Caltaxletter | FTB Staff Administrative Decisions Rile Taxpayers

FTB Staff Administrative Decisions Rile Taxpayers

Several recent Franchise Tax Board staff administrative actions have some taxpayers upset. According to reports reaching Caltaxletter, FTB staff adopted the following policies without taking the issue to the board itself:

· MIC Credit: Save Mart Decision. On audit, FTB staff is disallowing the manufacturers' investment tax credit to bakeries in grocery stores. The State Board of Equalization, in its 2002 Save Mart decision, ruled that a taxpayer could claim the MIC credit for equipment purchased for a bakery within a store. According to sources, FTB staff is denying the MIC to taxpayers in similar circumstances.

· Enterprise Zone Hiring Credit. FTB staff is taking the position that it can question and invalidate hiring credit vouchers that taxpayers have received from the Department of Housing and Community Development to claim the enterprise zone hiring credit.

· Enterprise Zone Sales Tax Credit. The FTB staff, in an apparent change in position, is allowing the enterprise zone sales tax credit for purchases of qualified property only to taxpayers that qualify for the MIC.

· Farmer Bros. Decision. FTB staff is unwilling to sever the portion of the corporate dividend received deduction that the courts have held to be unconstitutional (see Farmer Bros case) and allow taxpayers to continue to claim the deduction. The court has held that the dividend deduction, which is allowed only for dividends from income taxed in California, discriminates against interstate commerce. Taxpayers contend that there is statutory direction to the FTB to sever.

· Amnesty Program. According to reports, FTB staff is telling taxpayers that "netting" will not be allowed in administering the interest and penalty provisions of the new tax amnesty program. In other words, if a taxpayer has an underpayment of $50,000 in one year and $100,000 overpayment in another, the two amounts cannot be "netted out" to prevent the amnesty program interest and penalties on the $50,000.

Caltaxletter December 3, 2004