California State Annual Withholding Forms by zyi23843

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									                              State of California
                              Franchise Tax Board




Nonresident
Withholding
Guidelines




FTB Pub. 1017 (REV 12-2007)
For additional information, contact Withholding Services and Compliance

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Page      FTB Pub. 1017 (REV 12-2007)
Table of Contents
                                                                                                                                                                              Page(s)
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Law References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
What’s New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
General Withholding Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Income Subject to Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Entities Subject to Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Withholding Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Income Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Reduced Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
            Reduced Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
            Waivers of Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Non-Wage, Independent Contractors, Rents and Royalties, Beneficiaries of Estates and Trusts . . . . . . . . . . . . . . .12
Entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Domestic Pass-Through Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Foreign (non-U.S.) Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Reporting and Remitting Withholding Amounts/Due Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
            Domestic (non-foreign) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
            Foreign (non-U.S.) Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Withholding Agent Liability and Penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Requirement to File a California Return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Where to Get Forms and More Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21




                                                                                                                                   FTB Pub. 1017 (REV 12-2007) Page 
Nonresident Withholding Guidelines
                                                                                                      FTB Pub. 1017
Purpose                                                        Limited Liability Companies (LLCs) and
This publication will assist you to:                           Limited Liability Partnerships (LLPs)
                                                               For withholding purposes, both LLCs classified as
      • Make payments to nonresident independent               partnerships and LLPs are treated like partnerships.
         contractors, including entertainers.                  For purposes of this publication, LLCs and LLPs are
      • Make payments of rents or royalties to                 generally included in the term “partnership” and members
         nonresidents.                                         are generally included in the term “partner.” LLC and LLP
      • Make distributions to nonresident beneficiaries.       returns are included in the term “partnership returns.”
      • Meet domestic and foreign nonresident partner          Form 568, Limited Liability Company Return of Income, is
         withholding requirements.                             included in the Form 565, Partnership Return of Income.
For information on real estate withholding, please refer       However, LLCs should specifically see questions 26-27
to the Franchise Tax Board (FTB) Publication 1016, Real        relating to consenting and non-consenting members.
Estate Withholding Guidelines.
For information on employee wage withholding, contact
the California Employment Development Department.              What’s New
                                                               We modified the nonresident withhold at source forms to
Law References                                                 make them easier for you. Beginning January 1, 2008,
                                                               tax withheld on California source payments to domestic
                                                               nonresidents are remitted to us on a quarterly basis
General                                                        (similar to estimated tax payments) using the revised
California Revenue and Taxation Code (R&TC)                    Form 592, Quarterly Nonresident Withholding Statement.
Section 18662 and the related regulations require the          Form 592 includes a schedule of payees section that
withholding of California income or franchise taxes from       requires the withholding agent to identify the payment
payments made to nonresident independent contractors           recipients, the income, and withholding amounts.
performing services in California. Withholding is also         This schedule will allow us to allocate the withholding
required on other payments of California source income         payments to the taxpayer (payee) upon receipt of the
to nonresident payees and on distributions of California       completed Form 592.
source income to nonresident beneficiaries.
                                                               The revised quarterly Form 592 process replaces the
R&TC Section 18668 makes the withholding agent liable          prior version of Form 592, Nonresident Withholding
for any tax required to have been withheld.                    Annual Return, and Form 592-A, Nonresident
R&TC Section 17951 contains the provision requiring            Withholding Remittance Statement. In addition, when
nonresidents to be taxed on all income from California         filing the revised Form 592, the withholding agent is no
sources. Payments made for personal services performed         longer required to submit a Form 592-B, Nonresident
in California are California source income. Where the          Withholding Statement, to us for each payee. However,
nonresident lives, the location where the contract for         withholding agents must continue to provide the payees
services is entered into, or the place of payment does not     with the paper Forms 592-B at the end of each quarter
determine the source of income from personal services.         or no later than the end of the year, reporting the total
The source of income from personal services is the             amount withheld for that year.
location where the services are performed. Nonresidents
must include in California gross income the gross              Foreign Partner or Member Withholding
payments for all services performed in California.             Beginning January 1, 2008, partnership or LLC
                                                               withholding on foreign partners or members are remitted
Domestic (non-foreign) Nonresident                             to us with revised Form 592-A, Foreign Partner or
S Corporation Shareholders and Partners                        Member Quarterly Withholding Remittance Statement. At
R&TC Section 18662 and the related regulations require         the close of the taxable year, the partnership or LLC will
S corporations and partnerships to withhold income             complete Form 592-F, Foreign Partner or Member Annual
taxes when distributing current or prior year income to        Return, to report the total withholding for the year and
domestic nonresident S corporation shareholders and            allocate the income or gain and related withholding to the
partners. Withholding is not required if distributions to an   foreign partners or members. When filing Form 592-F,
S corporation shareholder or partner are $1,500 or less        the withholding agent is no longer required to submit
during the calendar year.                                      Form 592-B to us for each partner or member. However,
                                                               withholding agents must continue to provide the partners
Foreign (non-U.S.) Partners                                    or members with paper Forms 592-B.
R&TC Section 18666 requires withholding on income
from California sources, which is allocated to foreign
partners. R&TC Section 18666 generally conforms to
federal Internal Revenue Code (IRC) Section 1446 to the
extent that the income is from California sources.



Page    FTB Pub. 1017 (REV 12-2007)
General Withholding Requirements                               9. Is “catch-up” withholding required if the
                                                                  withholding agent reasonably believed the total
 1. What is nonresident withholding?                              payments to a nonresident for the year would
    Nonresident withholding is a prepayment of                    not exceed $1,00, but later determines the total
    California state income or franchise tax for                  payments will exceed $1,00?
    nonresidents (similar to wage withholding).                   No. Withholding is optional, at the discretion of the
 . Who is the withholding agent?                                 withholding agent, on the first $1,500 in payments
    Generally, the withholding agent is the person,               made during the calendar year. Withholding must
    including for this purpose, corporations,                     begin as soon as the total payments of California
    partnerships, fiduciaries, and state officers,                source income for the calendar year exceed $1,500.
    agencies or political subdivisions, charged by law,       10. What is the withholding rate? (Domestic
    regulation, or FTB to withhold any tax, interest, or          non-foreign)
    penalties from payments to the taxpayer.                      The withholding rate is seven percent of:
 . Who is the payee?                                             • The gross payment made to nonresident:
    Generally, the payee is the person, including for this          ○ Independent contractors for services
    purpose, corporations, partnerships, fiduciaries,                  performed in California.
    and state officers, agencies or political subdivisions          ○ Recipients of California rents or royalties.
    that receive items of income from a payor. It also            • Distributions of California source income made to
    includes partners, beneficiaries, shareholders, or              nonresident beneficiaries of estates or trusts.
    members that receive payments or distributions                • Distributions of California source income to
    from a pass-through entity, estate, or trust. A payee           domestic nonresident S corporation shareholders
    may also include vendors that provide services to               and partners.
    the payor.                                                11. What are the withholding rates for foreign (non
 . Who is the payor?                                             U.S.) partners?
    Generally, the payor is the person, including for this        The withholding rate is California’s highest tax
    purpose, corporations, partnerships, fiduciaries, and         rate for each partner’s entity type. The current
    state officers, agencies or political subdivisions that       withholding rates are:
    pays an item of income or makes a distribution to a           • Non-corporate partners - 9.3%
    payee.                                                        • Corporate partners - 8.84%
 . What is a partnership?                                        • Foreign bank and financial institution partners
    The term partnership has the same meaning as                     - 10.84%
    defined in R&TC Section 17008. For purposes of            1. Are there exceptions to withholding?
    withholding, both LLCs classified as partnerships             Yes. Withholding is not required if one of the
    and LLPs are treated as partnerships.                         following exceptions is met:
 6. What is a partner?                                            • The individual, S corporation shareholder, or
    The term partner has the same meaning as                          partner is a California resident.
    defined in R&TC Section 17008. For purposes of                • The payee meets one of the exemptions on
    withholding, members of both LLCs classified as                   Form 590, Withholding Exemption Certificate.
    partnerships and LLPs are generally included in the           • The total payments or distributions of California
    term partner.                                                     source income to the nonresident are equal to or
                                                                      less than $1,500 for the calendar year.
 7. When is a withholding agent required to                       • The payment is for goods.
    withhold?                                                     • The services provided by the nonresident are not
    A withholding agent is required to withhold from                  performed in California.
    all payments or distributions of California source            • The nonresident payee or the withholding agent
    income made to a nonresident payee when the                       receives written authorization from us waiving the
    payments or distributions are greater than $1,500                 withholding.
    for the calendar year, unless the withholding agent           • The payments are income from intangible
    receives authorization from us for a waiver or a                  personal property, such as interest and
    reduced withholding amount.                                       dividends, unless the property has acquired a
 8. When should a withholding agent start                             business situs in this state.
    withholding if the total payments to a                        • The payments are compensation from a motor
    nonresident are expected to exceed $1,00                         carrier providing transportation in two or more
    during the calendar year?                                         states, subject to section 11504(b) of title 49 of
    Withholding is optional, at the discretion of the                 the United States Code.
    withholding agent, on the first $1,500 in payments            • The payments are wages paid to employees.
    made during the calendar year.                                    For information on employee wage withholding,
                                                                      contact the California Employment Development
                                                                      Department.


