The California Franchise Tax Board has adopted a franchise and income tax regulation allowing taxpayers to use a single-sales factor for apportioning income to the state (Regulation 25128-5). The regulation is applicable to taxable years beginning on or after January 1, 2011.
Taxpayers make the election on a timely filed original return (including extensions) for the year of the election. An election will be deemed valid if: 1) the tax is computed in a consistent manner with the single-sales factor election, and 2) written notification of the election is made on Part B of Schedule R-1 that is attached to the taxpayer’s return. All California members of a combined reporting group must make the election for the election to be valid. Corporations that make the election and also own a partnership must use the single-sales factor formula for determining its distributive share of income and pass-through factors from the partnership.
The standard apportionment formula to apportion income to California is an average of the property factor, payroll factor and a double-weighted sales factor. The election would primarily benefit those corporations that have a large presence in California through the ownership or rental of property and having a large number of employees working in the state. An analysis would be required by taxpayers to compute their apportionment by the standard formula and the single-sales formula to determine which results in a lower tax liability.
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