California FTB Adopts Changes to Cost-of-Performance Rule While Market-Based Sourcing for Services Waits in the Wings

The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.

The California Franchise Tax Board recently adopted changes to its definitions of “costs of performance” and “income-producing activity” and added a set of cascading rules, which could affect how taxpayers that rely on agents and independent contractors source income from services and other activities involving tangibles and intangibles. Meanwhile, market-based sourcing for sales other than sales of tangible personal property is scheduled to take effect on Jan. 1, 2011. In this article, authors Valerie C. Dickerson and Shirley Wei, of Deloitte Tax LLP, provide an overview of the sourcing law and the amended regulation and discuss how these changes may affect certain taxpayers.

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