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Initial CA Corporate Return-Schedule R-1

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    Initial CA Corporate Return-Schedule R-1

    This is a corporation that provides a service. They were incorporated and did business solely in Hawaii until 2015. My question is with regards to Schedule R-1. From reading the instructions it seems that it needs to calculate an apportionment of net income.

    There are two methods of calculating the apportionment: One is the single sales factor formula and the other is the three factor formula. Hawaii only uses the three factor formula.

    I swore I read somewhere (and of course I can't find it now), that all new CA corporations after a certain date can only use the single sales factor formula. Is that true? Ideally, I'd like to use the 3 factor formula only because it more closely mirrors the HI apportionment formula.

    And my last question and I think I know what the answer is but I have to throw it out there: this firm was formed in 2002 and it has significant NOL's carried forward so any gain they made in 2015 was zero'd out. I am assuming that since this is the initial CA return, that I cannot use the NOL on a CA return because the losses are not attributable to any prior CA activity.

    #2
    1) From FTB https://www.ftb.ca.gov/businesses/Sales_Factor.shtml

    If a corporation has income from sources both inside and outside of California, it is required to allocate and apportion its income according to Uniform Division of Income Tax Purposes Act (UDITPA) as provided in Chapter 17, Part II of the California Revenue and Taxation Code (R&TC). For taxable years beginning on or after 1/1/2013, R&TC Section 25128.7 requires all business income of an apportioning trade or business, other than an apportioning trade or business under R&TC Section 25128(b), to be apportioned to California using the single-sales factor formula.

    2) I agree - you cannot reduce CA income by an NOL not sourced from CA

    From Instructions from FTB3805Q https://www.ftb.ca.gov/forms/2014/14_3805qins.pdf

    B Apportioning Corporations
    The loss carryover for a corporation that
    apportions income is the amount of the
    corporation’s loss, if any, after adding income
    or loss apportioned to
    California with income or
    loss allocable to
    California under
    Chapter
    17 of
    the Corporation Tax Law. The loss carryover may
    be deducted from income of that corporation
    apportioned and allocable to
    California in
    subsequent taxable years.

    Hope that helps,
    Mike

    Comment


      #3
      It's not only newly formed corporations, but ALL corporations (with some exceptions) that must now apportion income on their California returns using the single sales factor.

      Here is a link to the instructions for California Schedule R: https://www.ftb.ca.gov/forms/2015/15_100rins.pdf
      Roland Slugg
      "I do what I can."

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