                                                                                  FTB Pub. 1017 (REV 12-2007) Page 
     • The payee is a bank or banking association.               • Payments made to nonresident directors of a
     • The payments are made to a nonresident                      corporation for attending board meetings in
       corporate director for director’s services.                 California.
     • The distribution is exempt income.                        • Income from intangible personal property such
     • The partner has certified that the income was               as stocks, bonds, notes, etc., is not income
       previously reported on the partner’s California tax         from California sources unless the property has
       return.                                                     acquired a business situs in California. California
     Note: The exemption for motor carriers does                   business situs is acquired when the property is
     not apply to all transportation providers. Similar            employed as capital in California. A California
     exemptions for payments made to air, water, and rail          business situs is also acquired when the
     carriers apply only to nonresident employees and              possession and control of the property has been
     not to independent contractors.                               localized in connection with a business, trade,
                                                                   or profession in California so that its substantial
 1. Are withholding agents required to notify                     use and value attach to and become an asset of
     nonresidents of the withholding requirements?                 that business. The entire income, including the
     No. Withholding agents are not required to notify             gain from the sale of such an asset, is income
     nonresidents of the withholding requirements.                 from California sources. Examples include an
     However, we recommend that they explain                       intangible asset pledged as security for a loan
     California’s withholding requirements to avoid                connected to a California business or a bank
     confusion.                                                    account maintained to pay expenses related
                                                                   to business activities in California. Determining
Income Subject to Withholding                                      business situs is a difficult area where bright-
 1. What types of payments are subject to                         line tests have not been developed. If the
     withholding?                                                  withholding agent is certain that an intangible
     The following California source income is subject to          asset has acquired a California business situs,
     withholding:                                                  withholding is required. If the status is not clear,
                                                                   the withholding agent is not required to withhold.
     • Payments made for personal services performed
        in California. Where the nonresident lives,          16. Are payments that are exempt from federal tax
        the location where the contract for services is          due to tax treaties (federal Form W-8, Certificate
        entered into, or the place of payment does not           of Foreign Status), also exempt from California
        determine the source of income from personal             tax and withholding?
        services. The source of income from personal             No. California does not conform to federal law
        services is the location where the services are          relating to income protected by U.S. tax treaties.
        performed.                                               California income is taxable and subject to
     • Payments made to nonresident entertainers for             withholding. Nonresident aliens are required
        services rendered in California. These payments          to report income from California sources on
        include, but are not limited to, guaranteed              Form 540NR, California Nonresident or Part-Year
        payments, overages, royalties, and residual              Resident Income Tax Return.
        payments.
                                                             17. Is withholding required on payments made to
     • Payments received for a covenant not to compete
                                                                 reimburse expenses?
        in California.
                                                                 If the reimbursement is separately accounted for
     • Payments releasing a contractual obligation to
                                                                 and is not subject to federal Form 1099 reporting,
        perform services in California.
                                                                 withholding is not required on payments to
     • Income from options received because of
                                                                 reimburse nonresidents for expenses related to
        performing personal services in California.
                                                                 services performed in California (corporate payees,
     • Bonuses paid for services performed in
                                                                 for purposes of this exception, should be treated as
        California.
                                                                 individual persons). When the reimbursed expenses
     • Rents and royalties from assets located in
                                                                 do not meet these requirements, withholding agents
        California.
                                                                 should withhold on the total payment.
     • Distributions of California source income. This is
        different from foreign partner withholding under     18. How do you determine the amount subject
        R&TC 18666, which is based on allocations (not           to withholding with income from inside and
        distributions) of income.                                outside California?
     Note: For withholding purposes, “California source          For withholding purposes, use any reasonable
     income” does not include return of capital, income          method to approximate the ratio of California
     sourced in another state, or other distributions not        income to worldwide income. Reasonable methods
     taxable by California.                                      include using the prior year’s ratio or apportionment
                                                                 factors, annualizing current year data, and using
 1. What types of payments are not subject to                   actual year-to-date figures. (See California
     withholding?                                                Schedule R, Apportionment and Allocation of
     The following types of payments are not subject to          Income, for more information on apportionment.)
     withholding:                                                We do not expect exactness in meeting this

Page 6   FTB Pub. 1017 (REV 12-2007)
    requirement. Making a good faith effort to comply           resident at the date of death. Withholding agents
    with the withholding requirements will satisfy this         may rely on a certificate by the estate that the
    requirement.                                                decedent was a California resident at the date of
                                                                death. Use Form 590 for this purpose.
Entities Subject to Withholding                             . Is withholding required on distributions to tax-
19. Which nonresident entities are subject to                   exempt entities, such as churches and pension
    withholding when receiving payments or                      plans, i.e., IRA’s, and other tax-deferred plans?
    distributions of California source income?                  No. Withholding is not required on entities exempt
    Nonresident entities subject to withholding include:        from tax under either California or federal law. The
    • Individuals who are nonresidents of California.           withholding agent may rely on a completed Form
    • Corporations that do not have a permanent place           590, stating it is exempt from tax.
       of business in California and are not qualified      . Is withholding required when tax-exempt
       through the Office of the Secretary of State             entities make payments to nonresident payees?
       (SOS) to do business in California.                      Yes. Regardless of your tax or organizational status,
    • Partnerships and LLCs that do not have a                  when a payment is made to a nonresident for a
       permanent place of business in California and            service performed in California, withholding may be
       are not registered through SOS.                          required.
    • Nonresident estates and trusts.
    • Domestic nonresident partners include:                6. Are LLCs required to withhold on nonresident
          ○ Individuals who are nonresidents of                 members who have signed FTB 8, Limited
            California.                                         Liability Company Nonresident Members’
          ○ Corporations that are not qualified by SOS          Consent?
            to do business in California or do not have a       Yes. The LLCs must withhold on nonresident
            permanent place of business in California.          members who have signed FTB 3832.
          ○ Nonresident estates and trusts.                 7. Are LLCs required to withhold on nonresident
          ○ Partnerships that do not have a permanent           members if the nonresident members have not
            place of business in California.                    signed FTB 8, and the LLCs are paying the
0. Are withholding agents required to withhold                 non-consenting nonresident tax for the non-
    when vendors perform services in connection                 consenting members?
    with the sale of goods?                                     Yes. Payment of non-consenting nonresident tax
    Yes. Withholding is required on the portion of the          does not relieve LLCs of the requirement to withhold
    sale that relates to services provided in California.       on nonresident members. However, LLCs who can
    Form 587, Nonresident Income Allocation                     show they pay the non-consenting nonresident
    Worksheet, may be used to distinguish the portion           tax on all non-consenting members may request
    of payments made for goods from the portion for             a waiver from us for withholding on their non-
    services.                                                   consenting members.
1. Is withholding required on distributions to             8. When are S corporations and partnerships
    non-grantor trusts?                                         required to withhold?
    Yes. Withholding is required on distributions to            S corporations and partnerships must withhold
    non-grantor trusts unless at least one trustee is a         on distributions of California source income to
    California resident. Withholding agents may rely            nonresident S corporation shareholders and
    on a certification using Form 590, Withholding              partners. This includes, but is not limited to,
    Exemption Certificate.                                      distributions of current year income and distributions
                                                                of prior year income that were not previously
. Is withholding required on distributions to                 reported as income from California sources on the
    grantor trusts?                                             S corporation shareholder’s or partner’s California
    Yes. A grantor trust is where the grantor retains           return. Withholding is not required if California
    substantial control and is deemed to remain the             source income distributed to the S corporation
    owner. As a result, a grantor trust is disregarded          shareholder or partner is $1,500 or less during the
    for tax purposes. The determination to withhold             calendar year or the S corporation shareholder or
    depends on the residency of the grantor. If the             partner has received a waiver of withholding from us.
    grantor is a California resident, the grantor may
    certify to the residency exemption on Form 590          9. Are payments to non-qualified S corporations
    noting that the grantor is signing as the grantor           subject to withholding?
    of a grantor trust.                                         Yes. Payments to S corporations that do not have
                                                                a permanent place of business in California and
. Is withholding required on distributions to                 are not qualified through the SOS to do business in
    estates?                                                    California are subject to withholding.
    Yes. Withholding is required on distributions to
    estates unless the decedent was a California



