California credit for taxes paid to Texas
The first tax returns under Texas’ revised franchise tax statutes are due May 15, 2008, for business done from January 1, 2007, to December 31, 2007. The two-year-old Texas statute broadened the tax base so many more taxpayers, who pay taxes to Texas, may now qualify for California’s credit for taxes paid to another state (Other State Tax Credit, or OSTC).
The FTB stated in an e-mail to Spidell on May 8, 2008, “At this time, we do not have an answer regarding the availability of an OSTC for the Texas Margin [franchise] Tax. Once we complete our research in a few months, we will publicly state our position.”
Based on Spidell’s initial research, we believe California residents would qualify for the OSTC for taxes paid to Texas. S corporation shareholders, partners of partnerships, and members of LLCs are generally allowed to treat their pro rata share of taxes paid to another state as if paid directly by them.1
We recommend claiming California’s OSTC for taxes paid to Texas, if otherwise qualified, by filing Schedule S, Other State Tax Credit, with the 2007 California tax return. If you failed to claim California’s OSTC and find that your clients now qualify, file an amended tax return with the FTB.
1 R&TC §§18001, et al.
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