2023 Tax Season Toolkit
make a first payment of $ 1,000 or 50 percent of the prior year ’ s PTE payment — whichever is greater — by June 15 of the taxable year of the election . A second payment of the remaining PTE tax is then due on or before the due date of the original return , without regard to extensions .
For the 2022 filing season , a severe winter storm disaster was declared for most of California . The disaster declaration extended payment due dates for qualifying taxpayers for several taxes , including the PTE deadlines associated with the first and second installments described above . For tax year 2023 filing purposes , those deadlines are expected to return to the regular deadlines , beginning June 15 , absent some unexpected event .
Nexus For California income tax purposes , “ doing business ” is defined as actively engaging in any transaction for the purpose of financial or pecuniary gain or profit .
Economic-Nexus Thresholds For taxable years beginning on or after Jan . 1 , 2022 , a taxpayer is seen as doing business in California for a taxable year if any of the following conditions are satisfied :
• The taxpayer is organized or commercially domiciled in California ;
• The taxpayer ’ s California sales exceed the lesser of $ 690,144 or 25 percent of total sales ;
• The taxpayer ’ s real property and tangible personal property in California exceeds the lesser of $ 69,015 or 25 percent of total real property and tangible personal property ;
• The taxpayer ’ s compensation amount paid in California exceeds the lesser of $ 69,015 or 25 percent of total compensation paid . The doing business thresholds for taxpayers are indexed for inflation and revised annually .
Public Law ( PL ) 86-272 Federal PL 86-272 protects businesses from state taxes based on net income where the business ’ s contact with a state is limited to the solicitation of sales of tangible goods .
If a potential taxpayer ’ s only physical connection with a state is the delivery of goods to in-state customers , they would be protected against income taxes . This , however , does not extend to gross receipts , franchise , or net worth taxes that other states may apply .
In 2021 , the Multistate Tax Commission ( MTC ) adopted revised guidance to its interpretation of the application of PL 86-272 related to the online and digital economy . The MTC is an intergovernmental state tax agency charged with administering the Multistate Tax Compact . Commission members , acting together , attempt to promote uniform and consistent tax policy and administration among the states . The MTC ’ s actions do not have the force of law , and member states may opt not to follow its recommendations .
MTC Guidance The MTC ’ s guidance states that a business whose customer is using the business ’ s interactive website in the customer ’ s home state is conducting an activity of the business in the customer ’ s state . The guidance then describes the protections and limitations of PL 86-272 in this context .
“ For California income tax purposes , “ doing business ” is defined as actively engaging in any transaction for the purpose of financial or pecuniary gain or profit .”
The MTC ’ s guidance concludes that most activities performed remotely over the internet , such as interactive chat and email features , could exceed the protections of PL 86-272 .
By exceeding those protections , the business ’ s protection under the PL is potentially removed unless those activities directly serve a sales purpose such as the solicitation of an order of tangible personal property ( TPP ). In the current internet-based economy , the MTC ’ s guidance significantly limits the application of PL 86-272 .
TAM 2022-01 In February 2022 , the FTB adopted the MTC guidance through the issuance of a Technical Advice Memorandum ( TAM ), which means that both in-state and out-of-state businesses must analyze their website and online activities when assessing whether they are subject to tax .
TAMs are advice the FTB ’ s legal team gives when it receives questions from FTB staff . The FTB did not issue direct public guidance . Moreover , unlike the regulatory process , it did not seek public comment . The FTB also incorporated the MTC guidance into a revised version of FTB Publication 1050 , which covers the Application and Interpretation of PL 86-272 . As with the TAM , this was initiated by the FTB and did not involve public comment .
What Exceeds the Protections ? The FTB hasn ’ t provided a comprehensive list of activities that exceed the protections of PL 86-272 . It has , however , advised that the following activities exceed those protections :
• A non-sales employee telecommuting from within California ;
• Post-sale assistance to California customers via email or chat initiated from the business ’ s website ;
• Solicitation from California applicants of online applications for a branded credit card via the business ’ s website — not a bank ’ s — if that business will ultimately receive fees and interest from the card ;
• Solicitation from California applicants of employment applications for non-sales positions ;
• Use of internet cookies on California customers ’ computers to gather actionable business intelligence that isn ’ t for the purpose of facilitating that customer ’ s order ( s );
• Remote repair or upgrading of a product in California via the internet ;
• The offering for sale of extended warranty plans to California customers via the internet ;
• Use of a marketplace facilitator that maintains inventory in California , if that inventory includes at least some of the business ’ s products ;
• Streaming of videos and music into California for a charge .
What Doesn ’ t Exceed the Protections ? Websites used by California customers generally don ’ t exceed the protections of PL 86-272 if they do not offer tangible goods and the business does not engage in any other California business activities . Websites also may not exceed the protections provided by PL 86-272 if only used to :
• Search for items ;
12 CALIFORNIA CPA DECEMBER 2023 www . calcpa . org