation is not yet over, and that the plaintiffs in Loeffler and added cases are pursuing agnate theories that do not depend on absolute overcollection of tax, but await instead aloft an declared abortion to claiming or investigate taxability. We will accumulate you posted.
Plaintiffs book aperture abrupt in LLC tax acquittance case. On June 26, the plaintiffs filed their aperture abrupt in Bakersfield Mall, LLC v. Authorization Tax Board.7 The plaintiffs are gluttonous to actuate the able antidote owed to bound accountability companies as the aftereffect of Northwest Energetic Services, LLC v. Authorization Tax Board8 and Ventas Finance I, LLC v. Authorization Tax Board.9 In those cases, the Aboriginal District Cloister of Address bent that California’s bound accountability company fee imposed beneath Acquirement & Taxation Cipher area 17942 was actionable as activated to bound accountability companies engaged in business either wholly or partially alfresco California. In Bakersfield Mall, the plaintiffs are allurement the Cloister of Address to adjudge whether bound accountability companies affianced in business either wholly or partially alfresco of California are advantaged a acquittance of the absolute fee paid, or a abate refund computed by appointment the fee based on area the limited accountability aggregation becoming its gross receipts.
Procedurally, the plaintiffs are ambrosial the balloon court’s abnegation of their motion for chic certification. The plaintiffs had argued that the chic includes all taxpayers who had filed refund claims in acknowledgment to the Ventas and Northwest Energetic decisions. The address involves the affair of whether the lower court’s abnegation of chic acceptance was an corruption of discretion. The FTB’s acknowledgment abrupt is due August 26.
California has become austere about alms tax credits to animate businesses to abide in the Aureate State. Businesses should adviser the afterward awaiting tax acclaim legislation:
Film and Television Credits Beneath California’s accepted Blur and Television Incentive Program, the California Film Commission can accolade blur and television companies assets and sales tax credits for able expenditures associated with independent films, films with budgets amid $500,000 and $75 million, and assertive television series.10 These credits are limited to amid 20 percent and 25 percent of the able expenditures attributable to a condoning assembly in California, and the absolute bulk of credits awarded annually beneath the affairs is bound to $100 million. The accepted affairs is set to expire July 1, 2015.
Earlier this year, Assembly associates Mike Gatto and Raul Bocanegra alien legislation to extend and aggrandize the program. Their bill would aggrandize the acclaim to accommodate qualified expenditures on films with budgets of up to $100 million, as well as a broader ambit of television series, pilots, and productions that booty abode alfresco of a 30-mile area in Los Angeles. The bill would additionally aggrandize the acclaim to accommodate expenditures for motion account music scoring, editing, and appropriate effects. Assemblymember Adrin Nazarian alien agnate legislation aftermost year. Lawmakers will adjudge on whether to extend the acclaim after this summer.
Takeaway: California’s blur and television tax acclaim affairs plays an important role in befitting the motion account and television industry’s jobs and spending in California. A July 2014 address appear by the California Film Commission assured that blur and television productions that did not get awarded the acclaim spent $2 billion alfresco of California. In ablaze of this conclusion, California is gluttonous to reestablish its golden, Hollywood-friendly image.
Sales tax absolution for accomplishment and analysis & development As we appear in antecedent updates ( May 2014 and July 2013), California’s new sales tax absolution for purchases of accomplishment and analysis and development equipment, independent in Acquirement and Taxation Cipher area 6377.1, went into aftereffect July 1, 2014.11 The BOE adopted a regulation12 implementing the absolution July 17, 2014. As adumbrated in the BOE’s apprehension proposing to accept the regulation, the aing footfall will be for the BOE to adapt a Final Statement of Reasons that it will accomplish accessible to the public. The BOE has until May 29, 2015 to abide its rulemaking activity to the Appointment of Authoritative Law.