                                                                                FTB Pub. 1017 (REV 12-2007) Page 7
 0. What entities are subject to foreign partner                 California street address does not include a
     withholding?                                                 California Post Office Box, or an in care of address.
     California conforms to the federal definition of             If a change of address occurs, the withholding
     foreign partners. Thus, foreign partners who are             agent must reevaluate the payee’s residency status.
     nonresident alien individuals, foreign corporations,         If withholding agents need assistance in this area,
     foreign partnerships, foreign estates, or foreign            they can contact us at (916) 845-4900.
     trusts are subject to foreign partner withholding.
                                                              . When does a corporation have a permanent
Withholding Exemptions                                            place of business in California?
                                                                  A corporation has a permanent place of business
 1. Who is exempt from withholding?                              in this state when it is organized and existing under
     The following individuals and entities are exempt            the laws of this state or it has qualified through
     from withholding:                                            SOS to transact intrastate business. A corporation
     • California residents.                                      not qualified to transact intrastate business (such
     • Corporations with a permanent place of business            as a corporation engaged exclusively in interstate
        in California.                                            commerce) will be considered as having a
     • Corporations qualified through SOS to do                   permanent place of business in this state only if it
        business in California.                                   maintains an office in this state that is permanently
     • Partnerships and LLCs with a permanent place               staffed by its employees.
        of business in California.                            . How can withholding agents determine if a
     • Tax-exempt organizations, under either California          corporation has a permanent place of business
        or federal law.                                           in California or is qualified to do business in this
     • Insurance Companies, IRAs, or Qualified                    state?
        Pension/Profit Sharing Plans.                             The following are examples of reasonable methods
     • California non-grantor Trusts.                             accepted:
     • Estates where the deceased was a California
        resident at the time of death.                            Example #1:
                                                                  Withholding agents may rely on a completed
     Payees must complete Form 590 to certify their               California Form 590 stating the corporation has
     status.                                                      a permanent place of business in California. This
     Note: Exemptions apply to the actual payee and not           protects the withholding agent from penalties for
     to their agent or representative.                            failure to withhold (unless the withholding agent has
 . Who is a California resident?                                actual knowledge that the statement is false).
     The term “resident” includes every individual who is         Note: For Form 590 to be valid, a corporate payee
     in California for other than a temporary or transitory       must include its taxpayer identification number.
     purpose and every individual domiciled in California         Example #:
     who is absent for a temporary or transitory purpose.         If a corporation has a permanent place of business
     Generally, an individual who comes to California for         in California, it is required to qualify with SOS.
     a purpose extending over a long or indefinite period         Withholding agents may determine if a corporate
     will be considered a resident. However, an individual        payee is qualified to do business in this state by
     who comes to perform a particular contract of short          contacting:
     duration will be considered a nonresident. For more          SECRETARY OF STATE
     information on residency, see FTB Pub. 1031,                 CERTIFICATION AND RECORDS
     Guidelines for Determining Resident Status.                  PO BOX 960
 . How can withholding agents identify resident                 SACRAMENTO, CA 9-600
     payees?                                                      (916) 67-8
     The following are examples of reasonable methods             Send a self-addressed stamped envelope. There is
     accepted:                                                    a $5.00 fee for each corporation status report.
     Example #1:                                                  Example #:
     Withholding agents may send their payees a                   Withholding agents may provide a list of corporate
     Form 590. Payees may use this form to certify their          payees to Withholding Services and Compliance,
     residency status.                                            which we will review that list and notify the
     Note: For Form 590 to be valid, payees must                  withholding agent of which corporate payees should
     include their taxpayer identification number.                be withheld upon.
     Example #:                                              6. What is the difference between corporations
     Withholding agents can rely on a California street           incorporated in California and corporations
     address as an indication of a payee’s residency              qualified to do business in California for
     status. If the payee has a California street address,        withholding purposes?
     no withholding is required and Form 590 is not               Corporations that incorporate in California are
     needed to verify residency status unless the                 automatically qualified to do business in California
     withholding agent has reason to believe such                 as long as they file all returns and pay all taxes
     address is merely a forwarding address. A valid              due. Corporations not incorporated in California,
Page 8   FTB Pub. 1017 (REV 12-2007)
    but incorporated under the laws of other states       1. Must a payee’s Form 90 be renewed each year?
    or countries, can still qualify to do business            No. The certification does not need to be renewed
    in California. SOS administers the California             annually. The certification remains valid until the
    Corporations Code as it applies to incorporation          payee’s status changes. The withholding agent
    and qualification to do business in California.           should evaluate the need for securing a new Form
    Corporation payees incorporated in California or          590 when any indication of a change in residency
    qualified to do business in California are exempt         status occurs, such as a change of address, etc.
    from the withholding requirements.
                                                          . What should a withholding agent do if they
7. What significance does the doing business                 receive a false Form 90?
    standard have in determining income subject to            The withholding agent should not accept the Form
    withholding?                                              590 and should inform the payee that the form was
    California taxes the income derived from business         not accepted. The withholding agent and the payee
    activity within the state. If a nonresident payee         can contact us if they have any questions.
    is doing business in California and is earning
                                                          . Is the withholding agent liable for knowingly
    California source income, withholding is required
                                                              accepting a false Form 90?
    unless the payee meets an exemption.
                                                              Yes. A withholding agent who knowingly accepts
8. What if the corporate payee is not qualified              a false Form 590 is subject to the liabilities and
    through the SOS and does not have a                       penalties relating to failure to withhold.
    permanent place of business in this state, but is
    included in the combined report of a corporation      Income Allocation
    that does have a permanent place of business          . In situations where a nonresident payee is
    in California? Can Form 90 be completed to               performing services within California as well as
    exempt it from withholding?                               outside of California, how does the withholding
    No. But the payee may request a waiver from us            agent determine what portion of the services are
    using Form 588, Nonresident Withholding Waiver            provided within California?
    Request.                                                  The following are examples of reasonable methods
9. What information must be included on a                    accepted:
    Form 90 to be valid?                                         Method 1:
    Form 590 must include the:                                    Withholding agent asks the payee to complete
    • Name and address of the payee.                              Form 587, Nonresident Income Allocation
    • Payee’s taxpayer identification number (SSN,                Worksheet. This form is used to determine the
      FEIN, or CA Corp number).                                   amount of California source income subject
    • Withholding agent’s name.                                   to withholding. The payee completes and
    • Box checked in front of the applicable exemption.           returns Form 587 to the withholding agent. This
    • Name and title of the individual completing the             information determines if withholding is required,
      form, the individual’s signature, and the date.             and, if required, what portion of the payment is
                                                                  subject to withholding.
0. What should the withholding agent do if a payee
    gives the withholding agent an incomplete                     Example
    Form 90?                                                     A withholding agent sends Form 587 to an
    Before accepting Form 590 from a payee, the                   out-of-state independent contractor (vendor)
    withholding agent should check the Form 590 for               before making a payment for services. The total
    the following:                                                contract amount is $100,000. The nonresident
                                                                  vendor returns Form 587, certifying that $60,000
    • Name and address of the payee.                              is for services performed in California and
    • Payee’s taxpayer identification number (SSN,                $40,000 is for work performed in another state.
       FEIN, or CA Corp number).                                  The amount of withholding would be:
    • The withholding agent’s name.
    • A box checked in front of the applicable                      $60,000         California source income
       exemption.                                                   X 7%            Withholding rate
    • Name and title of the individual completing the               $ 4,200
       form, the individual’s signature, and the date.        Note: If the amount subject to withholding ($60,000
    Note: An incomplete Form 590 is invalid and               in the example above) is equal to or less than
    the withholding agent should not accept it. The           $1,500, no withholding is required.
    withholding agent is required to withhold tax on              Method :
    payments made to the payee until a valid form is              The withholding agent relies on the nature
    received. The withholding agent should also verify            of the work to indicate where the services
    the information on the form pertains to the payee             are performed. For example, a construction
    and not for the payee’s representative or agent.              company building a shopping center is most
                                                                  likely performing services where the shopping
                                                                  center is located. We do not expect exactness in


                                                                              FTB Pub. 1017 (REV 12-2007) Page 9
          determining what portion, or ratio, of the services       tax, but is subject to another state’s sales or use
          are performed in California. A good faith effort          tax, withholding agents may use the allocation for
          by the withholding agent to comply with the               the other state to determine the portion relating
          withholding rules will satisfy this requirement.          to services and subject to withholding. Generally,
          Withholding agents may use other reasonable               under sales and use tax laws, charges for labor or
          methods approved by us. For assistance in                 services for installation are not subject to sales or
          this area contact our Withholding Service and             use tax. Payments for installation would be subject
          Compliance staff at (916) 845-4900.                       to withholding. Charges for designing, consulting,
                                                                    performing feasibility studies, evaluating bids, and
 . How much reliance can be placed on allocations                 providing training services are also considered
     provided by payees on Form 87?                                service activities if they are separately stated
     Withholding agents may rely on allocations                     and not part of the sale of tangible personal
     provided by payees on a properly completed and                 property. Payments for repairs would be subject
     signed Form 587. No additional verification efforts            to withholding except for parts that are separately
     are needed. If a withholding agent suspects the                stated on the invoice. As payments for mandatory
     Form 587 has been fraudulently completed, they                 maintenance contracts or warranties are subject
     should provide us a copy of the form and include               to sales tax, even if the cost of the maintenance
     an explanation of why they believe the form is                 contract or warranty is separately stated, the
     fraudulent. The withholding agent may rely on the              payments would not be subject to withholding.
     information provided by the vendor until we issue              However, payments for optional maintenance
     notification to revise the allocation or withdraw the          contracts or warranties are not subject to sales tax
     exemption. All information is strictly confidential.           and would be subject to withholding. One exception
 6. How long should withholding agents keep a                      is transportation charges. Even if the payment
     Form 87 completed by a payee?                                 for transportation charges is not subject to sales
     Retain the form for a minimum of five years.                   or use tax, withholding is not required. In unique
                                                                    situations, withholding agents should contact us at
 7. When using an allocation based on time, what is                (916) 845-4900.
     the appropriate denominator for the ratio?
     Compensation for personal services performed by            Reduced Withholding and Waivers of
     nonresident independent contractors will normally
     be allocated to California based on working days           Withholding
     in California to total working days in and out of          Reduced Withholding
     California. The denominator is the total number
     of days actually worked on the particular job. The         9. Are requests for reduced withholding amounts
     number of days covered by the vendor’s contract                allowed?
     can only be used when the vendor is:                           We may authorize a reduced withholding amount
     • Hired for the exclusive use of the withholding               when the seven percent withholding on the gross
        agent for the entire contract period.                       California source payment results in significant
     • Required to be available to work each day at the             over-withholding. Reduced withholding amounts are
        discretion of the withholding agent during the              available to domestic nonresident payees only.
        contract period.                                        0. May foreign partners receive a reduction in
     • Being paid whether or not providing services.                withholding?
     Days spent acquiring knowledge, skills, or                     No. There is no provision in R&TC Section 18666 or
     experiences necessary as a condition of                        IRC Section 1446 to allow reduced withholding for
     employment are not considered work days                        foreign nonresident partners.
     (Marc Wilson v. Franchise Tax Board (1993) 20 Cal.         1. Who initiates a request for reduced
     App. 4th 1441). Professionals and others who bill              withholding?
     by the hour allocate compensation based on the                 The nonresident payee must complete Form 589,
     number of billable hours worked in California to               Nonresident Reduced Withholding Request, and
     the total number of billable hours related to the              submit it before receiving payment for services from
     particular service.                                            the withholding agent. The payee must provide the
 8. When payments are made for goods and                           gross California source payment, any expenses
     services, how may withholding agents                           relevant to the services being performed, and
     determine the portion of the payment related to                calculate a proposed reduced withholding amount.
     services?                                                  . How is a reduced withholding amount
     We accept any reasonable method. One method is                 approved?
     to use the same allocation of goods and services               Upon receipt of Form 589, we review the
     that is used for sales and use tax purposes in the             information on the form. We may request to review
     sales contract. The portion of the payment not                 all relevant documentation including, but not limited
     subject to sales or use tax would be considered                to, expense documentation such as receipts and
     payment for services and subject to withholding. If            contracts.
     a payment is not subject to California sales or use

