Earlier this year, the California Franchise Tax Board (the âFTBâ) issued Chief Counsel Ruling 2017-01 (the â2017 Rulingâ), which addresses the application of the stateâs market-based sourcing rules to non-marketing services under California Revenue and Taxation Code (âCodeâ) section 25136 and California Code of Regulations (âRegulationâ) section 25136-2. The 2017 Ruling concludes that receipts from non-marketing services should be sourced to California to the extent that a taxpayerâs direct customers (and not its customerâs customer) receive the benefit of the service in California.  The 2017 Ruling reaffirms an earlier ruling, Chief Counsel Ruling 2015-03 (the â2015 Rulingâ), 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 Californiaâs market-based sourcing regime that the appropriate market is the location of a taxpayerâs direct customer (and not its customerâs customer).
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