Resolution of California Audit Issue Cuts $185,000 from Marketer's Tax Bill

Client Profile

Industry: Professional Services
Annual Revenue: $50 million
Entity Structure: LLC
Geographic Footprint: Headquartered in Colorado

CBIZ provides state tax controversy support.Issue

A Colorado-based marketing and media services provider underwent a California state tax audit. The state auditor determined the marketer owed approximately $190,000 in California income taxes before interest and penalties.

Solution

Our state and local tax controversy team helped the marketer evaluate and address the state auditor’s conclusions. The company’s third-party tax preparer had made a single sales factor election and incorrectly taken a cost of performance approach to determine apportionment, which indicated the marketer would owe no income taxes in California. When the state auditor applied the correct market-based sourcing approach, the auditor determined the marketer’s apportionment factor was 13.8 percent, resulting in taxes owed by both the S corporation owners of the LLC and the individual owners of the S corporations.

We worked with the state to lower the apportionment factor percentage by nearly half. Our professionals also determined a single sales factor election made by an LLC should not impact unitary S corporation owners.

Outcome

As a result of our analysis, the marketing provider did not owe S corporation level taxes and had to pay only $5,000 of the original $190,000 state tax audit bill. We also helped the marketer identify additional income tax issues to remediate before they were uncovered by a state auditor.

Negotiate a Better State Audit Outcome

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CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

Resolution of California Audit Issue Cuts $185,000 from Marketer's Tax BillCBIZ helped a Colorado-based marketer resolve a California state tax audit issue....2017-04-21T18:12:00-05:00CBIZ helped a Colorado-based marketer resolve a California state tax audit issue.Planning & Tax MinimizationState & Local Tax