Page 10    FTB Pub. 1017 (REV 12-2007)
. When should the payee send Form 89?                         more information about who qualifies for a waiver,
    Send Form 589 at least 10 business days prior to             see Form 588, Nonresident Withholding Waiver
    receiving payment for the services being performed.          Request.
    If requests are received less than 10 business days
    prior to the payee receiving payment for services,       60. May foreign partners receive a waiver from
    seven percent withholding on the gross California            withholding?
    source payment may be required. Send request to:             No. There is no provision in R&TC Section 18666
                                                                 or IRC Section 1446 to allow waivers for foreign
    WITHHOLDING SERVICES AND COMPLIANCE                          nonresident partners.
    FRANCHISE TAX BOARD
    PO BOX 9867                                            61. Can a payee receive a waiver for their first
    SACRAMENTO CA 967-061                                     payment of California source income?
                                                                 Yes. If the payee has never received payment
. How quickly will I get a response to the                     for services performed in California and the
    Form 89?                                                    payment is less than $1,500, then withholding is
    We generally respond within one week, if the                 not generally required. However, if the payment
    Form 589 is complete and signed. However, the                exceeds $1,500, the payee must meet one of the
    processing time may vary if we ask for supporting            criteria on Form 588, Nonresident Withholding
    documentation.                                               Waiver Request, in order to receive a waiver from
. What are the procedures to get a rush response               withholding.
    to a Form 89?                                           6. What are the procedures for requesting a
    Rush requests may be sent via FAX. If you send               waiver?
    your request via FAX, do not mail the original.              Nonresident payees or withholding agents should
    Mailing the original could cause a duplication of            complete Form 588 and attach any pertinent facts
    effort and slow down the response time. Our FAX              to support the request. If sufficient information is not
    number is (916) 845-9512.                                    provided, we may request additional information or
                                                                 deny the request. Send request to:
6. Are withholding agents required to honor the
                                                                 WITHHOLDING SERVICES AND COMPLIANCE
    authorized reduced withholding amounts?
                                                                 FRANCHISE TAX BOARD
    Yes. Withholding agents must honor authorized
                                                                 PO BOX 9867
    reduced amounts.
                                                                 SACRAMENTO CA 967-061
7. Does an S corporation or partnership need to
                                                             6. What is the time frame for a response to a
    request a reduction in withholding if they have
                                                                 waiver request?
    no California source income?
                                                                 We generally respond within 21 working days. We
    No. If the distribution is a return of capital or does
                                                                 will contact the requester if additional information is
    not represent California source income, withholding
                                                                 required.
    is not required and a reduction is not necessary.
                                                             6. What are the procedures to get a rush response
8. Is withholding required if the withholding
                                                                 to waiver requests when making payments or
    agent has not received Form 9, Request for
                                                                 distributions on short notice?
    Reduced Withholding – Approved, from FTB
                                                                 Rush requests may be sent via FAX. If you send
    confirming a reduction in withholding before the
                                                                 your request via FAX, do not mail the original.
    nonresident is paid?
    Yes. The withholding agent must withhold seven               Mailing the original could cause a duplication of
    percent of the gross California source payment               effort and slow down the response time. Our FAX
    if they did not receive Form 3952 approving a                number is (916) 845-9512.
    reduction in withholding before the nonresident is       6. Must a waiver be requested for each payment or
    paid for their services.                                     distribution?
Waivers of Withholding                                           No. Waivers are generally granted for fixed periods
                                                                 with a maximum expiration date of two years.
9. Are waivers of withholding granted?                          However, waivers may be granted for a specific
    We may authorize a waiver of withholding if the              payment or distribution, if requested.
    payee has California tax returns on file for the
    past two taxable years in which the payee has a          66. Are withholding agents required to honor
    filing requirement and is considered current on              authorized waivers?
    any outstanding FTB tax obligations. If the payee            Yes. Withholding agents must honor authorized
    does not have a current filing history, but is making        waivers.
    estimated tax payments for the current tax year and      67. Does an S corporation or partnership need to
    is current on any outstanding FTB tax obligations,           request a waiver from withholding if they have
    we may issue a waiver that is good for a one-year            no California source income?
    period. Waivers of the withholding requirements are          No. If the distribution is a return of capital or does
    available to domestic nonresident payees only. For           not represent California source income, withholding
                                                                 is not required and a waiver is not necessary.
                                                                                 FTB Pub. 1017 (REV 12-2007) Page 11
 68. How does a nonresident qualify for a waiver?                 If the withholding agent knows of only one
     The requirements to qualify for a waiver, include, but       contractor, use the information provided by the
     are not limited to:                                          contractor-of-record. If the contractor is a resident,
     • Payee has California tax returns on file for the           no withholding is required. However, if the
        past two taxable years in which the payee has a           contractor-of-record is a nonresident, withholding
        filing requirement and is considered current on           is required on the total payment. Withholding is
        any outstanding FTB tax obligations.                      not required on payments to general contractors
     • Payee is making timely estimated tax payments              who are California residents. However, general
        for the current taxable year and is considered            contractors must withhold on payments made to
        current on any outstanding FTB tax obligations.           nonresident subcontractors for services performed
                                                                  in California.
     See Form 588, Nonresident Withholding Waiver
     Request, for details.                                    7. When is withholding required on rent or lease
                                                                  payments made to nonresidents?
 69. What should a withholding agent do if they
                                                                  Withholding on rent or lease payments to
     withheld seven percent and a waiver has been
                                                                  nonresidents is required when all of the following
     authorized?
                                                                  criteria are met:
     The withholding agent must return any amounts
     withheld.                                                    • Payments are made in the course of the lessee’s
                                                                     business (tenants of residential property are
Non-Wage, Independent Contractors,                                   not required to withhold on payments made to
                                                                     nonresident owners).
Rents and Royalties, Beneficiaries of                             • Rented or leased property is located in California.
Estates and Trusts                                                • Total payments of California source income to
This portion provides guidance for those making payments             the lesser by the lessee exceed $1,500 for the
to nonresident independent contractors, payments of                  calendar year. The withholding only applies when
rents or royalties to nonresidents, and distributions to             the rent-payers are renting or leasing property in
nonresident beneficiaries of estates or trusts.                      the course of their business from a non-California
                                                                     owner.
 70. What is the difference between an independent
     contractor and an employee?                                  Note: Although withholding is not required on
     An independent contractor is engaged in a bona               residential property, income derived from real
     fide business that is separate and apart from the            property as well as tangible personal property
     business paying him. A bona fide business is                 located in California is California source income and
     subject to profit and loss. An independent contractor        is subject to California tax. This includes rents, lease
     is usually contracted to perform specific tasks and          payments, and the gain on the sale of such property.
     has the right to control the way the work is to be       7. What types of rental or leased property are
     accomplished. An independent contractor has a                subject to withholding?
     substantial investment in the business and contracts         • Real property, such as land and buildings.
     to perform services with more than one business.             • Tangible personal property, such as machinery,
     An employee is subject to the wage withholding                 equipment, vehicles, aircraft, etc.
     provisions administered by the Employment
     Development Department (EDD). If the nonresident         7. When is withholding required on royalty
     vendor is an independent contractor, withholding is          payments made to nonresidents?
     sent to us. A particular withholding agent could have        California requires withholding agents to withhold on
     some payees who are employees and others who                 royalties paid for the right to use natural resources
     are independent contractors. Please contact EDD to           located in California, including, but not limited to,
     learn more about the definition of an employee.              oil, gas, other minerals, geothermal, and timber.
                                                                  Withholding is also required on royalty or residual
 71. What are the withholding agent’s                             payments made to nonresidents for services
     responsibilities when making payments to                     originally performed in California.
     subcontractors?
     The withholding agent is required to withhold            7. Is withholding required on payments to
     when making payments directly to nonresident                 nonresident directors of a corporation when
     subcontractors for services performed in California.         board meetings are held in California?
     To decide if withholding is required when payments           No. R&TC Section 18662 was amended to eliminate
     to more than one contractor are made, the                    withholding requirements on wages, salaries, fees,
     withholding agent should provide each contractor             or other compensation paid by a corporation for
     with:                                                        services performed in California for that corporation
     • Form 587, Nonresident Income Allocation                    to a nonresident corporate director for director
        Worksheet.                                                services, including attendance at a board of
     • Form 590, Withholding Exemption Certificate.               directors’ meeting.




