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California R&D Tax Credit Update on Service Companies

The California Franchise Tax Board (FTB) reversed its guidance from Legal  Division  Guidance 2011-06-01, which stated that ‘Service Companies’ in California that did not have any sales of tangible personal property were ineligible to claim the California R&D credit. However, the Franchise Tax Board has withdrawn this guidance, meaning that ‘service companies’ that do not have sales of tangible personal property can still continue to claim the R&D credit in California. Companies that have no sales of tangible property and only service income and other intangible receipts would reflect a zero base period in computing the credit. This does not present a barrier to claiming the California R&D credit with this recent withdrawal of the FTB’s guidance.

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