FTB Legal Ruling issued on California's Market-based Rules.

• Position: FTB news

On March 25, the FTB issued Legal Ruling 2022-01 (ftb.ca.gov/tax-pros/law/legal-rulings/2022-01.pdf) relating to the application of California's market-based rules at R&TC Sec. 25136 and California Code of Regulations, title 18, Sec. 25136-2.

The Legal Ruling presents the proper application of rules related to the assignment of sales from services to this state, for apportionment purposes. The Legal Ruling's analytical framework uses the statutory elements of R&TC Sec. 25136, which requires taxpayers to assign sales of services to this state to the extent the taxpayer's purchaser received the benefit of its service in this state.

The Legal Ruling applies the analysis to three types of fact situations commonly discussed by the taxpayer community, including a scenario in which a subcontractor receives gross receipts from a primary contractor to perform services for a third party. The Legal Ruling provides that these services are assigned...