California Loses Case for Nonresident Filing (The Bindley Rule)

If you live outside California, do all your work outside California, and have never set foot in the state, can California still tax your income? Since 2019, the answer has been yes — as long as your customers are there. That came from a case called Bindley, and the Franchise Tax Board (FTB) has relied on it ever since to tax out-of-state freelancers and sole proprietors.A new California Court of Appeal decision pushes back. On this episode of SALTovation, Aprio's Meredith Smith and Stacey (Roberts) Chamberlain talk with California attorney Michael Cataldo, founder of Cataldo Tax Law and a former FTB tax counsel, about what the ruling says, why the California Supreme Court may still have the final word, and where this thinking could go next for partnerships and S corporations. The takeaway for anyone who already paid California tax under the old approach: there is a deadline for filing a refund claim, so it is worth taking a look now. You may have a chance to get that back.Key Takeaways:● Market-based sourcing changed the question. California may look to where the customer is, not where the work is performed, which can expose nonresident service providers who never enter the state.● Bindley was precedential, and that mattered. Because the 2019 Office of Tax Appeals decision could be relied on, the Franchise Tax Board used it to assess out-of-state sole proprietors, while the contrary Larson decision was nonprecedential.● Garcia Rojas questions the core premise. The Court of Appeal found that one proprietor operating alone may not be a unitary business "within and without" the state, since the unitary principle has generally involved combining separate businesses.● Publication status can decide everything. A published opinion can be cited broadly, but if the Franchise Tax Board succeeds in depublishing it, other taxpayers rarely get to rely on it even though the winning taxpayer keeps the result.● Watch the refund clock and the ripple effects. Refund claims can be limited to four years from filing or one year from payment, and the same regulatory language reaches partnerships and, potentially, S corporation shareholders.● Proactive SALT advice is available. If companies cannot justify a full-time in-house specialist, outside SALT advisors can help companies mitigate risk.Connect:● Website: https://www.aprio.com/business-tax/state-local-tax-salt-consulting/● Meredith Smith on LinkedIn: https://www.linkedin.com/in/meredith-smith-047aa13/● Stacey (Roberts) Chamberlain on LinkedIn: https://www.linkedin.com/in/stacey-chamberlain-90072b5/● Michael Cataldo on LinkedIn: https://www.linkedin.com/in/michael-cataldo-aaa9205/● Colorado Tax Law Website: https://cataldotaxlaw.com/● Subscribe on your favorite podcast app.Disclaimer:The information contained in this episode is for general, informational, and educational purposes only. It is not intended as, and should not be relied upon as, legal, tax, or accounting advice. Every taxpayer's situation is different, and state and local tax matters can change. Please consult a qualified SALT advisor before acting on anything discussed here.#Aprio #SALT #MarketBasedSourcing #MeredithAndStacey #AccountforAnything #TaxPodcast #SALTovation #StateTax #TaxPolicy #TaxCompliance #California #FranchiseTaxBoard #Bindley #GarciaRojas #SoleProprietor #IncomeTax #Nexus #ApportionmentMentioned in this episode:Schedule a Call with the Aprio Team Now!Introductory Call