Chapter 11 - Gross Income of Nonresidents

California Revenue and Taxation Code — §§ 17951-17955

Sections (6)

Amended by Stats. 2004, Ch. 62, Sec. 1. Effective January 1, 2005.

(a)For purposes of computing “taxable income of a nonresident or part-year resident” under paragraph (1) of subdivision (i) of Section 17041, in the case of nonresident taxpayers the gross income includes only the gross income from sources within this state.

(b)Notwithstanding subdivision (a), the gross income of a nonresident taxpayer does not include income not subject to the Personal Income Tax Law (Part 10 (commencing with Section 17001) of Division 2) by operation of

the following federal laws:

(1)Section 11108 of Title 46, United States Code, relating to compensation for the performance of duties of certain merchant seamen.

(2)Section 11502 of Title 49, United States Code, relating to compensation of an employee of a rail carrier.

(3)Section 14503 of Title 49, United States Code, relating to compensation of an employee of a motor carrier.

(4)Section 40116 of Title 49, United States Code, relating to the pay of an employee of an air carrier.

(5)Section 571 of Title 50, Appendix, United States Code, relating to military compensation of service members.

§ 17952

Amended by Stats. 2001, Ch. 920, Sec. 20. Effective January 1, 2002.

For purposes of computing “taxable income of a nonresident or part-year resident” under paragraph (1) of subdivision (i) of Section 17041, income of nonresidents from stocks, bonds, notes, or other intangible personal property is not income from sources within this state unless the property has acquired a business situs in this state, except that if a nonresident buys or sells such property in this state or places orders with brokers in this state to buy or sell such property so regularly, systematically, and continuously as to constitute doing business in

this state, the profit or gain derived from such activity is income from sources within this state irrespective of the situs of the property.

§ 17952.5

Amended by Stats. 2010, Ch. 14, Sec. 35. (SB 401) Effective January 1, 2011.

(a)For purposes of computing “taxable income of a nonresident or part-year resident” under paragraph (1) of subdivision (i) of Section 17041, gross income of a nonresident, as defined in Section 17015, from sources within this state shall not include “qualified retirement income” received on or after January 1, 1996, for any part of the taxable year during which the taxpayer was not a resident of

this state.

(b)For purposes of this section, “qualified retirement income” means income from any of the following:

(1)A qualified trust under Section 401(a) of the Internal Revenue Code that is exempt under Section 501(a) of the Internal Revenue Code from taxation.

(2)A simplified employee pension as defined in Section 408(k) of the Internal Revenue Code.

(3)An annuity plan described in Section 403(a) of the Internal Revenue Code.

(4)An annuity contract described in Section 403(b) of the Internal Revenue Code.

(5)An individual retirement plan described in Section 7701(a)(37) of the Internal Revenue Code.

(6)An eligible deferred compensation plan as defined in Section 457 of the Internal Revenue Code.

(7)A governmental plan as defined in Section 414(d) of the Internal Revenue Code.

(8)A trust described in Section 501(c)(18) of the Internal Revenue Code.

(9)Any plan, program, or arrangement described in Section 3121(v)(2)(C) of the Internal Revenue Code, or any plan, program, or arrangement that is in writing, that provides for retirement payments in recognition of prior service to be made to a retired partner, and that is in effect immediately before retirement begins, if that income is either of the following:

(A)Part of a series of substantially equal periodic payments (not less

frequently than annually), which may include income described in paragraphs (1) to (8), inclusive, made for either of the following:

(i)The life or the life expectancy of the recipient (or the joint lives or joint life expectancies of the recipient and the designated beneficiary of the recipient).

(ii) A period of not less than 10 years.

(B) A payment received after termination of employment, under a plan, program, or arrangement to which that employment relates, maintained solely for the purpose of providing retirement benefits for employees in excess of the limitation imposed by Section 401(a)(17), 401(k), 401(m), 402(g), 403(b), 408(k), or 415 of the Internal Revenue Code, or any combination of those sections, or any other limitation on contributions or benefits in the Internal Revenue Code on plans to which any

of those sections apply.

(C) The fact that payments may be adjusted, from time to time, pursuant to this plan, program, or arrangement to limit total disbursements under a predetermined formula, or to provide cost-of-living or similar adjustments, will not cause the periodic payments provided under that plan, program, or arrangement to fail the “substantially-equal-periodic-payments” test.

(10)Any retired or retainer pay of a member or former member of a uniform service computed under Section 1401 and following of Title 10 of the United States Code.

