(a) Income of nonresidents from rentals or
royalties for the use of, or for the privilege of using in this State, patents,
copyrights, secret processes and formulas, good will, trade-marks, trade
brands, franchises, and other like property is taxable, if such intangible
property has a business situs in this State within the meaning of (c)
below.
(b) Income of nonresidents
from intangible personal property such as shares of stock in corporations,
bonds, notes, bank deposits and other indebtedness is taxable as income from
sources within this State only if the property has a situs for taxation in this
State, except that if a nonresident buys or sells stock, bonds, and other such
property in California, or places orders with brokers in California to buy or
sell such property, so regularly, systematically and continuously as to
constitute doing business in this State, the profit or gain derived from such
activity is taxable as income from a business carried on here, irrespective of
the situs of the property for taxation.
(c) Intangible personal property has a
business situs in this State if it is employed as capital in this State or the
possession and control of the property has been localized in connection with a
business, trade or profession in this State so that its substantial use and
value attach to and become an asset of the business, trade or profession in
this State. For example, if a nonresident pledges stocks, bonds or other
intangible personal property in California as security for the payment of
indebtedness, taxes, etc., incurred in connection with a business in this
State, the property has a business situs here. Again, if a nonresident
maintains a branch office here and a bank account on which the agent in charge
of the branch office may draw for the payment of expenses in connection with
the activities in this State, the bank account has a business situs here.
If intangible personal property of a nonresident has
acquired a business situs here, the entire income from the property including
gains from the sale thereof, regardless of where the sale is consummated, is
income from sources within this State, taxable to the
nonresident.
(d) The source
of gains and losses from the sale or other disposition of intangible personal
property is determined at the time of the sale or disposition of that property.
For example, if a California resident sells intangible personal property under
the installment method, and subsequently becomes a nonresident, any later
recognized gain attributable to any installment payment receipts relating to
that sale will be sourced to California (absent a business situs exception).
Further, a California nonresident who sells intangible personal property would
be taxed by California on gain as it is recognized upon receipt of future
installment payments if the intangible personal property had a business situs
in California at the time of the sale.
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* This regulation is
substantially the same as Title 18, Cal. Adm. Code, Chapter 3, Subchapter 2,
Section 17211-14(f).
