The Office of Tax Appeals posted 40 opinions to its website September 2, none of which were designated as precedential. The total was composed of 32 income tax opinions and eight business tax opinions.
In one of the notable opinions, the OTA upheld the Franchise Tax Board’s finding that comedian Russell Peters was a California resident during the 2012, 2013, and 2014 tax years despite having several business entities and properties in Nevada.
The ruling in the Appeal of R. Peters supported the FTB’s determination that Peters owed additional tax of more than $2.1 million, plus interest, for the three-year period, which included a year in which he was ranked third on Forbes’ list of the world’s highest-paid comedians.
During the years in dispute, the Canadian-born entertainer was the sole shareholder of a corporation registered with the Nevada Secretary of State; was represented by an agent with an address in Carson City, Nevada; was the sole member of a limited liability company registered in Nevada; owned a residence in Henderson, Nevada; owned a condominium in Las Vegas; owned or had partial ownership interests in real property and business interests in Ontario, Canada; and held a Nevada driver’s license that listed the Henderson residence as his mailing address.
However, the OTA noted that he also had significant ties to California, including residences in Malibu, Studio City, and Woodland Hills. Additionally, the FTB argued that Peters’ personal credit card was used extensively in California during the years in question, indicating that he was present in California far more often than in Nevada (for example, the FTB alleged that in 2014 he was in California for 120 days, Nevada for nine days, and in other locations for the rest of the year).
Peters argued that his credit card usage is not a reliable indicator of his physical presence because his staff used his credit cards without his physical presence.
In 2014, when Peters filed for divorce, he indirectly purchased the Malibu residence, which was near the former family home in Studio City.
“It appears that appellant’s former wife and the couple’s daughter remained in California, the location of the familial abode, and appellant, an entertainer who conducted extensive travel and touring during the years at issue, visited them whenever his business schedule would allow,” the OTA wrote. “Appellant’s establishment of a familial abode in California weighs in favor of California domicile. … While appellant did maintain a Nevada driver’s license and Nevada business interests, on balance, appellant’s familial abode and physical presence more strongly indicate that his most settled and permanent connection was in California. Further, the burden is on appellant to show error in FTB’s determination, and appellant has not met his burden.”
In other opinions:
Taxpayer Paid Taxes on Time and in Full, but OTA Upholds $36,000 Penalty for Paying by Check. A taxpayer who paid more than $3.6 million in state income tax for the 2020 tax year also must pay a $36,264 penalty for making the payment by check, the OTA ruled in the Appeal of S. Taube.
The taxpayer argued for a waiver from the FTB’s electronic payment requirement because, among other things, he had a business failure that resulted in “phantom income”; he was going through personal problems relating to a divorce, hypertension, and diabetes; the large tax payment was due to a document he received just a few weeks before the payment was due, and he did not have time to request a waiver before the due date; and he had a new accounting firm and didn’t see the firm’s instruction to make the payment electronically.
None of these reasons established good cause for failing to pay electronically, the OTA ruled, adding that the taxpayer paid e-filing penalties on six prior occasions and should have exercised “ordinary business care and prudence” and paid electronically the seventh time.
State Senator Suzette Martinez Valladares introduced legislation this year to cap the e-filing penalty at $100 for a first offense and $500 for each subsequent violation (SB 591), but the legislation stalled in the Assembly Appropriations Committee after being amended to instead waive the penalty for the first violation and keep the existing penalty structure for all others.