Senate Bill No. 500

Introduced by Senator Hertzberg

February 26, 2015

An act to add Sections 17952.7 and 18501.5 to the Revenue and Taxation Code, and to add Section 13020.5 to the Unemployment Insurance Code, relating to taxation.

LEGISLATIVE COUNSEL’S DIGEST

SB 500, as introduced, Hertzberg. Personal income taxes: nonresident de minimis income.

Existing law, the Personal Income Tax Law, imposes a tax on the entire taxable income of a taxpayer subject to that law, but provides for a specified treatment of the income of nonresidents. For purposes of computing the taxable income of a nonresident, the gross income of a nonresident includes only the gross income from sources within this state. Existing law requires every taxpayer subject to tax under the Personal Income Tax Law to file a return with the Franchise Tax Board, stating specifically the items of the gross income from all sources and the deductions and credits allowable, as provided.

This bill would provide, for purposes of computing the taxable income of a nonresident that the gross income of a nonresident from sources within this state does not include “de minimis income,” defined as compensation subject to specified withholding if the nonresident has no other income from sources within this state, is present in this state to perform employment duties on behalf of an employer and any other related person for not more than 20 calendar days during the taxable year in which the compensation is received, compensation is received on or after January 1, 2016, for any part of the taxable year during which the taxpayer was not a resident of this state, and the nonresident’s state of residence provides a substantially similar exclusion or does not impose an individual income tax. Except as specified, the bill would provide that a nonresident whose only income from sources in this state is compensation excluded pursuant to these provisions has no tax liability and is not required to file a return.

Existing law requires every employer who pays wages to a nonresident employee for services performed in this state to deduct and withhold from those wages, except as provided, specified income taxes.

This bill would provide that no amount is required to be deducted or withheld from compensation paid to a nonresident for employment duties performed in this state if that compensation is excluded from income subject to tax pursuant to the aforementioned provisions.

 

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 17952.7 is added to the Revenue and
Taxation Code, to read:

17952.7.  

(a) For purposes of computing “taxable income of a
nonresident or part-year resident” under paragraph (1) of
subdivision (i) of Section 17041, gross income of a nonresident,
as defined in Section 17015, from sources within this state shall
not include “de minimis income” received on or after January 1,
2016, for any part of the taxable year during which the taxpayer
was not a resident of this state.

(b) For purposes of this section, the following definitions shall
apply:

(1) “De minimis income” means compensation subject to
withholding under Chapter 2 (commencing with Section 13020)
of Division 6 of the Unemployment Insurance Code, without regard
to Section 13020.5 of the Unemployment Insurance Code, that is
received by a nonresident if the following apply:

(A) The nonresident has no other income from sources within
this state for the taxable year in which the compensation was
received.

(B) The nonresident is present in this state to perform
employment duties on behalf of an employer and any other related
person for not more than 20 calendar days during the taxable year
in which the compensation is received. For purposes of this
subparagraph, presence in this state for any part of a day constitutes
presence in this state for that day unless such presence is solely
for purposes of transit through the state.

(C) The nonresident’s state of residence provides a substantially
similar exclusion or does not impose an individual income tax.

(2) “Related person” means a person that, with respect to the
employer during all or any portion of the taxable year, is one of
the following:

(A) A related entity.

(B) A member of a commonly controlled group, within the
meaning of Section 25105.

(C) A person to or from whom there is attribution of stock
ownership in accordance with subdivision (e) of Section 25105.

(D) A person that, notwithstanding its form of organization,
bears the same relationship to the employer as a person described
in subparagraphs (A), (B), or (C), inclusive.

(3) “Related entity” means any of the following:

(A) A stockholder who is an individual, or a member of the
stockholder’s family set forth in Section 318 of the Internal
Revenue Code, relating to constructive ownership of stock, if the
stockholder and the members of the stockholder’s family own,
directly, indirectly, beneficially, or constructively, in the aggregate,
at least 50 percent of the value of the employer’s outstanding stock.

