MFA submitted feedback to the California Franchise Tax Board on the text of proposed rules under regulation section 25136-2 of the California Code of Regulations,2 regarding the market-based sourcing rules for sales other than sales of tangible personal property, in particular, relating to the sourcing of gross receipts from “asset management services.”
MFA believes modifications to address the issues are necessary to ensure and enhance the fairness, accuracy and administrability of the rules relating to the sourcing of asset management receipts, including:
- Permit a direct tracing method for asset management receipts, in addition to the “average value of interest” method, for purposes of computing the sales factor.
- Provide a prospective applicability date when the regulations are finalized; or, alternatively, provide automatic relief from penalties for taxable years beginning before the publication date of the final regulations.
- Provide guidance on how to source asset management receipts that are attributable to investors or beneficial owners whose locations cannot reasonably be determined.
- Provide guidance on how to source asset management receipts that are attributable to certain foreign feeders.
- Provide standard certification forms that taxpayers may use to verify the location of investors or beneficial owners.
