In a recent decision by the California Administrative Tribunal, an investment management company subjected to California corporate franchise tax was effectively required to source its receipts from the services it provided to mutual funds based on the locations of the mutual fund shareholders. Notably, the company was prohibited from sourcing the receipts using the California market-based sourcing statute. This decision came in the case of the Appeal of Janus Capital Group, Inc. and Subsidiaries, Case No. 20096605.
The services in question included management, administrative, and distribution services provided to mutual funds. In essence, the California Administrative Tribunal upheld a special industry apportionment formula for mutual fund service providers.
Janus Capital Group, Inc. and its subsidiaries found themselves at the center of a state tax controversy due to the company’s method of sourcing receipts for its services. The decision was released in September 2023, following the hearing in July of the same year.
The Tribunal’s decision carries implications for other mutual fund service providers and investment management companies that find themselves in similar positions. Legal professionals, especially those operating in California’s corporate franchise tax sphere, should be particularly mindful of how this case could influence decision-making and tax structuring for their clients.
For a more detailed analysis of the Appeal of Janus Capital Group, refer to the commentary provided by Blank Rome LLP via JD Supra.