text: In the case of the property acquired by a corporation, during a period of affiliation, from a corporation with which it was affiliated, the basis of such property, after such period of affiliation, shall be determined, in accordance with regulations prescribed by the Franchise Tax Board without regard to intercompany transactions in respect of which gain or loss was not recognized. The basis in case of property acquired by a corporation during any period, in the income year 1929 or any subsequent income year, in respect of which a consolidated return is made by such corporation under Article 9 of Chapter 2 or Section 141 of the Federal Revenue Act of 1928 or the Federal Revenue Act of 1932 or the Federal Revenue Act of 1934 or the Federal Revenue Act of 1936, or in the case of a corporation subject to the tax imposed by Chapter 3, the Federal Revenue Act of 1938, shall be determined in accordance with regulations prescribed under Article 9 of Chapter 2 or Section 141 of the Federal Revenue Act of 1928 or the Federal Revenue Act of 1932 or the Federal Revenue Act of 1936, or in the case of a corporation subject to the tax imposed by Chapter 3, the Federal Revenue Act of 1938. The basis in the case of property held by a corporation during any period, in the income year 1929 or any subsequent income year, in respect of which a consolidated return is made by such corporation under Article 9 of Chapter 2 or Section 141 of the Federal Revenue Act of 1928 or the Federal Revenue Act of 1932 or the Federal Revenue Act of 1934 or the Federal Revenue Act of 1936, or, in the case of a corporation subject to the tax imposed by Chapter 3, or the Federal Revenue Act of 1938, shall be adjusted in respect of any items relating to such period, in accordance with regulations prescribed under Article 9 of Chapter 2 or Section 141 of the Federal Revenue Act of 1928 or the Federal Revenue Act of 1932 or the Federal Revenue Act of 1934 or the Federal Revenue Act of 1936, or in the case of a corporation subject to the tax imposed by Chapter 3, or the Federal Revenue Act of 1938, applicable to such period.

history: (History: Amended by Stats. 1957, Ch. 544.)

article: 4. Special Rules for Basis

path: 2. OTHER TAXES > 11. CORPORATION TAX LAW > 15. Gain or Loss on Disposition of Property > 4. Special Rules for Basis


kind: section

code: RTC

text:
(a) If the property was acquired, after February 28, 1913, in any income year beginning before January 1, 1934, and the basis thereof, for purposes of the Revenue Act of 1932 was prescribed by Section 113(a) (6), (7), or (9) of such act (47 Stat. 199), then for purposes of this part the basis shall be the same as the basis therein prescribed in the Revenue Act of 1932.

(b) If the property was acquired, after February 28, 1913, in any income year beginning before January 1, 1937, and the basis thereof, for purposes of the Revenue Act of 1934, was prescribed by Section 113(a) (6), (7), or (8) of such act (48 Stat. 706), then for purposes of this part the basis shall be the same as the basis therein prescribed in the Revenue Act of 1934.

(c) If the property was acquired after February 28, 1913, in a transaction to which the Bank and Corporation Tax Law of 1954 applied, and the basis thereof, for purposes of the Bank and Corporation Tax Law of 1954, was prescribed by Section 25071(d), 25071(e), or 25071(f) of such law, then for purposes of this part the basis shall be the same as the basis therein prescribed in the Bank and Corporation Tax Law of 1954.

(d) Stock rights acquired after February 28, 1913, and before January 1, 1955, shall have the basis assigned to such property under Section 25071m of the Bank and Corporation Tax Law of 1954.

division: 2. OTHER TAXES

part: 11. CORPORATION TAX LAW

chapter: 15. Gain or Loss on Disposition of Property

article: 4. Special Rules for Basis


text: In the case of property acquired before March 1, 1913, if the basis otherwise determined under this part, adjusted (for the period before March 1, 1913) as provided in Section 24916, is less than the fair market value of the property as of March 1, 1913, then the basis for determining gain shall be such fair market value. In determining the fair market value of stock in a corporation as of March 1, 1913, due regard shall be given to the fair market value of the assets of the corporation as of that date.

history: (History: Added by Stats. 1955, Ch. 938.)

article: 4. Special Rules for Basis


text: Whenever a taxpayer has realized gain or loss upon the receipt after January 1, 1928, at a time when it was subject to a tax under this part, of all or substantially all of the business or property of a taxpayer over which it exercised control within the meaning of Section 24564, and such gain or loss actually was not taken into account in the computation of taxes imposed by this part, the basis of the property or business acquired shall be the same as it was in the hands of the transferor.

article: 4. Special Rules for Basis


text: In the case of a share of stock issued pursuant to Section 303(c) of the Federal National Mortgage Association Charter Act (12 U.S.C., Sec. 1718), the basis of such share in the hands of the initial holder shall be an amount equal to the capital contributions evidenced by such share reduced by the amount (if any) required by Section 24343(d) to be treated (with respect to such share) as ordinary and necessary expenses paid or incurred in carrying on a trade or business.

history: (History: Added by Stats. 1961, Ch. 846.)

article: 4. Special Rules for Basis


text:
(a) The basis in stock purchased shall be reduced by the nontaxed portion of any extraordinary dividend received as provided in Section 1059 of the Internal Revenue Code, except as otherwise provided in this section.

(b) The reduction described in Section 1059(b)(2)(B) of the Internal Revenue Code shall be the amount determined under Section 24402.

(c) Reference to Section 301 of the Internal Revenue Code shall be reference to Sections 24451 to 24454, inclusive.

(d) Reference to Section 301(b)(2) of the Internal Revenue Code shall be reference to subdivision (b) of Section 24452.

(e) Reference to Section 301(c)(2) of the Internal Revenue Code shall be reference to subdivision (b) of Section 24453.

history: (History: Amended by Stats. 1990, Ch. 1349, Sec. 34.3. Effective September 26, 1990.)

article: 4. Special Rules for Basis


text: Section 1059A of the Internal Revenue Code, relating to limitation on taxpayer’s basis or inventory cost in property imported from related persons, shall apply, except as otherwise provided.

history: (History: Amended by Stats. 1993, Ch. 877, Sec. 85. Effective October 6, 1993.)

article: 4. Special Rules for Basis


text: Section 1060 of the Internal Revenue Code, relating to special allocation rules for certain asset acquisitions, shall apply, except as otherwise provided.

history: (History: Amended by Stats. 1993, Ch. 877, Sec. 86. Effective October 6, 1993.)

article: 4. Special Rules for Basis


text: Subchapter P of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to capital gains and losses, shall apply, except as otherwise provided.

history: (History: Amended by Stats. 1993, Ch. 873, Sec. 47. Effective October 6, 1993.)

article: 4.5. Capital Gains and Losses

path: 2. OTHER TAXES > 11. CORPORATION TAX LAW > 15. Gain or Loss on Disposition of Property > 4.5. Capital Gains and Losses


text: The amendments made by Section 126(a) of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 1202(a)(4) of the Internal Revenue Code, relating to 100 percent exclusion for stock acquired during certain periods in 2010 and thereafter, shall not apply.

history: (History: Added by Stats. 2025, Ch. 231, Sec. 117. (SB 711) Effective October 1, 2025.)

article: 4.5. Capital Gains and Losses


text: Section 301 of Title III of Division A of the Emergency Economic Stabilization Act of 2008 (Public Law 110-343), relating to gain or loss from sale of certain preferred stock, shall not apply.

history: (History: Added by Stats. 2010, Ch. 14, Sec. 82. (SB 401) Effective January 1, 2011.)

article: 4.5. Capital Gains and Losses


text:
For taxable years beginning on or after January 1, 1997:

(a) Section 1237(a) of the Internal Revenue Code, relating to real property subdivided for sale, is modified to provide that the term “other than a corporation” in the material preceding Section 1237(a)(1) of the Internal Revenue Code shall instead mean “other than a C corporation.”

(b) Section 1237(a)(2)(A) of the Internal Revenue Code, relating to real property subdivided for sale, is modified to provide that an improvement shall be deemed to be made by the taxpayer if that improvement was made by an “S corporation” that included the taxpayer as a shareholder.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 211. Effective January 1, 2001.)

article: 4.5. Capital Gains and Losses


text:
The provisions of Section 1212 of the Internal Revenue Code, relating to capital loss carrybacks and carryovers, are modified as follows:

(a) Section 1212(a)(1)(A) of the Internal Revenue Code, relating to capital loss carrybacks, shall not apply.

(b) Section 1212(a)(4) of the Internal Revenue Code, relating to special rules on carrybacks, shall not apply.

(c) Sections 1212(b) and 1212(c) of the Internal Revenue Code, relating to other taxpayers and carryback of losses from Section 1256 contracts to offset prior gains from such contracts, respectively, shall not apply.

history: (History: Amended by Stats. 2025, Ch. 231, Sec. 118. (SB 711) Effective October 1, 2025. Applicable to taxable years beginning on or after January 1, 2015, as provided in Sec. 41 of Stats. 2015, Ch. 359.)

article: 4.5. Capital Gains and Losses


text:
(a) Section 1245(a)(2)(C) of the Internal Revenue Code, relating to certain deductions treated as amortization, is modified to also refer to Sections 24356.2, 24356.3, and 24356.4.

