The California Franchise Tax Board (FTB) held an interested parties meeting on January 28, 2010 to discuss the implementation of the new single sales factor (SSF) election. For tax years beginning on or after January 1, 2011, corporate taxpayers may annually elect to use an SSF apportionment formula in lieu of California’s three-factor (with double-weighted sales factor) apportionment formula. The FTB held the interested parties meeting to hear from the business community and practitioners regarding the challenges and concerns relating to the implementation of the new law. Some of the issues raised at the meeting included:
- How will the taxpayer make an SSF election?
- Are entities part of a unitary group permitted to make the election on an individual basis?
- Should there be a presumption that the election continues in effect unless changed?
- How will the annual election impact changes to a unitary business group during a tax year?
- How will the annual election impact changes to a unitary business group resulting from an audit?
- How would the SSF election impact NOL carryforwards or carrybacks?
While the interested parties meeting raised more questions than it provided answers, the FTB indicated that it has interpreted the statutory language to permit only one election for all members of a unitary combined group.
The FTB and participants had quite a lively debate about the practical aspects of how the SSF election will be implemented. Much of the discussion centered around whether the election would be a separate form (i.e., the water’s-edge election form) or part of the current apportionment form (Schedule R). The FTB plans to prepare for circulation an analysis that will include examples of the ways it proposes to resolve the issues raised during the interested parties meeting.