CA Tax Law Specialist cheat sheet

California imposes tax on residents' worldwide income and nonresidents' California-source income; part-year residents are taxed on income received while resident plus California-source income while nonresident.

2023 tax brackets: 1% to 12.3% for ordinary income, plus 1% Mental Health Services Tax on taxable income over $1,000,000 (single, married filing separately) or $2,000,000 (married filing jointly).

California standard deduction (2023): $5,363 single/MFS, $10,726 MFJ/qualifying surviving spouse/head of household; blind or age 65+ additional $4,720 (single) or $3,744 (married).

California does not allow federal itemized deductions for state income taxes or foreign income taxes; it does allow deductions for real and personal property taxes, mortgage interest, charitable contributions, and medical expenses.

California conforms to federal retirement plan rules but does not conform to Roth IRA conversions in the same way; California taxes distributions from retirement plans that were not previously taxed by California.

California allows a renter's credit of $60 (single/MFS) or $120 (MFJ) for taxpayers with adjusted gross income at or below $50,000 (2023).

California does not allow the federal earned income tax credit; instead it has the California Earned Income Tax Credit (CalEITC) for low-income workers, plus the Young Child Tax Credit.

California taxes capital gains as ordinary income; no preferential rate. California does not conform to federal opportunity zone deferral or exclusion.

California community property rules: for married couples filing separately, community property income is divided equally; separate property income is allocated to the owner.

California imposes a 8.84% franchise tax on C corporations (minimum $800) and a 1.5% income tax on S corporations (minimum $800).

Limited partnerships, LLPs, and LLCs classified as partnerships pay an annual minimum franchise tax of $800; LLCs also pay an annual LLC fee based on total California income (ranging from $900 to $11,790 for 2023).

S corporations must file California Form 100S and pay the 1.5% tax on net income; S corporation shareholders are taxed on their distributive shares.

California does not recognize the federal check-the-box regulations for LLCs formed before 1997; however, most LLCs elect classification for California purposes.

The California franchise tax is imposed on corporations for the privilege of doing business in California; the income tax applies to corporations that are not subject to the franchise tax.

Business income apportionment: California uses a single sales factor formula for most taxpayers (effective for tax years beginning on or after January 1, 2011).

Market-based sourcing rules apply to sales of services and intangibles; sales are assigned to California if the customer receives the benefit in California.

The 20% federal qualified business income (QBI) deduction is not allowed for California purposes; California does not conform to IRC Section 199A.

California imposes a 1% tax on the gross receipts of oil and gas producers, and a 2.5% tax on the gross receipts of water's-edge filers? No, that's not correct. Actually, California has a water's-edge election for unitary groups, which excludes foreign income.

California statewide sales tax rate is 7.25%; local district taxes add up to 2.25%, making combined rates as high as 10.25% in some areas.

Sales tax applies to retail sales of tangible personal property in California; use tax applies to purchases from out-of-state retailers where sales tax was not collected.

Food products for home consumption are exempt from sales tax; hot prepared foods and food sold for on-premises consumption are taxable.

Prescription medicines are exempt; over-the-counter medicines are generally taxable unless prescribed by a licensed physician.

Sales of services are generally not subject to sales tax unless the service is part of a sale of tangible personal property or specifically enumerated (e.g., fabrication labor).

The Marketplace Facilitator Act requires marketplace facilitators to collect and remit sales tax on sales made through their platform.

Use tax is due on purchases from out-of-state sellers who do not collect California tax; individuals report use tax on their state income tax return (Form 540, line 91).

Resale certificate: a purchaser may buy property for resale without paying sales tax by providing a valid resale certificate to the seller.

Manufacturing equipment exemption: partial exemption for manufacturing and research and development equipment (reduced rate of 3.9375% for qualified purchases).

Proposition 13 limits the general property tax rate to 1% of assessed value plus voter-approved debt.

Assessed value increases are capped at 2% per year or the rate of inflation, whichever is lower, until the property changes ownership or undergoes new construction.

The base year value is the property's fair market value as of the most recent change in ownership or completion of new construction.

Proposition 60/90 allows homeowners 55 or older to transfer the base year value of their principal residence to a replacement residence of equal or lesser value within the same county (Prop 60) or to a different county that has adopted an ordinance (Prop 90).

Proposition 19 (effective 2021) allows homeowners 55+, severely disabled, or victims of wildfire to transfer base year value up to three times, and to a more expensive home with an adjusted base year value.