(b) Section 1245(b)(8) of the Internal Revenue Code, relating to disposition of amortizable Section 197 intangibles, shall apply to dispositions of property on or after January 1, 2010.

history: (History: Amended by Stats. 2010, Ch. 14, Sec. 83. (SB 401) Effective January 1, 2011.)

article: 4.5. Capital Gains and Losses


text: The provisions of Section 1248 of the Internal Revenue Code, relating to gain from certain sales or exchanges of stock in certain foreign corporations, shall not apply to transactions occurring after August 20, 1990, in taxable years beginning on or after January 1, 1990.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 212. Effective January 1, 2001.)

article: 4.5. Capital Gains and Losses


text: For taxable years beginning on or after January 1, 2010, specific reference to Section 1223(4) to (16), inclusive, of the Internal Revenue Code in this part shall instead be treated as a reference to Section 1223(3) to (15), inclusive, of the Internal Revenue Code, respectively.

history: (History: Added by Stats. 2010, Ch. 14, Sec. 84. (SB 401) Effective January 1, 2011.)

article: 4.5. Capital Gains and Losses


text: The amendments made to Sections 1221(a)(3) and 1231(b)(1)(C) of the Internal Revenue Code by Section 13314 of Public Law 115-97, relating to certain self-created property not treated as a capital asset, shall not apply.

history: (History: Added by Stats. 2025, Ch. 231, Sec. 119. (SB 711) Effective October 1, 2025.)

article: 4.5. Capital Gains and Losses


text: Section 1275(a)(3) of the Internal Revenue Code, relating to the definition of tax-exempt obligation, does not apply but instead the term “tax-exempt obligation” means an obligation the interest on which is exempt from tax under this part.

history: (History: Amended by Stats. 2003, Ch. 185, Sec. 40. Effective January 1, 2004.)

article: 4.5. Capital Gains and Losses


text:
(a) Section 7872 of the Internal Revenue Code, relating to the treatment of loans with below market interest rates, shall apply, except as otherwise provided.

(b) Section 7872(h) of the Internal Revenue Code, relating to exception for loans to qualified continuing care facilities, shall apply to calendar years beginning on or after January 1, 2010, with respect to loans made before, on, or after that date.

history: (History: Amended by Stats. 2010, Ch. 14, Sec. 85. (SB 401) Effective January 1, 2011.)

article: 4.5. Capital Gains and Losses


text: The provisions of Part VI of Subchapter P of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to treatment of certain passive foreign investment companies, shall not be applicable.

history: (History: Added by Stats. 1988, Ch. 1465, Sec. 56. Effective September 28, 1988. Applicable to income years beginning on or after January 1, 1988, by Sec. 77 of Ch. 1465.)

article: 4.5. Capital Gains and Losses


text: The provisions of Sections 1091 and 1092 of the Internal Revenue Code, relating to loss from wash sales of stock or securities, and straddles, respectively, shall be applicable for purposes of this part.

history: (History: Repealed and added by Stats. 1988, Ch. 11, Sec. 86. Effective February 19, 1988. Applicable to income years beginning on or after January 1, 1987, by Sec. 95 of Ch. 11.)

article: 5. Wash Sales of Stock or Securities

path: 2. OTHER TAXES > 11. CORPORATION TAX LAW > 15. Gain or Loss on Disposition of Property > 5. Wash Sales of Stock or Securities


text:
When the income of a taxpayer subject to the tax imposed under this part is derived from or attributable to sources both within and without the state the tax shall be measured by the net income derived from or attributable to sources within this state in accordance with the provisions of Article 2 (commencing with Section 25120). However, any method of apportionment shall take into account as income derived from or attributable to sources without the state, income derived from or attributable to transportation by sea or air without the state, whether or not the transportation is located in or subject to the jurisdiction of any other state, the United States or any foreign country.

If the Franchise Tax Board reapportions net income upon its examination of any return, it shall, upon the written request of the taxpayer, disclose to it the basis upon which its reapportionment has been made.

history: (History: Amended by Stats. 1982, Ch. 466, Sec. 104.)

chapter: 17. Allocation of Income

article: 1. General Provisions

path: 2. OTHER TAXES > 11. CORPORATION TAX LAW > 17. Allocation of Income > 1. General Provisions


text: The amendments made at the 1957 Regular Session of the Legislature to Section 25101 of the Revenue and Taxation Code shall be applicable only with respect to income years beginning after December 31, 1956. The determination as to whether income derived from or attributable to transportation by sea or air is allocable to or taxable by California for any income year beginning before January 1, 1957, shall be made as if Section 25101 had not been amended at the 1957 Regular Session of the Legislature and without inferences drawn from the fact that such amendments were not expressly made applicable with respect to income years beginning before January 1, 1957.

history: (History: Added by Stats. 1957, Ch. 2097.)

article: 1. General Provisions


text:
The property factor as it relates to the aircraft of an air carrier or foreign air carrier, as defined in Section 1150, or the operator of an air taxi, as defined in Section 1154, shall be allocated on the basis of a formula consisting of time and arrivals and departures as follows:

(a) The time in state is the proportionate amount of time, both in the air and on the ground, that certificated aircraft have spent within the state during the taxable year as compared to the total time everywhere during the taxable year. This factor shall be multiplied by 75 percent.

(b) Arrivals and departures is the number of arrivals in and departures from airports within the state of certificated aircraft during the taxable year as compared to the total number of arrivals in and departures from airports both within this state and elsewhere during the taxable year. This factor shall be multiplied by 25 percent.

(c) The time in state factor shall be added to the arrivals and departures factor.

(d) The figure produced by application of subdivision (c) equals the allocation to be applied to the original cost of property owned or rented by the taxpayer determined under the provisions of Section 25130.

(e) If annual statistics for the taxpayer’s taxable year are not available, statistics for representative periods designated by the Franchise Tax Board shall be used provided that permission to do so has been granted to the taxpayer by the Franchise Tax Board.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 214. Effective January 1, 2001.)

article: 1. General Provisions


text: If the income of two or more taxpayers is derived solely from sources within this state and their business activities are such that if conducted within and without this state a combined report would be required to determine their business income derived from sources within this state, then such taxpayers shall be allowed to determine their business income in accordance with Section 25101.

history: (History: Added by Stats. 1980, Ch. 390, Sec. 1. Effective July 10, 1980. Applicable to income years beginning on or after January 1, 1980, by Sec. 2 of Ch. 390.)

article: 1. General Provisions


text: In the case of two or more persons, as defined in Section 19 of this code, owned or controlled directly or indirectly by the same interests, the Franchise Tax Board may permit or require the filing of a combined report and such other information as it deems necessary and is authorized to impose the tax due under this part as though the combined entire net income was that of one person, or to distribute, apportion, or allocate the gross income or deductions between or among such persons, if it determines that such consolidation, distribution, apportionment, or allocation is necessary in order to reflect the proper income of any such persons.

history: (History: Amended by Stats. 1959, Ch. 273.)

article: 1. General Provisions


text: In the case of a corporation doing business within the meaning of this part, whether under agreement or otherwise, in such manner as either directly or indirectly to benefit the members or stockholders of the corporation, or any of them, or any person or persons, directly or indirectly interested in such business, by rendering services of any nature whatsoever, or acquiring or disposing of its products or the goods or commodities in which it deals, at less than a fair price therefore, the Franchise Tax Board, in order to prevent evasion of taxes or clearly to reflect the income of such corporation, may require a report of such facts as it deems necessary, and may determine the amount which shall be deemed to be the entire net income allocable to this State of the business of such corporation for the calendar or fiscal year, and compute the tax upon such net income. In determining the entire net income the Franchise Tax Board shall have regard to the fair profits which, but for any agreement, arrangement, or understanding, might be or could have been obtained from dealing in such products, goods or commodities.

history: (History: Repealed and added by Stats. 1955, Ch. 938.)

article: 1. General Provisions


text: In the case of a corporation liable to report under this part owning or controlling, either directly or indirectly, another corporation, or other corporations, and in the case of a corporation liable to report under this part and owned or controlled, either directly or indirectly, by another corporation, the Franchise Tax Board may require a consolidated report showing the combined net income or such other facts as it deems necessary. The Franchise Tax Board is authorized and empowered, in such manner as it may determine, to assess the tax against either of the corporations whose net income is involved in the report upon the basis of the combined entire net income and such other information as it may possess, or it may adjust the tax in such other manner as it shall determine to be equitable if it determines it to be necessary in order to prevent evasion of taxes or to clearly reflect the net income earned by said corporation or corporations from business done in this State.

history: (History: Added by Stats. 1955, Ch. 938.)

article: 1. General Provisions


text:
(a) For purposes of this article, other than Section 25102, the income and apportionment factors of two or more corporations shall be included in a combined report only if the corporations, otherwise meeting the requirements of Section 25101 or 25101.15, are members of a commonly controlled group.

(b) A “commonly controlled group” means any of the following:

(1) A parent corporation and any one or more corporations or chains of corporations, connected through stock ownership (or constructive ownership) with the parent, but only if—

(A) The parent owns stock possessing more than 50 percent of the voting power of at least one corporation, and, if applicable,

(B) Stock cumulatively representing more than 50 percent of the voting power of each of the corporations, except the parent, is owned by the parent, one or more corporations described in subparagraph (A), or one or more other corporations that satisfy the conditions of this subparagraph.