Page 1   FTB Pub. 1017 (REV 12-2007)
 76. Are information returns required when a person             8. Is withholding required if the compensation
     makes payments to a nonresident corporate                      paid to nonresident entertainers is made to their
     director?                                                      California agents or promoters?
     Yes. An entity paying wages, salaries, fees, or other          Yes. Withholding is required even though the
     compensation to a nonresident director must file an            payment is not made directly to the nonresident
     information return with FTB and provide the payee              entertainer. Since the entertainer performed
     with a payee statement. To meet this requirement               the service, they are required to report their
     the paying entity must file federal Form 1099-MISC             compensation for the performance and are solely
     with the IRS and provide a copy of the form to the             entitled to the entire withholding credit.
     payee.
                                                                8. Is withholding required if the compensation is
 77. Is withholding required on payments made to                    paid to a California agent or promoters, who
     nonresident seminar providers for seminars                     then contracts separately with the entertainer?
     held In California?                                            No. Withholding is not required if the corporation
     Yes. Withholding is required on payments that are              has a permanent place of business in California
     compensation for services performed in California              or is qualified through SOS to do business
     by a nonresident.                                              in California. However, a separate nonwage-
                                                                    withholding amount is required to be reported and
 78. Is withholding required on payments to expert                  paid when the agent or promoter makes a payment
     witnesses who are nonresidents?                                of California source income to the entertainer.
     Yes. Withholding is required on payments that are
     compensation for services performed in California          8. What should withholding agents do when they
     by a nonresident.                                              receive a letter authorizing reduced withholding
                                                                    for a supporting act when the contract is
 79. When is a trust considered a California trust?                 negotiated with a headliner and the headliner is
     For withholding purposes, a trust is considered a              paying the supporting act?
     California trust if at least one trustee is a California       If withholding agents receive a reduced withholding
     resident. Withholding is not required on payments to           letter for the supporting act, they should provide
     California trusts.                                             us with the necessary information so we can notify
 80. When is an estate considered a California                      the headliner. We will send the headliner a copy
     estate?                                                        of the letter and instruct them to withhold on the
     An estate is considered a California estate for                supporting act. We will also send the withholding
     withholding purposes when the decedent was a                   agent a letter to withdraw the original notice.
     California resident on the date of death.                  86. Is withholding required on payments made to
 81. May the trustee of a trust allocate distributions              nonresidents of California for sound and light
     between California and non-California source                   services provided in California?
     income based on past year’s allocations for                    Yes. Withholding is required on payments made for
     withholding purposes?                                          sound and light services if payable to a nonresident.
     Yes. If the trustee does not know the amount of            87. What should lessors of a venue do upon
     California source income included in a distribution,           receiving a letter instructing them to withhold
     the trustee may use the previous year’s ratio of               for a performance they are not promoting?
     California source income to total income to allocate           The lessor should contact us and provide the
     the distribution.                                              necessary information for us to correctly notify
                                                                    the promoter. We will send a letter to the correct
Entertainment                                                       promoter for the performance and withdraw the
This portion explains the requirements for those making             original letter sent to the venue/lessor.
payments to nonresident entertainers.
                                                                88. What is the procedure if a withholding agent
 8. Is withholding required on previous payments                   receives a letter instructing them to withhold
     made to a nonresident entertainer if the                       when no payment is made to the nonresident
     withholding agent reasonably believed that                     entertainer because the performance was
     total payments to a nonresident entertainer                    canceled?
     for the year would not exceed $1,00 but later                 The withholding agent should write “Cancelled”
     determines that the total payments will exceed                 on the letter and return a copy to us with an
     $1,00?                                                        explanation that withholding was not done because
     No. Withholding is optional, at the discretion of the          the performance was canceled and no payment was
     withholding agent, on the first $1,500 in payments             made. We may request additional information to
     made during the year. Withholding must begin as                validate the canceled performance.
     soon as the total payments of California source
     income for the calendar year exceed $1,500.




                                                                                   FTB Pub. 1017 (REV 12-2007) Page 1
 89. When a partnership or LLC is withheld upon,                   allocated to the partners. (Even if the partnership
     how does it transfer its withholding credit to its            will owe tax with Form 565, the partnership can
     partners or members?                                          still choose to allocate the entire withholding to its
     When a partnership or LLC is withheld upon, it                partners instead of using a portion to offset the
     receives a withholding document (Form 592-B or                tax due.)
     similar form) from the withholding agent showing            • LLCs – LLCs can either allocate the entire
     how much was withheld. To allocate the amount                 withholding credit to its members or use a portion
     withheld to its partners or members, it must                  of the credit to offset any LLC tax (including non-
     complete Form 592 showing each partner or                     consenting nonresident tax) or fees still due with
     member’s share of the withholding. The tax withheld           Form 568, Limited Liability Company Return of
     must be allocated to all partners or members,                 Income, and allocate any excess to its members.
     whether residents or nonresidents of California,              LLCs may not receive a refund of withholding on
     based on the partner or member’s interest in the              Form 568.
     partnership or LLC.                                         • Estates and Trusts – Withholding on estates
                                                                   and trusts must follow the income. If the related
 90. May a partnership or LLC that is withheld upon
                                                                   income is not being distributed in the current year
     claim a refund for the tax withheld?
                                                                   to the beneficiaries, the withholding credit must
     No. Refunds of withholding credits are not
                                                                   be claimed on Form 541,California Fiduciary
     allowed for partnerships or LLCs. Although limited
                                                                   Income Tax Return. If the related income is being
     partnerships and LLCs may use the withholding
                                                                   distributed in the current year, the withholding
     to offset their outstanding tax liability, any excess
                                                                   credit must be allocated to the beneficiaries.
     withholding must be allocated to the partners or
                                                                 • S corporations – Since S corporations are
     members. General partnerships must allocate the
                                                                   taxed at the entity level, S corporations can
     entire amount to its partners. A partnership has no
                                                                   choose to allocate the withholding credit to
     tax liability, except for the minimum tax paid by a
                                                                   their S corporation shareholders, claim the
     limited partnership. Form 565, Partnership Return of
                                                                   withholding on the S corporation tax return, or
     Income, is an information return. The income or loss
                                                                   use a combination of both. If a pass-through
     reported on Form 565 flows through to the partners
                                                                   entity claims any of the amount withheld on its
     and is reported on their tax returns. The withholding
                                                                   tax return, attach Form 592-B, or Form 593 from
     must follow the income and flow through to the
                                                                   the withholding entity to the front lower portion
     partners. The partners can claim the withholding
                                                                   of the tax return and include a schedule in the
     credit against their individual tax liabilities.
                                                                   body of the return explaining that the remainder
Domestic Pass-Through Entities                                     of the credit (if any) was allocated. Pass-through
                                                                   entities must also attach a note to Form 592
This portion explains the withholding requirements for             specifying the amount that will be claimed on its
domestic (non-foreign) nonresident pass-through entities.          tax return.
 91. What are pass-through entities?                         9. How do pass-through entities that have been
     Pass-through entities include partnerships, LLCs,           withheld upon allocate or “flow-through” the
     S corporations, estates, trusts, etc. A pass-through        withholding credit?
     entity may pass through income or losses to its             The withholding must be allocated to all partners,
     partners, members, S corporation shareholders,              members, S corporation shareholders, or
     or beneficiaries instead of paying the related tax at       beneficiaries, whether they are residents or
     the entity level. Partners, members, S corporation          nonresidents of California, in proportion to their
     shareholders, or beneficiaries must include the             ownership or beneficial interest. See Form 592 for
     pass-through items on their tax returns.                    detailed instructions.
 9. May pass-through entities, which are withheld           9. Are there different due dates for Form 9 when
     upon, claim the withholding on their own tax                pass-through entities that have been withheld
     returns?                                                    upon must allocate the withholding credit?
     The answer depends on the type of pass-through              No. Forms 592 are generally due on a quarterly
     entity as follows:                                          basis. The pass-through entity must identify the
     • Partnerships – Since partnerships have no                 income and withholding distribution for each partner
        tax liabilities except for the annual tax paid by        on Form 592. If pass-through entities have been
        limited partnerships, the withholding can only           withheld upon, they should contact the withholding
        be claimed on Form 565 to the extent that the            agent and request to receive the withholding
        annual tax is still due at the time the return is        information early so the pass-through entities can
        filed. Partnerships may not receive a refund             file their forms by the quarterly due date. If the pass-
        of withholding on Form 565. The withholding              through entities still do not get the information in
        in excess of the tax due on Form 565 must be             time to file, they should file as soon as they get the
                                                                 information. The pass-through entities should attach




