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California Sales Factor Computation (Examples Provided)

As mentioned in a previous blog post , California has altered its Franchise Tax effective 2011.  One of the major changes concerns the California Apportionment formula. Specifically, California has enacted an irrevocable annual single sales factor election.

As follow up to this post, we were asked to present a couple of illustrations of whether to elect a single sales factor or not:

Assume a manufacturing company with its main operations outside of California but with an office, warehouse and employees in California.  Total taxable income is $10,000,000 and California apportionment factors are:  Sales 20.0%; Payroll 5.0%; and Property 15.0%.

 

Four-Factor

Single Sales Factor

Difference

Presumption

Taxable Income - Total

10,000,000

10,000,000

 

 

Apportionment

15.0%

20.0%

 

 

Taxable Income - California

1,500,000

2,000,000

 

 

Tax Rate

8.84%

8.84%

 

 

California Tax

132,600

176,800

44,200

Elect Four Factor

 

Now assume that the company’s main plant is in California with same total taxable income.  California factors are now: Sales 20.0%; Payroll 80.0%; and Property 70.0%.

 

Four-Factor

Single Sales Factor

Difference

Presumption

Taxable Income - Total

10,000,000

10,000,000

 

 

Apportionment

47.5%

20.0%

 

 

Taxable Income - California

4,750,000

2,000,000

 

 

Tax Rate

8.84%

8.84%

 

 

California Tax

419,900

176,800

243,100

Elect Single Sales

 

If you are running a loss, the presumed election in each illustration would be reversed.

Have Questions or Comments?

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