United States

California: FTB Issues Guidance on Treatment of Texas Franchise Tax

Jan 25, 2016
From KPMG TaxWatch

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In a recent Technical Advice Memorandum (TAM), the California Franchise Tax Board (FTB) issued guidance on whether, for personal income tax purposes, taxpayers are allowed a credit for Texas franchise (margin) tax paid. In the TAM, the FTB characterized the Texas franchise tax as inherently a tax on gross receipts, not on income. Thus, because a credit against California personal income tax is allowed only for “net income taxes” paid to another state, the FTB will not allow Texas franchise tax to be included in the computation of the credit for taxes paid to other states.  Previous guidance, which has since been revoked, generally made the credit dependent on what methodology was used to compute taxable margin (i.e., cost of goods sold (COGS), payroll, or the standard deduction).

The TAM notes that the FTB will issue a legal ruling with regard to credits for taxes paid to other states, which it anticipates issuing before the third quarter of 2016. For more information regarding Technical Advice Memorandum: 2016-01, please contact Steve Sims at 916-551-3133 or Scot Grierson at 949-885-5643.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.