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Corporation Tax Law Changes

The law has changed regarding how a trade or business is taxed in California. The changes apply to all trades or business including corporations, S Corporations, LLCs, partnerships, and sole proprietorships. To determine if you're considered doing business in Califonia and how you're taxed, review Doing Business in California and Single-Sales Factor and Assignment of Sales.

California Revenue and Taxation Code (R&TC) Changes

Law Description
Taxable years beginning on or after January 1, 2013
R & TC Section 25128.7 All business income from an apportioning trade or business must be apportioned to California based on sales, unless the apportioning trade or business is predominantly engaged in qualified business activities described in R&TC Section 25128(b). California business income is determined by multiplying the total business income by their sales factor (single sales factor). Taxpayers required to follow special industry apportionment and allocation regulations under Regulation Section 25137 must follow the sales factor provisions under special industry regulations, with the exception of any rule excluded by the provisions of Regulation Section 25136(g)(3). The property and payroll factors would not be used. Get more information about Single-Sales Factor and Assignment of Sales.
Revised R & TC Section 25136 Requires market assignment of sales from other than tangible personal property for all apportioning trades or businesses (see R&TC Section 25136 below and California Code of Regulation (CCR) Section 25136-2).
R & TC Section 25136.1 Provides special sales factor rules for certain cable system operators.
Taxable years beginning on or after January 1, 2011
R & TC Section 23101 Modifies the definition of "doing business" in California. For more information see Doing Business in California.
R & TC Section 25120 Provides the definition of "gross receipts."
R & TC Section 25128.5 Allows all trades or businesses except for qualified business activities under R&TC Section 25128(b) to elect to use a sales only formula to apportion business income subject to the franchise or income tax. See CCR Section 25128.5 for specific rules (Note: No longer effective for taxable years beginning on or after January 1, 2013).
R & TC Section 25135 Adopts the Finnigan rule in assigning sales from tangible personal property.
R &T C Section 25136 Requires market assignment of sales from other than tangible personal property for those apportioning trades or businesses electing single sales factor apportionment under R&TC Section 25128.5. Also see CCR Section 25136-2 for specific rules.

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