Sales or Use Tax Credit - Initial Review Guide
- Is the trade or business located within the Economic
Development Area? Is the trade or business "conducting business"
within the Economic Development Area? [See the Economic Development
Area Manual (EDAM) for Economic Development areas and code references.]
Check the business address on the California Technology, Trade and Commerce Website. If the business operates in multiple locations, check for an apportionment factor .
The return address may be where records are kept, and may not be where the business is being "conducted."
Does the balance sheet reflect an increase in the fixed asset accounts, taking into account reported dispositions of assets?
Compare the amount of qualified property with the amount of property purchased for the tax year. Figure the amount of property purchased for the year by looking at the depreciation schedule, which should include a purchase date. Look at Schedule L, line 9 for corporations (subtract the beginning balance from the ending balance.).
If the taxpayer is a shareholder in an S corporations and is claiming a flow though EDA Sales and Use Tax Credit, verify that the correct limitation ($1 million or $20 million) for qualified property has been applied?
The $1,000,000 limitation is applicable for computing the S corporation credit that passes through to the shareholders under the provisions of R&TC 23803 sections (a)(1)(E) and (F). The S corporation's credit for use against the corporate tax is allowed for up to $20,000,000 cost towards the purchase of qualified costs.
For combined reports, was the credit properly intrastated and limited by the zone tax limitation and Schedule P limitation, if applicable?
To verify that the credit was properly intrastated, check the statement of combined computation of tax to see if the credit was used to reduce only the tax of the corporation that incurred the credit. If the credit claimed exceeds the tax of that particular corporation, the credit was not properly intrastated and an adjustment to disallow the excess credit may be necessary.
For zone tax limitation, check that the taxpayer used the intrastated income (not the combined California income) of the corporation claiming the credit on the Computation of Credit Limitation Worksheet (Worksheet VII for taxable years 1997 - 2001 and Schedule Z for taxable years 2002 and later), Line 1. For the Apportioning Worksheet (Worksheet V), check to see that the total property and payroll within California is the California property and payroll only of the corporation claiming the credit and not the combined California amount as reported on Schedule R-1.
For Schedule P limitation, check that the taxpayer properly intrastated the alternative minimum taxable income. The Schedule P (100), Part II, should reflect the regular tax and tentative minimum tax of the taxpayer claiming the credit only.