Page 1   FTB Pub. 1017 (REV 12-2007)
    a letter to Form 592 stating the reason for filing            • The qualified investment securities are acquired
    late and documenting their attempts to get their                with the working capital of a California trade
    withholding agents to furnish the information early.            or business in which the nonresident owns an
                                                                    interest. A bank or corporation is taxed on its
9. Are LLCs required to withhold on nonresident                    distributive share of income if it participates in
    members who have signed form FTB 8?                          the management of the investment activities
    Yes. The LLCs must withhold on nonresident                      or is engaged in a unitary business with
    members who have signed form FTB 3832.                          another taxpayer that participates in managing
96. Are LLCs required to withhold on nonresident                    the investment activities or has income from
    members if the nonresident members have not                     California sources. An investment partnership is a
    signed form FTB 8 and the LLCs are paying                    partnership that meets the following two criteria:
    the non-consenting nonresident tax for the                      1. No less than 90 percent of the cost of the
    non-consenting members?                                            partnership’s assets consist of:
    Yes. Payment of non-consenting nonresident tax                     • Qualifying investment securities.
    does not relieve LLCs of the requirement to withhold               • Deposits at banks or other financial
    on nonresident members. However, LLCs who can                          institutions.
    show they pay the non-consenting nonresident                       • Office equipment and office space
    tax on all non-consenting members may request                          reasonably necessary to carry on the
    a waiver of withholding on their non-consenting                        activities of an investment partnership.
    members.
                                                                    2. No less than 90 percent of the partnership’s
97. How are S corporations and partnerships                            gross income is from interest, dividends, and
    notified of the withholding requirements?                          gains from the sale or exchange of qualifying
    We annually mail notices to S corporations and                     investment securities. Qualifying investment
    partnerships that are first time return filers. In                 securities include:
    addition, notice is considered constructively given                • Common and preferred corporate stock
    yearly in the S corporation and partnership return                     as well as debt securities convertible into
    instructions. S corporations and partnerships that                     common stock.
    do not file California S corporation or partnership                • Bonds, debentures, and other debt
    returns, when required to file, are still considered to                instruments.
    have received constructive notice of the withholding               • Foreign and domestic currency deposits or
    requirements. Constructive notification is considered                  equivalents and securities convertible into
    to have been given on the due date of the                              foreign securities.
    S corporation and partnership return (without regard               • Mortgage or asset-backed securities
    to any extensions of time to file).                                    secured by governmental agencies.
98. Is withholding required on distributions by                        • Repurchase agreements and loan
    “investment partnerships”?                                             participations.
    No. According to R&TC Sections 17955 and                           • Foreign currency exchange contracts.
    23040.1, income earned by partners in “investment                  • Forward and futures contracts on foreign
    partnerships” from the buying, selling, or holding                     currencies.
    of “qualified investment securities” is not derived                • Stock and bond index securities and futures
    from California sources. Therefore, this income is                     contracts and other similar securities.
    not subject to withholding. Income of nonresident                  • Regulated futures contracts.
    partners, including banks or corporations, derived                 • Options to purchase or sell any of the
    from qualified investment securities of investment                     preceding qualified investment securities,
    partnerships is considered income from the                             except regulated futures contracts.
    partner’s state of residence, except as noted below.                   Qualifying investment securities do not
    Therefore, nonresident partners generally will not                     include an interest in a partnership unless
    be taxed by California on this income. Partnerships                    such partnership qualifies as an investment
    should inform their nonresident partners if all or part                partnership.
    of their distributive share of income is from qualified   99. How is current year income subject to
    investment securities of an investment partnership.           withholding determined before the end of the
    Nonresident partners are taxed by California on               year?
    their distributive share of income from investment            The partnership must make a good faith effort
    partnerships if:                                              to estimate the total amount of California source
    • The qualified investment securities are interrelated        income for the current year. Where it is impractical
       with any other business activity of the nonresident        or impossible to estimate, use the amount of
       partners that is separate and distinct from the            California source income recognized as of the date
       investment activity and is conducted in California.        of the distribution.




                                                                                 FTB Pub. 1017 (REV 12-2007) Page 1
100. Are guaranteed payments to partners subject to                 No. An S corporation or partnership that distributes
     withholding?                                                   California source income is required to withhold
     Yes. If the guaranteed payments represent income               even though the S corporation shareholder
     from California sources and are not subject to wage            or partner has losses from other California
     withholding through EDD then the payments are                  S corporations and partnerships.
     subject to withholding.
                                                               108. Is withholding required on distributions of prior
101. Are distributions of property subject to                       year income if the S corporation shareholder
     withholding?                                                   or partner has already reported the income to
     Yes. If the property distribution represents California        California?
     source income, withholding is required and is                  Withholding is not required on distributions of prior
     based on the fair market value of the property being           year California source income if the S corporation
     distributed.                                                   shareholder or partner provides the S corporation or
                                                                    partnership with a signed Form 590-P, Nonresident
10. Is withholding required on distributions to
                                                                    Withholding Exemption Certificate for Previously
     insurance companies?
                                                                    Reported Income, certifying that the S corporation
     No. Insurance companies pay a gross premium tax
                                                                    shareholder or partner previously reported the
     to the California Department of Insurance instead
                                                                    income on the S corporation shareholder’s or
     of California corporation income or franchise tax.
                                                                    partner’s California return. The S corporation or
     Withholding only applies to income or franchise tax.
                                                                    partnership may rely on this certification to waive
10. Is withholding required when a partnership                     the withholding obligation on that prior year income
     makes distributions of California source income                for that S corporation shareholder or partner.
     to domestic nonresident partners that are
     partnerships, publicly traded partnerships, or            Foreign (non-U.S.) Partners
     master limited partnerships?                              109. What income is subject to withholding?
     Yes. Unless the partnership receives a waiver, the             A foreign (non-U.S.) partner’s allocable share of
     partnership is required to withhold on all California          California source income is subject to withholding.
     source income distributions made to these domestic             This is different than domestic nonresident partners,
     nonresident partners. Waivers are generally                    where the income subject to withholding is limited to
     approved on distributions by publicly traded                   the amount of income being distributed.
     partnerships and on distributions to brokerage firms
     and tiered partnerships upon written request.             110. When are partnerships with foreign (non-U.S.)
                                                                    partners required to withhold for California
10. Is withholding required on distributions that                  purposes?
     have incurred losses every year?                               California generally conforms to IRC Section 1446.
     No. The distributions would be a return of capital if          R&TC Section 18666 requires partnerships to
     the partnerships have incurred losses every year.              withhold on amounts subject to IRC Section 1446
10. When are distributions considered a return of                  withholding which represent California source
     capital as opposed to income distributions?                    income effectively connected to a California trade or
     Distributions are deemed first from distributable              business.
     income and second as return of capital.                   111. Is there a minimum amount of allocable
106. If net operating losses (NOLs) are generated                   California source income that must be reached
     in prior years, resulting in NOL carryovers for                before partnerships must withhold on foreign
     their S corporation shareholders or partners,                  partners?
     is withholding required on current year                        No. There is no minimum threshold. Partnerships
     distributions of California source income?                     must withhold on all allocable California source
     Yes. We require withholding on distributions of                income.
     California source income even though NOLs are             11. What entities are subject to foreign partner
     generated in prior years. NOL carryovers and                   withholding?
     deductions are determined at the S corporation                 California conforms to the federal definition of
     shareholder or partner level, not at the                       foreign partners. Thus, foreign partners who are
     S corporation or partnership level.                            nonresident alien individuals, foreign corporations,
107. If a domestic nonresident S corporation                        foreign partnerships, foreign estates, or foreign
     shareholder or partner is an S corporation                     trusts are subject to foreign partner withholding.
     shareholder or partner in more than one                   11. How can partnerships identify non-foreign
     S corporation or partnership, some generating                  partners?
     income and others generating losses, may the                   Partnerships should withhold on partners with
     income and losses be netted to determine if                    a foreign address under the foreign partner
     withholding is required?                                       withholding requirements, unless the partner
                                                                    has documentation to show non-foreign status.
                                                                    Partnerships may rely on a partner’s federal

Page 16   FTB Pub. 1017 (REV 12-2007)
      certification of non-foreign status. See federal               118. What methods may the withholding agent use to
      Publication 515, Withholding Tax on Nonresident                     report the information on Form 9?
      Aliens and Foreign Entities, for acceptable                         The information may be reported using the
      documentation. However, unless the partner is                       following:
      a California resident, the partnership would be                     • A completed copy of Form 592, including the
      required to withhold under the domestic nonresident                     schedule of payees.
      partner withholding requirements.                                   • A copy of Form 592 with the schedule of payees
11. May foreign partners receive a waiver from                               provided on magnetic media.
     withholding or a reduction in withholding?                           Withholding agents may develop withholding forms,
     No. There is no provision in R&TC Section 18666                      making them suitable for computer preparation.
     or IRC Section 1446 to allow waivers or reduced                      However, substitute withholding forms must be
     withholding for foreign nonresident partners.                        in the same format and include all the same
                                                                          information as our form. Withholding agents who
Reporting and Remitting Withholding                                       wish to use substitute withholding forms must follow
Amounts/Due Dates                                                         the procedures in FTB Pub 1098, Guidelines for the
                                                                          Development and Use of Substitute, Scannable and
11. What forms do withholding agents use to report                       Reproduced Tax Forms.
     and remit withholding?
     Use the following forms to report and remit                     119. What methods may the withholding agent
     withholding:                                                         use to report to the payee the information on
                                                                          Form 9-B?
     • Form 592, Quarterly Nonresident Withholding                        The information may be reported to the payee using
        Statement, to report the income and withholding                   the following:
        amount for each domestic nonresident payee.
     • Form 592-A, Foreign Partner or Member                              • Copy B of Form 592-B.
        Quarterly Withholding Remittance Statement,                       • Copy B of an approved, substitute Form 592-B.
        to report the withholding on foreign partners or                  • Two copies of Form 1099. The Form 592-B
        members of a partnership or LLC.                                     information must be mailed to the payee by
     • Form 592-F, Foreign Partner or Member Annual                          January 31 of the year following the reportable
        Return, to report the total withholding for the                      payments unless we have granted an extension
        taxable year and allocate the income or gain                         to file.
        and related withholding to the foreign partners or           10. Does the IRS 1099 reporting program relieve
        members.                                                          a withholding agent from the California
     • Form 592-B, Nonresident Withholding Tax                            withholding requirements?
        Statement, is provided to the nonresident to show                 No. The 1099 reporting is a federal program. It is
        the amount of income subject to withholding and                   separate from California’s nonresident withholding
        tax withheld.                                                     program.
116. When are withholding amounts for domestic                       11. How can errors in withholding be resolved?
     nonresidents due?                                                    If tax is withheld in error, contact us at:
     Form 592 and the payment of tax withheld is due                      (916) 845-4900 for instruction. Generally, the
     quarterly. Each quarter has a specific payment due                   withholding agent will be instructed to file an
     date:                                                                amended Form 592 correcting the erroneous
     Payment Quarter                                     Due Date         withholding.
     January 1 through March 31 . . . . . . . . . . . .April 15
                                                                     1. Are transcripts of payments made during the
     April 1 though May 31 . . . . . . . . . . . . . . . . June 15
                                                                          year available to withholding agents upon
     June 1 through August 31 . . . . . . . . September 15
                                                                          request?
     September 1 through December 31. . . . January 15
                                                                          Yes. To request a transcript, please write to:
     If the due date falls on a Saturday, Sunday, or legal
                                                                          WITHHOLDING SERVICES AND COMPLIANCE
     holiday, the due date will be the next business day.
                                                                          FRANCHISE TAX BOARD
     These quarterly due dates are the same as the due
                                                                          PO BOX 9867
     dates for estimated tax payments.
                                                                          SACRAMENTO CA 967-061
117. Where should withholding agents remit the                            Or, call WITHHOLDING SERVICES AND
     amounts withheld?                                                    COMPLIANCE at (916) 845-4900.
     Remit payments with Forms 592 and 592-A to:
                                                                     1. What forms should the performing entity
     FRANCHISE TAX BOARD
                                                                          use to allocate withholding credits when
     PO BOX 9867
                                                                          the performing entity is a partnership and is
     SACRAMENTO CA 967-061
                                                                          distributing compensation to its members?
                                                                          Complete Form 592 to report the total amounts
                                                                          withheld for each member receiving compensation
                                                                          and withholding credit. Attach any forms or letters

