Tax insight

Impact of California’s recently adopted market-based sourcing regulations on asset managers

Insight
5 minute read
September 30, 2025

What happened?

The California Office of Administrative Law on September 5, 2025, approved an amended version of California Regulation (CCR) 25136-2, updating the rules for market-based sourcing of sales other than tangible personal property. After nine years and numerous interested party meetings, the proposed regulation finally was adopted.

Why is it important?

Under California law, sales from services are included in the California sales factor numerator to the extent the purchaser receives the benefit of the service in California. The finalized amendments provide a number of changes and clarifications impacting asset managers, particularly around the sourcing of management fees and the sourcing of sales of intangible assets such as corporate stock and partnership interests. Other items include changes to the general presumptions and cascading rules on determining where the benefit of services is received, as well as providing special sourcing rules for large volume professional services and government contractors. See our general PwC Tax Insight, California FTB adopts market-based sourcing regulation changes, which covers these items in more detail.

While the amendments to the regulation generally are effective for tax years beginning on or after January 1, 2026, some of the changes applicable to asset managers are retroactive.

Actions to consider

Asset managers should examine the new rules to determine whether they may have a California filing obligation with the new look-through sourcing rules. They also should review their available reporting capabilities to determine whether they have the data available to comply with the new management fee allocation rules.