News Archive: Ask the Professional - East Bay Business Times

For Immediate Release:
February 09, 2007

Tom Neff, Tax Manager
tneff@rina.com
510-893-6908
475 14th Street, Suite 1200
Oakland, CA 94612
www.rina.com

Q. Is withholding required on distributions of income to partners and shareholders living outside of California?

A. Effective January 1, 2007 the Franchise Tax Board has announced they will begin to enforce withholding rules that have been in existence for 2 years. California partner- ships and S Corporations that distribute more than $1,500 of profits to nonresidents must withhold 7% of the distribution. However, the entity may request a “waiver” of these rules. For example, if the entity states that a partner or a shareholder consistently makes estimated tax payments and files a California tax return, or if the shareholder can demonstrate that the 7% rate will result in an over-withholding, then the entity may request a waiver by filing Form 588, Nonresident Withholding Waiver Request. If you have out-of-state partners or shareholders, we would recommend consulting with your tax adviser as soon as possible to determine whether these rules apply to you.