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California FTB issues guidance on effect of economic nexus on water’s-edge combined reporting groups

The California Franchise Tax Board (FTB) has recently issued guidance to clarify the rules for water’s-edge filers with foreign affiliates who were impacted by California’s adoption of a bright-line or economic nexus standard to determine whether a company is doing business in the state. Specifically, the FTB explains how it treats a water’s-edge election when a unitary foreign affiliate of the water’s-edge combined reporting group becomes a taxpayer in the state under the economic nexus standard. The FTB has created several exceptions that will allow taxpayers to include these foreign affiliates in their water’s-edge combined reporting group.