Ref: CA Revenue & Taxation Code 18662

Application: All businesses in CA using nonresidents to provide SERVICES TO THE BUSINESS.

California has begun an aggressive campaign to catch businesses using nonresidents to provide services to CA businesses without collecting the 7% nonresident withholding on payments to the out-of-state service provider.

Example: You are Corporation ABC based in Los Angeles. You use a graphic designer in AZ. The invoice is $1,000. You remit $930 to the vendor and $70 to CA on their behalf. (You then send the $70 to the CA Franchise Tax Board and provide the vendor with a statement at year-end showing all nonresident withholding paid on their behalf).

Penalty: If you are found to be out-of-compliance with this law, you will owe the 7% that you should have withheld plus penalties.

If you think that you may be subject to this regulation, please call us immediately for further information.