California withholding tax rules and new tax payment processes for California and Louisiana

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California proposed tax withholding rules

The California Franchise Tax Board’s (“FTB”) proposed Domestic Pass-Through Entity Withholding Regulation (hereinafter, the “Regulation”), California Code of Regulations (CCR) Sec. 18622-7, has been further revised based on comments received from the second interested parties meeting (IPM) held on September 8, 2017. The FTB is requesting any written comments regarding the revised regulation by 5:00pm on June 17, 2019. 

The proposed Regulation changes California withholding rules for partnerships and other pass-through entities and their partners/owners, including a new method of calculating withholding tax based on the nonresident partner’s/owner’s distributive share of California-source income, and applying tax rates at the highest marginal rate based on each owner’s entity type. 

The recent revisions to the Regulation address some previously communicated concerns by adding a safe harbor for late filing of Form 592-PTE and eliminating the 10-day notification requirement. While the safe harbor is a welcome relief over the 10-day notification period, the reporting will remain a challenge for certain taxpayers. Interested parties should submit any additional comments to the FTB by June 17, 2019 before the Regulation is submitted for formal approval.

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California withholding tax rules

California Franchise Tax Board (“FTB”) announced changes to tax payment process

In an effort to streamline the payment process for California business taxpayers, the California Franchise Tax Board (“FTB”) announced that it will now accept a single check payment for multiple business entities. A single payment can be made for different entity types (corporations, partnerships, limited liability companies, etc.) and different payment types (extensions, estimates, return payments, etc.) by filing Form FTB 5013, Multi-payment Voucher Submission for Business Entities (Form FTB 5013), along with the payment check. This new payment process will eliminate the need to cut multiple checks and complete separate payment forms to the FTB. The FTB’s introduction of multiple payment submission forms reflects the FTB’s desire to ease the administrative burden of processing numerous checks, both for the taxpayer and for the FTB. This announcement is welcome relief for taxpayers with significant amounts of California tax filings that previously required separate checks or entries into the online portal.

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Louisiana considers pass through entity tax

Following the growing trend since the state and local tax (“ SALT”) deduction had been capped in the Federal Tax Cut and Jobs Act, Louisiana is the newest state to consider a pass through entity tax as a means to workaround the cap with the introduction of a senate bill on the matter. The bill authorizes S corporations and other flow through entities to elect to pay Louisiana income tax as if they were a corporation. For those electing such treatment, the entity is allowed a deduction equal to the amount of federal income tax that would have been paid on its Louisiana net income if the entity were required to file a C corporate return with the IRS. If elected, the typical tax credits that flow from a pass through entity to its partners would no longer flow, but rather be applied at the electing pass through entity’s level. If the bill in its current form passes, then it will be effective for tax years beginning on or after January 1, 2019.

Louisiana pass through entity tax

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Carole Symonds

Carole Symonds

Partner, Law Firm Services Tax Leader, PwC US

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