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California Bill Would Make Taxpayer Information Available to the Public (Seriously!)

A concerning bill is pending in the California Senate. SB-972 would require the California State Controller’s Office (the Controller) to make taxpayer information publicly available. The bill would require that the Controller post on its website a list of all taxpayers subject to the California corporation tax with gross receipts of $5 billion or more and information about each taxpayer, including the tax liability of taxpayer and the amount of tax credits claimed by the taxpayer in the previous calendar year. We are hearing that the California Senate is likely to pass the bill. If the bill does pass in the Senate, it will head to the Assembly.

This bill is surprising (and alarming) because the usual policy of states and tax departments is to protect the confidentiality of taxpayer information. In fact, most states have statutory provisions ensuring that taxpayer information obtained through tax filings and audits is kept confidential, and disclosure is criminal in most states. If SB-972 is adopted, California will be one of the only states (if not the only state) to proactively make taxpayer information public. There does not appear to be a public benefit to releasing this historically confidential information, making the bill’s infringement on taxpayers’ privacy expectations concerning.

We understand that California may be looking to increase tax on corporations (possibly by repealing certain tax credits) as a means to raise revenue, and it seems likely that this bill is related to that goal, or at least embarrassing taxpayers who do not pay significant funds to the state. However, the bill simply goes too far; releasing information that is universally treated as confidential eviscerates taxpayer privacy and should not be permitted. The legislation is simply an effort to weaponize taxpayer information and shame taxpayers based on what they owe or do not owe to the state.




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Alert: California False Claims Expansion Bill Preparing to Advance

The revived False Claims expansion bill in California, A.B. 2570, is on the agenda to be heard by the Assembly Judiciary Committee on May 11 at 10:00 am PDT. The proposal would authorize tax-based false claims actions, allowing private, profit-motivated parties to bring punitive civil enforcement lawsuits—an abusive practice that is prohibited under current law consistent with the vast majority of other states with similar laws. A nearly identical bill sputtered out last summer but has now been revived, as our colleagues covered in February:

AB 2570 is replete with problematic provisions, including: (1) the imposition of a separate statute of limitations that will arguably trump any shorter limitations periods imposed by the Revenue & Taxation Code (See Cal. Gov’t Code § 12654(a) which permits claims under the CFCA to be pursued for up to 10 years after the date the violation was committed, compared to standard three or four years for tax audits); (2) a more lenient burden of proof for elements of an alleged violation; and, (3) extremely punitive damages—violators are subject to treble damages (i.e., three times the amount of the underreported tax, interest and penalties), an additional civil penalty of $5,500 to $11,000 for each violation, plus the costs of the civil action to recover the damages and penalties including attorney’s fees.

Few of these cases will involve internal whistleblowers, actual fraud, or reckless disregard of clear law. Instead, the cases in Illinois (a state that has adopted false claims expansion to tax) usually involve inadvertent errors or good-faith interpretations of murky tax law. With the party bringing the case able to keep up to 50% of the proceeds, the only winners in the proposal is the cottage industry of money hungry plaintiffs’ attorneys that will descend and harass good-faith taxpayers in an effort to pad their own pockets.




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State Tax Incentives, Clawbacks and COVID-19

Through various state and local tax incentives, many businesses have committed to grow their employee count or make substantial capital expenditures. Not surprisingly, companies may fall short on delivering those objectives in the short run. Long-terms plans may also need to change drastically. Companies should carefully consider the terms of their agreements with states to identify whether:

  • Employment targets will be met;
  • Investment targets will be met; and
  • Clawbacks or other damages are a possibility.

If clawbacks are possible, force majeure provisions in incentives agreements should provide protection. When agreements do not specifically contain a force majeure provision, businesses and governments should work together to renegotiate or amend those agreements in a way that protects local business’ long-term viability in a region.




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Déjà Vu – Marketplace Model Debate May Resume Again

The debate over state marketplace laws may resume again, after the Uniform Law Commission (ULC) announced it has set up a committee to study whether to draft a uniform state law on online sales tax collection, focusing on marketplaces. The study committee is chaired by Utah Sen. Lyle Hillyard. The lead staffer (“reporter”) will be Professor Adam Thimmesch of the University of Nebraska College of Law. The members of the committee are listed here and information to sign up to be notified of developments is available here.

