States are increasingly searching for new tax revenues in this economy, and popular targets are out-of-state entities.  California has recently enacted a new law to tax such entities.

Pursuant to Cal. Rev. & Tax. Code §§ 23101(b)(2)–(4), beginning on January 1, 2011, maintaining a physical presence within California will no longer be required in order to establish nexus for income tax purposes.  Specifically, the statute provides that if a taxpayer‘s California sales exceed the lesser of $500,000 or 25% of its total sales, the taxpayer will be considered to be “doing business” within California.  In determining whether their California sales exceed these threshold amounts, taxpayers will have to include in their calculations sales made by agents and independent contractors.  In addition, the law provides that, beginning in 2011, a taxpayer will be considered “doing business” in California if (i) its real property and tangible personal property in California exceed the lesser of $50,000 or 25% of the taxpayer‘s total real and tangible personal property and (ii) amounts paid in California for compensation exceed the lesser of $50,000 or 25% of the total compensation paid by the taxpayer.

If you have any further questions or concerns about the information contained in the attached Advisory, please contact Charles Helein at: chh@commlawgroup.com or 703-714-1301.