California Changes Decision on Service Companies and R&D Credits

In an interesting turn of events, our blog entry below on limiting the California R&D credit to companies that can show sales of tangible personal property (Legal  Division  Guidance 2011-06-01), the Franchise Tax Board has withdrawn this guidance. This means ‘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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