Tax insight

California FTB adopts market-based sourcing regulation changes

Insight
5 minute read
September 22, 2025

What happened?

The California Franchise Tax Board (FTB) has formally adopted modifications to California Code of Regulations section 25136-2 governing the sourcing of receipts from sales of other than tangible personal property. Changes to the regulation will be effective for all tax years beginning on or after January 1, 2026. The final text of the revised regulation is available here.

Why is it relevant?

The changes may impact how taxpayers source receipts from services and intangibles. Substantive changes to the existing regulation include:

new default rules and presumptions for determining the location of the benefit of services,
new definitions and unique sourcing rules for receipts from asset management services,
a new definition for professional services and a new sourcing rule for large volume professional services,
new rules for sourcing receipts from certain government service contracts, and
new definitions for sourcing receipts from the sale of marketable securities.

Actions to consider

Taxpayers should review the changes to the regulation to determine the proper application and ascertain the potential impact on their California franchise tax liability for 2026 and subsequent tax years.