This distinction is rejected in FTB Legal Ruling 2022-01 through the express revocation of FTB Chief Counsel Rulings 2015-01. For Situation 2, FTB Legal Ruling 2022-01 holds that the benefit of the service for the taxpayer's customer is received at the location of the taxpayer's customer's customer.īefore FTB Legal Ruling 2022-01, FTB guidance reflected the idea that where the benefit of the service is assigned should relate to where the taxpayer's customer receives the benefit of the service, not the location of the customer's customer (unless the service was a "marketing" service). Rather, the gross receipts are assigned to the location where the direct benefit of the service is received by the customer. Situation Three involves a company providing consulting services to entities that want to manage their power consumption used in manufacturing, where a subcontractor based in another state is engaged to advise on certain aspects of a customer's manufacturing plant's power consumption.įor Situations 1 and 3, FTB Legal Ruling 2022-01 concludes that the location where a service is performed does not determine where to assign the gross receipts from the sale of that service. Situation Two involves a pharmacy benefits management company that administers drug benefit programs for employers, unions, government entities and health plans, with its primary activity being the processing and fulfillment of prescription drug claims. Situation One involves an event-planning company working remotely from its home office while planning an out-of-state event for a customer located in a third state. This framework is applied to three situations in FTB Legal Ruling 2022-01.
Once these questions are answered, the cascading rules in Regulation 25136-2 are applied to determine the location of where the benefit was received for purposes of the sourcing rules.
Where did the customer receive the benefit of the service?.In FTB Legal Ruling 2022-01, the FTB lists four questions to answer when applying Regulation 25136-2 to determine where to assign sales of services: With the revocation of two prior Chief Counsel Rulings, the FTB's interpretation of the current version of Regulation 25136-2 with respect to the sale of services to business entities has changed. While the proposed amendments to Regulation 25136-2 would apply to tax years beginning on or after January 1, 2023, FTB Legal Ruling 2022-01 reflects the FTB's interpretation of the current version of Regulation 25136-2. 1įTB Legal Ruling 2022-01 comes just as the FTB is entering the formal regulatory process on its second round of amendments to Regulation 25136-2 (see Tax Alert 2021-1167). Legal Ruling 2022-01 supersedes any prior FTB guidance to the extent there is a conflict and specifically revokes FTB Chief Counsel Rulings 2015-01.
#Gross receipts how to
In Legal Ruling 2022-01 (March 25, 2022), the California Franchise Tax Board (FTB) sets forth the "relevant considerations and proper analysis" that should be used to determine how to assign gross receipts from the sale of services to business entities under California Code of Regulations, title 18, section 25136-2 (Regulation 25136-2) for the purpose of market-based sourcing rules. California Franchise Tax Board issues ruling on assigning gross receipts from sales of services to business entities
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