What’s New and Other Important Information for 2011
Final Filing Date
Since Monday, April 16 is a legal holiday in Washington DC (Emancipation Day), California will accept returns and payments as timely if received on or before Tuesday, April 17.
The personal income tax rate decreased by 0.25 percent.
Dependent Exemptions Credit
The dependent exemption credit increased from $99 to $315 per dependent.
Child and Dependent Care Expenses Credit
The Child and Dependent Care Expense Credit is now nonrefundable.
Personal income taxpayers may contribute to the following three new funds:
- Municipal Shelter Spay-Neuter Fund.
- ALS/Lou Gehrig’s Disease Research Fund.
- Child Victims of Human Trafficking Fund.
Estimated Use Tax Table
Personal income taxpayers may use the Estimated Use Tax Table in the 2011 California 540, 540A, and 540 2EZ Tax Booklets to report the use tax due on individual non-business items purchased for less than $1,000 each, instead of using the Use Tax Worksheet. This option is only available if taxpayers are permitted to report use tax on their income tax returns and taxpayers are not required to use the Use Tax Worksheet. Simply include the use tax liability that corresponds to the taxpayer’s California Adjusted Gross Income.
Do not use the Estimated Use Tax Table to estimate and report the use tax due on purchases of items for use in business or on purchases of individual non-business items purchased for $1,000 or more each.
California Motion Picture and Television Production Credit
The credit, which is allocated and certified by the California Film Commission, is 20 percent of expenditures attributable to a qualified motion picture and 25 percent of production expenditures attributable to an independent film or a TV series that relocates to California.
The qualified taxpayer can:
- Offset the credit against income tax liability.
- Sell the credit to an unrelated party (independent films only).
- Assign the credit to an affiliated corporation.
- Apply the credit against qualified sales and use taxes.
For more information go to ftb.ca.gov and search for California Motion Picture and Television Production.
2011 Corporation Tax Law Changes
California adopted and amended statutes that change how multistate corporations are taxed in California. The following areas of law have changed:
- Market Assignment - Requires a taxpayer to assign sales, other than sales of tangible personal property, based on market rather than costs of performance when a single-sales factor formula election has been made.
- Finnigan Rule - For taxable years beginning on or after January 1, 2011, the Finnigan Rule is adopted in assigning sales from tangible personal property. Finnigan refers to a method of calculating the sales factor numerator in a unitary group of corporations.
- Gross Receipts - The definition of gross receipts was amended.
- “Gross receipts” means the gross amounts realized (the sum of money and the fair market value of other property or services received) on either of the following:
- The sale or exchange of property.
- The performance of services.
- The use of property or capital (including rents, royalties, interest, and dividends) in a transaction that produces business income, in which the income, gain, or loss is recognized (or would be recognized if the transaction were in the United States) under the Internal Revenue Code (IRC).
Amounts realized on the sale or exchange of property shall not be reduced by the cost of goods sold or the basis of property sold.
- Doing Business - A taxpayer is doing business if it actively engages in any transaction for the purpose of financial gain in California or if any of the following conditions is satisfied:
- The taxpayer is organized or commercially domiciled in California.
- The sales, as defined in Revenue and Taxation Code (R&TC) Section 25120(e) or (f), of the taxpayer in California, including sales by the taxpayer’s agents and independent contractors, exceed the lesser of $500,000 or 25 percent of the taxpayer’s total sales.
- The real property and tangible personal property of the taxpayer in California exceed the lesser of $50,000 or 25 percent of the taxpayer’s total real property and tangible personal property.
- The amount paid in California by the taxpayer for compensation, as defined in R&TC Section 25120(c), exceeds the lesser of $50,000 or 25 percent of the total compensation paid by the taxpayer.
- In determining the amount of the taxpayer’s sales, property, and payroll for doing business purposes, include the taxpayer’s pro rata share of amounts from partnerships and S corporations.
- Single-Sales Factor Formula – Any apportioning trade or business, other than an apportioning trade or business under R&TC Section 25128.5(b) such as certain taxpayers in agricultural, extractive, and financial areas, may make an irrevocable annual election on an original timely-filed return to apportion California business income using the single-sales factor formula. For more information, get Schedule R, Apportionment, and Allocation of Income.
New Schedule EO, Pass-Through Entity Ownership
The new schedule EO is developed for pass-through entities to report all pass-through entities in which the taxpayer holds ownership interests. In the past, we asked for that information in the form of a taxpayer statement. We also ask the taxpayer to indicate which entities received California source income, and to provide the profit and loss sharing percentages used to compute the amount of income received by the owner. We will use that information to validate returns during processing to reduce processing time and errors.
Table 3, Partner’s share of cost of goods sold, deductions, and rental income, added to Schedule K-1.
We added Table 3 to the Schedule K-1(565) for partnerships to report proportional cost of goods sold, ordinary deductions, real estate rental income, and other rental income, to all partnerships and limited liability companies taxable as partnerships. Table 3 also gathers information from the pass-through entity’s own return as well as other Table 3s the entity receives. This facilitates the path of reporting to a limited liability company (LLC) subject to the LLC fee that will ultimately use the information to complete the LLC Income Worksheet.
Schedule IW, Limited Liability Income Worksheet
The Limited Liability Income Worksheet has been renamed as Schedule IW, Limited Liability Income Worksheet, and is now part of Form 568. It is no longer a separate attachment to Form 568. Making the Income Worksheet part of the Form 568 helps to make filing easier for taxpayers and faster processing for us.
Redesigned Tax Exempt Application Booklet
The Tax Exempt Application Booklet FTB 3500 has been redesigned to increase clarity in the language, flow of the booklet, and improve guidance.
Foreign Reduced Withholding
We began applying Federal Treasury Regulation 1.1446-6 procedures to reduce or eliminate withholding of California tax on effectively connected taxable income (ECTI) from California sources allocable to a foreign partner. The foreign partner must sign and send IRS Form 8804-C to the partnership. The foreign partner must sign and send Form 589 to the FTB along with a signed copy of IRS Form 8804-C. We will review the request within 21 business days. If the request is approved, the partnership should remit the reduced withholding amount to us along with Form 592-A.
Nonadmitted and Reinsurance Reform Act (NRRA)
Assembly Bill 315, effective July 21, 2011, conforms California law to the Nonadmitted and Reinsurance Reform Act (NRRA) that is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This law was enacted by the federal government and authorizes the collection of tax on 100 percent of the premiums of California home state insured policies. If a person is determined to be a California home state insured, then all premiums related to all insurance policies obtained from a nonadmitted insurer are subject to tax, whether or not the insurance coverage is associated with California. The NRRA only allows one state to tax a home state insured, so proration of premiums among the states for taxation no longer occurs. For more information, get FTB Form 570.