Corporations Tax Law: water’s-edge election: global intangible low-taxed income.
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Two Thirds
Fiscal committee
No
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No
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Progress
Where this bill stands in the legislative process.
- Introduced
- Passed Assembly
- Passed Senate
- To Governor
- Became Law
Overview
This bill changes California’s corporate tax law regarding the ‘water’s-edge election,’ which allows companies to determine their income based on sales within the state rather than worldwide operations. The bill requires companies that currently use this election to account for Net CFC tested income and include income from affiliated corporations. Critically, it mandates the termination of all water’s-edge elections for taxable years beginning after January 1, 2028, effectively ending this option for future tax years. The bill also includes provisions related to combined reporting and the Franchise Tax Board’s ability to oversee these elections.
Key provisions
- Requires taxpayers using the ‘water’s-edge’ election to account for Net CFC tested income.
- Mandates the inclusion of income and apportionment factors of affiliated corporations in the water’s-edge calculation.
- Terminates all water’s-edge elections for taxable years beginning after January 1, 2028.
- Allows for the termination of existing water’s-edge elections without Franchise Tax Board consent for years before January 1, 2028.
- Updates sections of the Revenue and Taxation Code to align with federal tax law regarding controlled foreign corporations.
- Modifies sections related to combined reporting and the Franchise Tax Board’s authority.
- Establishes a process for determining the inclusion of income and apportionment factors in combined reporting groups.
- Clarifies definitions related to unitary business, affiliated corporations, and qualified taxpayers.
Bill text
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