Instructions for Form 100W - FormSend

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(R&TC Section 25113) will continue to bethe start date as originally elected under theold rules (R&TC Section 25111.)To make a water's-edge election under the newrules, a corporation must:• Compute the corporation’s income on awater's-edge basis,• Use Form 100W, California CorporationFranchise or Income Tax Return —Water's-Edge Filers, and• Attach the Form 100-WE, Water's-EdgeElection, to the timely filed original returnfor the year of the election.To file on a water’s-edge basis, the corporationmust:• File on a water’s-edge basis for a period of84 months;• Agree to business income treatment ofdividends received from: (1) over 50%owned entities engaged in the same generalline of business as the members of thewater’s-edge group, or (2) entities that area significant source of supply to, or asignificant purchaser of, the output of themembers of the water’s-edge group.Significant means an amount equal to 15%or more; and• Consent to the taking of depositions fromkey employees or officers of the membersof the water’s-edge group and to theacceptance of subpoenas duces tecumrequiring the reasonable production ofdocuments.For more information, see R&TCSections 25110(b), 25111, 25113, and theregulations thereunder.Taxpayers Covered by an ElectionFor an election to be effective, all affiliatedtaxpayers engaged in a single unitary businessmust file on a water’s-edge basis. A taxpayer oran affiliated group of taxpayers that is engagedin more than one unitary business may make awater’s-edge election with respect to any oneor more of its businesses, but need not electfor all of its businesses. For example, ataxpayer engaged in two unitary businessesmay elect water’s-edge for one of the businessesand may remain subject to worldwidecombined reporting treatment for the otherbusiness.The common parent of a controlled group thatfiles a consolidated federal return, or thecommon parent wherever domiciled ororganized, may file an election on behalf of allmembers of the controlled group that are partof the water’s-edge combined report group.The common parent need not be a Californiataxpayer. An election made on a group returnof a self-assessed combined reporting groupshall constitute an election by each taxpayermember included in that group return. Anelection by a common parent supersedes anyinconsistent position taken by a member of thecombined reporting group.In cases where the water’s-edge election is notentered into by a common parent, eachtaxpayer included in the combined report mustenter into a separate election.Time of Making the ElectionThe election must be made by all unitarytaxpayers, included in the combined report, ona timely filed original return for the year of theelection. Use Form 100-WE, Water's-EdgeElection, to make the election. The completedForm 100-WE should be attached to the timelyfiled original return Form 100W. A copy of theoriginal election must be attached to allsubsequent returns filed during the electionperiod.Taxpayers that have a valid election for taxableyears beginning before January 1, 2003 willcontinue to file on a water's-edge basis andwill be deemed to have elected under the newrules (R&TC Section 25113) for taxable yearsbeginning on or after January 1, 2003.However, the election start date under the newrules (R&TC Section 25113) will continue tobe the start date as originally elected under theold rules (R&TC Section 25111.)CAUTION: The election must be made on atimely filed original return. See R&TCSection 25113.Taxpayers with Different Fiscal Year EndsTaxpayers engaged in a unitary business withdifferent fiscal year ends will make the electionon each individual return. For each member ofthe group, the election period will begin on thefirst day of the taxable year of the last memberof the water’s-edge group to file its return andmake the election. Each taxpayer that has ataxable year beginning earlier than the lastmember of the group will compute its taxliability on its initial return using a hybridworldwide/water’s-edge combination method.Effect of Changes in AffiliationIf a corporation that is subject to California taxbecomes a member of a water’s-edge group,or if a unitary affiliate of an electing water’sedgegroup becomes subject to California taxafter the election, it is deemed to have electedto and is bound by the original election. Whena taxpayer ceases to be a member of thewater’s-edge group, the taxpayer mustcontinue to file on a water’s-edge basis.If an electing taxpayer is acquired by anonelecting taxpayer and becomes a memberof a new affiliated group, then the filingmethod, worldwide or water's-edge, would bedetermined by reference to the larger taxpayergroup. The larger taxpayer group is determinedby comparing the value of the total businessassets of the electing taxpayer and itscomponent unitary group to the value of thetotal business assets of the nonelectingtaxpayer and its component unitary group.If a water’s-edge taxpayer meets certaincriteria, it may automatically obtain terminationof the water's-edge election or it may requesttermination of its water’s-edge election. See“Termination of Election” below.A non-electing corporation that is subsequentlyproven to be unitary with a water’sedgegroup pursuant to an audit determinationof the FTB is deemed to have made awater’s-edge election.When an affiliation change occurs, a statementshould be attached to the return identifyingwhich affiliates were included in the originalgroup, the appropriate California Corporationnumbers, and what changes have occurred.For more information, see R&TCSection 25113.Termination of ElectionOnce a valid