California Tax Pulse

Can California tax part of a nonresident’s gain from selling a partnership interest simply because federal law labels that portion ordinary income? In Appeals of Burch and Carden, 2026-OTA-527P, the Office of Tax Appeals answered no. The decision, currently designated pending precedential, rejects the Franchise Tax Board’s position in Legal Ruling 2022-02 and reinforces a distinction that can get lost in a complicated transaction: the character of income does not necessarily determine its source.

What happens when a California executive leaves the state and later receives a multimillion-dollar severance payment tied to the job he actually performed in California? According to the California Office of Tax Appeals, the answer may depend less on where he worked before leaving and more on where his contract required him to work in the future.