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Finding the Market Through the Looking Glass: California Issues Sales Factor Sourcing Guidance

By , and 3 Mins Read

California’s long-anticipated market-based sourcing “guidance” is finally out. Legal Ruling No. 2022-01 provides the Franchise Tax Board’s take on how to find the market in certain business-to-business sales. Though the guidance emphasizes that a seller should look to where its direct customer receives the benefit of sales of services, it keeps with current market-based sourcing trends amongst states and directs taxpayers to source such receipts based on the location of the taxpayer’s customer’s customer. The…

California Chief Counsel Ruling On Market-Based Sourcing – A Common (Sense?) Rule Emerges

By 5 Mins Read

Earlier this year, the California Franchise Tax Board (the “FTB”) issued Chief Counsel Ruling 2017-01 (the “2017 Ruling”), which addresses the application of the state’s market-based sourcing rules to non-marketing services under California Revenue and Taxation Code (“Code”) section 25136 and California Code of Regulations (“Regulation”) section 25136-2.  The 2017 Ruling concludes that receipts from non-marketing services should be sourced to California to the extent that a taxpayer’s direct customers (and not its customer’s customer) receive the benefit of the service in California.  The 2017 Ruling reaffirms an earlier ruling, Chief Counsel Ruling 2015-03 (the “2015 Ruling”), where the FTB reached the same conclusion regarding receipts from non-marketing services.  The 2015 and 2017 Rulings seem to foster a common theme developing under California’s market-based sourcing regime that the appropriate market is the location of a taxpayer’s direct customer (and not its customer’s customer).