CA Proposition 39-Out of State preparers doing CA taxes

[Burke]

What I find amusing is the thought that suspending their driver's license will stop them from driving. It sure doesn't stop anyone else. They just keep right on driving even without a license.

You got that right. My elderly grandmother for instance. Didn't matter to her the family took her license away in the '80's. She "was driving before they even ISSUED licenses." Well, she was correct about that.

[Y2KEA]

For those of us who practice outside CA and may have a few CA residents as our clients, if the income attributable to those clients is less than the state exemption, we are ok. We will not be paying any state income tax to CA. I think for single it is $7500 for CA and $14,000 for MFJ. I could be wrong on the exemptions.

ATSMAN, I think you are on the right track. I am a CA Scorp and already pay the Scorp tax in addition to the flow through income tax. While I have trolled the FTB website & not found any concrete understandable regs or instructions regarding Prop 39, my take on it is the following:

To begin with, CA uses federal AGI as a starting point for their version of a personal tax return. If you are a Sch C filer, you do a 540NR & allocate CA sourced income on the 540NR Sch CA. For 2012 your exemptions for MFS/MFJ are $3841/$7682. Your personal exemptions are $104/$208. Dependents are $321 each. (The personal exemptions are a tax credit, not just a deduction). These amounts get pro-rated based on (more or less) CA source income divided by all income. So as a Sch C filer, you may very well owe little or no tax if CA bottom line income is +/- $3000 MFJ.

That is the good news. Now for the ugly.

If you are a C-corp, S-corp, SMLLC, LLC, LP etc you must register with the SOS as a foreign S/C/LLC/etc corporation. You file schedule R with your form 100/100S/565/568 etc. This requires a minimum $800 annual franchise fee after year one. Welcome to California! If you are a plain old 565 partnership, there is no annual franchise fee. (Go figure).

[ATSMAN]

For those of us who practice outside CA and may have a few CA residents as our clients, if the income attributable to those clients is less than the state exemption, we are ok. We will not be paying any state income tax to CA. I think for single it is $7500 for CA and $14,000 for MFJ. I could be wrong on the exemptions.

[Gary2]

Prop 39 has its own Wikipedia page. It appears this is just a change to the rules for apportioning income by businesses that conduct business in more than one state. I don't have much experience with that area of taxation, other than to know that it's complex, involves three factors in the general case, but states can decide which of those factors to apply and how to apply them. I don't think CA is the only state to say that companies can only use the sales factor. See, for example, http://www.aicpa.org/Publications/Ta...d_nov2012.aspx (which is dated before Prop 39 was passed, and thus is already out of date with respect to CA).

Since I don't deal with multistate businesses, I've never really thought about the issue of apportionment with regard to nexus. It makes sense that a brick and mortar store, like Sears, would pay income tax to a given state based, more or less, on the sales made by the stores in that state. Likewise, it makes sense that a brick and mortar accountancy (say any of the big ones) would pay state income tax based more or less on the revenue generated by the offices in that state.

We all know many states are trying to get big internet retails such as Amazon to collect sales tax on shipments to that state. I have no idea whether Amazon already pays income taxes to states where it ships products without having any nexus, but it seems that's roughly analogous.

If there's a reasonable filing exemption, say for example $5000 gross revenue, I don't have a problem with it per se, though I do have a problem with the inconsistency among states that can result in double taxation. Although it doesn't affect me directly as an employee of a tax firm, it's not unfair to say that if you received $5000 in revenue from your CA clients, you should be required to file a CA income tax return and pay tax on that $5K, minus allocated expenses - as long as you get the comparable credit from your home state. We wouldn't be arguing about it if you were physically present in the other state to do the work. It doesn't make sense to say "We're going to allow the internet to change how and where businesses do work, but we're not going to allow the tax system to keep up with those changes."

