United States

California: Upcoming Interested Parties Meeting to Discuss Apportionment when the Combined Group Includes Financials and General Corporations

Apr 18, 2016
From KPMG TaxWatch

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Many corporate groups include one or more subsidiaries that are formed solely to conduct financial activities. Likewise, many banks and other financial entities have formed subsidiaries to conduct non-financial activities. In either instance, taxpayers often struggle with the rules for handling both financial and general corporations in a single combined report in California. In Harley Davidson, Inc. v. California Franchise Tax Board (187 Cal. Reptr. 3d 672, Cal. Ct. App. May 28, 2015), the California Court of Appeals addressed certain nexus issues that may arise in such a situation and eventually concluded that two special purpose financial entities had nexus in California due to the activities conducted on their behalf by related general corporation affiliates. The California Franchise Tax Board has scheduled an interested parties meeting to discuss draft regulations designed to provide guidance on apportionment rules to be used when both general corporations and financial entities are required to be included in a single combined report. The meeting is scheduled for April 20, 2016.

Members of KPMG's state and local tax practice recently authored an article (click here to access) in the Journal of Taxation and Regulation of Financial Institutions (January/February 2016 issue, Volume 29, No. 3) that examines how a group that includes both financial and nonfinancial organizations must report taxes in California. Using a hypothetical set of facts, the article examines how the use of a special purpose entity to securitize a loan portfolio can create issues for the hypothetical group. This article also may help taxpayers understand the implications of the proposals that will be discussed at the interested parties meeting. If you have further questions about the article or the proposed regulations, please contact Scot Grierson at 949-885-5643, John Harper at 213-593-6704, Steve Sims at 916-551-3133, or Marianne Evans at 202-533-4188. 

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.