California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 3 - Corporation Income Tax › Article 3 - Tax Credits › Section 23649-10 - Recordkeeping Requirements

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(See Section
						23649-0 for Table of
						Contents.)
(a)
In
					 General.
For purposes of Regulations 23649-1 through 23649-11,
					 inclusive, a qualified taxpayer shall be required to maintain books and records
					 that are adequate to substantiate its entitlement to any claimed MIC. These
					 books and records should be retained for as long as the statute of limitations
					 on assessment for the income year for which the MIC was allowed remains open,
					 and, in the case of any MIC that is being carried forward, for the additional
					 number of years that the actual carryforward of such MIC occurs.
(b)
Books and Records.
The
					 books and records maintained by the qualified taxpayer should be sufficient to
					 clearly establish all necessary facts which affect the allowance and amount of
					 the MIC. For this purpose, "adequate" recordkeeping depends upon the
					 sufficiency of the information contained in the documentation. In many cases,
					 the books and records normally maintained for California income or franchise
					 tax purposes will be adequate substantiation for the MIC.
EXAMPLE 1
: X, a qualified taxpayer,
						claims a MIC for the purchase of 100 computers to be used in X's manufacturing
						facility in West Los Angeles. Assume the computers were purchased from a mail
						order retailer located in South Dakota. If X has only retained the original
						invoice and a cash disbursements journal, neither of which reflect that
						California sales or use tax was paid by X, then the invoice would not be
						sufficient to establish that California sales or use tax was paid on the
						computers. However, if X has retained a copy of a timely filed California use
						tax return that clearly demonstrates that California use tax was paid by X with
						respect to the computers, then X would be treated as having paid or incurred
						qualified costs.
EXAMPLE 2
: Assume the same facts as in
						EXAMPLE 1, except that X intends to use 20 of the computers for general
						administrative functions such as payroll and marketing. In addition to the
						records necessary to establish that California sales or use tax was paid, X
						should also retain a copy of the purchase contract containing a detailed list
						of the computers by model number so that X can establish which of the computers
						are being used in a qualified activity and which are not being used in a
						qualified activity.
(c)
Affidavit Regarding Sales and Use Tax.
For purposes of this
					 regulation only, in the case of any lump sum or turn key contract, the
					 requirement that California sales or use tax be paid may be established by
					 reference to bids, contracts or affidavits from the contractor. For purposes of
					 determining whether California sales or use tax has been paid, directly or
					 indirectly by the contractor, when it is not a separately stated contract
					 amount, a qualified taxpayer shall be entitled to rely on a written
					 representation to that effect from the contractor, and California sales or use
					 tax shall be deemed to have been paid in the absence of affirmative knowledge
					 on the part of the qualified taxpayer that California sales or use tax was not
					 paid.
(d)
Written Statement
					 by Lessor to Lessee
. In the case of any leasing transaction described
					 in subsection (b) of Regulation 23649-6 (relating to operating leases), the
					 lessor shall provide a statement to the lessee specifying the amount of the
					 lessor's original cost of the qualified property upon which the lessee may
					 claim the MIC and the amount of that cost upon which California sales or use
					 tax was paid. This statement must be provided to the lessee within 45 days
					 after the close of the lessee's income year for which the MIC is allowable to
					 the lessee. For purposes of providing this statement only, if a lessor is
					 legally obligated to remit California sales or use tax with respect to its
					 acquisition of qualified property, but has not yet remitted such amounts solely
					 due to timing differences between the lessor's California sales and use tax
					 return filing period and the lessee's taxable year, then the lessor may treat
					 the amounts upon which the California sales or use tax liability arises as
					 "qualified costs to the lessor." This written statement should not be filed
					 with any return of either the lessor or lessee, but shall instead be retained
					 by the lessee and made available to the Franchise Tax Board upon
					 request.
1. New
						section filed 5-1-96; operative 5-31-96 (Register 96, No.
						18).
Note: Authority cited: Section
						  19503,
						  Revenue and Taxation Code. Reference: Section
						  23649,
						  Revenue and Taxation Code.