water's-edge election is made, theelection remains in place until it is terminated.Termination After Expiration of the InitialSeven-Year (84-Month) PeriodThe taxpayer has the option to terminate itswater's-edge election after the initial sevenyear(84-month) period. This termination doesnot require FTB consent. The termination mustbe made on an original, timely filed return forthe first year in which the water's-edge electionis to be terminated.To terminate your water's-edge election afterthe seven-year (84-month) period:• Compute your income on a worldwidebasis,• Use Form 100, California CorporationFranchise or Income Tax Return, and• Attach a statement to the Form 100,explaining that the corporation is terminatingits water's-edge election. Provide thename of any taxpayer that was bound bythe water's-edge election.If a taxpayer terminates its election and returnsto filing on a worldwide basis, then thetaxpayer must file on a worldwide basis for atleast seven taxable years (84 months) beforemaking another water's-edge election.However, the FTB may waive application of thisrule for good cause. Good cause for thesepurposes has the same meaning as describedin Treas. Reg. Section 1.1502-75(c).Termination Before Expiration of the InitialSeven-Year (84-Month) PeriodTermination Caused by Affiliation Change – Inthe case of an affiliation change, as discussedabove in "Effect of Changes in Affiliation," if anelecting water's-edge taxpayer becomes amember of a larger, nonelecting taxpayergroup, then the taxpayer's water's-edgeelection is automatically terminated. Thetermination is effective at the time the electingtaxpayer becomes part of the combined reportof the larger, nonelecting taxpayer group. It isnot necessary to file a form FTB 1117, Requestto Terminate Water's-Edge Election.Termination by FTB Consent – An electingtaxpayer may request FTB’s consent toterminate the water's-edge election for goodcause or to permit the state to contract with anexpatriate corporation, or its subsidiarypursuant to Public Contract Code Section10286(b)(2) prior to the expiration of theseven-year (84-month) period. Good cause forthese purposes has the same meaning asdescribed in Treas. Reg. Section 1.1502-75(c).If a taxpayer is granted termination and returnsto filing on a worldwide basis, then thetaxpayer must file on a worldwide basis for atleast seven taxable years (84 months) beforemaking another water's-edge election.However, the FTB may waive the application ofthis rule for good cause.To request termination of your water's-edgeelection, you must timely file form FTB 1117separately from any other form. Mail formFTB 1117 to:FRANCHISE TAX BOARDPO BOX 1779RANCHO CORDOVA CA 95741-1779For more information, see R&TCSection 25113.Request for Consent for a Water's-EdgeRe-ElectionForm FTB 1115 is used to request the FTB'sconsent to re-elect water's-edge prior to theexpiration of the seven-year (84 month) periodfollowing the last day of the terminatedelection, for good cause as provided in R&TCForm 100W Booklet 2004 Page 9
Section 25113 (c) (11). See form FTB 1115instructions for additional information.U Amended ReturnTo correct or change a previously filedForm 100W, file the most current Form 100X,Amended Corporation Franchise or Income TaxReturn. Using the incorrect form may delayprocessing of the amended return. File Form100X within six months after the corporationfiled an amended federal return or after a finalfederal determination, if the IRS examined andchanged the corporation’s federal return.V Information ReturnsEvery corporation engaged in a trade orbusiness and making or receiving certainpayments in the course of the trade orbusiness is required to file information returnsto report the amount of such payments.Payments that must be reported include, butare not limited to:• Payments exceeding $600 annually forcompensation for services not subject towithholding, commissions, fees, prizes andawards, payments to independent contractors,rents, royalties, legal services whetheror not the payee is incorporated, interest(such as interest charged for late payment),and pensions;• Payments exceeding $10 annually forinterest earned and dividends;• All payment amounts made by a broker orbarter exchange;• All payment amounts for gross proceedspaid to an attorney whether or not theservices are performed for the payer; and• Cash payments over $10,000 received in atrade or business.See instructions for federal Forms 1099(series), 1098, 5498, and W2-G; federalPublication 1220, Specifications for FilingForms 1098, 1099, 5498 and W-2G Electronicallyor Magnetically; form FTB 4227A, Guideto Information Returns Filed With California;and form FTB 8305, Reporting Requirementsfor Forms 1098, 1099, 5498, and W-2G.Report payments to FTB and IRS using theappropriate federal form. Reports must bemade for the calendar year. FederalForms 1099 (series), 1098, and W-2G's aredue no later than February 28th and federalForm 5498 is due by May 30th of the yearfollowing payment. However, if the due datefalls on a holiday or weekend, it is extended tothe next business day. Federal Form 8300,Report of Cash Payments Over $10,000Received in a Trade or Business, is due within15 days after the date of the transaction.California requires corporations to report toFTB interest paid on municipal bonds held byCalifornia taxpayers and issued by a state otherthan California, or a municipality other than aCalifornia municipality. Entities paying interestto California residents on these types of bondsare required to report interest paymentsaggregating $10 or more and paid afterJanuary 1, 2004. These information returnswill be due June 1, 2005. For more information,get form