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Apportionment

January 14, 2017 • Larry Gurewitz • Log In to Post Comments

To  date I have not had to complete a FTB business tax return where I need to apportion income between states.

I have a California based client who ships their tangible product all over the country.  Recently they set-up a small operation in Texas to ship to Texas and other states.  Since they are a general partnership there is no Texas franchise tax.  

Under what circumstances would they have to apportion their income among states?


Comments

If they have operations in both CA and TX they must apportion their income between the two states. I'm not that familiar with Texas law, so I can't comment on TX's filing requirements. For purposes of calcluating California's single sales factor apportionment formula, California sources the sales from tangible personal property to the state in which the customer is located. (R&TC Sec. 25135) So for California purposes, the sales sent from Texas to other states would not be included in the California sales factor numerator unless the customers to whom the items are shipped are located in California. So by setting up shipping operations in Texas the taxpayer has avoided California's throwback rule, which throws back sales revenue to the California sales factor numerator if the item is shipped from California and the customer is located in a state where the taxpayer is not subject to tax. The calculaitons are completed on Schedule R.

If the taxpayer's only connections with states other than Texas is shipping their TPP sales to customers in those other states then the taxpayer would not be required to file in the other states because they would be protected under P.L. 86-272. Each state has regulations/guidance as to whether P.L. 86-272 immunity applies to various transactions within their state.  For CA, this guidance is found in FTB Pub. 1050,  Application and Interpretation of P.L. 86-272 (https://www.ftb.ca.gov/forms/misc/1050.pdf).  

Hi Larry,  Just an FYI, this is from me.  For some reason it posted as "Anonymous."  Sandy

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