Thursday April 26th the California Supreme Court issued a ruling on DiCon Fiberoptics v. Franchise Tax Board (FTB). The Court ruled that the FTB may conduct an audit to determine whether a taxpayer is entitled to claim Enterprise Zone tax credit. The FTB may require a taxpayer to establish that employees meet the definition of a “qualified employee” to claim the credit. The ruling also states that the FTB is not required to accept a voucher certificate as conclusive or prima facie evidence that the employee is qualified.
The Supreme Court ruling reverses the Court of Appeal’s decision that a voucher certificate is prima facie evidence a worker is a “qualified employee” and thereby qualifies the employer to claim Enterprise Zones tax credit. Despite the Supreme Court’s acknowledgement that DiCon’s arguments were reasonable; the court reversed the Appeal Court holding and affirmed the long standing precedent that the burden of proof is on the taxpayer. The Court addressed the concern of the FTB having unquestioned authority in disallowing voucher certificates and held that random or unreasonable disallowances would be an abuse of authority and could be addressed as situations arise.
