2023 CA Counselor Reference Manual

Preventing or Removing a California Return

• In some cases, you won’t want a CA return - for example, the taxpayer did not live in California at all during the tax year, or lived in CA for only part of the tax year. 
• There are two ways to prevent or remove a CA return from TaxSlayer:
• In TaxSlayer, a state return will be specified on the Personal Information page in the Basic Information section, in the field labeled “Resident State as of 12/31”.  Change the value to “none.” 
• Or, once past the Basic Information section, click “State Section” in the left navigation bar. If you see a state return listed (presumably “California”), click the trashcan icon at far right to remove that state return.
• If you prevent a CA return from being created, or delete it, you must make your ERO aware:
• In your Activity Reporting log, record the tax return as “Federal only.”
• Also select the “Federal only” return tag, and [depending on local policy] create a TaxSlayer note (page 8) explaining why there is no CA return.

State Information Requested Immediately After the Personal Information Page

• One of TaxSlayer’s useful features, though confusing at first, is the page that immediately follows the Personal Information page, when starting a new return. The page, though titled California Return, does not put the preparer into the state return. Instead, the page is designed to capture common state information, so that the preparer often does not need to go into the State Section to complete a return.
• For CA returns, this “pop-up” page asks for information about the any name change, the Renter’s Credit, any Use Tax owed, the possible lack of health insurance, and the taxpayer’s residence.

Renter’s Credit 

• For the taxpayer to be eligible for this credit:

1. Rent must have been paid on a principal residence in CA for 6 months or more during the tax year.
• The residence could be a mobile home for which the taxpayer rents the land, or a boat slip if the residence is a boat.
• Note:  If the landlord isn’t reporting the rent as income (very common if “renting” from a relative), then it’s not “rent” but rather “sharing expenses”!  In that case, answer “No” in TaxSlayer.
2. The taxpayer did not claim a homeowner’s property tax exemption at any time during the year (to do so, the taxpayer must have owned a home at some time during the tax year).  The homeowners’ exemption may be seen on the property tax bill, whether paper or online (see page 81). 
3. The residence where rent was paid was not exempt from property taxes (such as when a property is owned by a non-profit organization or a government entity). In such case, the property tax bill shows $0 tax on net value! (see page 81 for online property-tax lookup)
4. The taxpayer did not live with another person for more than half the year, where that person (such as a parent) claimed the taxpayer as a dependent.
5. At no time during the tax year was the taxpayer (a) a minor who also was (b) living with and under the care of a parent, foster parent, or guardian.

• If the taxpayer is eligible, based on these five criteria, answer “Yes” to the question “Do you qualify for the Renter's Credit?” otherwise answer “No.”
• The FTB doesn’t require any supporting information, such as the landlord’s name phone number, be submitted with the CA return. If audited, the taxpayer substantiate that they do pay rent.
• There are two additional criteria for eligibility for this credit – the taxpayer must be a CA resident for the entire year [but, of course, it’s Tax-Aide policy that we don’t do partial-year CA returns], and, for 2023, CA AGI must be $50,546 or less (single) or $101,492 (MFJ, HoH, or QSS). TaxSlayer handles the income criterion correctly - if you answer “Yes” but the taxpayer’s income is too high, TaxSlayer will not give this credit.
• Thus, answer the question based solely on the first five criteria above, ignoring income.
• The Renter’s Credit will show on CA Form 540, Page 2, line 46, if the question was answered “Yes”, and if the income limit was not exceeded. 
• Note: Even though this is a nonrefundable credit, and thus has no value if line 34, Tax, on Page 2 of CA Form 540, is zero, TaxSlayer always lists any eligible credit amount on Line 46.

CA Use Tax 

• Note:  CA Tax-Aide seems to have de-emphasized this topic since the passage of California’s “Amazon tax” on out-of-state purchases:  most, if not all, such purchases now include California sales tax, so the use tax is moot.
• Background: If someone in California buys merchandise, they must pay sales tax unless that item is specifically exempt (for example, food). If a California resident purchases a taxable item for use in California from an out-of-state vendor, and that vendor doesn’t charge California sales tax, then the purchaser must still pay the California sales tax amount, in the form of “use tax.”