(2) Any two or more corporations, if stock representing more than 50 percent of the voting power of the corporations is owned, or constructively owned, by the same person.

(3) Any two or more corporations that constitute stapled entities.

(A) For purposes of this paragraph, “stapled entities” means any group of two or more corporations if more than 50 percent of the ownership or beneficial ownership of the stock possessing voting power in each corporation consists of stapled interests.

(B) Two or more interests are stapled interests if, by reason of form of ownership restrictions on transfer, or other terms or conditions, in connection with the transfer of one of the interests the other interest or interests are also transferred or required to be transferred.

(4) Any two or more corporations, all of whose stock representing more than 50 percent of the voting power of the corporations is cumulatively owned (without regard to the constructive ownership rules of paragraph (1) of subdivision (e)) by, or for the benefit of, members of the same family. Members of the same family are limited to an individual, his or her spouse, parents, brothers or sisters, grandparents, children and grandchildren, and their respective spouses.

(c) (1) If, in the application of subdivision (b), a corporation is eligible to be treated as a member of more than one commonly controlled group of corporations, the corporation shall elect to be treated as a member of only one commonly controlled group. This election shall remain in effect unless revoked with the approval of the Franchise Tax Board.

(2) Membership in a commonly controlled group shall be treated as terminated in any year, or fraction thereof, in which the conditions of subdivision (b) are not met, except as follows:

(A) When stock of a corporation is sold, exchanged, or otherwise disposed of, the membership of a corporation in a commonly controlled group shall not be terminated, if the requirements of subdivision (b) are again met immediately after the sale, exchange, or disposition.

(B) The Franchise Tax Board may treat the commonly controlled group as remaining in place if the conditions of subdivision (b) are again met within a period not to exceed two years.

(d) A taxpayer may exclude some or all corporations included in a “commonly controlled group” by reason of paragraph (4) of subdivision (b) by showing that those members of the group are not controlled directly or indirectly by the same interests, within the meaning of the same phrase in Section 482 of the Internal Revenue Code. For purposes of this subdivision, the term “controlled” includes any kind of control, direct or indirect, whether legally enforceable, and however exercisable or exercised.

(e) Except as otherwise provided, stock is “owned” when title to the stock is directly held or if the stock is constructively owned.

(1) An individual constructively owns stock that is owned by any of the following:

(A) His or her spouse.

(B) Children, including adopted children, of that individual or the individual’s spouse, who have not attained the age of 21 years.

(C) An estate or trust, of which the individual is an executor, trustee, or grantor, to the extent that the estate or trust is for the benefit of that individual’s spouse or children.

(2) Stock owned by a corporation, or a member of a controlled group of which the corporation is the parent corporation, is constructively owned by any shareholder owning stock that represents more than 50 percent of the voting power of the corporation.

(3) Stock owned by a partnership is constructively owned by any partner, other than a limited partner, in proportion to the partner’s capital interest in the partnership. For this purpose, a partnership is treated as owning proportionately the stock owned by any other partnership in which it has a tiered interest, other than as a limited partner.

(4) In any case where a member of a commonly controlled group, or shareholders, officers, directors, or employees of a member of a commonly controlled group, is a general partner in a limited partnership, stock held by the limited partnership is constructively owned by a limited partner to the extent of its capital interest in the limited partnership.

(f) For purposes of this section, each of the following shall apply:

(1) “Corporation” means a subchapter S corporation, any other incorporated entity, or any entity defined or treated as a corporation pursuant to Section 23038 or 23038.5.

(2) “Person” means an individual, a trust, an estate, a qualified employee benefit plan, a limited partnership, or a corporation.

(3) “Voting power” means the power of all classes of stock entitled to vote that possess the power to elect the membership of the board of directors of the corporation.

(4) “More than 50 percent of the voting power” means voting power sufficient to elect a majority of the membership of the board of directors of the corporation.

(5) “Stock representing voting power” includes stock where ownership is retained but the actual voting power is transferred in either of the following manners:

(A) For one year or less.

(B) By proxy, voting trust, written shareholder agreement, or by similar device, where the transfer is revocable by the transferor.

(g) The Franchise Tax Board may prescribe any regulations as may be necessary or appropriate to carry out the purposes of this section, including, but not limited to, regulations that do the following:

(1) Prescribe terms and conditions relating to the election described by subdivision (c), and the revocation thereof.

(2) Disregard transfers of voting power not described by paragraph (5) of subdivision (f).

(3) Treat entities not described by paragraph (2) of subdivision (f) as a person.

(4) Treat warrants, obligations convertible into stock, options to acquire or sell stock, and similar instruments as stock.

(5) Treat holders of a beneficial interest in, or executor or trustee powers over, stock held by an estate or trust as constructively owned by the holder.

(6) Prescribe rules relating to the treatment of partnership agreements which authorize a particular partner or partners to exercise voting power of stock held by the partnership.

(h) This section shall apply to taxable years beginning on or after January 1, 1995.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 215. Effective January 1, 2001.)

article: 1. General Provisions


text:
(a) (1) In any case in which the income of a corporation is or has been determined under this chapter with reference to the income and apportionment factors of one or more other corporations with which it is doing or has done a unitary business, all dividends paid by one to another of any of those corporations shall, to the extent those dividends are paid out of the income previously described of the unitary business, be eliminated from the income of the recipient and, except for purposes of applying Section 24345, shall not be taken into account under Section 24344 or in any other manner in determining the tax of any member of the unitary group.

(2) (A) For purposes of this section, the dividends described in paragraph (1) include dividends paid out of the income previously described of the unitary business by a member of the unitary group to a corporation formed subsequent to the accrual of the income, if the recipient corporation was part of the unitary group during the period from its formation to its receipt of those dividends.

(B) The Franchise Tax Board may deny any dividend elimination for the dividends described in this paragraph if the board determines that a transaction is entered into or structured with a principal purpose of evading the tax imposed by this part.

(3) For purposes of this section, “income previously described of the unitary business” shall include income earned by members of the unitary group during taxable years when no member of the unitary group was taxable in this state to the extent that the income of the unitary group would have been determined under this chapter had any member of the corporation’s unitary group been subject to tax in this state at the time that income was earned.

(b) The Franchise Tax Board may prescribe any regulations that may be necessary or appropriate to carry out the purpose of this section, which is to prevent taxation of dividends received by a member of a unitary group where those dividends were paid from the income previously described of the unitary business by another member of the same unitary group.

history: (History: Amended by Stats. 2008, Ch. 305, Sec. 10. Effective January 1, 2009. Note: See Sec. 14 of Ch. 305.)

article: 1. General Provisions


text:
(a) The Franchise Tax Board may adopt regulations necessary to ensure that the tax liability or net income of any taxpayer whose income derived from or attributable to sources within this state which is required to be determined by a combined report pursuant to Section 25101 or 25110 of this chapter, and of each entity included in the combined report, both during and after the period of inclusion in the combined report is properly reported , determined, computed, assessed, collected, or adjusted.

(b) Notwithstanding subdivision (a), the Franchise Tax Board shall not adopt regulations under the authority of this section which shall in any manner determine, prescribe, or otherwise affect (1) the inclusion or exclusion in the combined report of those entities whose income and apportionment factors are to be taken into account pursuant to Sections 25101 and 25110 of this chapter, or (2) after the period of inclusion, cause the income or expenses of an entity which is excluded from a combined report pursuant to Sections 25101 and 25110 of this part to be included in a combined report.

history: (History: Amended by Stats. 1988, Ch. 258, Sec. 7.)

article: 1. General Provisions


text:
(a) For the purposes of allocation and apportionment of income under Sections 25101 and 25121, an international banking facility maintained by a bank within California shall be considered doing business without the state. Intangible personal property and sales reflected on the segregated books and records recognized by the Board of Governors of the Federal Reserve System as attributable to the international banking facility shall be attributed to that international banking facility in determining the property, payroll, and sales factors of the bank.

(b) As used in this section, “bank” means a commercial bank, the principal office of which is located in this state and which is incorporated and doing business under the laws of the United States or of this state, a United States branch or agency of a foreign bank, an Edge corporation organized under Section 25 (a) of the Federal Reserve Act, 12 United States Code 611-631, or an Agreement corporation having an agreement or undertaking with the Board of Governors of the Federal Reserve System under Section 25 of the Federal Reserve Act, 12 United States Code 601-604 (a).

history: (History: Amended by Stats. 1989, Ch. 1352, Sec. 155. Effective October 2, 1989. Applicable to income years beginning on or after January 1, 1989, by Sec. 172 of Ch. 1352.)

article: 1. General Provisions


text:
(a) For corporations whose income is subject to the provisions of Section 25101 or 25101.15, the net operating loss determined in accordance with Section 172 of the Internal Revenue Code for a particular taxable year shall be the corporation’s “net loss for state purposes” as defined in subdivision (c).

(b) The net operating loss deduction allowed by Sections 24416, 24416.1, and 24416.2, for a taxable year shall be deducted from “net income for state purposes” (as defined in subdivision (c)) for that taxable year.

(c) “Net income (loss) for state purposes” means the sum of the net income or loss of that corporation apportionable to this state and the income or loss allocable to this state as nonbusiness income, as provided by Chapter 17 (commencing with Section 25101).

