October 2, 2022

Volume XII, Number 275

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California FTB Schedules Interested Parties Meeting on Short Notice to Discuss Issues in the Regulations on Sourcing Income from Services and Intangibles

The California Franchise Tax Board has scheduled an Interested Parties Meeting to discuss proposed changes to its apportionment regulations. Several years ago, when the statute called for sourcing receipts from services and intangibles at the location of income producing activity, based on cost of performance, the FTB, after a series on interested parties meetings, adopted new regulation 25137-14 sourcing receipts for mutual fund service providers and asset management service providers not at the location of the service provider, but at location of customers.  That was good news for California service providers and bad news for out-of-state service providers.

The FTB scheduled on December 22, 2016 an Interested Parties Meeting for January 20, 2017 to discuss a series of issues arising under the new market- based sourcing regulations. A Discussion Topic Paper (attached) was issued on January 3, 2017, and included (1) draft examples of souring income from asset management fees, (2) a discussion of “reasonable approximation”, including who makes that reasonable approximation, (3) clarification of the term “benefit of a service” in several contexts, including timing, government contracts, R&D contracts and patent sales, (4) dividend assignment, (5) a freight forwarding example, (5) interest received from a business entity borrower and (6) marketing intangibles.

The FTB takes these Interested Parties Meetings seriously.  Taxpayers should pay immediate attention to whether any of these issues are of significance to them, and consider participating.

© 2022 McDermott Will & EmeryNational Law Review, Volume VII, Number 5
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About this Author

In 1934 E.H. McDermott opened a law practice that focused exclusively on taxes. As chief counsel to the Joint Committee on Taxation of the United States Congress, McDermott observed firsthand how the rapidly expanding federal tax laws were affecting businesses and individuals. He recognized the need for a law firm to assist people and their businesses to understand and comply with their changing tax obligations.

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