(c)For purposes of this section, the term “retired partner” is an individual who is described as a partner in Section 7701(a)(2) of the Internal Revenue Code and who is retired under that individual’s partnership agreement.

(d)This section shall apply only to any taxable year, or portion thereof, that the provisions of Section 114 of Title 4 of the United States Code, relating to limitation on state income taxation of certain pension income, are effective.

(e)Except as otherwise provided, references to the Internal Revenue Code are subject to paragraph (1) of subdivision (a) of Section 17024.5.

§ 17953

Amended by Stats. 2001, Ch. 920, Sec. 22. Effective January 1, 2002.

For purposes of computing “taxable income of a nonresident or part-year resident” under paragraph (1) of subdivision (i) of Section 17041, income of estates and trusts distributed or distributable to nonresident beneficiaries is income from sources within this state only if distributed or distributable out of income of the estate or trust derived from sources within this state. For the purposes of this section, the nonresident beneficiary shall be deemed to be the owner of intangible personal property from which the income of the estate or trust is

derived.

§ 17954

Amended by Stats. 2001, Ch. 920, Sec. 23. Effective January 1, 2002.

For purposes of computing “taxable income of a nonresident or part-year resident” under paragraph (1) of subdivision (i) of Section 17041, except as provided in Section 25141, gross income from sources within and without this state shall be allocated and apportioned under rules and regulations prescribed by the Franchise Tax Board.

§ 17955

Amended by Stats. 2001, Ch. 920, Sec. 24. Effective January 1, 2002.

(a)For purposes of computing “taxable income of a nonresident or part-year resident” under paragraph (1) of subdivision (i) of Section 17041, notwithstanding Sections 17951, 17952, and 17953, gross income of a nonresident (as defined in Section 17015) from sources within this state shall not include dividends, interest, or gains and losses from qualifying investment securities if any of the following apply:

(1)In the case of an individual, with respect to the qualifying

investment securities, the taxpayer’s only contact with this state is through a broker, dealer, or investment adviser located in this state.

(2)In the case of a partner’s distributive share of income from qualifying investment securities, the partnership qualifies as an investment partnership, whether or not the partnership has a usual place of business located in this state.

(3)In the case of a beneficiary of a qualifying estate or trust, the taxpayer’s only contact with this state is through an investment account managed by a corporate fiduciary located in this state.

(4)In the case of a unit holder in a regulated investment company (as defined in Section 851 of the Internal Revenue Code), to the extent of the dividends distributed by the regulated investment company, whether or not the regulated investment

company has a principal place of business in this state.

(b)This section shall not apply to income derived from investment activity that is interrelated with any trade or business activity of the nonresident or an entity in which the nonresident owns an interest in this state, whose primary activities are separate and distinct from the acts of acquiring, managing, or disposing of qualified investment securities, or if those securities were acquired with working capital of a trade or business activity conducted in this state in which the nonresident owns an interest.

(c)For purposes of this section:

(1)“Investment partnership” means a partnership that meets both of the following requirements:

(A)No less than 90 percent of the partnership’s cost of

its total assets consist of qualifying investment securities, deposits at banks or other financial institutions, and office space and equipment reasonably necessary to carry on its activities as an investment partnership.

(B)No less than 90 percent of its gross income consists of interest, dividends, and gains from the sale or exchange of qualifying investment securities.

(2)“Qualifying estate or trust” means an estate or trust that meets both of the following requirements:

(A)No less than 90 percent of the estate’s or trust’s cost of its total assets consist of qualifying investment securities, deposits at banks or other financial institutions, and office space and equipment reasonably necessary to carry on its investment activities.

(B)No less

than 90 percent of its gross income consists of interest, dividends, and gains from the sale or exchange of qualifying investment securities.

(3)(A) “Qualifying investment securities” include all of the following:

(i)Common stock, including preferred or debt securities convertible into common stock, and preferred stock.

(ii) Bonds, debentures, and other debt securities.

(iii) Foreign and domestic currency deposits or equivalents and securities convertible into foreign securities.

(iv) Mortgage- or asset-backed securities secured by federal, state, or local governmental agencies.

(v)Repurchase

agreements and loan participations.

(vi) Foreign currency exchange contracts and forward and futures contracts on foreign currencies.

(vii) Stock and bond index securities and futures contracts, and other similar financial securities and futures contracts on those securities.

(viii) Options for the purchase or sale of any of the securities, currencies, contracts, or financial instruments described in clauses (i) to (vii), inclusive.

(ix) Regulated futures contracts.

(B) “Qualifying investment securities” does not include an interest in a partnership unless that partnership is itself an investment partnership.