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 216. Effective January 1, 2001.)

article: 1. General Provisions


text:
(a) Notwithstanding Section 25101, a qualified taxpayer, as defined in paragraph (2) of subdivision (b), that is subject to the tax imposed under this part, may elect to determine its income derived from or attributable to sources within this state pursuant to a water’s-edge election in accordance with the provisions of this part, as modified by this article. A taxpayer, that makes a water’s-edge election on or after January 1, 2006, shall take into account that portion of its own income and apportionment factors and the income and apportionment factors of its affiliated entities to the extent provided below:

(1) The entire income and apportionment factors of any of the following corporations:

(A) Domestic international sales corporations, as described in Sections 991 to 994, inclusive, of the Internal Revenue Code and foreign sales corporations as described in Sections 921 to 927, inclusive, of the Internal Revenue Code.

(B) Any corporation (other than a bank), regardless of the place where it is incorporated if the average of its property, payroll, and sales factors within the United States is 20 percent or more.

(C) Corporations that are incorporated in the United States, excluding corporations making an election pursuant to Sections 931 to 936, inclusive, of the Internal Revenue Code.

(D) Export trade corporations, as described in Sections 970 to 972, inclusive, of the Internal Revenue Code.

(2) (A) With respect to a corporation that is not described in subparagraphs (A), (B), (C), and (D) of paragraph (1), as provided in either one or both of the following clauses:

(i) The income and apportionment factors of that corporation to the extent of its income derived from or attributable to sources within the United States and its factors assignable to a location within the United States in accordance with paragraph (3) of subdivision (b). Income of that corporation derived from or attributable to sources within the United States as determined by federal income tax laws shall be limited to, and determined from, the books of account maintained by the corporation with respect to its activities conducted within the United States.

(ii) The income and apportionment factors of that corporation that is a “controlled foreign corporation,” as defined in Section 957 of the Internal Revenue Code, to the extent determined by multiplying the income and apportionment factors of that corporation without application of this subparagraph by a fraction not to exceed one, the numerator of which is the “Subpart F income” of that corporation for that taxable year and the denominator of which is the “earnings and profits” of that corporation for that taxable year.

(B) For purposes of this paragraph, both of the following apply:

(i) “Subpart F income” means “Subpart F income” as defined in Section 952 of the Internal Revenue Code.

(ii) “Earnings and profits” means “earnings and profits” as described in Section 964 of the Internal Revenue Code.

(3) The income and apportionment factors of the corporations described in this subdivision shall be taken into account only to the extent that they would have been taken into account had no election under this section been made.

(4) The Franchise Tax Board shall prescribe regulations to coordinate implementation of subparagraph (A) of paragraph (2) to prevent multiple inclusion or exclusion of income and factors in situations where the same item of income is described in both clauses.

(b) For purposes of this article and Section 24411, all of the following definitions apply:

(1) An “affiliated corporation” means a corporation that is a member of a commonly controlled group as defined in Section 25105.

(2) A “qualified taxpayer” means a corporation that does both of the following:

(A) Files with the state tax return, on which the water’s-edge election is made, a consent to the taking of depositions, at the time and place most reasonably convenient to all parties, from key domestic corporate individuals and to the acceptance of subpoenas duces tecum requiring reasonable production of documents to the Franchise Tax Board, as provided in Section 19504, by the State Board of Equalization, as provided in Section 5005 of Title 18 of the California Code of Regulations, or by the courts of this state, as provided in Chapter 2 (commencing with Section 1985) of Title 3 of Part 4 of, and Chapter 9 (commencing with Section 2025.010) of Title 4 of Part 4 of, the Code of Civil Procedure. The consent relates to issues of jurisdiction and service and does not waive any defenses that a taxpayer may otherwise have. The consent shall remain in effect as long as the water’s-edge election is in effect, and shall be limited to providing that information necessary to review or adjust income or deductions in a manner authorized by Section 482, 861, Subpart F of Part III of Subchapter N, or similar provisions, of the Internal Revenue Code, together with the regulations adopted pursuant to those provisions, and for the conduct of an investigation with respect to any unitary business in which the taxpayer may be involved.

(B) Agrees that, for purposes of this article, dividends received by any corporation whose income and apportionment factors are taken into account pursuant to subdivision (a) from either of the following are functionally related dividends and shall be presumed to be business income:

(i) A corporation of which more than 50 percent of the voting stock is owned, directly or indirectly, by members of the unitary group and which is engaged in the same general line of business.

(ii) Any corporation that is either a significant source of supply for the unitary business or a significant purchaser of the output of the unitary business, or that sells a significant part of its output or obtains a significant part of its raw materials or input from the unitary business. “Significant,” as used in this subparagraph, means an amount of 15 percent or more of either input or output.

All other dividends shall be classified as business or nonbusiness income without regard to this subparagraph.

(3) The definitions and locations of property, payroll, and sales shall be determined under the laws and regulations that set forth the apportionment formulas used by the individual states to assign net income subject to taxes on, or measured by, net income in that state. If a state does not impose a tax on, or measured by, net income or does not have laws or regulations with respect to the assignment of property, payroll, and sales, the laws and regulations provided in Article 2 (commencing with Section 25120) shall apply.

Sales shall be considered to be made to a state only if the corporation making the sale may otherwise be subject to a tax on, or measured by, net income under the Constitution or laws of the United States, and shall not include sales made to a corporation whose income and apportionment factors are taken into account pursuant to subdivision (a) in determining the amount of income of the taxpayer derived from or attributable to sources within this state.

(4) “The United States” means the 50 states of the United States and the District of Columbia.

(c) All references in this part to income determined pursuant to Section 25101 shall also mean income determined pursuant to this section.

history: (History: Added by Stats. 2006, Ch. 22, Sec. 2. Effective May 8, 2006. Applicable from January 1, 2006, as prescribed in subds. (a) and (b) of Sec. 3 of Ch. 22.)

article: 1.5. Water's-Edge Election

path: 2. OTHER TAXES > 11. CORPORATION TAX LAW > 17. Allocation of Income > 1.5. Water's-Edge Election


text:
(a) For taxable years beginning before January 1, 2003, the making of a water’s-edge election as provided for in Section 25110 shall be made by contract with the Franchise Tax Board in the original return for a year and shall be effective only if every taxpayer that is a member of the water’s-edge group and which is subject to tax under this part makes the election. A single taxpayer that is engaged in more than one business activity subject to allocation and apportionment as provided in Article 2 (commencing with Section 25120) of Chapter 17 may make a separate election for each business. The form and manner of making the water’s-edge election shall be prescribed by the Franchise Tax Board. Each contract making a water’s-edge election shall be for an initial term of 84 months, except as provided in subdivision (b). Each contract shall provide that on the anniversary date of the contract or any other annual date specified by the contract a year shall be added automatically to the initial term unless notice of nonrenewal is given as provided in subdivision (d). An affiliated corporation that is a member of the water’s-edge group and subsequently becomes subject to tax under this part or is a nonelecting taxpayer that is subsequently proved to be a member of the water’s-edge group pursuant to a Franchise Tax Board audit determination, as evidenced by a notice of deficiency proposed to be assessed or a notice of tax change, shall be deemed to have elected.

No water’s-edge election shall be made for a taxable year beginning prior to January 1, 1988.

(b) A water’s-edge election may be terminated by a taxpayer prior to the end of the 84-month period if either of the following occurs:

(1) The taxpayer is acquired directly or indirectly by a nonelecting entity which alone or together with those affiliates included in its combined report is larger than the taxpayer as measured by equity capital.

(2) With the permission of the Franchise Tax Board.

(c) In granting a change of election, the Franchise Tax Board shall impose any conditions that are necessary to prevent the avoidance of tax or to clearly reflect income for the period the election was, or was purported to be, in effect. These conditions may include a requirement that income, including dividends paid from income earned while a water’s-edge election was in effect, which would have been included in determining the income of the taxpayer from sources within and without this state pursuant to Section 25101 but for the water’s-edge election shall be included in income in the year in which the election is changed.

(d) If the taxpayer desires in any year not to renew the election, the taxpayer shall serve written notice of nonrenewal upon the board at least 90 days in advance of the annual renewal date. Unless that written notice is provided to the board, the election shall be considered renewed as provided in subdivision (a).

(e) If the taxpayer serves notice of intent in any year not to renew the existing water’s-edge election, that existing election shall remain in effect for the balance of the period remaining since the original election or the last renewal of the election, as the case may be.

(f) To the extent that a taxpayer would have been required to file on a water’s-edge basis in its first taxable year beginning on or after January 1, 2003, pursuant to a water’s-edge election made in a prior year under this section, the terms of this section no longer apply and that election shall be deemed to have been made under the terms of Section 25113. However, the commencement date of the election made in a prior year under this section shall continue to be treated as the commencement date of the water’s-edge election period for purposes of applying the provisions of Section 25113.

history: (History: Amended by Stats. 2003, Ch. 633, Sec. 9. Effective September 30, 2003.)

article: 1.5. Water's-Edge Election


text:
(a) For any taxable year beginning on or after January 1, 1994, consideration for water’s-edge contracts in existence as of that date is no longer provided for by law. Contracts entered into for taxable years beginning prior to January 1, 1994, are rescinded for any periods remaining on those contracts commencing on the first day of the taxpayer’s first taxable year that begins on or after January 1, 1994. Any fiscal year taxpayer whose contract is in effect as of December 31, 1993, shall continue to be bound by that contract until the close of its taxable year after January 1, 1994, and before December 31, 1994.

