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

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

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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