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California Franchise Tax Board Guidance for S Corporation Shareholders: Michigan and Texas Business Taxes May Qualify for California Credit; Ohio Business Tax Does Not

April 28, 2011

In Technical Advice Memorandum 2011-03 (April 13, 2011), the California Franchise Tax Board (the "FTB") determined that S corporation shareholders are entitled to claim an "other state tax credit" (OSTC) for the following state taxes paid:

  • Michigan Business Tax (MBT)
    • Only the business income tax portion of the MBT including the surcharge related to the business income tax (no credit is allowed for the modified gross receipts portion of the MBT or related surcharge)
  • Revised Texas Franchise Tax (using the cost of goods sold method

The FTB concluded that the above taxes qualified for the credit because they were "income" taxes under controlling law.

In its Memorandum, the FTB concluded that the modified gross receipts portion of the MBT is not an "income" tax. Similarly, the FTB also concluded that the Ohio Commercial Activities Tax (the "CAT") does not qualify for a credit because it is not an income tax.

S corporation shareholders with questions about these California developments may contact Richard Walton at 213- 457-1715 or Lewis Walton at 213 457-1797.


As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Readers should seek specific legal advice before acting with regard to the subjects mentioned here. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments on this newsletter, or any Dykema publication, are always welcome. © 2011 Dykema Gossett PLLC. 

As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2018 Dykema Gossett PLLC.