Weekly Round-Up: Penalty May Come Swiftly in Wake of Gillette, But Refunds May Take Years

The California Franchise Tax Board warned corporate taxpayers facing an Oct. 15 deadline to file state income tax returns that they risk a 20 percent understatement penalty if they assign income to California based on an Oct. 2 appellate court ruling that is not yet final, BNA Correspondent Laura Mahoney reports in this week’s issue of the Weekly State Tax Report.

Under court rules, the Oct. 2 opinion becomes final 30 days after it is issued, which is Nov. 1. Until then, the FTB's position that the double-weighted sales factor is the only valid apportionment formula is still state law, the tax agency said.

“Staff believes that taxpayers choosing to elect the use of the Compact method of apportionment on a timely filed original return for the 2011 taxable year, that is filed before the decision of the Court of Appeal in Gillette v. Franchise Tax Board is final, will run the risk of incurring the LCUP if that decision is subsequently vacated, reversed, or overturned,”  FTB spokeswoman Susan Maples said in an emailed statement.

In a separate notice, the FTB advised that corporate taxpayers can file claims for refund if they want to calculate state income tax based on the formula facing challenge in Gillette, but they will likely wait several years before their refund claims are resolved.

The FTB notice applies to taxpayers that want to use the income apportionment formula in the Multistate Tax Compact, which may be available for open tax years depending on the outcome of pending litigation in Gillette.

Taxpayers cannot use the formula on amended tax returns, but they can file protective claims for refund in case the ultimate outcome of the lawsuit makes the formula an option, the FTB said.

Mahoney’s complete look at these developments, found in this week’s issue of the Weekly State Tax Report, can be read in its entirety here: Penalty,Refund.

In other developments…

Bloomberg issues its States of Misery rankings while the Tax Foundation issues its study, 2013 State Business Tax Climate Index.

Confused By Amazon Taxes? You're Not Alone , according to Forbes.

Changes in law to let Georgia net more sales tax from online purchases , the Atlanta Journal-Constitution reports.

Connecticut Supreme Court decision finding sales and use tax nexus for out-of-state bookseller is denied review by the U.S. Supreme Court , according to a new PwC publication.

Compiled by Priya D. Nair
Follow us on Twitter at: @SALTax
Join BNA's State Tax Group on LinkedIn