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Dicon Fiberoptics v. FTB Update

Last month I reported on a new Enterprise Zone related lawsuit being brought in Superior Court, Dicon Foberoptics, Inc. v. Franchise Tax Board of the State of California. Here is the crux of Dicon’s complaint that I quoted last time:

Does the California Franchise Tax Board have unfettered authority to retroactively interpret and act upon a construction of the Revenue and Taxation Code that ignores express language concerning the requirements that a taxpayer must meet to receive available tax credits or refunds? Second, does the California Franchise Tax Board deprive a taxpayer of notice and procedural protections when its statutory interpretation creates additional administrative hurdles for taxpayers otherwise eligible to receive credits or refunds? And third, should the law permit the California Franchise Tax Board to deny taxpayers their credit or refunds, in some cases years after approval by an authorized administrative agency specifically tasked to review and certify eligibility for such benefits?

Within the last few weeks, the State has filed a demurrer with the court. Not being a lawyer, I had to look up demurrer. According to the dictionary, this means:

A written response to a complaint filed in a lawsuit which, in effect, pleads for dismissal on the point that even if the facts alleged in the complaint were true, there is no legal basis for a lawsuit.

Indeed, the Attorney General’s office filed a lengthy “Memorandum of Points and Authorities in Support of Demurrer to First-Amended Complaint for Refund of Amounts Paid.” This Memorandum is an elaborate argument for the FTB’s authority to examine enterprise zone voucher supporting documentation. While it cites the Deluxe case, in my opinion, this argument is even more comprehensive then the one offered there. The State argues that Dicon’s position is so unfounded that they are suggesting the whole thing be dismissed, in other words demurred.

Here are the five headlines for the arguments made to dismiss the case:

  1. Overview of tax refund litigation shows that Dicon has not stated a cause of action.
  2. The Board [FTB] has authority to demand documentation to administer and enforce the Revenue and Taxation Code and Dicon’s failure to allege that it provided the documents is fatal to its action.
  3. Section 23622.7 Subdivision (c), does not limit the authority of the Board to demand substantiation of enterprise zone hiring credits.
  4. Section 23622.7 Subdivision (c), does not grant exclusive authority to the agencies designated to review eligibility for enterprise zone hiring credits.
  5. Dicon cannot estop or otherwise rely on third party’s determination that it owes no tax.

I’m pretty certain that if this case were offered on pay-per-view there would be some serious interest. Email me if you would like a copy of the complete court document.

It appears that the time-line for the continuation of the case will be as follows: Dicon’s opposition brief is due by 6/18/07, FTB’s reply to that brief is due 7/5/07, and there will be a hearing on the demurrer on 7/12/07.

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