Proposition 19 also changed inheritance rules: family transfers no longer automatically exclude the property from reassessment unless the child uses it as a principal residence or it qualifies as a family farm.

Property tax is assessed as of January 1 (lien date) each year; taxes are payable in two installments due November 1 and February 1.

Supplemental assessments occur when a property changes ownership or new construction is completed; the assessor issues a supplemental bill for the difference in assessed value.

Property tax exemptions include the homeowners' exemption (reduces assessed value by $7,000) and the disabled veterans' exemption.

California unemployment insurance (UI) tax rate ranges from 1.5% to 6.2% on the first $7,000 of wages per employee; the employee pays 1.1% (2023) and the employer pays the remainder.

Employment Training Tax (ETT) is 0.1% on the first $7,000 of wages, paid by employers.

State Disability Insurance (SDI) rate for 2023 is 1.1% on wages up to $153,164; SDI provides paid family leave and disability benefits.

California personal income tax withholding is required on wages; employers must file quarterly returns (Form DE 9) and annual returns (Form DE 9C).

Employers must report new hires to the California Employment Development Department (EDD) within 20 days of hire.

California does not have local payroll taxes, but some cities (e.g., San Francisco) have local payroll expense taxes.

The California minimum wage is $15.50 per hour for all employers as of January 1, 2023; some cities have higher minimum wages.

Workers' compensation insurance is required for all employers; independent contractors are generally not covered unless they are employees under the ABC test.

The ABC test (Dynamex) applies for California wage orders and unemployment insurance; a worker is an employee unless the hiring entity proves A, B, and C.

The Franchise Tax Board (FTB) administers personal income tax and corporation tax; the California Department of Tax and Fee Administration (CDTFA) administers sales and use tax.

Statute of limitations for FTB assessments is generally 4 years from the due date of the return or the date filed, whichever is later; 8 years for fraud or failure to file.

Taxpayers can request an installment payment agreement from FTB; interest accrues on unpaid balances.

Appeals process: FTB protest must be filed within 30 days of the notice of proposed assessment; then to the Office of Tax Appeals (OTA) within 30 days of the FTB's final action.

The Office of Tax Appeals (OTA) is an independent agency that hears appeals from FTB, CDTFA, and other tax agencies; its decisions are binding on the agencies.

The California Taxpayers' Bill of Rights (TBOR) provides protections such as the right to appeal, the right to representation, and the right to claim a refund.

Refund claims must be filed within the later of 4 years from the due date of the return or 1 year from the date of overpayment.

Penalties: failure to file (5% per month up to 25%), failure to pay (0.5% per month up to 25%), and accuracy-related penalties.

Innocent spouse relief is available under California law similar to federal rules; request with FTB Form 705.

California has not conformed to all federal tax law changes; the FTB publishes an annual conformity report listing differences.

California does not conform to federal bonus depreciation; it requires depreciation to be computed under the modified accelerated cost recovery system (MACRS) without bonus.

California does not conform to federal IRC Section 199A qualified business income deduction.

California does not conform to federal opportunity zone deferral and exclusion; gains are taxable when realized.

California conforms to federal like-kind exchange rules for real property but not for personal property (federal law also now limits to real property).

California does not conform to federal net operating loss (NOL) carryback rules; NOLs may be carried forward only.

California has its own rules for AB 150 (2020) requiring a 5-year carryforward for certain business tax credits.

Multistate taxpayers must apportion income to California using the single sales factor formula; California uses market-based sourcing for services.

California has reciprocity agreements with some states? No, California does not have reciprocal agreements with other states for income tax.

Circular 230 governs practice before the IRS; California has its own regulations under the California Business and Professions Code and FTB guidance.

Tax preparers must exercise due diligence and may be subject to penalties for understatements due to unreasonable positions.

California requires tax preparers to sign returns and provide a copy to the taxpayer; paid preparers must include their preparer tax identification number (PTIN).

Confidentiality: tax preparers may not disclose taxpayer information without consent, except as required by law.

California follows the AICPA Code of Professional Conduct for CPAs; the California Board of Accountancy enforces rules.

Research sources: California statutes (R&TC), regulations (18 CCR), FTB publications, and annotations; primary authority includes statutes and regulations.

Substantial authority standard applies for tax return positions; more likely than not for tax shelters.

Ethical considerations: avoid conflicts of interest, maintain independence, and provide competent services.

Penalties for preparers: California may impose penalties for negligent or fraudulent preparation.