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I have a taxpayer who receives Royalty payments under section 1235 that are subject to Capital gains. Client gives up control of patentable designs by entering into contract with manufacturer. Client gets paid as the product is sold. Client is california resident planning to move out of state. Client will fully move and become resident of new state. Assuming all the residency tests are met and stand up to FTB challenge, question is what is the source of the future royalty payment gains. They are capital gains of course under section 1235 but are they California source (e.g. because sale or contract was entered into while living in CA) or are they New State source because the actual sales of the product to which the royalties are paid on occured after the taxpayers moved to new state?