California Franchise Tax Board issues Notice regarding impact of the 2011 factor presence nexus statutes on previously made water’s-edge elections

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September 2016

UPDATE: On June 26, 2019, the FTB issued Notice 2019-2, which extends the treatment of Notice 2016-02 and Notice 2017-04 to include those foreign affiliates that become California taxpayers solely due to factor presence nexus in a taxable year beginning on or before December 31, 2020.


On September 9, 2016, the California Franchise Tax Board (FTB) issued Notice 2016-02. The Notice addresses the question of whether a water’s-edge election would be invalidated when a foreign unitary affiliate, which did not participate in the original election, subsequently becomes taxable as a result of California’s enactment of the ‘factor presence nexus’ statutes effective in 2011.

The Notice generally provides that a unitary foreign affiliate is deemed to have participated in or subsequently elected into a combined group’s water’s-edge election if certain qualifications are satisfied.

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Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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