Cal. Code Regs. Tit. 18, § 23101.5 - Exclusion of Certain Activities from Taxing Jurisdiction

(a) The Franchise Tax Board may determine that a corporation is neither "doing business" and subject to the corporation franchise tax under Chapter 2 nor "deriving income from sources within the state" and subject to the corporation income tax under Chapter 3 if the number of the corporation's employees and its only activities within the state are limited to those described in Revenue and Taxation Code section 23101.5, subdivision (a).

(b) Purchasing, Inspecting, and Consulting Activities. All of the employees' duties enumerated in Revenue and Taxation Code section 23101.5, subdivision (a)(1), refer to activities in connection with the corporation's purchase of personal property or services in this state. The term "purchase of personal property" includes the storage of property purchased, manufactured or assembled in this state pending shipment to destinations outside California. An employee "temporarily present in this state" will not invalidate a corporation's qualification for this exclusion by causing the corporation to exceed the limitation of 100 or 200 employees, as applicable. An employee is "temporarily present in California" if his contact with this state, disregarding the provisions of Revenue and Taxation Code section 23101.5, would not be sufficient to subject his employer to California's franchise or income tax.

(c) Educational Activities. A corporation may qualify for the exclusion provided by Revenue and Taxation Code section 23101.5, if the presence of employees in this state is only for the purpose of attending a public or private school, college or university or other educational or training program, including those at industrial facilities.

(d) Information to Be Reported. A corporation claiming an exclusion with respect to the activities described in Revenue and Taxation Code section 23101.5, subdivisions (a)(1) and (b), must submit an application containing the following information:

(1) Applicant's corporate name and federal employer identification number, if any,

(2) Applicant's mailing address,

(3) Applicant's date of incorporation,

(4) Applicant's accounting period for tax purposes,

(5) Years applicant has filed California franchise tax or corporate income tax returns within the four taxable years preceding the taxable year for which the exemption is sought,

(6) Corporations in which applicant owns 50 percent or more of the voting stock,

(7) Corporations which own 50 percent or more of applicant's voting stock,

(8) Names and addresses of businesses or individuals with which the applicant expects to or has purchased personal property or services and which are to be covered by the exclusion,

(9) To the extent determinable, the names of employees applicant expects to be present within the state during the taxable year, and the expected duration of each employee's presence in this state,

(10) To the extent determinable, destination and use of personal property and services contracted for which are to be covered by the exclusion,

(11) The period for which the exclusion is requested, or facts which would support an exclusion of indefinite duration,

(12) The estimated number of California jobs created and economic effect upon California resulting from the activities for which the exclusion is sought.

(e) A corporation claiming an exclusion with respect to the activities described in Revenue and Taxation Code section 23101.5, subdivisions (a)(2) and (c), must submit an application containing the following information:

(1) Applicant's corporate name and federal employer identification number, if any,

(2) Applicant's mailing address,

(3) Applicant's date of incorporation,

(4) Applicant's accounting period for tax purposes,

(5) Years applicant has filed California franchise tax or corporate income tax returns within the four taxable years preceding the taxable year for which the exemption is sought,

(6) Corporations in which applicant owns 50 percent or more of the voting stock,

(7) Corporations which own 50 percent or more of applicant's voting stock,

(8) Names of schools, colleges, and universities in this state at which applicant's employees are enrolled, or are to be enrolled and the names of such employees to the extent known,

(9) The period for which the exclusion is requested, or facts which would support an exclusion of indefinite duration.

(f) The exclusion provided by Revenue and Taxation Code section 23101.5, will not be granted to a corporation which has as its principal business activity one or more of the activities specified in subsection (b) of this regulation, unless such corporation is engaged in a unitary business with one or more other corporations outside California, and the principal activity of such unitary business is not one or more of the activities specified in subsection (b) of this regulation.

(g) Filing Requirements. The initial application and the annual confirmation must be submitted to Chief Counsel, Franchise Tax Board, P. O. Box 1720, Rancho Cordova, CA 95741-1720, as soon as the corporation contemplates having employees within this state. If an exclusion of an indefinite duration is requested, the Board need not actually have issued its determination on or before December 31, 1977. Any member of a group of corporations engaged in a unitary business is eligible for an exclusion of indefinite duration if any one member has met the qualification requirements for the exclusion of indefinite duration. All corporations shall annually confirm within two months and 15 days after the close of their fiscal years that facts relevant to the granting of the exclusion then in effect remain unchanged or shall state and explain the changes which have occurred since the preceding report was filed. The activities of a corporation (other than one which qualifies for exemption under Revenue and Taxation Code section 24320), which exceed those excluded from taxing jurisdiction under Revenue and Taxation Code section 23101.5, will cause all members of an affiliated group with which the corporation is engaged in a unitary business to be subjected to California's franchise or income tax. If an exclusion has expired or if the Franchise Tax Board or the corporation determines that because of changed circumstances the original exclusion is invalidated but believes another exclusion should be granted, a new application setting forth all the information listed in subsections (d) and/or (e) of this regulation shall be submitted. A corporation that has been granted an exclusion of indefinite duration which has lapsed will be eligible for a renewed exclusion with a maximum effective period of five years. During the period of exclusion, the corporation's records will be subject to audit to the same extent as are the records of any other corporation doing business or deriving income from sources within this state.

(h) Waiver of Confidentiality Provisions. Corporations applying for exclusions under Revenue and Taxation Code, section 23101.5, shall be deemed to have waived the confidentiality provisions of Revenue and Taxation Code section 19542, with respect to legislative reports required by Revenue and Taxation Code section 23101.5.

(i) As used in this regulation, "Chapter 2" refers to Chapter 2 of Part 11, Division 2 of the Revenue and Taxation Code (beginning with Revenue and Taxation Code, section 23101) and "Chapter 3" refers to Chapter 3 of Part 11, Division 2 of the Revenue and Taxation Code (beginning with Revenue and Taxation Code section 23501.)

Notes

Cal. Code Regs. Tit. 18, § 23101.5

1. New section filed 10-7-77 as an emergency; effective upon filing (Register 77, No. 41).
2. Refiling and amendment of section filed 1-16-78; effective thirtieth day thereafter (Register 78, No. 3).
3. Amendment filed 8-22-80; effective thirtieth day thereafter (Register 80, No. 34).
4. Change without regulatory effect amending section and NOTE filed 9-17-2001 pursuant to section 100, title 1, California Code of Regulations (Register 2001, No. 38).
5. Change without regulatory effect amending section filed 5-29-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 22).

Note: Authority cited: Section 19503, Revenue and Taxation Code. Reference: Section 23101.5, Revenue and Taxation Code.

1. New section filed 10-7-77 as an emergency; effective upon filing (Register 77, No. 41).
2. Refiling and amendment of section filed 1-16-78; effective thirtieth day thereafter (Register 78, No. 3).
3. Amendment filed 8-22-80; effective thirtieth day thereafter (Register 80, No. 34).
4. Change without regulatory effect amending section and Note filed 9-17-2001 pursuant to section 100, title 1, California Code of Regulations (Register 2001, No. 38).
5. Change without regulatory effect amending section filed 5-29-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 22).