(b) Notwithstanding subdivision (a), and except for the purposes of Section 25115, all taxpayers that are members of a water’s-edge group consisting of taxpayers with different taxable years shall continue to be bound by the contract in effect as of December 31, 1993, until the taxable year beginning prior to January 1, 1994, and ending in 1994 for each of the taxpayer members of the water’s-edge group has ended.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 219. Effective January 1, 2001.)

article: 1.5. Water's-Edge Election


text:
(a) If a taxpayer electing to file under Section 25110 fails to supply any information described in subdivision (b), the taxpayer shall pay a penalty of one thousand dollars ($1,000) for each taxable year with respect to which the failure occurs.

(b) A taxpayer electing to file pursuant to Section 25110 shall do all of the following:

(1) Retain and make available to the Franchise Tax Board, upon request, the documents and information, including any questionnaires completed and submitted to the Internal Revenue Service or qualified states, that are necessary to audit issues involving attribution of income to the United States or foreign jurisdictions under Sections 482, 861, 863, 902, and 904, and Subpart F of Part III of Subchapter N, or similar sections of the Internal Revenue Code.

(2) Identify, upon request, principal officers or employees who have substantial knowledge of, and access to, documents and records that discuss pricing policies, profit centers, cost centers, and the methods of allocating income and expense among these centers. The information shall include the employees’ titles and addresses.

(3) Retain and make available, upon request, all documents and correspondence ordinarily available to a corporation included in the water’s-edge election that are submitted to, or obtained from, the Internal Revenue Service, foreign countries or their territories or possessions, and competent authority pertaining to ruling requests, rulings, settlement resolutions, and competing claims involving jurisdictional assignment and sourcing of income that affect the assignment of income to the United States. The documents shall include all ruling requests and rulings on reorganizations involving foreign incorporation of branches, all ruling requests and rulings on changing a corporation’s jurisdictional incorporation, and all documents that are ordinarily available to a corporation included in the water’s-edge election that pertain to the determination of foreign tax liability, including examination reports issued by foreign taxing administrations. If the documents have been translated, the translations shall be furnished.

(4) Retain and make available, upon request, information filed with the Internal Revenue Service to comply with Sections 6038, 6038A, 6038B, 6038C, and 6041 of the Internal Revenue Code.

(5) Upon request, prepare and make available for each corporation organized or created under the laws of the United States or a political subdivision thereof, of which 50 percent or more of its voting stock is directly or indirectly owned or controlled, the information that would be included in the forms described in paragraph (4) if those forms were required for United States corporations.

(6) Retain and make available, upon request, all state tax returns filed by each corporation included under subdivision (a) in each state, including the District of Columbia.

(7) Comply with reasonable requests for information necessary to determine or verify its net income, apportionment factors, or the geographic source of that income pursuant to the Internal Revenue Code.

(8) For purposes of this subdivision, information for any year shall be retained for that period of time in which the taxpayer’s income or franchise tax liability to this state may be subject to adjustment, including all periods in which additional income or franchise taxes may be assessed or during which an appeal is pending before the State Board of Equalization or a lawsuit is pending in the courts of this state or the United States with respect to California franchise or income tax.

(c) If the failure continues for more than 90 days after the date on which the Franchise Tax Board mails notice of that failure to the taxpayer, the taxpayer shall pay a penalty (in addition to the amount required under subdivision (a)) of one thousand dollars ($1,000) for each 30-day period (or fraction thereof) during which the failure continues after the expiration of the 90-day period. The increase in any penalty under this subdivision shall not exceed twenty-four thousand dollars ($24,000).

(d) If the taxpayer fails to comply substantially with any formal document request arising out of the examination of the tax treatment of any item (hereafter in this section referred to as the “examined item”) before the 90th day after the date of the mailing of the request, any court having jurisdiction of a civil proceeding in which the tax treatment of the examined item is an issue may, upon motion by the Franchise Tax Board, prohibit the introduction by the taxpayer of documentation covered by that request.

(e) For purposes of this section, the time in which information is to be furnished (and the beginning of the 90-day period after notice by the Franchise Tax Board) shall be treated as beginning not earlier than the last day on which reasonable cause existed for failure to furnish the information.

(f) This section shall not apply with respect to any requested documentation if the taxpayer establishes that the failure to provide the documentation, as requested by the Franchise Tax Board, is due to reasonable cause. For purposes of subdivision (d), the fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer (or any other person) for disclosing the requested documentation is not reasonable cause unless, after in-camera review of the documentation, the court finds otherwise.

(g) For purposes of this section, the term “formal document request” means any request (made after the normal request procedures have failed to produce the requested documentation) for the production of documentation that is mailed by registered or certified mail to the taxpayer at its last known address and that sets forth all of the following:

(1) The time and place for the production of the documentation.

(2) A statement of the reason the documentation previously produced (if any) is not sufficient.

(3) A description of the documentation being sought.

(4) The consequences to the taxpayer of the failure to produce the documentation described in this section.

(h) Notwithstanding any other law or rule of law, any taxpayer to whom a formal document request is mailed may begin a proceeding to quash that request not later than the 90th day after the date the request was mailed. In that proceeding, the Franchise Tax Board may seek to compel compliance with the request.

(i) The superior courts of the State of California for the Counties of Los Angeles, Sacramento, and San Diego, and for the City and County of San Francisco shall have jurisdiction to hear any proceeding brought under subdivision (h). An order denying the petition shall be deemed a final order that may be appealed.

The running of the 90-day period referred to in subdivision (c) shall be suspended during any period during which a proceeding brought under subdivision (h) is pending.

(j) For purposes of this section, “documentation” means any documentation which may be relevant or material to the tax treatment of the examined item.

(k) The Franchise Tax Board, and any court having jurisdiction over a proceeding under subdivision (g), may extend the 90-day period referred to in subdivision (b).

(l) If any corporation takes any action as provided in subdivision (h), the running of any period of limitations under Sections 19057 to 19067, inclusive (relating to the assessment and collection of tax), or under Section 19704 (relating to criminal prosecutions) with respect to that corporation shall be suspended for the period during which the proceedings under subdivision (h) and appeals thereto are pending.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 220. Effective January 1, 2001.)

article: 1.5. Water's-Edge Election


text:
(a) Except as provided in subdivision (f), for taxable years beginning on or after January 1, 2003, the election provided for in Section 25110 shall be made on an original, timely filed return for the year of the election. The election will be considered valid if both of the following conditions are satisfied:

(1) The tax is computed in a manner consistent with a water’s-edge election.

(2) A written notification of election is filed with the return on a form prescribed by the Franchise Tax Board. Pursuant to regulations promulgated under this section, the Franchise Tax Board may accept the filing of other objective evidence that supports the conclusion that a water’s-edge election was intended in lieu of notification on the designated form.

(b) Except as otherwise provided, a water’s-edge election shall be effective only if made by every member of the self-assessed combined reporting group that is subject to taxation under this part.

(1) An election made on a group return of a self-assessed combined reporting group shall constitute an election by each taxpayer member included in that group return, unless one of those taxpayers files a separate return in which no election is made and paragraph (2) does not apply.

(2) A taxpayer that fails to make an election on its own timely filed original return shall be deemed to have elected if either of the following applies:

(A) It has a parent corporation that is an electing taxpayer that included the income and apportionment factors of the nonelecting taxpayer in the self-assessed combined reporting group reflected in the electing parent’s timely filed original return, including a group return.

(B) The income and apportionment factors of the nonelecting taxpayer are reflected in the self-assessed combined reporting group of a timely filed original return of an electing taxpayer, and the notification of election filed by the electing taxpayer pursuant to paragraph (2) of subdivision (a) is signed by an officer or other authorized agent of either a parent corporation of the nonelecting taxpayer or another corporation with authority to bind the nonelecting taxpayer to an election.

(3) For purposes of this subdivision, a “parent corporation” of the taxpayer is a corporation that owns or constructively owns stock possessing more than 50 percent of the voting power of the taxpayer as determined under subdivisions (e) and (f) of Section 25105.

(4) If a corporation that is a member of a combined reporting group is not itself subject to taxation under this part in the year for which the water’s-edge election is made, but subsequently becomes subject to taxation under this part, that corporation shall be deemed to have elected with the other taxpayer members of the combined reporting group.

(5) If a unitary corporation not incorporated in the United States that is not itself subject to taxation under this part in the year for which the valid water’s-edge election is made, but subsequently becomes subject to taxation under this part solely due to subdivision (b) of Section 23101 in a taxable year beginning on or after January 1, 2021, that corporation shall be deemed to have elected with the other members of the unitary combined reporting group.

(6) A taxpayer that is engaged in more than one apportioning trade or business as defined in paragraph (6) of subdivision (d) of Section 25128 may make a separate election for each apportioning trade or business.

(c) A water’s-edge election shall remain in effect or be terminated in accordance with this subdivision.

