Section 30D of the U.S. Code establishes a new clean vehicle tax credit of up to $7,500 (unindexed) and limits the price of applicable vehicles. The ceiling is $80,000 (unindexed)  for a “van,” “sport utility vehicle,” and “pickup truck,” while the price restriction is $55,000 (unindexed)  for “any other vehicle” that otherwise qualifies.[1] The price referred to by the section is the manufacturer suggested retail price.[2] The statute also requires the IRS to define these designations of vehicles “using criteria similar to that employed by the Environmental Protection Agency and the Department of the Energy to determine size and class of vehicles.”[3] At this time there is no regulation defining these terms, but the publication of the pertinent Notice of Proposed Rulemaking is scheduled for March of this year.

The IRS did release interim guidance on December 29, 2023. This interim guidance, Notice 2023-1, defined the vehicle designations by cross-citing to 40 CFR § 600.002 and serves as the operative rule until a more permanent decision is made. Notice 2023-16 changes the cross-citation to 40 CFR § 600.315-08(a) and is retroactive to January 1, 2023. The relevant FAQs were also updated. There is an otherwise comprehensive list of qualifying vehicles, but it is currently applicable only to vehicles “placed in service before January 1, 2023.” The IRS released a list of potentially qualifying manufacturers and models yet insists that the only way to be certain is through verifying the Vehicle Identification Number online. The new definitions effectively leave the task of classification of the vehicles to the Administrator of the EPA based on consumer expectations as part of the fuel economy label system.[4]

Last month, Elon Musk tweeted that the prior rules were “messed up” and advocated for new definitions during a meeting with Biden Administration officials last week. Other automakers lobbied for change as well.

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[1] § 30D(f)(11)(B).

[2] § 30D(f)(11)(A). 

[3] § 30D(f)(11)(C).

[4] Notice 2023-16 pursuant to 40 CFR 600.315-08(a)(3)(ii)

[5] 40 CFR 600.315-08(a)(2)(iii) & (iv).

[6]  Notice 2023-16 pursuant to 40 CFR 600.315-08(a)(3)(ii)

[7] 40 CFR 600.315-08(a)(2)(v)& (vi).

[8]  Notice 2023-16 pursuant to 40 CFR 600.315-08(a)(3)(ii)

[9] 40 CFR 600.315-08(a)(2)(i)& (ii).

[10]  Notice 2023-16 pursuant to 40 CFR 600.315-08(a)(3)(ii)

[11] In full:

The Administrator will classify passenger automobiles by car line into one of the following classes based on interior volume index or seating capacity except for those passenger automobiles which the Administrator determines are most appropriately placed in a different classification or classed as special purpose vehicles as provided in paragraph (a)(3) of this section.

(i) Two seaters. A car line shall be classed as “Two Seater” if the majority of the vehicles in that car line have no more than two designated seating positions as such term is defined in the regulations of the National Highway Traffic Safety Administration, Department of Transportation (DOT), 49 CFR 571.3.

(ii) Minicompact cars. Interior volume index less than 85 cubic feet.

(iii) Subcompact cars. Interior volume index greater than or equal to 85 cubic feet but less than 100 cubic feet.

(iv) Compact cars. Interior volume index greater than or equal to 100 cubic feet but less than 110 cubic feet.

(v) Midsize cars. Interior volume index greater than or equal to 110 cubic feet but less than 120 cubic feet.

(vi) Large cars. Interior volume index greater than or equal to 120 cubic feet.

(vii) Small station wagons. Station wagons with interior volume index less than 130 cubic feet.

(viii) Midsize station wagons. Station wagons with interior volume index greater than or equal to 130 cubic feet but less than 160 cubic feet.

(ix) Large station wagons. Station wagons with interior volume index greater than or equal to 160 cubic feet. 40 CFR 600.315-08(a)(1).

[12]  Notice 2023-16 pursuant to 40 CFR 600.315-08(a)(3)(ii)

The foreign tax credit (“FTC”) is the primary vehicle for escaping double taxation often due on international income. It provides a credit for the taxes levied by foreign jurisdictions under a myriad of limitations. Several more limitations were added at the beginning of 2022 through regulations imposing a weight somewhat lightened by even more recent proposed regulations.