                                                                                         FTB Pub. 1017 (REV 12-2007) Page 17
     received from the withholding agent for proof             19. When is Form 9-F due for foreign partners?
     of withholding and send these forms with the next              The due dates for foreign partners are the same
     quarterly Form 592 due date. The withholding                   as the federal due dates. Form 592-F is due on or
     agent should follow the instructions on Form 592-B             before the 15th day of the fourth month (sixth month
     for proper distribution of Copies A and B to each              if all partners are foreign) following the close of the
     nonresident withheld upon.                                     partnership’s tax year.
                                                                    Caution: If the partnership withholds on both
Domestic (non-foreign)                                              domestic nonresident partners and foreign
1. What forms do S corporations and partnerships                  partners, a separate Form 592 should be filed for
     use for withholding on nonresident S                           the domestic partners since the two groups have
     corporation shareholders and partners?                         different due dates.
     Use Form 592 to remit the payment and schedule of
                                                               10. Can partnerships request an extension to file
     payees (S corporation shareholders and partners).
                                                                    Form 9-F for withholding on foreign partners?
     Provide each S corporation shareholder or partner a
                                                                    Yes. We will grant an extension to file Forms 592-F
     copy of Form 592-B to show the amount subject to
                                                                    for foreign partners if the partnership has received
     withholding and the amount withheld for the quarter.
                                                                    an extension from the IRS to file Form 8804,
     Please refer to the instructions for Forms 592 and
                                                                    Annual Return for Partnership Withholding Tax,
     592-B for more information.
                                                                    (Section 1446). The IRS approval or denial should
1. How do S corporations and partnerships report                  be attached to Form 592-F when the Form 592-F is
     individual S corporation shareholder and                       filed.
     partner withholding information?                               Caution: If a partnership has both domestic
     Withholding information is reported on Form 592.               nonresident and foreign partners, the extension is
     S corporations and partnerships must send a copy               only effective for the filing of the forms for foreign
     to us. If an S corporation or partnership is filing 250        partners. In addition, the extension only extends the
     or more Forms 592, the Form 592 information must               due date for filing the forms. It does not extend the
     be filed electronically or via magnetic media instead          due date for any final payment of withholding.
     of paper. See FTB 1023Q, Nonresident Withholding
     Magnetic Media Requirements, or 1023S,                    11. If a partnership has received a federal extension
     Nonresident Withholding Electronic Submission                  to file the partnership return (Form 106, U.S.
     Requirements, for more information on the required             Partnership Return of Income), does this
     file format and record layout.                                 extension also apply to the filing of Form 9-F?
                                                                    No. Partnerships must have received an approval
16. How do S corporations and partnerships report                  to extend the due date to file Form 8804,
     withholding information to their S corporation                 Annual Return for Partnership Withholding Tax,
     shareholders or partners?                                      (Section 1446) on federal Form 2758, Application
     S corporations and partnerships must provide each              for Extension of Time to File Certain Excise,
     S corporation shareholder or partner who was                   Income, Information, and Other Returns.
     withheld upon with Copy B of Form 592-B.
                                                               1. What should the partnership do if the
17. May S corporations and partnerships use                        partnership’s estimation of the allocable income
     Schedule K-1 to report withholding?                            for withholding results in an amount being over-
     No. Although withholding is included on                        withheld at year-end based on the partnership’s
     Schedule K-1, the withholding must be reported                 actual allocable income?
     using Form 592.                                                When the partnership files Form 592-F, it can either
                                                                    request that the excess credits be applied to the
Foreign (non-U.S.) Partners                                         next year’s withholding liability or be refunded.
18. When are withholding payments due for foreign
     partners?                                                 Withholding Agent Liability and
     Withholding payments for foreign partners are due in      Penalties
     four equal installment payments during the taxable
     year in which the California source income is derived     1. Is interest assessed on late payments of
     with Form 592-A, Foreign Partner or Member                     withholding?
     Quarterly Withholding Remittance Statement. The                Yes. The law requires the assessment of interest on
     due dates are the same as the federal due dates, on            late payments of withholding. Interest is computed
     or before the 15th day of the fourth, sixth, ninth, and        from the due date of the withholding payment to the
     twelfth months of the partnership’s tax year. If any           date paid. The imposition of interest is not a penalty.
     additional amounts are determined to be due at the             It is compensation to the state for the loss of the use
     year-end, the additional amounts are required to be            of funds.
     paid with the filing of Form 592-F, Foreign Partner or
     Member Annual Return.



Page 18   FTB Pub. 1017 (REV 12-2007)
1. What is the withholding agent’s liability for             19. What penalties are imposed if the withholding
     failure to remit withholding?                                  agent used an estimate or computation method
     A withholding agent who fails to withhold, under               for determining the portion of the payments that
     withholds, or fails to remit withholding is liable for         represents California source income and that
     the greater of:                                                estimate or method later proved inaccurate?
     • The amount actually withheld.                                We expect that there will be differences in estimated
     • The amount of taxes due from the nonresident,                California source income and actual California
        but not more than the amount required to be                 source income. Penalties are not imposed on
        withheld.                                                   withholding agents who make a good faith effort to
                                                                    comply with the law.
1. What is the penalty for failing to file complete,
     correct, and timely information returns (Form             10. Are the policies and penalties related to
     9 schedule of payees)?                                       domestic nonresident partner withholding
     Beginning with forms filed for the 2008 tax year, the          applicable to foreign partner withholding?
     penalty for the withholding agent is calculated as             All of the policies and penalties are the same except
     $15 per payee on the Form 592 schedule of payees               for the penalty for failing to file correct and timely
     if the failure is corrected within 30 days. The penalty        Forms 592-F.
     increases to $50 per payee if the failure is corrected    11. Can penalties be withdrawn?
     after 30 days.                                                 Yes. If the withholding agent shows that the failure
     Forms filed for tax years 2007 and prior, the                  to withhold was due to reasonable cause, the
     penalty is calculated per information return (592-B,           penalties may be withdrawn.
     Nonresident Withholding Tax Statement):
                                                               1. What is “reasonable cause”?
     • $15 if filed within 30 days after the due date.              “Reasonable cause” is a standard exception to most
     • $30 if filed by August 1.                                    penalties imposed under the R&TC and the IRC.
     • $50 if filed after August 1 or a correct form is not         Generally, reasonable cause exists where the failure
         filed.                                                     to comply occurs despite the exercise of ordinary
     • $100 or 10 percent of the amount required to be              business care and prudence.
         reported (whichever is greater), if the failure is
         due to intentional disregard of the requirement.      Requirement to File a California
16. What is the penalty for failing to furnish correct        Return
     and timely Forms 9-B to payees?
                                                               1. Does withholding on nonresidents relieve
     The penalty for the withholding agent failing to
                                                                    the nonresident of the requirement to file a
     furnish correct and timely Forms 592-B to payees
                                                                    California tax return?
     is $50 per form. If the failure is due to intentional
                                                                    No. Nonresident individuals or business entities
     disregard of the requirement, the penalty is $100 or
                                                                    must file a California tax return if they meet the
     10 percent of the amount required to be reported
                                                                    filing requirements. If withholding is more than the
     (whichever is greater).
                                                                    actual tax liability, we will refund the overpayment.
17. What is considered a correct Form 9-B?                       If withholding is less than the actual tax liability,
     All required information must be filled out completely         additional tax will be due.
     and accurately on Form 592-B. (Form 1099 is not
                                                               1. How can nonresidents determine if they have
     acceptable.) If there are more than 250 payees on
                                                                    a requirement to file California income tax
     Form 592, the information must be filed in electronic
                                                                    returns?
     format. The preferred format for submitting data
                                                                    In most cases, all nonresidents who receive
     is Secure Web Internet File Transfer (SWIFT),
                                                                    California source income will have a California filing
     using the required format in FTB Pub. 1023S.
                                                                    requirement.
     The withholding agent may submit the Form 592
     information using magnetic media in the required               For more information on the California filing
     format provided in FTB Pub. 1023F, Nonresident                 requirements, call the numbers listed below:
     Withholding Magnetic Media Requirements, (for                  From within the United States,
     tax years 2007 and prior) or FTB Pub. 1023Q for                call . . . . . . . . . . . . . . . . . . . . . . . . . . (800) 852-5711
     tax years 2008 and later. Paper Forms 592-B must               From outside the United States,
     be provided to the payees, even if the number of               call (not toll-free) . . . . . . . . . . . . . . . (916) 845-6500
     payees on Form 592 exceeds 250.                                For hearing impaired with TDD,
18. What is the liability when a withholding agent                 call . . . . . . . . . . . . . . . . . . . . . . . . . . (800) 822-6268
     withheld more than the required amount of
     withholding but failed to remit the withholding?
     If the withholding agent has not returned the excess
     withholding to the payees, the agent is liable for
     the amount actually withheld from the payees, plus
     interest and applicable penalties.

