Year to deduct California franchise tax for accrual-method corp.

• Author: Josephs, Stuart R.
• Position: Federal Tax update - Brief Article

For taxable years beginning after 1999, California law was amended to replace "income year" with "taxable year."

Consequently, the California franchise tax is measured by the net income of the year in which the tax is imposed and payable. A question arose about whether or not this law change accelerated the California franchise tax deduction for federal income tax purposes.

Rev. Rul. 2003-90, IRB 2003-33, Aug. 18, 2003, answers this question in the negative, illustrated as follows:

ABC Corp. is a calendar-year accrual-method corporation doing business in California. Its 2002 California net income is $10,000 and it paid $884 in 2002 California franchise tax. Under current California law, ABC Corp.'s...