# 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.

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