(1) Except as otherwise provided in this subdivision, if one or more electing taxpayer members of a combined reporting group later become disaffiliated or otherwise cease to be included in the combined reporting group, the water’s-edge election shall remain in effect as to both the departing taxpayer members and any remaining taxpayer members.

(2) If an electing taxpayer and a nonelecting taxpayer become members of a new unitary affiliate group, the nonelecting taxpayer shall be deemed to have elected if the value of the total business assets of the electing taxpayer, and its component unitary group, if any, is larger than the value of the total business assets of the nonelecting taxpayer, and its component unitary group, if any. Otherwise, the water’s-edge election shall be automatically terminated at the time the electing members become part of the combined report. For purposes of applying paragraphs (9) and (10), the commencement date of the deemed election shall be the same as the commencement date of the electing taxpayers.

(3) If taxpayers filing under water’s-edge elections with different commencement dates become members of a new unitary affiliate group, the earliest election date shall be deemed to apply to all electing taxpayers if the total business assets of the earlier electing taxpayer, and its component unitary group, if any, is larger than the value of the total business assets of the later electing taxpayer, and its component unitary group, if any. Otherwise, the later election commencement date shall apply to all electing taxpayers.

(4) (A) If a taxpayer with an election that has been terminated under paragraph (9) or (10) becomes a member of a new unitary affiliate group that includes another electing or nonelecting taxpayer not affected by those paragraphs, any water’s-edge election of the other taxpayer member, if applicable, shall terminate, and any restrictions on making a new water’s-edge election, relating to an election terminated under those paragraphs, shall apply to all taxpayer members of the new unitary affiliate group if the total business assets of the taxpayer with the terminated election, and its component unitary group, if any, is larger than the other taxpayer, and its component unitary group, if any. Otherwise, paragraph (2) shall apply, if applicable. If paragraph (2) does not apply, all taxpayer members of the new unitary affiliate group will be treated as nonelecting taxpayers that are not subject to any restrictions on making a new water’s-edge election.

(B) If two nonelecting taxpayers with different termination dates under paragraph (9) or (10) become members of a new unitary affiliate group, the earliest termination date shall be deemed to apply to all nonelecting taxpayers, as well as any restrictions on making a new water’s-edge election relating to that termination, if the total business assets of the earlier terminating taxpayer, and its component unitary group, if any, is larger than the value of the total business assets of the later terminating taxpayer, and its component unitary group, if any. Otherwise, the later termination date, and the related restrictions on making a new water’s-edge election, shall apply to all taxpayer members of the new unitary affiliate group.

(5) (A) Except as provided in subparagraph (B), if one or more electing taxpayers did not report their income and apportionment factors as members of a combined reporting group with one or more nonelecting taxpayers, and, pursuant to a Franchise Tax Board audit determination, the nonelecting taxpayers, are properly in the same combined reporting group as the electing taxpayers, the water’s-edge election of the electing taxpayers shall remain in effect and the nonelecting taxpayers shall be deemed to have made a water’s-edge election. The commencement date of the deemed water’s-edge election shall be the same as the commencement date of the electing taxpayers.

(B) Subparagraph (A) may not apply if the value of total business assets of the electing taxpayers does not exceed the value of total business assets of the nonelecting taxpayers. In that event, the water’s-edge election of each electing taxpayer is terminated as of the date the nonelecting taxpayers are, pursuant to the audit determination described in subparagraph (A), properly included in the same combined reporting group as the electing taxpayers.

(C) For purposes of applying the business asset test of this paragraph, the term “business assets” shall have the same meaning as subparagraph (A) of paragraph (6), except that the business assets of other members of the unitary affiliate group that are not taxpayers shall not be taken into account.

(D) Notwithstanding subparagraph (A), nonelecting taxpayers may not be deemed to have made a water’s-edge election if the Franchise Tax Board audit determination described in subparagraph (A) is withdrawn or otherwise overturned.

(6) For purposes of paragraphs (2) to (5), inclusive, the following shall apply:

(A) “Business assets” are assets, including intangible assets, other than stock of a member of the unitary affiliate group, which are used in the conduct of the business of the unitary affiliate group or would produce business income to the unitary affiliate group, if an election were not in place, if the assets were sold. Business assets shall be valued at net book value.

(B) The phrase “unitary affiliate group” refers to all of those corporations that would constitute a unitary group if a water’s-edge election were not made.

(C) The phrase “new unitary affiliate group” refers to a unitary affiliate group that is created by a new affiliation of two or more corporations, or by the addition of one or more new members to an existing unitary affiliate group.

(D) The phrase “component unitary group” means that portion of a group of corporations that have become members of a new unitary affiliate group that were members of their own respective unitary affiliate group prior to entering the new unitary affiliate group, disregarding any corporations that did not become part of the new unitary group.

(7) In the application of paragraphs (2) to (4), inclusive, a series of acquisitions as steps of a single transaction shall be aggregated as a single change of membership.

(8) In the event of a merger or consolidation, the water’s-edge status and election commencement date or termination date of the surviving corporation shall be consistent with the result that would have been obtained under paragraphs (2) to (4), inclusive, if the surviving corporation had acquired the stock of the transferor corporation.

(9) A water’s-edge election may be terminated without the consent of the Franchise Tax Board after it has been in effect for at least 84 months. The termination shall be made on an original, timely filed return for the first year in which the water’s-edge election is to be terminated. To be effective, the termination shall be made by every taxpayer that is a member of the water’s-edge group in the same manner as the election provided under subdivisions (a) and (b).

(10) A water’s-edge election may be terminated before the 84-month period described in paragraph (9) has elapsed, but only with the consent of the Franchise Tax Board. A request for termination shall be made at the time and in the manner specified by the Franchise Tax Board.

(A) The request may be granted for good cause. For purposes of this section, good cause shall have the same meaning as specified in Treasury Regulations Section 1.1502-75(c).

(B) The Franchise Tax Board shall consent to a termination requested by all members of a water’s-edge group, if the purpose of the request is to permit the state to contract with an expatriate corporation, or its subsidiary, pursuant to paragraph (2) of subdivision (b) of Section 10286 of the Public Contract Code. A water’s-edge election terminated pursuant to this subparagraph shall, however, be effective for the year in which the expatriate corporation, or its subsidiary, enters into the contract with the state.

(11) Except for deemed elections as provided in paragraphs (2), (4), and (5), if a water’s-edge election is terminated under paragraph (9) or (10), another election may not be made under this section for any taxable year that begins within the 84-month period following the last day of the election period that was terminated. The Franchise Tax Board may waive the application of this prohibition period for good cause.

(12) A water’s-edge election shall remain in effect until terminated.

(d) For purposes of this section, the following shall apply:

(1) A “combined reporting group” means those corporations whose income and apportionment factors are properly considered pursuant to this chapter in computing the income of the individual taxpayer that is derived from or attributable to sources within this state, taking into account a valid water’s-edge election.

(2) A “group return” refers to the single return which taxpayer members of a combined reporting group may elect by contract to file, in the form and manner prescribed by the Franchise Tax Board, in lieu of filing their own respective returns.

(3) A “self-assessed combined reporting group” means that group of corporations whose income and apportionment factors are reflected in a combined report prepared pursuant to this chapter in a timely filed return, taking into account the effects of a purported water’s-edge election, whether or not the membership of the corporations in that combined report was correctly determined.

(e) The Franchise Tax Board may prescribe any regulations as may be necessary or appropriate to carry out the purposes of this section.

(f) To the extent that a taxpayer would have been required to file on a water’s-edge basis in its first taxable year beginning on or after January 1, 2003, pursuant to a water’s-edge election made in a prior year under Section 25111, the terms of Section 25111 may not apply and the election shall be deemed to have been made under the terms of this section. However, the commencement date of the election made in a prior year under Section 25111 shall continue to be treated as the commencement date of the water’s-edge election period for purposes of applying this section.

history: (History: Amended by Stats. 2020, Ch. 297, Sec. 4. (AB 3372) Effective January 1, 2021.)

article: 1.5. Water's-Edge Election


text:
(a) The Franchise Tax Board, for purposes of administering the provisions of this article, shall examine all returns filed by taxpayers subject to these provisions.

(b) (1) In any case of two or more organizations, trades, or businesses, whether or not organized in the United States and whether or not affiliated, owned or controlled directly or indirectly by the same interests, the Franchise Tax Board may distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among these organizations, trades, or businesses, if the board determines that the distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of these organizations, trades, or businesses. In the case of any transfer, or license, of intangible property, within the meaning of Section 936(h)(3)(B) of the Internal Revenue Code, the income with respect to that transfer or license shall be commensurate with the income attributable to the intangible property.

(2) In making distributions, apportionments, and allocations under this section, the Franchise Tax Board shall generally follow the rules, regulations, and procedures of the Internal Revenue Service in making audits under Section 482 of the Internal Revenue Code. Any of these rules, regulations, and procedures adopted by the Franchise Tax Board shall not be subject to review by the Office of Administrative Law.