(B) A stockholder, or a stockholder’s partnership, limited
liability company, estate, trust, or corporation, if the stockholder
and the stockholder’s partnerships, limited liability companies,
estates, trusts, and corporations own directly, indirectly,
beneficially, or constructively, in the aggregate, at least 50 percent
of the value of the employer’s outstanding stock.

(C) A corporation, or a party related to the corporation in a
manner that would require an attribution of stock from the
corporation to the party or from the party to the corporation under
the attribution rules of the Internal Revenue Code if the employer
owns, directly, indirectly, beneficially, or constructively, at least
50 percent of the value of the corporation’s outstanding stock. The
attribution rules of the Internal Revenue Code shall apply for
purposes of determining whether the ownership requirement of
this definition has been met.

(c) This section shall not apply to compensation received by
any of the following:

(1) An individual who is a professional athlete or member of a
professional athletic team.

(2) An individual who is a professional entertainer who performs
services in the professional performing arts.

(3) An individual of prominence who performs services for
compensation on a per-event basis.

(4) An individual who is identified as a key employee, within
the meaning of Section 416(i)(1)(A)(i) of the Internal Revenue
Code, for the taxable year immediately preceding the current
taxable year.

SEC. 2.  

Section 18501.5 is added to the Revenue and Taxation
Code, to read:

18501.5.  

(a) (1) Notwithstanding Section 18501 and except
as provided in paragraph (2), a nonresident whose only income
from sources in this state is compensation that is excluded pursuant
to Section 17952.7 has no tax liability under Section 17041 and is
not required to file a return.

(2) Upon request by the Franchise Tax Board, a nonresident
may be required to file an informational return.

(b) This section is applicable to the determination of an
individual income taxpayer’s filing requirement and has no
application to the imposition of, or jurisdiction to impose, a tax
under Part 10 (commencing with Section 17001) or any other tax
on any taxpayer.

(c) Nothing contained in this section is intended to have any
bearing on the sourcing rules for determining the taxability by this
state of deferred compensation earned by performing services in
this state during any portion of the applicable vesting period,
whether by stock option, restricted stock units, or any other means,
based on a formula comparing the number of working days in this
state to the number of working days elsewhere, and no de minimis
period, as described in Section 17952.7, applies to those
determinations.

SEC. 3.  

Section 13020.5 is added to the Unemployment
Insurance Code, to read:

13020.5.  

(a) Notwithstanding Section 13020, no amount is
required to be deducted or withheld from compensation paid to a
nonresident for employment duties performed in this state if that
compensation is excluded from income subject to tax pursuant to
Section 17952.7 of the Revenue and Taxation Code. The number
of days a nonresident employee is present in this state for purposes
of Section 17952.7 of the Revenue and Taxation Code shall include
all such days the nonresident employee is present and performing
employment duties in the state on behalf of the employer and any
other related person, as defined in subdivision (b) of Section
17952.7 of the Revenue and Taxation Code. For purposes of this
subdivision, presence in this state for any part of a day constitutes
presence in this state for that day unless such presence is solely
for purposes of transit through the state.

(b) An employer that has erroneously applied the exception
provided by this section solely as a result of miscalculating the
number of days a nonresident employee is present in this state to
perform employment duties shall not be subject to a penalty
resulting from the erroneous application of the exception provided
in this section if one of the following applies:

(1) The employer relied on a regularly maintained time and
attendance system that satisfies both of the following conditions:

(A) The system requires the employee to record, on a
contemporaneous basis, his or her work location each day the
employee is present in a state other than the state of residence or
the state where services are considered performed under the
Unemployment Insurance Code.

(B) The system is used by the employer to allocate the
employee’s wages between all taxing jurisdictions in which the
employee performs duties.

(2) The employer does not maintain a time and attendance
system described in paragraph (1) and relied on employee travel
records that the employer requires the employee to maintain and
record on a regular and contemporaneous basis.

(3) The employer does not maintain a time and attendance
system described in paragraph (1), does not require the maintenance
of employee records described in paragraph (2), and relied on
travel expense reimbursement records that the employer requires
the employee to submit on a regular and contemporaneous basis.

(c) This section establishes an exception to withholding and
deduction requirements and has no application to the imposition
of, or jurisdiction to impose, this or any other tax on any employee.