                                                                                        FTB Pub. 1017 (REV 12-2007) Page 19
1. Does a waiver of withholding exempt a
     nonresident from the requirement to file a
     California return?
     No. A nonresident must file a California tax return
     if the nonresident meets the filing requirements
     even if a waiver was granted or the nonresident was
     exempt from withholding.

Where To Get Forms and More
Information
16. Where can I get more information about the
     withholding requirements?
     If you have Internet access, you can view, download,
     and print withholding forms, publications (including
     additional copies of FTB Pub. 1017), and California
     tax forms from our Website at www.ftb.ca.gov.
     To get withholding forms and publications or to
     speak to a representative, contact Withholding
     Services and Compliance automated telephone
     service at (888) 792-4900 or (916) 845-4900 (not
     toll-free).
     Our automated telephone service allows you to
     access important information seven days a week,
     24 hours a day. If the service does not completely
     answer your questions, you may choose to speak
     with a representative Monday through Friday
     between the hours of 8 a.m. and 5 p.m., except
     state holidays.
17. Are there any publications similar to the federal
     publications related to foreign (non-U.S.)
     partners?
     No. This is the only California publication with
     information about withholding on foreign partners.
     However, California conforms to IRC Section 1446,
     and the following federal publications will provide
     information on the withholding requirements related
     to foreign partners:
     • Publication 515, Withholding of Tax on
        Nonresident Aliens and Foreign Entities
     • Publication 519, U.S.Tax Guide for Aliens
     • Publication 541, Partnerships
     Copies of these publications may be obtained
     by contacting the IRS at (800) TAX-FORM or
     (800) 829-3676. You can also access publications
     and forms at the IRS Website: www.irs.gov.




Page 0   FTB Pub. 1017 (REV 12-2007)
INDEX
Subject                                                     Question(s)                         Subject                                                        Question(s)
$1,500 threshold for withholding . . . . . . . . . . . . 7, 8, 28, 44, 61                         Form 592-B, Nonresident Withholding
                                                                                                     Tax Statement . . . . . . . . . . . . . . . . . 89, 92, 115, 119, 123,
Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83, 84                                                              124, 126, 135-137
Apportionment factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18              Form 592-F, Foreign Partner or
Allocations . . . . . . . . . . . . . . . . . . . . . . 14, 18, 20, 44-48, 71, 81                    Member Annual Return. . . . . . . . . . . . . 115, 128-132, 140

Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 98    Goods and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Brokerage firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103         Independent contractor, defined . . . . . . . . . . . . . . . . . . . . . . . 70
Business situs, defined. . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 15             Income allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44-48
                                                                                                Income subject to withholding . . . . . . . . . 14-18, 37, 44, 99, 109
California resident. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31, 32, 71           Information, more . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146, 147
Cancelled performances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88              Insurance companies . . . . . . . . . . . . . . . . . . . . . . . . . . . 31, 102
Catch-up withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9          Intangible personal property. . . . . . . . . . . . . . . . . . . . . . . 12, 15
Churches as partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24           Interest
Claiming withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92             on failure to withhold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Combined report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38            on late payments of withholding . . . . . . . . . . . . . . . . . . . 134
Constructive notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97        Internet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
Corporate directors. . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 75, 76             Investment partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Corporations, permanent place
   of business. . . . . . . . . . . . . . . . . . . 19, 29, 31, 34, 35, 38, 84                  K-1, schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Covenant not to complete. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Current year income . . . . . . . . . . . . . . . . . . . 18, 28, 92, 99, 106                   Limited Liability
                                                                                                   Companies (LLCs). . . . . . . 5, 6, 19, 26, 27, 31, 89-92, 95, 96
Distributions of property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101           Limited Liability Partnerships (LLPs) . . . . . . . . . . . . . . . . . . 5, 6
Doing business standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37              Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91, 104, 106
Due dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94, 116, 128, 129             Magnetic media . . . . . . . . . . . . . . . . . . . . . . . . . . 118, 125, 137
                                                                                                Motor carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Employee, defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Entertainers . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 82, 83, 84, 88             Net operating losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Entities subject to withholding . . . . . . . . . . . 19, 24, 25, 30, 112                       Non-foreign partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Error resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121      Nonresidents, how to identify . . . . . . . . . . . . . . . . . . . . . . . . . 19
Estates . . . . . . . . . . . . . . . . . . 10, 19, 23, 30, 31, 80 91, 92, 112                  Nonresident withholding, defined . . . . . . . . . . . . . . . . . . . . . . . 1
Exceptions to withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12            Notification requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Exemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 31
Exemption                                                                                       Ordering forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
   certificate . . . . . . . . . . . 12, 21-24, 31, 33, 35, 38-43, 71, 108                      Over-withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49, 132
Expenses, payments to reimburse . . . . . . . . . . . . . . . . . . . . . 17
Expert witnesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78         Partnerships . . . . . . .2-6, 19, 28, 29, 31, 57, 67, 89-92, 124-132
Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130, 131         Pass-through entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91-108
                                                                                                Payee . . . . . . . . . . . . . . . . . . . 3, 4, 7, 25, 31, 33, 37, 38, 40, 41,
Failure to remit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134                                               44, 51, 53, 59, 61, 68, 70, 115, 119
Failure to file . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135   Payment(s) subject to withholding . . . . 8, 14-18, 29, 44, 48, 100
Failure to withhold. . . . . . . . . . . . . . . . . . . . . . . 35, 43, 134, 141               Payment transcripts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Fax number of Withholding Services and Compliance . . . 55, 64                                  Payor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 4
Federal Form W-8, Certificate of Foreign Status . . . . . . . . . . 16                          Penalties
Filing requirements . . . . . . . . . . . . . . . . . . . 59, 68, 143, 143-146                     failure to file form 592 . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Flow-through. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90, 93           failure to furnish form 592-B to partners . . . . . . . . . . . . . 136
Foreign partners, defined . . . . . . . . . . . . . . . . . . . . 30, 112, 113                     late payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Forms,                                                                                             reasonable cause . . . . . . . . . . . . . . . . . . . . . . . . . . 141, 142
    Form 588, Nonresident Withholding                                                              under-withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
       Request. . . . . . . . . . . . . . . . . . . . . . . . . 37, 59, 61, 62, 68              Pension plans, as partners . . . . . . . . . . . . . . . . . . . . . . . . 24, 31
    Form 589, Nonresident Reduced                                                               Permanent place of business . . . . . . . 19, 29, 31, 34, 35, 38, 84
       Withholding Request. . . . . . . . . . . . . . . . . . . . . . . . . 51-55               Personal services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 47
    Form 590, Withholding Exemption                                                             Prior year income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 108
       Certificate . . . . . . . . 12, 21-24, 31, 33, 35, 38-43, 71, 108                        Promoters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83, 84
    Form 590-P, Nonresident                                                                     Property, distributions of . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
       Withholding Exemption Certificate for Previously                                         Publications, federal, related to foreign partners . . . . . . . . . 147
       Reported Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108              Publicly traded partnerships . . . . . . . . . . . . . . . . . . . . . . . . . 103
    Form 592, Quarterly Nonresident
       Withholding Statement . . . . . . . . 89, 92, 93, 94, 115-118,                           Qualified to do business in California . . . . . . . . . . . . . . . . 35, 36
                                                     121,123-125, 127, 135, 137
    Form 592-A, Foreign Partner or                                                              Rate of withholding
       Member Quarterly Withholding                                                               Domestic (non-foreign) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
       Remittance Statement . . . . . . . . . . . . . . . . 115, 117, 128                         Foreign (non-U.S.) partners . . . . . . . . . . . . . . . . . . . . . . . . 11
                                                                                                Reasonable cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141, 142

                                                                                                                                 FTB Pub. 1017 (REV 12-2007) Page 1
INDEX
Subject                                                                      Question(s)
Reduced withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49-58
Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90, 92, 132, 143
Reimbursed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Rent or lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Rental or leased property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Reporting and remitting withholding
   Domestic (non-foreign) . . . . . . . . . . . . . . . . . . . . . . . 115-127
Foreign (non-U.S.) partners . . . . . . . . . . . . . . . 115-123, 128-132
Residency status,
   determining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
   permanent place of business, defined . . . . . . . . . . . . . . . . 34
   resident, defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Resident payees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Return of capital . . . . . . . . . . . . . . . . . . . . . 14, 57, 67, 104, 105
Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 14, 74

Sale of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
S corporation shareholders
   and partners . . . . 10, 12, 28, 29, 57, 67, 91-93, 97, 106-108,
                                                                                    124-127
Seminars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Sound and lights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Supporting acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Stocks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Subcontractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Tax-exempt organizations. . . . . . . . . . . . . . . . . . . . . . 24, 25, 31
Tax treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Threshold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Tiered partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Transcripts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Trusts . . . . . . . . . . . . . . . 10, 19, 21, 22, 30, 31, 79, 91, 92, 112

Waivers of withholding . . . . . . . . . . . . . . 38, 59-69, 96, 114, 145
Withholding
   defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
   due dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
   rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 11
   requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
   remitting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115, 117, 124
   reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Withholding Exemption
   Certificate . . . . . . . . . . 12, 21-24, 31, 33, 35, 38-43, 71, 108




Page         FTB Pub. 1017 (REV 12-2007)

								
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