[taxea]

years ago CA tried to tax retirees who moved out of state. When I was in CA the law said tax was on purchases made in CA meaning that if payment for
whatever" was received in CA then taxes applied. I receive payment for CA returns in my state. I would be surprised if this passes in Hawaii. This is no different then CA going after E purchases for companies that don't have a physical presence in CA. Please keep us informed.

[JSLATER]

Spidell 08/01 News letter

http://www.caltax.com/spidellweb/public/marketing/pages/TXL0813.pdf

[DMICPA]

Spidell

I subscribe to the monthly Spidell tax newsletter and it was in there as substantially all of my business is in CA but I moved to the Mid West.

I am certain we will be hearing more about this.

Bob

[MAMalody]

I have about 40 clients in CA and have not seen this. Is there an Internet source where I can see this? I could not find it with a quick search of the FTB site (I probably missed it).

[DMICPA]

Prop 39

I saw this in an article written by Spidell's California Tax letter, the August 1 issue.

Bob

[S T]

I recently read that CA will subject out of state tax preparers that prepare CA tax returns or do any service for a CA address. Even thinking about a client in CA could cause the Franchise Tax Board to tax you no matter where you are located.

If a preparer lives in Nebraska for example and prepares tax returns or does any service for the client with a CA address, CA will tax that income even though the preparer never set foot in CA. The CA Franchise Tax Board has determined that the CA client received a "benefit" in CA and therefore, the preparer is taxable. CA no longer allows the three factor allocation (Sales, Payroll, Location) and just uses the sales factor.

I am certain that many of us have a few CA clients and this could trigger a bill from the Franchise Tax Board.

Does anyone have further information on this??

Bob

Can you provide a source/link to where you read this information?

Thanks

Sandy

[WhiteOleander]

This idea is absolutely ridiculous, but typical of the Left Coast mindset!

An immediate family member now lives in CA.

Are the wackos in Sacramento going to force me to pay a fee (or whatever) to prepare the tax returns of that family member? (It might be cheaper to use something like purchasing the cheapest TurboTax software and use "self-prepared" instead?? I could prepare a very nice "worksheet" for necessary guidance. )

BTW: I also saw the reference to the NY ruling that will enable them to grab a driver's license for past due NY taxes. I did find it amusing that such only applies when the amount owed exceeds $10k.

FE

What I find amusing is the thought that suspending their driver's license will stop them from driving. It sure doesn't stop anyone else. They just keep right on driving even without a license.

[FEDUKE404]

Fee confusion

What? You charge a fee to immediate family members?

Exactly where did I ever say that ?????

(Bad choice of words...perhaps "might be simpler" would have passed analytical muster.)

That would loosely translate from having a CA return done at no cost by me to having a CA return not done by me plus whatever costs it would then take to get the CA return done by some different method. Choice then would be a "real" CA preparer or the use of "least expensive" TTax software.

FE

[ChEAr$]

What? You charge a fee to immediate family members?

[FEDUKE404]

Who IS running the asylum?

This idea is absolutely ridiculous, but typical of the Left Coast mindset!

An immediate family member now lives in CA.

Are the wackos in Sacramento going to force me to pay a fee (or whatever) to prepare the tax returns of that family member? (It might be cheaper to use something like purchasing the cheapest TurboTax software and use "self-prepared" instead?? I could prepare a very nice "worksheet" for necessary guidance. )

BTW: I also saw the reference to the NY ruling that will enable them to grab a driver's license for past due NY taxes. I did find it amusing that such only applies when the amount owed exceeds $10k.

FE

[Gary2]

It's not clear from the base note whether they're saying that any CA return is taxable, regardless of where the parties are located, or merely that doing a return (for any jurisdiction) on behalf of a CA resident constitutes doing business in CA (because the end product is delivered to a CA resident) and is subject to CA tax. The latter wouldn't affect returns for people who don't live in CA but file because they get CA-sourced partnership or rental income (i.e., if it's the latter, most of us wouldn't be affected).