FTB Legal Notice 97 - 7 - rev
STATE OF CALIFORNIA
FRANCHISE TAX BOARD Legal Branch
ERNEST J. DRONENBURG, JR.
With respect to the first issue, we have previously estimated this issue and its transmittal is an attachment to the white paper. The revenue loss was estimated to be $120 million ($80 million tax plus $40 million interest).
The second issue would result in additional revenue losses of an indeterminable amount. Perfecting invalid elections would always result in revenue losses assuming the reason taxpayers elect waters-edge combined reporting is to minimize tax liabilities. The white paper suggests that the authority should be exercised only in limited situations where there is reasonable cause for the election to be invalid. Use of this authority would rarely occur.
The final issue would result in revenue gains but probably not for seven years. There are roughly 4,200 groups of taxpayers that have elected waters-edge combined reporting. Of this total, fewer than 50 (approximately 1%) have elected along separate lines of business. Assuming these taxpayers are benefiting from electing along business lines, a change to a top tier election would generate revenue gains. However, revenue gains would not likely occur for seven years after the statutory change because these taxpayers would continue to file along lines of business until their existing waters-edge contracts expire.
If you have questions or need additional information, please call.
Director, Economic and Statistical Research Bureau
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