            The finalized 2022 regulations require a careful study of each foreign tax for its eligibility. In order to be eligible for FTC application, a tax must be on net gain rather than gross receipts. Business deductions of significant costs must be allowed unless the disallowance is for reasonable tax policy principles compatible with the Internal Revenue Code. Under current law, the entire tax may be barred from the FTC through the disallowance of a single cost category, such as interest, without sufficient cause. This is still true for the proposed regulations, yet each significant cost category needs to be only at least 75% recovered.

            An entirely new jurisdiction requirement was also added through the 2022 regulations: income that is taxed by a foreign country must be sufficiently attributable to the foreign country to benefit from the tax credit. This has generated considerable controversy among tax experts, and the IRS conceded there was no explicit statutory authority for this requirement. The commentators’ argument that this is beyond the IRS’s authority to promulgate may be tested in court under multiple theories in the coming months and years. The IRS remained firm in upholding its nexus creation theory to defend its position but also offered a relatively straightforward means for a tax on royalty income to qualify in the proposed regulations.

            Comments on the proposed regulations are welcome at this link. The IRS is not necessarily mandated to respond to every comment. However, it must address significant comments individually or collectively. 

If you have questions or concerns about how these new reports may affect you or your business, please contact the Burton Law Firm at 916-822-8700 or email info@lawburton.com for a consultation.

The year 2023 comes with many changes to California’s employment law and those changes can be organized generally into 6 distinct groups. This series of blog articles will overview new significant laws that will impact employers and employees. We begin with payroll matters here.

In 2017 the California minimum wage increased to $15.50 an hour due to SB 3. SB 3 also included a number of graduated wages increases each year, and this year is the last included in that schedule, with future increases limited to cost-of-living adjustments. Also, this is the first year the increased state minimum wage applies to all employers regardless of size. Municipalities may also set higher minimum wages if they elect to.

Last year’s SB-1162 increased California’s payroll reporting requirements for employers of 100 or more people. Previously, the federal government’s similar reporting requirement could be used to satisfy California’s version, however California now requires more data by categorizing employees by demographics and wage levels to a greater degree of specificity. SB-1162 also added regulations an employer’s hiring process by generally forbidding consideration of an applicant’s salary history and requiring disclosure of a position’s pay scale upon the request of an applicant.

The FAST Act has implications the minimum wage specifically for many fast-food restaurants but will be addressed in a separate blog post.

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.

We continue with perhaps the most visible of the new labor laws: The FAST Act. AB 257 sought to create a new agency, the “Fast Food Council,” to regulate the fast food industry with considerable power to set the minimum wage and working conditions. Although passed into law last year, its status is in doubt as it will be subject to a referendum in the 2024 election, and so it is not currently in effect.

If the referendum ends with the text of AB 257 being enacted then the Fast Food Council would have regulatory power over fast food restaurants until January 1, 2029.[1] These powers are broad but include a limit to proposals embodied in petitions signed by 10,000 or more fast-food restaurant employees. Through such a petition, the Council may increase the minimum wage from $15.50 up to $22.00, but the ability to jump the minimum wage up to $22.00 an hour will terminate at the end of 2023. After 2023, the minimum wage can only be increased up to 3.5% annually (or the rate change for the applicable price index published by the federal Bureau of Labor Statistics, whichever is lesser). The Fast Food Council may also set maximum work hours and standard labor conditions. However, the Fast Food Council will not have the power to promulgate standards under Cal/OSHA’s jurisdiction. Furthermore, the Fast Food Council cannot create “new paid time off benefits” except for “rest periods.” The law is silent as to health insurance and other benefits. The law is also silent about whether the minimum wage would be uniform across the state or a city/county-specific minimum wage schedule.

If established the Fast Food Council will consist of 10 members. Of these, 1 must be from the Department of Industrial Relations, 1 must be from the Governor’s Office of Business and Economic Development, 2 must be representatives of fast food restaurant franchisors, 2 must be representatives of fast food restaurant franchisees, 2 must be representatives of fast food restaurant employees, and 2 must be representatives of advocates for fast food restaurant employees. The Speaker of the Assembly and the Senate Rules Committee would each appoint one representative of an advocate for fast food restaurant employees, with the governor appointing those who hold the other 8. The member’s term is for 4 years and may be removed for any reason at the appointing power’s pleasure. Counties and cities with more than 200,000 residents may form Local Fast Food Councils empowered to conduct public hearings and issue petitions to the Fast Food Council.

