SeeSALT Blog
The California water’s-edge election has proved immensely popular with both foreign and domestic parent corporations potentially engaged in a worldwide unitary business. Many elections are made to reduce or minimize California franchise tax, while others are made to simplify or reduce the compliance burdens under California’s worldwide combined reporting method. However, while credit is due to the California Franchise Tax Board (FTB) and the California Legislature for their efforts over the years to simplify the election, there remain many pitfalls, or traps for the unwary, regarding the consequences of making the election. The situation is further complicated by the fact that one taxpayer’s pitfall may be another taxpayer’s windfall—depending, for example, on whether the taxpayer is based in California versus elsewhere, is a foreign versus a domestic parent corporation, or has gains versus losses.