• The taxpayer, or a member of the taxpayer’s tax family, could have ordered items on the internet, by mail (catalog sales), or by phone (800 call center), and not paid CA sales tax. (Vendors without a “physical presence” in California aren’t currently required to collect CA sales tax.)
• The taxpayer could have made a purchase while out of state, bringing the purchased item back to CA.
• If the taxpayer paid another state’s sales tax on a purchase brought back to California for use within California, that payment can be subtracted from what would otherwise be owed, to the extent of the applicable CA use tax on that purchase.
• Goods purchased outside the U.S., carried into the U.S. (not shipped), and declared for customs purposes are subject to use tax to the extent they exceed $800 in value. (Goods purchased from a vendor outside the U.S. and shipped to California are fully subject to use tax.)

• The amount of use tax to be paid by the taxpayer is normally entered on the CA-specific page that appears after the Personal Information page is completed. If that number needs to be changed (or the CA-specific page does not appear), go to the Tax page [State Section > California State Return > ...], and enter or change the amount in the “Use Tax” field, then click “Save.”

• If zero is entered, then TaxSlayer will, on Form 540, page 4, check the box below line 91 that says “No use tax is owed.”

• To calculate the amount owed, the taxpayer has three choices:

• (1) If the taxpayer has tracked out-of-state purchases made during the year, the total owed can be calculated using the taxpayer’s figures, and the local sales tax rate.
• This includes a use tax of zero dollars, if the taxpayer made no out-of-state purchases, or is sure they paid CA sales tax on all out-of-state items shipped to them, and that, for all purchases made in person while out of state, the sales tax charged was at or above their local sales tax rate.
• In almost all cases, option (2), if the taxpayer qualifies for this, will be better.
• (2) If all items purchased without sales tax being charged each cost less than $1,000, then the taxpayer has the option to use the Estimated Use Tax Lookup Table [below] to calculate the use tax owed.
• (3) If one or more items costing $1,000 or more were purchased without sales tax being charged, then the use tax must be calculated using the use tax worksheet found on page 18 of the 2022 CA 540 booklet. The Estimated Use Tax Lookup Table for taxpayers who did not purchase an untaxed item having a value of $1,000 or more, is shown below. 

• Use tax for vehicles and mobile homes purchased outside California should be paid directly to the California Department of Tax and Fee Administration (CDTFA); exclude such purchases from the calculations involving Form 540, page 3, line 91.  If the Use Tax is zero, and a payment was made to CDTFA, change the answer to the question “If your use tax is zero, did you pay your use tax obligation directly to CDTFA?” to be “Yes”.

Full year minimum essential health care coverage  

• This question is about the California’s Individual Healthcare Mandate, discussed on page 116.

Principal/Physical Residence Address  

• If the taxpayer’s mailing address and the physical address are clearly different (for example, the mailing address is a PO Box), do not immediately answer “no” to the question “Is your Principal/Physical Residence Address the same as the address on the tax return?” Instead, ask the taxpayer if you can put their physical address on their California return.
• If the taxpayer wants to know why, tell them that the California Legislature has mandated that the FTB collect this information, to be used to expand the pools for jury duty.
• If the taxpayer is willing to provide their physical address, record that address on page 1 of the Intake Booklet, and answer “No” to the question. Then, after finishing the Basic Information section in TaxSlayer, go to the State Section, and enter the physical address.
• TaxSlayer may be inconsistent on how it gets you to the Additional Personal Information page, where the address is entered, but in any case that page can be reached from the Basic Information page (menu) in the CA State Section.
• If the taxpayer is not willing to provide their physical address, answer “Yes” to the question, so the CA return can be e-filed.
• If the taxpayer has no physical address (they are homeless, temporarily living in a shelter or hotel, etc.), answer “Yes” to the question, because it’s not possible to enter a physical address for the taxpayer. 

• Answering any remaining questions isn’t mandatory (“Do you want information on registering to vote”, “Do you want information on health insurance”, etc.).

When CA-Related Changes Take Effect in TaxSlayer 

• Entering information on a page in the State Section does not change the displayed CA Refund (or CA Amount Due) until you click “Continue” (or “Save”) repeatedly, to reach the State Return page, at which point  TaxSlayer does its computations for the state return. The delay in computations is why TaxSlayer objects if you try to go directly from a page in the State Section to a page in any other section of the return.

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