The jurisdiction of the Fast Food Council would be limited to fast food restaurants as defined in the statute. A “fast food restaurant” must be all of the following:

• A Californian establishment.
• Part of a fast food chain (defined as 100 or more fast food restaurants with a common brand).
• Have the primary business purpose of providing food or beverages that are all of the following:
  • Prepared in advance for immediate consumption either on or off the premises
  • Possess negligible table service.
  • Customers order and pay for items before eating.
  • The items are prepared in advance.

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.

[1] Labor Code § 1471(m).

Our series of employment law updates conclude with a few laws that do not neatly fit into previous categories yet may have a significant impact for affected businesses.

AB 1601 expanded the Cal/WARN Act to include call centers relocating to foreign countries. Such call centers employing 75 or more people must now give a 60-day notice before relocating a call center if the relocation involves laying off 50 or more people.

Beginning on January 1, 2024, nonexempt employers may not penalize employees for cannabis use unrelated to work. Such employers may not require drug screening tests for “nonpsychoactive cannabis metabolites.” The following are exempt:

• Every employee in the building and construction trades.
• Employees requiring a federal government background investigation or security clearance.
• Employees required to submit to testing for controlled substances under federal or state law.

2023 is now exempt from the statute of limitations framework for plaintiffs claiming sexual assault under certain conditions. This does not include previously settled claims and the defendant must both have been engaged in a cover-up and be an “entity” defined as “a sole proprietorship, partnership, limited liability company, corporation, association, or other legal entity” In order for the statute of limitations to be exempted for 2023.

An employer may use a device to monitor (such as through a GPS function) a vehicle used by an employee only when “strictly necessary” for the employee’s duties. Monitoring can occur only during work hours and with proper notice. Such notice must explain what data will be collected for what purpose and who could access it.

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.

The 4th entry in these employment law updates addresses agricultural workers and employers. The Agricultural Labor Relations Act of 1975 was amended last year to ease the process of unionization for agricultural laborers. Previously, union elections required in-person voting. AB 2183 was partially a reaction to a federal Supreme Court decision, Cedar Point Nursery v. Hassid, that struck down a regulation issued by the Agricultural Labor Relations Board (ALRB) requiring an agricultural employer’s property to be available for labor organization representatives encouraging unionization. The law does not attempt to directly overturn that decision, but it does present agricultural employers with two labor friendly (or employer unfriendly) choices. Employers may still agree to abide by the invalidated regulation and generally refrain from commenting on unions or union representation in a “labor peace compact.” This can be accomplished online.

If an employer elects not to enter into a labor peace compact then the new regulations permit unionization through a simple petition of a majority of the workers. If an employer does join a labor peace compact, agricultural workers may unionize by filing a petition of a majority of the workers permitting a mail-in ballot election. In either scenario, the employer must deliver an organized list of employee information in both electric and paper formats within 48 hours of being served with the agricultural worker’s petition. This deadline does not take holidays or weekends into account and so the 48 hours represents a 2-day clock that begins running the moment the agricultural worker’s petition is served. An employer must post a bond to appeal against most ALRB orders.

Governor Newsom originally objected to AB 2183 but reached an agreement with the United Farm Workers and the California Labor Federation regarding its terms. This concord provided that Governor Newsom would sign AB 2183 with “clarifying language to be passed during next year’s legislative session to address Governor Newsom’s concerns around implementation and voting integrity.” This “clarifying language” is embodied in a draft labeled “RN 22 21856.” The draft would have the effect of repealing most of AB 2183 if passed. More specifically, the labor peace compact would be revoked, and the dual alternative election methods would be consolidated into a version of the non-labor peace election relabeled as the “Majority Support Petition,” whereby most of the employees’ signatures would certify a labor organization. However, only 75 certifications in total could be performed through these means until 2028, when the Majority Support Petition procedure would expire.

