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successfully defended an IRS Trust Fund Recovery Penalty assessment, saving our client over $7 million.
Jim Bourbeau successfully reduced an FTB audit liability, resulting in savings for the client of over $44,000.
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It is the beginning of summer and may well be the beginning of significant change for California employers, businesses conducting sales in California, and California tax practitioners, depending on the outcome of recent events.
Last week, the California Legislature passed The Taxpayer Transparency and Fairness Act of 2017. If this bill becomes law, the Board of Equalization (BOE) will no longer handle a significant portion of its duties. Instead, the California Department of Tax and Fee Administration (CDFTA) will be created to manage the BOE's administrative and regulatory duties concerning programs involving sales tax and other business taxes and fees. The Office of Tax Appeals (OTA) will be created to hear tax appeals of the BOE and California Franchise Tax Board (FTB). Currently, the BOE hears such tax appeals and is the only elected board in the country to hear tax appeals.
Additionally, the "No Regulation Without Representation Act of 2017" has been introduced at the federal level, which would expand the "physical presence" requirement to all taxes and to all regulations in general. A person (or entity) would have to have a physical presence in a state before the state could tax the activity.
States would not be able to assess or collect sales, use, or similar taxes, nor could they require information reporting of persons or businesses that did not meet at least one of the criteria creating a physical presence in the state.
Finally, employers may be in for a surprise depending on the outcome of the worker classification case the California Supreme Court has agreed to hear. Depending on the ruling, nearly every worker may become classified as an employee.
I will be at the 2017 Section Convention of the State Bar of California in San Diego on August 18, 2017 to speak on "Taxation Issues Concerning Civil Settlements and Judgments." Details for this inaugural event are
here
.
Williams & Associates attorney Bruce Emard will discuss tax liens for the Sacramento Valley Bankruptcy Forum at the U.S. Bankruptcy Court in Sacramento
at the end of August. Event details are forthcoming
here.
In mid-September, I will give a presentation titled "Tax Audits - Triggers and Tips" for the IRS Nationwide Tax Forum in San Diego. Registration details are
here.
For more information on this month's featured news topics, continue reading below.
Sincerely,
Betty Williams
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California Legislature Passes Taxpayer Transparency
and Fairness Act of 2017
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As of July 1, 2017, California's State Board of Equalization will likely be a thing of the past. Lawmakers voted on June 15th to pass Senate Bill 86,
The Taxpayer Transparency and Fairness Act of 2017, which will rapidly create a new Department of Tax and Fee Administration that will fall under the umbrella of the Government Operations Agency and take over all of the Board's non-Constitutional functions from headquarters in Sacramento. The only responsibilities left to the Board will be property tax administration, tax rate setting, and some other minor duties.
Once approved, SB 86 will also create an Office of Tax Appeals under the control of a Governor-appointed director. Panels of three administrative law judges will hear and issue written opinions on taxpayer appeals at offices in Sacramento, Fresno, and Los Angeles on matters such as claims for refund, administrative protests, and petitions for redetermination.
The general aims of the bill include reforming the taxpayer appeals process to make it more consistent and transparent; increasing efficiency; and restoring public trust in the state taxation system. The State Board of Equalization was established in 1879 to govern fair collection of property taxes by county assessors, and its powers have been greatly expanded by statute and regulations. Groups have been calling for the dissolution of the Board since 1929. The audit this March that revealed significant inefficiencies and misappropriations strengthened the arguments in favor of this new bill.
Many of the details for how the new department will operate remain undecided; we will provide updates as they arise. To read the draft bill, click here.
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Could Physical Presence Make a Comeback
for Sales and Use Tax?
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If Congressman Jim Sensenbrenner (R-WI) and House Judiciary Chairman Bob Goolatte (R-VA) get their way, it will. On June 12, 2016, Sensenbrenner and Goolatte introduced the "No Regulation Without Representation Act of 2017" which would expand the "physical presence" requirement of a similar 2016 House Bill (H.R. 5893) to all taxes and to all regulations in general.
The new legislation would require a person to have physical presence in a state before the state can "tax or regulate [the] person's activity in interstate commerce," determined by applying any of the following criteria:
- maintaining its commercial or legal domicile in the State;
- owning, holding a leasehold interest in, or maintaining real property such as an office, retail store, warehouse, distribution center, manufacturing operation, or assembly facility in the State;
- leasing or owning tangible personal property (other than computer software) of more than de minimis value in the State;
- having one or more employees, agents or independent contractors present in the State who provide on-site design, installation, or repair services on behalf of the remote seller;
- having one or more employees, exclusive agents or exclusive independent contractors present in the State who engage in activities that substantially assist the person to establish or maintain a market in the State; or
- regularly employing in the State three or more employees for any purpose.
States would not be able to assess or collect sales, use, or similar taxes, nor could they require information reporting of persons or businesses that did not meet at least one of these criteria.
De minimis activities such as presence in a state for fewer than 15 days in a taxable year, internet referral-based sales agreements, and ownership by an out-of-state individual of an interest in an LLC-type entity that has physical presence in the state would not be considered indicative of physical presence.
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Worker Classification to be Tested in California Supreme Court
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The issue presented is as follows:
In a wage and hour class action involving claims that the plaintiffs were misclassified as independent contractors, may a class be certified based on the Industrial Welfare Commission definition of employee as construed in Martinez v. Combs (2010) 49 Cal.4th 35, or should the common law test for distinguishing between employees and independent contractors discussed in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 control? (
source
)
If the Court expands the test for worker classification to the employment-oriented and more simple, three pronged definition of "employer" found in the IWC Wage Orders as it currently applies in minimum wages actions, the ramifications to California taxpayers will be significant. (See Cal. Code Regs., tit. 8, ยง 11090, subd. 2 (D): "'Employ' means to engage, suffer, or permit to work.") If the California Supreme Court decides that the Wage Order definition controls, California courts would potentially no longer rely on the common law, multi-factor test, as defined in Borello, but would rather simply turn to the more employment-oriented "engage, suffer, or permit to work" definition.
In other words, nearly every worker could potentially be classified as an employee.
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If you have questions about these or any other tax law matters, our qualified attorneys are here to help.
Sincerely,
Betty Williams Managing Shareholder
Law Office of Williams & Associates, PC (916) 488-8501 |
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