SALT Report 2312 – In the latest issue of TaxNews, the California Franchise Tax Board addressed Proposition 39 and its impact on the single sales factor apportionment formula. The FTB advises that effective January 1, 2013 “an apportioning trade or business” that conducts business both in and out of California is now required to apportion its business income using the single sales factor.
Further, Prop 39 also states that the apportionment requirement applies not only to corporate taxpayers but to every apportioning trade or business, regardless of the form of ownership such as, sole proprietorships, partnerships, limited liability companies, and corporations.
This is also true for a partner’s distributive shares whether the trade or business is the partnership’s business – if not unitary with the trade or business of its partner. Or, the partnership interest when combined with the partner’s trade or business -if the partnership’s activities are unitary with the activities of its partner, the business income of the trade or business must also be apportioned using the single sales factor.
Further, the requirement to apportion business income using the single sales factor may affect California source income withholding. Withholding agents who need to make their first payment by April 15, 2013 should consider this change when determining their withholding requirements.
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