HIGHER PENALTIES FOR NOT WITHHOLDING and FURNISHING TIMELY INFORMATION TO NONRESIDENTS OF CALIFORNIA

Withholding agents must withhold tax if the payments to nonresidents of California are for (1) services performed by an independent contractor, (2) rents, (3) royalties, (4) sales of California real estate, (5) estate income, (6) trust income, or (7) partnership income. (Tax News, California Franchise Tax Board, January/February 2003.)

Penalties may be imposed on withholding agents (persons making California source income payments to nonresidents) for California personal income tax information returns due on or after January 1, 2003, if the agents fail to file correct and timely information returns or fail to furnish correct and timely information payee statements. The penalty amount for failure to file correct information returns ranges from $15 to $100 per return, with varying maximums, depending on the due date, file date, and whether the failure was due to intentional disregard of the requirements. However, if the failure is due to intentional disregard, the penalty is the greater of $100 per return or 10% of the total amount of the item that must be reported on each return, with no maximum.

Furthermore, the penalty amount for failure to furnish correct payee statements is $50 per statement, up to a maximum of $100,000. If the failure is due to intentional disregard, the penalty is the greater of $100 per statement or 10% of the total amount of the item that must be reported on each statement, with no maximum.

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