Following the recent California Court of Appeal decision affirming Gillette’s election to apportion income under the Multistate Tax Compact (MTC), the California Franchise Tax Board (FTB) has issued guidance for taxpayers who wish to preserve the statute of limitations by filing amended returns that elect the MTC method retroactively.
The FTB has made clear its position that a taxpayer cannot elect to utilize the methodology contained in the MTC on an amended return. The FTB also is clear that it will only take action on the claims once Gillette has been fully resolved. Nonetheless, taxpayers wishing to file a protective claim retroactively electing to utilize the apportionment method contained in the MTC should mail an amended return or a letter claim to the FTB at:
Compact Method 347 MS: F381
Franchise Tax Board
C/O FTB Notice 2012-01
P.O. Box 1673
Sacramento, CA 95812-1673
The amended return should include
- a revised Schedule R
- a computation of the refund amount, and
- “COMPACT METHOD” should be written in red at the top of the amended return.
An amended return is required for each year for which the retroactive election is made.
Please refer to the announcement for additional filing requirements.
FTB Notice 2012-01
The California Court of Appeal has ruled that the Franchise Tax Board could impose an alternative apportionment method against General Mills because the apportionment method used by the taxpayer did not fairly represent its business activity in California.
The Court of Appeal had previously ruled that General Mills properly included hedging receipts in the denominator of its sales factor for California apportionment purposes. General Mills v. Franchise Tax Board, 172 Cal.App.4th 1535 (2009). The effect of that determination substantially reduced General Mills’ corporate income tax liability in California.
However, the case was remanded to the trial court to determine whether inclusion of the hedging receipts in the apportionment formula calculation resulted in a fair representation of General Mills’ business activity in California under California Revenue & Taxation Code § 25137. The trial court determined that it did not. The trial court then adopted the FTB’s alternative apportionment formula which included only the taxpayer’s net gains from its hedging strategy in the sales factor. In this ruling, the Court of Appeal affirmed the lower court’s determination and the imposition of the alternative apportionment formula.
Read the opinion here:
General Mills v. FTB, No. A131477 (Cal. App. Aug. 29, 2012)
The California Court of Appeals has held that state-issued vouchers certifying certain employees as “qualified” under a hiring incentive tax credit is “prima facie” evidence that the employee was qualified and the Franchise Tax Board must prove otherwise before disallowing an employer’s claim for the credit.
Read the opinion here:
Dicon Fiberoptics v. Franchise Tax Board