California Taxpayers Association Exploring Legal Options to Challenge Retroactive Tax Increase

For Immediate Release, July 30, 2024
Contact: David Kline (916) 893-2614 or
[email protected]

SACRAMENTO – California Taxpayers Association President Robert Guterriez announced today that the association is exploring legal options to challenge a retroactive tax increase that violates the rights of companies operating in California (Senate Bill 167, Chapter 34, Statutes of 2024).

“This legislation imposes a retroactive tax hike that would reach back several decades, allowing California’s tax collectors to go after companies that already paid every cent of the taxes owed under the laws that were in place at the time,” Gutierrez said. “This egregious violation of taxpayers’ rights cannot go unchallenged.”

SB 167 retroactively modifies the rules used to apportion global income when determining the portion that is taxable in California. The change, included in the state budget as a revenue-raiser, would increase taxes on many CalTax members and others for tax periods that ended decades ago.

Among other things, the new law requires companies to exclude foreign dividends from their sales factor when making a water’s-edge election. This was inaccurately described during legislative discussions as a “clarification of existing law,” when it actually overturns a law that has been in place since the 1960s.

SB 167 ignores the decisions of two unanimous panels of judges with the independent Office of Tax Appeals (OTA).  These decisions make clear that the longstanding law authorizes companies to include foreign dividends in their sales factor.

Further evidence of SB 167’s retroactivity is contained in the revenue estimates prepared by the Department of Finance. The DOF estimates that SB 167 will generate $1.3 billion immediately, and an additional $200 million annually thereafter.

“This legislation shreds well-reasoned, unanimous decisions of California’s Office of Tax Appeals and serves as a not-so-hidden tax increase,” Gutierrez said. “This is a cash grab that undermines the tax system and threatens the integrity of the tax appeals process in California, and it must be stopped.”

As part of its initial effort to explore legal options, CalTax today filed Public Records Act requests with the Department of Finance, Franchise Tax Board, and Office of Tax Appeals to gather additional information.

The law firm of Eversheds Sutherland LLP is representing CalTax in this matter.