Cross-Jurisdictional Vouchering and FTB Audits

The release of HCD's official legal opinion invalidating the practice of cross-jurisdictional vouchering raises a significant question for the Franchise Tax Board. I just spoke with Mark Maldonado, manager of the Enterprise Zone program for HCD, who pointed out to me that this legal opinion was a follow up to a memo released by the department in January 2005 recommending against the practice (based essentially on the same argument as in the final memo), and that the legal opinion is not based on any recent changes but is an interpretation of the statute as it has always been. I was pursuing a tip I received from a taxpayer indicating that the FTB is mulling over whether or not to treat the HCD ruling as retroactive for the purpose of rejecting vouchers in the course of an audit. Mark confirmed that they do indeed have a big decision to make and the ramifications could be serious.

I actually expect there to be a somewhat measured response. When the qualification and documentation are obvious I think the FTB will let the fact that a voucher was issued cross-jurisdictionally pass. But in the other areas that they are currently scrutinizing, such as JTPA and dislocated workers, the cross-jurisdictional issue gives them an easy way to dismiss the vouchers without further argument.

In addition, we should be seeing HCD responses to comments on the voucher regulations in about two weeks.