California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 2.6 - Administration of Franchise and Income Tax › Subchapter 2 - Returns › Article 5 - Withholding › Section 18662-5 - Other Types of Payments and Withholding Obligations

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) Payments to Nonresidents Subject to
					 Withholding.
(1) General. As explained in
					 Regulation section
					 18662-4, withholding agents are
					 required to withhold from payments or distributions of California source income
					 made to a nonresident when the payments or distributions are greater than
					 $1,500 for the calendar year, unless the withholding agent receives
					 authorization for a waiver, pursuant to FTB Form 588, Nonresident Withholding
					 Waiver Request, or any successor form designated by the Franchise Tax Board on
					 its website at
www.ftb.ca.gov
("FTB Form
					 588"), or a reduced withholding amount, pursuant to FTB Form 589, Nonresident
					 Reduced Withholding Request, or any successor form designated by the Franchise
					 Tax Board on its website at
www.ftb.ca.gov
("FTB Form 589"). The required information specified in FTB Form 588 and FTB
					 Form 589 is set forth in subsection (i) and (j), respectively, below. Payments
					 of income that must be reported on a federal information return, such as form
					 1099-MISC, may be subject to California withholding at source if the recipient
					 is a nonresident individual or a non-California business entity.
(2) California Source Income Subject to
					 Withholding. The following types of California source income are examples of
					 income subject to withholding on payments made to nonresidents:
(A) Payments made for services performed in
					 California. The source of income from services is the location where the
					 services are performed, and not where the nonresident lives, the location where
					 the contract for services is entered into, or the place of payment.
(B) Payments received for a covenant not to
					 compete in California.
(C) Payments
					 releasing a contractual obligation to perform services in California.
(D) Income from options received as a result
					 of performing personal services in California.
(E) Bonuses paid for services performed in
					 California.
(F) Income from
					 intangible personal property where the property has acquired a business situs
					 in California.
(G) Rent or lease
					 payments where the property is located in California.
(H) Royalty payments where the property is
					 located in or has acquired a business situs in California.
(I) Prizes, awards, competitions, contests,
					 game shows, or races performed in California.
(J) Distributions of California source income
					 to nonresidents, including both cash and non-cash distributions.
(K) Gambling or gaming winnings won in
					 California.
(L) Premiums,
					 annuities, emoluments, compensation for services, partnership income or gains,
					 and other fixed or determinable annual or periodical gains, profits,
					 endorsement income, other types of income, and any other compensation
					 representing California source income.
(M) Any other amount of California source
					 income for which a state or federal information return is required to be
					 filed.
(3) Business
					 Situs. Income from intangible personal property such as stocks, bonds, notes,
					 etc., is not income from California sources unless the property has acquired a
					 business situs in California. A California business situs is acquired when the
					 property is employed as capital in California. A California business situs is
					 also acquired when the possession and control of the property has been
					 localized in connection with a business, trade, or profession in California so
					 that its substantial use and value attach to and become an asset of that
					 business. The entire income, including the gain from the sale of such an asset,
					 is income from California sources. Examples include an intangible asset pledged
					 as security for a loan connected to a California business or a bank account
					 maintained to pay expenses related to business activities in California. (For
					 rules governing the determination of business situs, see Regulation section
					 17952.)
(4) Payments to Nonresident Aliens or Foreign
					 Entities. Payments of California source income made to nonresident aliens or
					 foreign entities are subject to withholding.
(5) Payments Made to Reimburse Expenses. If
					 the reimbursement is separately accounted for and is not subject to federal
					 information return (Form 1099 or Form 1042) reporting, withholding is not
					 required on payments to reimburse nonresidents for expenses relating to
					 services performed in California. When the reimbursed expenses do not meet
					 these requirements, withholding agents should withhold on the total
					 payment.
(6) Services in Connection
					 With the Sale of Goods. Withholding is required on the portion of the sale that
					 relates to services provided in California. FTB Form 587, Nonresident
					 Withholding Allocation Worksheet, or any successor form designated by the
					 Franchise Tax Board on its website at
www.ftb.ca.gov
("FTB Form 587") may be used to
					 distinguish the portion of payments made for goods from the portion for
					 services. The required information specified in FTB Form 587 is set forth in
					 subsection (k), below.