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California Continues to Challenge Economic Substance and Business Purpose

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In Matter of Gatewood Corp, OTA Case No. 19105425 (July 3, 2024), the California Office of Tax Appeals (“OTA”) concluded that Gatewood Corporation’s (“Gatewood”) transfer of stock did not entitle it to a $10 million deduction because the transaction lacked economic substance and was for the purpose of tax avoidance, resulting in $831,398 additional tax.  The California Franchise Tax Board (“FTB”) conceded a $332,559 non-economic substance transaction (“NEST”) penalty that it had originally imposed. In…

California Data Extraction Bill Advances in the Senate

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The California legislature is proposing a 7.25% tax on “data extraction transactions in the state” through Senate Bill (“SB”) 1327. If enacted, the bill would target businesses that monetize data extracted from users (e.g., social media companies, large search engines, online retailers, etc.). “Data extraction transaction” means: “(A) A taxpayer sells user information or access to users to advertisers” and“(B) The taxpayer engages in a barter by providing services to a user in full or partial…

Finding the Market Through the Looking Glass: California Issues Sales Factor Sourcing Guidance

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California’s long-anticipated market-based sourcing “guidance” is finally out. Legal Ruling No. 2022-01 provides the Franchise Tax Board’s take on how to find the market in certain business-to-business sales. Though the guidance emphasizes that a seller should look to where its direct customer receives the benefit of sales of services, it keeps with current market-based sourcing trends amongst states and directs taxpayers to source such receipts based on the location of the taxpayer’s customer’s customer. The…

California Taxpayers Must Report Unclaimed Property Filing History

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Beginning for tax year 2021, California will require businesses that file certain California tax returns to report their California unclaimed property filing history.  Specifically, most 2021 California business tax returns filed with the Franchise Tax Board (e.g., Forms 100, 565, and 568) have been updated to ask whether the entity has previously filed an unclaimed property Holder Remit Report with the State Controller’s Office, and if so, the date of the last report and the…

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