The State of California Franchise Tax Board (FTB) has concluded that some payments received pursuant to a cost sharing arrangement (CSA) constitute gross receipts for purposes of the California sales factor.
In TAM 2015-1, dated March 18, the FTB explained that payments received pursuant to a qualified cost sharing arrangement for current operational research and development costs reduce expense deductions for the recipient and thus are not gross receipts for California sales factor purposes. Payments in excess of the deductions available for the costs being reimbursed are payments in consideration for use of property or services made available to the CSA, and thus are gross receipts, the FTB concluded.
The FTB also said that payments for purchases of resources external to the CSA that are reasonably anticipated to benefit the development of cost-shared intangibles within the CSA are consideration for use of the intangible property or resource, and thus are gross receipts for California sales factor purposes under R&TC section 25134(a)(1)(A) or (C).
While US regulations allow platform contribution transaction (PCT) payments to be reduced by amounts owed to the payer, under authority of General Mills v. Franchise Tax Board (2012) 208 Cal.App.4th 1290 these offset amounts owed to the payee, which constitute PCT payments, are included at gross in the sales factor, subject to potential distortion analysis under section 25137, the FTB said.
See:
- Technical Advice Memorandum 2015-01
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