CA Proposition 39-Out of State preparers doing CA taxes

[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

[JSLATER]

Spidell 08/01 News letter

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

[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.

[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http://www.aicpa.org/Publications/Ta...d_nov2012.aspx (which is dated before Prop 39 was passed, and thus is already out of date with respect to CA).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."

[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.

[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).

[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.