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The Digital Advertising Tax Trend Continues: New York Introduces Another Bill

On April 13, S. 8166 was introduced in the New York Senate, which would expand the sales tax base to include receipts from the sale of digital advertising services. The bill would dedicate the revenue raised to student loan relief.

As introduced, “digital advertising services” would be broadly defined as “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services which markets or promotes a particular good, service, or political candidate or message.” (With the exception of the added last clause, the definition of “digital advertising services” is identical to the definition in the digital advertising tax legislation recently passed by the Maryland General Assembly. The definition differs from the previously introduced New York digital ads tax (S. 8056) in that it is not limited only to targeted advertising.) “Digital interface” would also be defined very broadly as “any type of software, including a website, part of a website, or application, that a user is able to access.”

If enacted, the law would take effect on the 30th day after enactment, and would sunset five (5) years after the effective date.

 




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DC and New Jersey Join Mississippi in Disregarding Coronavirus-Caused Remote Work for Tax Purposes

As part of our open letter to state tax administrators urging relief of undue tax administration burdens in light of COVID-19, we urged the disregarding of remote work for tax purposes. The public health necessity for businesses to close central operations and direct employees to work from home should not be used as an “opportunity” to create nexus for affected businesses.

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Iowa Responds to McDermott’s Call to Drop Unnecessary or Dangerous Tax Administration Requirements

In late March, we wrote an open letter to state tax administrators requesting that they take steps to relieve undue tax administration burdens in the wake of the COVID-19 situation. We gave five suggestions, including postponing deadlines for tax filing and payment, waiving requirements to use hard-copy documents or checks, suspending accrual of interest on assessments during mandatory closures, directing revenue agencies to resolve outstanding controversies, and disregarding remote work for tax purposes.

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What Can You Do About Your California Property Tax Payment – COVID -19’s Impact on California Property Tax Deadlines and Planning Considerations

In the wake of the COVID-19 pandemic, certain California taxing officials have acted swiftly to provide state taxpayers with some much needed relief. On March 13, for example, the Franchise Tax Board (FTB) extended the corporate and personal income filing and payment tax deadlines to June 15, and then again on March 18, FTB further postponed the deadlines to July 15. The California Department of Tax and Fee Administration (CDTFA) and the California Office of Tax Appeals (OTA) also has acted to implement measures aimed at supporting taxpayers amid the COVID-19 outbreak. The Office of Tax Appeals granted an automatic 60-calendar-day extension of the deadline for appeals that have a briefing or other deadline that falls between March 1, 2020 and May 18, 2020. In addition, CDTFA published a statement on its website indicating that sales tax relief including return and payment extensions and penalty and interest waivers may be available to taxpayers upon request.

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The Nexus Implications of Teleworking

Over the past several weeks, state and local governments have issued a slew of “stay-in-place” or “shelter-in-place” orders mandating the closure of all “nonessential businesses” and requiring all persons to self-isolate. For most companies, this means that most, if not all, of their employees are required to work remotely. While telework has become a great way for businesses to protect their employees from the Coronavirus (COVID-19), it may also be exposing the businesses to taxation in states where they may not otherwise have sufficient nexus. This is because employees may be working remotely from states where a business does not otherwise have a presence. Under the traditional nexus rules, the employees’ work in these states would likely be sufficient to create nexus such that the states can tax the business. This seems unfair given that the federal, state and local governments are strongly encouraging individuals not to travel and to work remotely.

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CARES Act Could Result in Taxation of More GILTI in New Jersey

The federal stimulus bill (the CARES Act), HR 748, which was signed into law by President Trump on March 27, includes certain corporate income tax provisions designed to provide relief to corporate taxpayers. One such provision–the net operating loss (NOL) provision that allows taxpayers to carryback NOLs to prior years–could have unintended consequences at the state level. For some taxpayers, the carryback of NOLs to 2018 and 2019 could reduce the deductions allowed pursuant to IRC § 250 applicable to global intangible low-taxed income (GILTI) and foreign derived intangible income (FDII) generated in those years. While this will obviously have federal income tax consequences it will also have consequences in states that tax GILTI and allow the deductions in IRC § 250. This blog post focuses on the consequences of the NOL rules to the New Jersey Corporation Business Tax (CBT), but the issue could arise in other states, including, for example, Nebraska and Iowa.

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