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The California State Board of Equalization has issued an informational letter in response to questions proposed at the recently held amnesty information meetings. The letter specifically addresses what the Board thought were the main areas of concern. Those areas are: the 10-year statute of limitations, impact of the 10-year statute of limitations on audits, amnesty for petitioned notices of determination, and credits as applied to amnesty eligible tax liabilities. In regards to how the 10-year statute of limitations (SOL) works, the Board offered the explanation that the SOL allows the Board to issue a notice of determination within ten years of the original due date of the tax liability being assessed, but only if the notice of determination is issued on or after April 1, 2005 for amnesty eligible tax reporting periods in which the taxpayer underreported or did not reports its tax liability. The ten-year SOL only applies to eligible tax reporting periods for which a notice of determination could still be issued as of August 16, 2004 and keeps these periods open for ten years from the original due date for each tax reporting period. The Board further stated they do not plan to modify their existing three-year audit selection cycle, which is used internally to identify accounts eligible for audit. However, the Board listed certain transactions that would cause them to audit a period outside of the normal cycle. In regards to amnesty for petitioned notices of determination, the Board stated that if a notice of determination is being petitioned, a taxpayer may apply for amnesty for any amounts contained in that notice which relate to amnesty eligible tax reporting periods. Also, the Board stated that it would handle issues regarding credits for refundable overpayments and offsets of overpayments against deficiencies as they are currently handled. (Amnesty IP Meeting Follow-Up Letter, California State Board of Equalization, January 21, 2005)


The California State Board of Equalization has provided answers to frequently asked questions surrounding the current sales and use tax amnesty program. The Board submitted these answers in a bulletin format for taxpayers to help them better understand the program and its applicability. The sales and use tax amnesty program started on February 1, 2005 and applications are due by March 31, 2005. The bulletin covers many topics including an amnesty definition, eligibility requirements, amnesty benefits, tax periods covered, and the 10 year statute of limitations. (Sales and Use Tax Amnesty Program Frequently Asked Questions, California State Board of Equalization, February 1, 2005)


In two recent amendments to California regulations, the State Board of Equalization stated that the partial manufacturing equipment exemption as it relates to the purchase and lease of tangible personal property used in manufacturing is no longer in effect as of January 1, 2004. This is due to the fact that non-aerospace employment in the state dropped below the 100,000 job threshold provided for in the Revenue and Taxation Code Section 6377. As a result of the amendments, no retailer or “qualified person” may claim the exemption for any purchases or leases entered into after December 31. 2003. (California Reg. 1525.2, California Reg. 1525.3)


Governor Schwarzenegger has just signed S.B. 1100 authorizing an amnesty to run from February 1, 2005 through March 31, 2005. The program shall apply to personal income, corporation, franchise (income), and sales and use taxes for reporting periods beginning before January 1, 2003. Penalties, but not interest, will be waived. In order to be eligible, taxpayers must either not have filed California tax returns, underreported income on tax returns they did file, claimed excessive deductions, or paid their taxes late. Taxpayers already under investigation for tax issues and taxpayers who could have participated in California’s Voluntary Compliance Initiative or the 2003 IRS Offshore Voluntary Compliance Initiative are not eligible. To participate, taxpayers must submit completed and signed amnesty applications by March 31, 2005, and amended or missing tax returns and payment of liabilities and interest must be remitted by May 31, 2005. An installment payment agreement plan will also be available, with all payments due by June 30, 2006. The amnesty application will be available online by January 15, 2005 and tax forms for 1994 through 2003 are currently available at; for years before 1994 taxpayers may order forms by calling (800) 852-5711. Eligible taxpayers who do not participate in the 2005 amnesty will face an increase in accuracy-related penalties from 20% to 40% on new tax assessments and an amnesty penalty of 50% on the unpaid interest for years included in the 2005 amnesty. (Senate Bill 1100, effective as noted above)


In a recent decision by the Second Appellate District California Court of Appeals, it was found that an agreement between an office products retailer and a city was in violation of the municipality competition legislation. In an effort to negotiate financial incentives for a proposed expansion, the office products retailer contacted the City of La Mirada in regards to its interest in relocating to the city, the retailer also notified its current location, Carson. Both cities’ redevelopment agencies competed for the business expansion to occur in their areas due to the sales tax revenue that would be generated. La Mirada offered the most beneficial package to the retailer and as such the retailer decided to expand in La Mirada. However, since the retailer was classified as a “big box retailer,” La Mirada was in violation of the legislation associated with the municipality competition ban. Such legislation prohibits a redevelopment agency from providing financial assistance to such “big box retailers” who are defined as such based on their physical size and ability to generate retail sales taxes under the Revenue and Taxation Code. Since the case was previously tried before a trial court and dismissed, the Court of Appeals overturned the decision in denying Carson’s countersuit writ petition, which included such mandates as sales tax revenue sharing provisions and dismissal of the financial incentive agreement. Carson v. La Mirada, California Court of Appeals, Second Appellate District, No. B168849, December 30, 2004)



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