(3) If the Internal Revenue Service has conducted a detailed audit pursuant to Section 482 of the Internal Revenue Code or Subchapter N of Chapter 1 of Subtitle A of the Internal Revenue Code and has made adjustments pursuant to those provisions, it shall be presumed, to the extent that the provisions relate to the determination of the amount of income and factors required to be taken into account pursuant to Section 25110, that no further adjustments are necessary for this state’s purposes. If the Internal Revenue Service has conducted a detailed audit pursuant to Section 482 of the Internal Revenue Code or Subchapter N of Chapter 1 of Subtitle A of the Internal Revenue Code and has made or proposed no adjustments to the transactions examined, it shall be presumed, to the extent that the provisions relate to the determination of the amount of income and factors required to be taken into account pursuant to Section 25110, that no adjustment is necessary for this state’s purposes. These presumptions apply to all Internal Revenue Service audit determinations, including determinations made by the Appeals and Competent Authority. These presumptions shall be overcome if the Franchise Tax Board or the taxpayer demonstrates that an adjustment or a failure to make an adjustment was erroneous, if it demonstrates that the results of such an adjustment would produce a minimal tax change for federal purposes because of correlative or offsetting adjustments or for other reasons, or if substantially the same federal tax result was obtained under other sections of the Internal Revenue Code. No inference shall be drawn from an Internal Revenue Service failure to audit international transactions pursuant to Section 482 of the Internal Revenue Code or Subchapter N of Chapter 1 of Subtitle A of the Internal Revenue Code and it shall not be presumed that any of those transactions were correctly reported.

(c) The amendments made to this section by the act adding this subdivision shall apply to examinations commenced by the Franchise Tax Board on or after the effective date of that act. An examination will be considered commenced when a taxpayer is first contacted by the Franchise Tax Board concerning any examination with respect to the taxpayer’s return.

history: (History: Amended by Stats. 2007, Ch. 306, Sec. 1. Effective January 1, 2008.)

article: 1.5. Water's-Edge Election


text: Notwithstanding paragraph (1) of subdivision (a) of Section 23051.5, when provisions of this article refer to provisions of the Internal Revenue Code that do not otherwise apply for purposes of Part 10.2 (commencing with Section 18401) or this part, the term “Internal Revenue Code” means Title 26 of the United States Code, including all amendments thereto, as in effect for federal purposes for the taxable period, except as otherwise specifically provided in this article.

history: (History: Added by Stats. 2003, Ch. 633, Sec. 11. Effective September 30, 2003.)

article: 1.5. Water's-Edge Election


text:
As used in Sections 25120 to 25139, inclusive, which shall hereafter be referred to as “this act,” unless the context otherwise requires:

(a) “Business income” means income arising from transactions and activity in the regular course of the taxpayer’s trade or business and includes income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer’s regular trade or business operations.

(b) “Commercial domicile” means the principal place from which the trade or business of the taxpayer is directed or managed.

(c) “Compensation” means wages, salaries, commissions and any other form of remuneration paid to employees for personal services.

(d) “Nonbusiness income” means all income other than business income.

(e) For taxable years beginning before January 1, 2011, “sales” means all gross receipts of the taxpayer not allocated under Sections 25123 to 25127, inclusive.

(f) For taxable years beginning on or after January 1, 2011:

(1) “Sales” means all gross receipts of the taxpayer not allocated under Sections 25123 to 25127, inclusive.

(2) “Gross receipts” means the gross amounts realized (the sum of money and the fair market value of other property or services received) on the sale or exchange of property, the performance of services, or the use of property or capital (including rents, royalties, interest, and dividends) in a transaction that produces business income, in which the income, gain, or loss is recognized (or would be recognized if the transaction were in the United States) under the Internal Revenue Code, as applicable for purposes of this part. Amounts realized on the sale or exchange of property shall not be reduced by the cost of goods sold or the basis of property sold. Gross receipts, even if business income, shall not include the following items:

(A) Repayment, maturity, or redemption of the principal of a loan, bond, mutual fund, certificate of deposit, or similar marketable instrument.

(B) The principal amount received under a repurchase agreement or other transaction properly characterized as a loan.

(C) Proceeds from issuance of the taxpayer’s own stock or from sale of treasury stock.

(D) Damages and other amounts received as the result of litigation.

(E) Property acquired by an agent on behalf of another.

(F) Tax refunds and other tax benefit recoveries.

(G) Pension reversions.

(H) Contributions to capital (except for sales of securities by securities dealers).

(I) Income from discharge of indebtedness.

(J) Amounts realized from exchanges of inventory that are not recognized under the Internal Revenue Code.

(K) Amounts received from transactions in intangible assets held in connection with a treasury function of the taxpayer’s unitary business and the gross receipts and overall net gains from the maturity, redemption, sale, exchange, or other disposition of those intangible assets. For purposes of this subparagraph, “treasury function” means the pooling, management, and investment of intangible assets for the purpose of satisfying the cash flow needs of the taxpayer’s trade or business, such as providing liquidity for a taxpayer’s business cycle, providing a reserve for business contingencies, and business acquisitions, and also includes the use of futures contracts and options contracts to hedge foreign currency fluctuations. A taxpayer principally engaged in the trade or business of purchasing and selling intangible assets of the type typically held in a taxpayer’s treasury function, such as a registered broker-dealer, is not performing a treasury function, for purposes of this subparagraph, with respect to income so produced.

(L) Amounts received from hedging transactions involving intangible assets. A “hedging transaction” means a transaction related to the taxpayer’s trading function involving futures and options transactions for the purpose of hedging price risk of the products or commodities consumed, produced, or sold by the taxpayer.

(3) Exclusion of an item from the definition of “gross receipts” shall not be determinative of its character as business or nonbusiness income.

(4) The changes to this section by the act adding this sentence pertaining to taxable years beginning before January 1, 2011, constitute clarifying, nonsubstantive changes.

(g) “State” means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, and any foreign country or political subdivision thereof.

history: (History: Amended by Stats. 2009, 3rd Ex. Sess., Ch. 17, Sec. 10. Effective February 20, 2009.)

path: 2. OTHER TAXES > 11. CORPORATION TAX LAW > 17. Allocation of Income > 2. Uniform Division of Income for Tax Purposes Act


text: Any taxpayer having income from business activity which is taxable both within and without this state shall allocate and apportion its net income as provided in this act.

history: (History: Added by Stats. 1966, Ch. 2.)

article: 2. Uniform Division of Income for Tax Purposes Act


text: For purposes of allocation and apportionment of income under this act, a taxpayer is taxable in another state if (a) in that state it is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporate stock tax, or (b) that state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state does or does not.


text: Rents and royalties from real or tangible personal property, capital gains, interest, dividends, or patent or copyright royalties, to the extent that they constitute nonbusiness income, shall be allocated as provided in Sections 25124 through 25127 of this act.


text:
(a) Net rents and royalties from real property located in this state are allocable to this state.

(b) Net rent and royalties from tangible personal property are allocable to this state:

(1) If and to the extent that the property is utilized in this state, or

(2) In their entirety if the taxpayer’s commercial domicile is in this state and the taxpayer is not organized under the laws of or taxable in the state in which the property is utilized.

(c) The extent of utilization of tangible personal property in a state is determined by multiplying the rents and royalties by a fraction, the numerator of which is the number of days of physical location of the property in the state during the rental or royalty period in the taxable year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the taxable year. If the physical location of the property during the rental or royalty period is unknown or unascertainable by the taxpayer, tangible personal property is utilized in the state in which the property was located at the time the rental or royalty payer obtained possession.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 221. Effective January 1, 2001.)


text:
(a) Capital gains and losses from sales of real property located in this state are allocable to this state.

(b) Capital gains and losses from sales of tangible personal property are allocable to this state if:

(1) The property had a situs in this state at the time of the sale, or

(2) The taxpayer’s commercial domicile is in this state and the taxpayer is not taxable in the state in which the property had a situs.

(c) Except in the case of the sale of a partnership interest, capital gains and losses from sales of intangible personal property are allocable to this state if the taxpayer’s commercial domicile is in this state.

(d) Gain or loss on the sale of a partnership interest is allocable to this state in the ratio of the original cost of partnership tangible property in the state to the original cost of partnership tangible property everywhere, determined at the time of the sale. In the event that more than 50 percent of the value of partnership’s assets consist of intangibles, gain or loss from the sale of the partnership interest is allocated to this state in accordance with the sales factor of the partnership for its first full tax period immediately preceding the tax period of the partnership during which the partnership interest was sold.

history: (History: Amended by Stats. 1988, Ch. 1170, Sec. 2. Effective September 22, 1988. Operative January 1, 1989, by Sec. 3 of Ch. 1170.)


text: Interest and dividends are allocable to this state if the taxpayer’s commercial domicile is in this state.


text:
(a) Patent and copyright royalties are allocable to this state:

(1) If and to the extent that the patent or copyright is utilized by the payor in this state, or

(2) If and to the extent that the patent or copyright is utilized by the payor in a state in which the taxpayer is not taxable and the taxpayer’s commercial domicile is in this state.

(b) A patent is utilized in a state to the extent that it is employed in production, fabrication, manufacturing, or other processing in the state or to the extent that a patented product is produced in the state. If the basis of receipts from patent royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the patent is utilized in the state in which the taxpayer’s commercial domicile is located.