FTB 4800, Federally Tax ExemptNon-California Bond Interest and Interest-Dividend Payment Information.California conforms to the informationreporting requirements imposed under IRCSections 6038 through 6038C. Any federalPage 10 Form 100W Booklet 2004Forms 5471, 5472, or 926 required to be filedfor federal purposes under these IRC sectionsare also required to be filed for Californiapurposes. These federal information returnsshould be attached to the Form 100W whenfiled. If these information returns are notprovided, penalties may be imposed underR&TC Sections 19141.2 and 19141.5.W Net Operating Loss (NOL)For taxable years beginning on or after January1, 2004, California has reinstated the NetOperating Loss (NOL) carryover deductions.The carryover periods for an NOL incurred inyears:• beginning before January 1, 2002, havebeen extended for two years.• beginning on or after January 1, 2002, andbefore January 1, 2003, have beenextended for one year.For taxable years beginning on or after January1, 2004, 100% of the NOL may be carriedforward. For more information, see form FTB3805Q, Net Operating Loss (NOL) Computationand NOL and Disaster Loss Limitations –Corporations.Carryover periods varying from 5 to 15 yearsand carryover deductions varying from 50% to100% are allowed for NOLs sustained bycorporations.NOL carryovers incurred prior to the water’sedgeelection are limited to the amount of NOLcarryover that the taxpayer would haveincurred if a water’s-edge election had been ineffect in the loss year.R&TC Sections 24416 through 24416.7 andR&TC Section 25108 provide for NOLcarryovers incurred in the conduct of a tradeor business.R&TC Section 24347.5 provides specialtreatment for the carryover of disaster lossesincurred in an area designated by the Presidentof the United States or the Governor ofCalifornia as a disaster area. Losses taken intoaccount under the disaster provisions may notbe included in computing regular NOLdeductions.For more information, see form FTB 3805Q,Net Operating Loss (NOL) Computation andNOL and Disaster Loss Limitations —Corporations, included in this booklet, or getform FTB 3805D, Net Operating Loss (NOL)Carryover Computation and Limitation –Pierce’s Disease; form FTB 3805Z, EnterpriseZone Business Booklet; form FTB 3806, LosAngeles Revitalization Zone Business Booklet;form FTB 3807, Local Agency Military BaseRecovery Area Business Booklet; or formFTB 3809, Targeted Tax Area Business Booklet.X Preparer Tax IdentificationNumberTax preparers have the option of providingtheir individual Social Security Number (SSN)or Preparer Tax Identification Number (PTIN)on returns they prepare. Preparers who want aPTIN must complete and submit federalForm W-7P, Application for Preparer TaxIdentification Number, to the IRS.Y New CorporationsNew corporations, which begin business on orafter January 1, 2000, are no longer requiredto prepay minimum tax to the California SOS.For taxable years beginning on or after January1, 2000, no minimum franchise tax will be duewith the initial tax return. However, thecorporation will compute its tax liability bymultiplying its state net income by theappropriate tax rates.Specific Line InstructionsTaxpayers that are not filing on water’s-edgebasis should not use Form 100W, useForm 100, California Corporation Franchise orIncome Tax Return. However, a taxpayer that isfiling on a water’s-edge basis for one or morelines of business should use Form 100W eventhough that taxpayer may also have one ormore lines of business that are not on awater’s-edge basis.Filing Form 100W without errors will expediteprocessing. Before mailing Form 100W, makesure entries have been made for the:• California corporation number (sevendigits);• Federal employer identification number(FEIN) (nine digits); and• Corporation name and address (includePMB no., if applicable).File the 2004 Form 100W for calendar year2004 and fiscal years that begin in 2004. Entertaxable year beginning and ending dates only ifthe return is for a short year or a fiscal year. Ifthe corporation reports its income using acalendar year, leave the date area blank. If thereturn is being filed for a short period (lessthan 12 months), write “short year” in red inthe top margin. Convert all foreign monetaryamounts to U.S. dollars.Note: The 2004 Form 100W may also be usedif:• The corporation has a taxable year of lessthan 12 months that begins and ends in2005; and• The 2005 Form 100W is not available at thetime the corporation is required to file itsreturn. The corporation must show its 2005taxable year on the 2004 Form 100W andincorporate any tax law changes that areeffective for taxable years beginning afterDecember 31, 2004.Questions A through ZAnswer all applicable questions and attachadditional sheets, if necessary. Be sure toanswer Questions E through Z on Form 100W,Side 2. Note the following instructions whenanswering:Question E — Principal business activity(PBA) codeAll corporations must answer Question E.Include the six digit PBA code from the chartfound on page 16 through page 18 of thisbooklet. The code should be the number forthe specific industry group from which thegreatest percentage of California “totalreceipts” is derived. “Total receipts” meansgross receipts plus all other income. TheCalifornia PBA code number may be differentfrom the federal PBA code number.If, as its principal business activity, thecorporation: (1) Purchases raw material;(2) Subcontracts out for labor to make afinished product from the raw materials; and(3) Retains title to the goods, the corporationis considered to be a manufacturer and mustenter one of the codes under “Manufacturing.”
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