California ~ Personal Income Tax: Taxpayers Entitled to Exclude Gain From Sale of Qualified Small Business Stock

Taxpayers were entitled to exclude 50% of the gain from their sale of corporate stock as gain from the sale of qualified small business stock for California personal income tax purposes. Contrary to the contentions of the Franchise Tax Board (FTB), the corporation met the active business requirements provided by statute, including the 80% payroll test (i.e., 80% or more of the corporation’s total payroll expense attributable to employment in California), for each of the taxpayers’ holding periods for the stock. The taxpayers had asserted that the FTB erred in determining whether the corporation met the 80% payroll test because the FTB included severance pay and other termination costs related to reducing the corporation’s staff outside of California as part of the corporation’s payroll expenses attributable to employment. Also, as an alternate approach for determining whether the 80% payroll test had been met, the taxpayers had proposed applying an apportionment percentage to determine the number of qualifying months of California payroll.

Letter Decision, Appeal of Lin, Nos. 477812, 477856, and 477868, California State Board of Equalization, February 24, 2011, ¶405-446

Other References:

Explanations at ¶15-620

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

All stories by: Wolters Kluwer Tax and Accounting