The Sacramento Business Journal reports that the Dallas-based tax consulting firm Ryan is suing GO-Biz over newly enacted emergency regulations that seek to limit the fee arrangements allowable for the California Competes Credit:
In August, the agency known as GO-Biz placed on ban on commissions received by consultants for aiding companies in securing a California Competes tax credit, a program that gives tax breaks to companies planning on moving to the state or expanding here.
The administration’s action, which was intended to ensure that companies receive tax credits in their entirety and stipends do not go to consultants, could mark the first prohibition of its kind.
Ryan’s press release on the matter states:
Ryan is seeking a declaratory judgment that the emergency rule is unconstitutional and warrants a permanent injunction. In its suit, Ryan contends that GO-Biz has exploited emergency rulemaking procedures in order to insert regulatory requirements and new language with a significantly different purpose and effect from the original emergency regulations adopted in early 2014 to govern the California Competes Tax Credit (“Tax Credit”). In defiance of the Administrative Procedures Act, GO-Biz took a list of factors that the agency is required to review when allocating the Tax Credit and capriciously inserted a requirement purporting to regulate the fee arrangements between taxpayers and the tax professionals assisting them. Ryan asserts that the fee provisions would limit the availability of the Tax Credit by allowing GO-Biz to deny the Tax Credit to taxpayers who qualify under the statutory regime put in place by the California Legislature. Ryan also contends that the rule ignores conflicting Tax Credit provisions in the Revenue and Taxation Code and the conflicting provisions governing professional fees and conduct.
Despite the fact that the California Legislature has recently and repeatedly demonstrated that it does not intend to impose limits on fee arrangements between taxpayers and their consultants, Go-Biz passed—under the guise of acting within its legal grant of power—new regulations outside of its authority that impose caps on contingency fee arrangements of Tax Credit applicants.
The August 18, 2014 version of the regulations can be found here, and state in section 8000(g)(2)(H):
Any other information requested in the application; including, but not limited to, the fee arrangement between the applicant and any consultant, attorney, tax practitioner or any other third party that prepared or submitted the application, or provided any services related to the credit. Any contingent fee arrangement must result in a fee that is less than or equal to the product of the number of hours of service provided to the applicant and a reasonable hourly rate for such services.