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.

Different countries have always handled the reporting of ownership in business entities that are subject to their jurisdiction in different ways. However, there is a growing trend towards requiring entities to report who has control over them in order to prevent illegal activities from occurring. This trend can most visibly be seen in the legal battels occurring in the European Union as well as the requirements in place in the United Kingdom and proposed regulations in the United States that will likely take effect in the coming years.

Until recently, legal entities incorporated in the European Union were required to disclose any beneficial owner to a publicly accessible registry as part of the European Union Anti-Money Laundering Directives. A beneficial owner is a natural person who directly or indirectly exercises control over the entity. On November 22, 2022, the Court of Justice of the European Union invalidated this publicity in WM & Sovim SA v. Luxembourg Business Registers. It was ruled to violate the privacy rights (articles 7 & 8) protected by the Charter of Fundamental Rights of the European Union. The Court acknowledged this law’s purpose as germane yet held that it was not “strictly necessary to prevent money laundering and terrorist financing.” This does not limit the government’s access, but does remove the public’s ability to view this information.

            The United Kingdom claims to be the progenitor of beneficial ownership databases publicly available online. Termed the “People with Significant Control” (PSCs) register, it also tracks “Overseas Entity” ownership of British real estate. A British trust registry also exists, , but it is not publicly accessible. There is not a discernable legal challenge to be made against the PSC register (the UK lacks a written constitution), and it is unaffected by the EU’s decision regarding its own similar registry. 

            The United States lacks an equivalent to these registers. Although there are listings of legal entities, they are neither comprehensive nor centrally organized and without a focus on beneficial ownership. For example, the Securities Exchange Commission’s database has a beneficial ownership reporting requirement, but the holder may be another legal entity, which applies only to public corporations. Nevertheless, the U.S. will begin to move slightly closer to establishing a registry like those that exist across the Atlantic beginning in 2024.

            The Financial Crimes Enforcement Network (FinCEN), a federal agency within the Treasury Department, promulgated final regulations on September 30, 2022, that will be effective on January 1, 2024, impacting 32,556,929 entities and beginning the motion towards centralized reporting. However, at this time there are 23 exceptions resulting in noncoverage for larger businesses and legal entities owned by other legal entities rather than natural persons. The resulting database will be confidential to combat abusive shell companies. The FinCEN estimated an annual compliance cost of $10.8 billion.

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.

The Internal Revenue Code has recent changes for tax incentives that will link two of its most popular investment vehicles. Beginning in 2024, a 529 plan holder can rollover up to $35,000 to a Roth IRA. In case you’re not aware, a 529 plan is an investment account that mitigates tax on gains when used to pay for qualified education expenses for its designated beneficiary, and a  Roth IRA is an individual investment retirement account for prost-tax earnings.

Although some 529 plans are used to prepay education expenses, tax-favored investment plans are far more prevalent. Funds saved in 529 plans for education are generally exempt from income tax, both upon distribution and while accumulating wealth within the plan. The 529 plan is extremely flexible, and may be used for almost any school, whether elementary or postgraduate, secular or religious, vocational or traditional, public or private. Section 529 investment plans must be established and maintained by a state. An individual can use any 529 plan offered by a state, but there may be plan-specific benefits for state residents.

Extraordinarily, there are not any income qualifications or annual contribution limits for 529 plans. In contrast, a Roth IRA has strict rules for both. A Roth IRA is the reverse of an IRA—contributions are not tax-deductible, but distributions are tax-exempt. This is ideal for taxpayers anticipating a higher income level later in life. The SECURE Act 2.0 passed at the close of last year will permit the transfer or “rollover” of 529 plan funds to a Roth IRA. However, there are conditions:

• The 529 plan must be 15 years old.
• The lifetime limit for rolling over 529 plan funds to a Roth IRA is $35,000.
• The annual limit for rolling over 529 plan funds to a Roth IRA is $6,500.

In effect, the income limits ($153,000/$228,000 for filing individually/jointly) for the Roth IRA can be surpassed. While this may sound dubious, the Internal Revenue Code explicitly encourages the use of this technique. The opportunity to take advantage of this will be available beginning in 2024.

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.