The California waters edge election provides needed protections for national and international companies with business in the State of California. This important tax strategy is currently threatened by new legislation known as Senate Bill 567. The bill entitled the “Millionaire Tax Accountability Act” was recently proposed to close several “popular loopholes” for corporations and wealthy individuals. Unfortunately, California wishes to tax all revenues for entities located in the State of California, as well as national and international companies and corporations who conduct business within the State of California.
The central issue is known as the “economic nexus” or the amount of activity or transactions for the purpose of “financial or pecuniary gain or profit” occurring in California. The State of California wishes to tax all income from those with an economic nexus in California, in many cases regardless of where the income was actually realized. Therefore, it is important for a company to establish the precise amount of actual business and profit generated in the State of California.
A water’s edge election basically says that your business or entity agree pay taxes upon sales that occur within California under the parameters of the water’s edge election. The goal is to minimize the tax your company owes for conducting business in California. The California waters edge election provides needed protections when a substantial portion of their business income occurs in other venues. For example if you are a California corporation and you are doing business in seven other western states California will attempt to lay claim to all of the income generated by your company’s sales throughout the region and apply associated taxes. Allen Barron’s integrated tax, accounting, business consulting and legal services protect our regional, national and international clients. The water’s edge election is an example of a strategy which helps to minimize tax exposure across a single company or a multi-corporation enterprise.
This may sound fairly easy, but the legal, tax and accounting implications are quite complicated. The genuine financial risks to regional, national and international clients regarding the outcome of California Senate Bill 567 cannot be overstated. We invite you to contact us or call 866-631-3470 for a free consultation. Learn about the protections of the attorney-client privilege, the integration of tax, accounting, legal and business advisory services and the positive impact Allen Barron can provide to your professional enterprises.