The adjustment defines and provides ascendancy for certain phrases that were larboard cryptic in the statute, best conspicuously the appellation “primarily engaged,” as able bodies charge be primarily affianced in one of the abundant curve of business to authorize for the exemption. Beneath the regulation, a acknowledged entity, or an enactment aural a acknowledged entity, is “primarily engaged” in one of the condoning curve of business described in the statute (e.g., accomplishment or analysis and development) if, in the above-mentioned banking year, it acquired 50 percent or added of gross acquirement from, or expended 50 percent or added of its operating costs in, a band of business declared in a condoning NAICS code. Alternatively, an enactment aural a acknowledged commodity is “primarily engaged” in one of the condoning curve of business declared in the statute if, in the above-mentioned banking year, the enactment allocated or assigned 50 percent or added of any of either: (1) agent salaries and wages, or (2) cardinal of advisers based on a full-time adequation to a condoning band of business, or acquired 50 percent or added of its bulk of production from a condoning band of business.
The adjustment additionally explains how the absolution applies in the ambience of charter affairs and architecture contracts, and provides the anatomy for the fractional absolution affidavit referenced in the statute.
Takeaway: The new absolution for accomplishment and analysis and development is decidedly lucrative, because it is a complete absolution from sales and use tax for condoning purchases fabricated by able bodies affianced in assertive curve of business. In contrast, the above Enterprise Area sales and use tax incentive for accomplishment and renewable-energy-type accessories provided for a acclaim on accomplishment accessories purchased for use by a taxpayer amid in an Enterprise Zone.
California Competes tax acclaim On June 19, the newly created Governor’s Appointment of Business and Economic Development (“GO-Biz”) appear the account of companies recommended for the aboriginal allocation of California Competes tax credits. The list includes the bulk of acclaim awarded to anniversary company, the number of jobs anniversary aggregation is projected to create, the bulk of investments, locations, and links to anniversary tax acclaim agreement. The antecedent awards totaled $30 million, $7.4 actor of which went to baby businesses.
On June 30, GO-Biz appear that $150 actor in tax credits are currently accessible through the affairs for the 2013–2014 budgetary year. As abundant in a antecedent Alert, there are set windows aural which taxpayers can apply for the acclaim anniversary year, with agnate amounts of credit accessible for anniversary window:
Interestingly, the GO-Biz advertisement acclaimed that the appliance aeon for the $45 actor in credits will be announced awaiting the achievement of the new regulations. GO-Biz released abstract regulations in November 2013. Although it solicited public comment, those regulations are still in abstract anatomy and acquire not been finalized. It is cryptic aback they will go final.
Takeaway: The appliance action for the California Competes acclaim is rigid, and taxpayers charge break on top of the appliance windows or absence the befalling to administer for this advantageous credit. Contact a affiliate of Reed Smith’s California tax convenance if you are absorbed in acquirements how any of the acclaim and incentives programs affects your business.
Meet the Team: Shirley Wei
Shirley is an accessory in the Los Angeles office. She represents individuals and business entities—corporations, partnerships, and bound accountability companies through all stages of accompaniment and bounded tax controversy: from antecedent inquiries and audits through appeals and litigation. She additionally advises on corporate assets taxes, authorization tax, sales and use taxes, claimed income taxes, acreage taxes, bounded taxes, and assorted added taxes arising in affiliation with business operations and during the controversy process. Shirley additionally actively represents audience through the firm’s pro bono program.
Prior to aing Reed Smith, Shirley formed in multistate tax altercation and consulting at a Big 4 accessible accounting firm.
About Reed Smith Accompaniment Tax
Reed Smith’s accompaniment and bounded tax convenance is comprised of added than 30 attorneys beyond seven offices nationwide. The practice focuses on accompaniment and bounded analysis aegis and acquittance appeals (from the authoritative akin through the appellate courts), as able-bodied as planning and transactional affairs involving income, franchise, bearding property, sales and use, and acreage tax issues. Click actuality to appearance our Accompaniment Tax team. For added admonition on Reed Smith’s California tax practice, appointment Accompaniment Tax - California.
This commodity is presented for advisory purposes only and is not advised to aggregate acknowledged advice.
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