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So, when a state operates in California but pays its Delaware subsidiary to hold its IP and other intangible assets as a tax dodge, does it not have to pay Cali
by Pxtl 6y ago
So, when a state operates in California but pays its Delaware subsidiary to hold its IP and other intangible assets as a tax dodge, does it not have to pay Californian sales taxes on this purchase?
- pwned1 6y agoSales taxes are generally applicable to the final retail sale of a good for ultimate use, not for transfer of intellectual property rights.
- Pxtl 6y agoI haven't worked on the money side of a business - businesses are allowed to claim an expense for purposes of reducing their income tax burden, but they don't have to pay sales taxes on that same expense if it's internal to an associated business? That seems perverse. "I spent money on X" "Okay where's the sales tax payments for X?" "The money went to myself, so there's no sales tax" "So then you didn't spend the money?" "Yes I did."
- pwned1 6y agoThey do, it's called a use tax. So if you buy paper for your business and don't pay sales tax, you'll generally have to pay the same amount in use tax.
- doktorhladnjak 6y agoI doubt intangible assets are subject to sales tax
- IncRnd 6y agoThere would be no difference in IP taxation if your example were 100% in California.
- gamblor956 6y agoA) Yes, it still collects sales tax on the purchase. (Sales tax is owed by the buyer, not the seller). B) The company would still owe CA tax on the revenue from selling the phone. C1) California would disregard the IP royalty, so no deduction for the Delaware shenanigans. C2) Other states will grant the deduction...but tax the royalty on nexus grounds, and the subsidiary won't have apportionable expenses to offset the royalty income, resulting in a higher net tax burden for the corporate group .