What is the California Waters Edge election and how will the proposed changes affect business decisions going forward? Generally speaking California intends to tax any company conducting business in California on all of their company’s revenues regardless of where “income” is generated or realized. Presently, the California Waters Edge election is an agreement between your company and the State of California which establishes an accounting of your sales which are realized within the State of California itself. Legally this is quite complex.
For example, your business may be comprised of several separate entities which are “affiliated” or “unitary” under present tax code. Most of your company’s revenue may be realized outside of the State of California. The California waters edge election limits the portion of your tax liability to the State of California to the actual sales or revenues generated within the state. You don’t have to have a physical presence in the State of California to trigger tax liabilities. This has been the source of extensive litigation across the years. California is presently attempting to re-write the laws governing the California Waters Edge election.
The proposed legislation, California Senate Bill 567 would remove the ability to make the California Waters Edge election on or after January 1, 2017. Those taxpayers and entities who are presently claiming the California Waters Edge election would no longer be able to on a waters edge basis after January 1, 2023. As it stands today, those who are able to limit their exposure to California taxation would lose that protection after that date, requiring them to file tax returns based on their worldwide income. Thus Senate Bill 567 will have a substantial impact on corporate and personal taxation, significantly increasing the taxes which would be owed to California going forward after the loss of the waters edge election.
If you have personal or corporate holdings which represent business across state lines or international borders the California Waters Edge election and proposed changes have a significant impact on the taxes you owe and ultimately the profitability of your endeavors. Allen Barron is uniquely positioned to serve you as an individual or business entity. We provide integrated tax, accounting, legal and business advisory services which provide a higher level of perspective, quantitative analysis and ultimate the value of the advice resulting from these integrated services. We invite you to contact us for a free consultation at 866-631-3470. Learn how you can leverage economies of scale to reduce overall costs while engaging Allen Barron’s higher level of advice across multiple disciplines. These are complex times for any cross border business. Allen Barron is the single source service provider to help you minimize tax exposure and position your company for maximum performance and profitability in the months and years to come.