(c) A copyright is utilized in a state to the extent that printing or other publication originates in the state. If the basis of receipts from copyright royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the copyright is utilized in the state in which the taxpayer’s commercial domicile is located.


text:
(a) Notwithstanding Section 38006, for taxable years beginning before January 1, 2013, all business income shall be apportioned to this state by multiplying the business income by a fraction, the numerator of which is the property factor plus the payroll factor plus twice the sales factor, and the denominator of which is four, except as provided in subdivision (b) or (c).

(b) If an apportioning trade or business derives more than 50 percent of its “gross business receipts” from conducting one or more qualified business activities, all business income of the apportioning trade or business shall be apportioned to this state by multiplying business income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor, and the denominator of which is three.

(c) For purposes of this section, a “qualified business activity” means the following:

(1) For taxable years beginning before January 1, 2025:

(A) An agricultural business activity.

(B) An extractive business activity.

(C) A savings and loan activity.

(D) A banking or financial business activity.

(2) For taxable years beginning on or after January 1, 2025:

(A) An agricultural business activity.

(B) An extractive business activity.

(d) For purposes of this section:

(1) “Gross business receipts” means gross receipts described in subdivision (e) or (f) of Section 25120, other than gross receipts from sales or other transactions within an apportioning trade or business between members of a group of corporations whose income and apportionment factors are required to be included in a combined report under Section 25101, limited, if applicable, by Section 25110, whether or not the receipts are excluded from the sales factor by operation of Section 25137.

(2) “Agricultural business activity” means activities relating to any stock, dairy, poultry, fruit, furbearing animal, or truck farm, plantation, ranch, nursery, or range. “Agricultural business activity” also includes activities relating to cultivating the soil or raising or harvesting any agricultural or horticultural commodity, including, but not limited to, the raising, shearing, feeding, caring for, training, or management of animals on a farm as well as the handling, drying, packing, grading, or storing on a farm any agricultural or horticultural commodity in its unmanufactured state, but only if the owner, tenant, or operator of the farm regularly produces more than one-half of the commodity so treated.

(3) “Extractive business activity” means activities relating to the production, refining, or processing of oil, natural gas, or mineral ore.

(4) “Savings and loan activity” means any activities performed by savings and loan associations or savings banks that have been chartered by federal or state law.

(5) “Banking or financial business activity” means activities attributable to dealings in money or moneyed capital in substantial competition with the business of national banks.

(6) “Apportioning trade or business” means a distinct trade or business whose business income is required to be apportioned under Sections 25101 and 25120, limited, if applicable, by Section 25110, using the same denominator for each of the applicable payroll, property, and sales factors.

(7) Paragraph (4) of subdivision (c) shall apply only if the Franchise Tax Board adopts the Proposed Multistate Tax Commission Formula for the Uniform Apportionment of Net Income from Financial Institutions, or its substantial equivalent, and shall become operative upon the same operative date as the adopted formula.

(8) In any case where the income and apportionment factors of two or more savings associations or corporations are required to be included in a combined report under Section 25101, limited, if applicable, by Section 25110, both of the following shall apply:

(A) The application of the more than 50 percent test of subdivision (b) shall be made with respect to the “gross business receipts” of the entire apportioning trade or business of the group.

(B) The entire business income of the group shall be apportioned in accordance with either subdivision (a) or (b), or Section 25128.7, as applicable.

history: (History: Amended by Stats. 2025, Ch. 17, Sec. 22. (SB 132) Effective June 27, 2025. Note: This section was amended on Nov. 6, 2012, by initiative Prop. 39.)


text: Notwithstanding Section 38006, for taxable years beginning on or after January 1, 2013, all business income of an apportioning trade or business, other than an apportioning trade or business described in subdivision (b) of Section 25128, shall be apportioned to this state by multiplying the business income by the sales factor.

history: (History: Added November 6, 2012, by initiative Proposition 39, Sec. 6.)


text:
(a) The Legislature finds and declares all of the following:

(1) In 1966, the California Legislature enacted the Uniform Division of Income for Tax Purposes Act under Sections 25120 through 25139, inclusive, of the Revenue and Taxation Code.

(2) That act provides for the allocation and apportionment of income of taxpayer having income from business activities which is taxable both within and without the state.

(3) On April 28, 2006, the Franchise Tax Board issued Franchise Tax Board Legal Ruling 2006-1 (the Legal Ruling), regarding the treatment of apportionment factors attributable to income exempt from income tax under the Corporation Tax Law.

(4) It is the intent of the Legislature that the Legal Ruling shall apply with respect to apportionment factors attributable to the income of taxpayers subject to tax under the Corporation Tax Law.

(5) It is the intent of the Legislature that this section does not constitute a change in, but is declaratory of, existing law.

(6) It is the intent of the Legislature that the clarification in this section apply to any apportionment formula currently and formerly allowed under this article.

(b) (1) A transaction or activity, to the extent that it generates income or loss not included in “net income,” as defined in Section 24341, subject to apportionment, shall be excluded from the apportionment formulas under this part, including Sections 25128, 25128.7, and 25141, and former Section 25128.5.

(2) For the purposes of this section, “not included in ‘net income,’” means income from transactions and activities that is not included in net income subject to apportionment for any reason, including, but not limited to, exclusion, deduction, exemption, elimination, or nonrecognition.

(c) (1) The Franchise Tax Board may adopt regulations that are necessary or appropriate to carry out the purpose of this section, which is to prevent inclusion within the apportionment formula of transactions and activities that give rise to income that is not subject to apportionment.

(2) The Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) shall not apply to any regulation, standard, criterion, procedure, determination, rule, notice, guideline, or any other guidance established or issued by the Franchise Tax Board pursuant to this section.

(d) This section shall apply to taxable years beginning before, on, or after the effective date of the act adding this section.

history: (History: Added by Stats. 2024, Ch. 34, Sec. 41. (SB 167) Effective June 27, 2024.)


text: The property factor is a fraction, the numerator of which is the average value of the taxpayer’s real and tangible personal property owned or rented and used in this state during the taxable year and the denominator of which is the average value of all the taxpayer’s real and tangible personal property owned or rented and used during the taxable year.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 222. Effective January 1, 2001.)


text: Property owned by the taxpayer is valued at its original cost. Property rented by the taxpayer is valued at eight times the net annual rental rate. Net annual rental rate is the annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from subrentals.


text: The average value of property shall be determined by averaging the values at the beginning and ending of the taxable year but the Franchise Tax Board may require the averaging of monthly values during the taxable year if reasonably required to reflect properly the average value of the taxpayer’s property.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 223. Effective January 1, 2001.)


text: The payroll factor is a fraction, the numerator of which is the total amount paid in this state during the taxable year by the taxpayer for compensation, and the denominator of which is the total compensation paid everywhere during the taxable year.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 224. Effective January 1, 2001.)


text:
Compensation is paid in this state if:

(a) The individual’s service is performed entirely within the state; or

(b) The individual’s service is performed both within and without the state, but the service performed without the state is incidental to the individual’s service within the state; or

(c) Some of the service is performed in the state and (1) the base of operations or, if there is no base of operations, the place from which the service is directed or controlled is in the state, or (2) the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the individual’s residence is in this state.


text: The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this state during the taxable year, and the denominator of which is the total sales of the taxpayer everywhere during the taxable year.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 225. Effective January 1, 2001.)


text:
(a) Sales of tangible personal property are in this state if:

(1) The property is delivered or shipped to a purchaser, other than the United States government, within this state regardless of the f.o.b. point or other conditions of the sale.

(2) The property is shipped from an office, store, warehouse, factory, or other place of storage in this state and (A) the purchaser is the United States government or (B) the taxpayer is not taxable in the state of the purchaser.

(b) For taxable years beginning on or after January 1, 2011, for purposes of determining whether sales are in this state and included in the numerator of the sales factor, all sales of the combined reporting group properly assigned to this state under this section shall be included in the sales factor numerator for this state regardless of whether the member of the combined reporting group making the sale is subject to the taxes imposed under Chapter 2 (commencing with Section 23101) or Chapter 3 (commencing with Section 23501) of this part. All sales not assigned to this state pursuant to subdivision (a) shall not be included in the sales factor numerator for this state if a member of the combined reporting group of the taxpayer is taxable in the state of the purchaser.

(c) The Franchise Tax Board may prescribe regulations as necessary or appropriate to carry out the purposes of this section.

history: (History: Amended by Stats. 2009, 3rd Ex. Sess., Ch. 17, Sec. 12. Effective February 20, 2009.)


text:
(a) Notwithstanding Section 38006, for taxable years beginning on or after January 1, 2013, sales, other than sales of tangible personal property, are in this state if:

(1) Sales from services are in this state to the extent the purchaser of the service received the benefit of the services in this state.

(2) Sales from intangible property are in this state to the extent the property is used in this state. In the case of marketable securities, sales are in this state if the customer is in this state.

(3) Sales from the sale, lease, rental, or licensing of real property are in this state if the real property is located in this state.

(4) Sales from the rental, lease, or licensing of tangible personal property are in this state if the property is located in this state.

(b) The Franchise Tax Board may prescribe regulations as necessary or appropriate to carry out the purposes of this section.

history: (History: Repealed (in Sec. 7) and added November 6, 2012, by initiative Proposition 39, Sec. 8. Section applicable, by subd. (a), for taxable years beginning on or after January 1, 2013.)