Income/Franchise:
California: Lawsuit Filed by Trade Association that Challenges FTB Memo on P.L. 86-272 Moves Forward

Case No. CGC22601363, Cal. Super. Ct. (11/17/22). A California superior court (Court) recently overruled the California Franchise Tax Board’s (FTB) demurrer to an industry trade association’s filed complaint for declaratory and injunctive relief against the FTB in a lawsuit that asks the Court to declare invalid the FTB’s Technical Advice Memorandum (TAM) 2022-01 [see previously issued Multistate Tax Alert for more details on this FTB memo], which addresses the application of P.L. 86-272 to activities conducted via the internet, as well as the related FTB publication, FTB 1050. The underlying complaint alleges that this FTB guidance adopts a new interpretation of “a 63-year-old federal law, that directly contradicts the plain language of the federal law and in doing so violates the rights” of its members and other remote retailers. The complaint also alleges that this guidance is an announcement by the FTB, without following the applicable rulemaking procedures required by the California Administrative Procedure Act, “of a new standard of general application that purports to limit radically the protections of existing federal law, and expand the taxing authority of the FTB beyond the limits that have existed for decades and that are imposed by federal law and the US Constitution.” Because the Court denied this FTB request for early dismissal of the case, the suit continues to move forward. Please contact us with any questions.