Personal income taxes: credit for taxes paid: S corporation: Texas Cost of Goods Sold Method.
This legislation is intended to alleviate instances of double taxation for California residents. By establishing that residents can claim credits for taxes paid to other states, it aims to create a more equitable tax environment for individuals who earn income sourced from outside California. The credit will apply to taxable years beginning on or after January 1, 2020, and before January 1, 2025, ensuring a temporary but impactful adjustment in tax obligations for residents conducting business or earning income across state lines.
Assembly Bill 2254, introduced by Assembly Member Petrie-Norris on February 13, 2020, seeks to amend Section 18001 of the Revenue and Taxation Code concerning personal income tax credits. The bill allows California residents to apply for a credit against their personal income taxes for net income taxes paid to another state based on income derived from those states. Specifically, it introduces provisions for taxes paid by S corporations that utilize the Cost of Goods Sold method compliant with the Texas franchise tax laws, which is a notable addition aimed at benefiting California residents engaged in interstate commerce.
One point of contention surrounding AB 2254 is the potential implications for tax revenue in California. Critics may argue that by allowing credits for taxes paid out of state, the bill could lead to losses in state tax revenue. Supporters, however, contend that the bill encourages economic activity and supports businesses that operate in multiple states. Furthermore, concerns regarding the administrative feasibility of tracking and reporting the credits claimed may arise, particularly related to the Franchise Tax Board's capacity to manage the anticipated increase in claims under this adjusted credit framework.