BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 1449 (Nguyen) - Personal income tax: credit for taxes paid
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|Version: May 2, 2016 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: May 9, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 1449 would require multistate taxpayers, when
calculating the other state tax credit (OSTC), to use the
apportionment and allocation rules of the other state in which
the taxpayer paid the tax.
Fiscal
Impact: The Franchise Tax Board (FTB) estimates the revenue
impact of this bill as follows: for every one percent of
taxpayers impacted, there would be a revenue loss of roughly
$8.8 million (General Fund). FTB's costs to implement the bill
have yet to be determined.
SB 1449 (Nguyen) Page 1 of
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Background: California taxes its residents on all income regardless of
source, including income from residents performing services
outside of the State. Part-year residents pay tax on all income
generated while they are a resident, including from sources
outside the State. Nonresidents pay tax based on all income from
California sources. The State applies various sourcing rules to
certain items of nonresident income for retirees, nonresident
salespeople's commissions, performances by athletes and
entertainers, professional services like attorneys and
physicians, officers of corporations, and operators of trucks,
trains, and ships.
In some instances, taxpayers are taxed by both California and
another state on the same income. California and many other
states allow a nonrefundable credit against the personal income
tax for taxes paid to other states. The purpose of the credit,
known as the OSTC, is to avoid double taxation. Even though it
is a credit against the personal income tax, taxpayers calculate
California OSTC using laws, regulations, and rules from its
Corporation Tax, such as its formula for apportioning corporate
income by using only the sales factor, and assigning the sales
of intangibles to the State where the property is used. Thus,
the California OSTC is not calculated using the rules in place
in the other states where the taxpayer does business. Because
rules for assigning or apportioning income vary from state to
state, a taxpayer's OSTC in California can be less than the
actual tax paid; however, California does not allow an OSTC that
exceeds the actual amount of taxes paid to the other state.
In summary, for purposes of calculating the OSTC, California's
sourcing principles apply even though the results may be
contrary to the other states' principles. The following
describes the sourcing principles of various types of income:
Compensation for services rendered by employees or
independent contractors has a source where the services are
performed.
Income from tangible personal property and real estate
has a source where the property is located.
Income from intangible personal property (such as
SB 1449 (Nguyen) Page 2 of
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interest and dividends) generally has a source where the
owner resides.
Business income has a source where the business is
conducted.
Proposed Law:
This bill would require California residents to apply the other
state's sourcing rules, instead of California's sourcing rules,
when calculating the OSTC.
Staff
Comments: FTB cites that a lack of available data precludes it
from estimating the frequency and amount of credits that would
be impacted by this bill. Instead, FTB estimates that for every
one percent of taxpayers impacted, the measure would result in a
revenue loss of approximately $8.8 million.
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