California Schedule H (100w) - Dividend Income Deduction-Water'S-Edge Filers - 2013 Page 2
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1
2Instructions for Schedule H (100W)
Dividend Income Deduction — Water’s-Edge Filers
Important Information
Complete Part I and enter the total of Part I,
Complete Schedule H (100W), Part II and
line 4, column (d) on Form 100W, Side 1,
enter the total of Part II, line 4, column (g)
Revenue and Taxation Code (R&TC)
line 10.
on Form 100W, Side 1, line 11a. For Part II,
Section 24410 was repealed and re-enacted
column (d), if any portion of a dividend also
to allow a “Dividends Received Deduction” for
Part II – Deduction for Qualifying
qualifies for the intercompany elimination
qualified dividends received from an insurer
in Part I, enter the balance from Part I,
Dividends Paid to a Member of a
subsidiary. The deduction is allowed whether
column (g) in Part II, column (d).
Water’s‑Edge Combined Report
or not the insurer is engaged in business in
California, if at the time of each payment at
Part III – Deduction for Dividends
(R&TC Section 24411)
least 80% of each class of stock of the insurer
Paid to a Corporation by an
R&TC Section 24411 allows a 75% deduction
was owned by the corporation receiving the
of qualifying dividends received and included
Insurance Company (R&TC
dividend. For taxable years beginning on or after
in the water’s-edge return. Both business and
January 1, 2004, and before January 1, 2008,
Section 24410)
nonbusiness dividends qualify for the dividend
an 80% deduction was allowed for qualified
deduction. The allowable business dividend
R&TC Section 24410 provides that a
dividends. For taxable years beginning on or
deduction is determined by multiplying
corporation that owns 80% or more of each
after January 1, 2008, the deduction is increased
the total dividend deduction (business
class of stock of an insurer is entitled to
to 85%. A portion of the dividends may not
and nonbusiness) by the ratio of business
an 85% dividends received deduction for
qualify if the insurer subsidiary paying the
dividends to total dividends. The remaining
qualified dividends received from that insurer.
dividend is overcapitalized for the purpose of
dividend deduction is the nonbusiness dividend
The deduction would be allowed regardless
the dividends received deduction. See Specific
deduction.
of whether the insurer does business in
Instructions, Part III, for more information.
California. The 85% deduction applies to
A deduction of 100% is provided for dividends
In Farmer Bros. Co. v. Franchise Tax Board (2003)
taxable years beginning on or after January 1,
derived from certain foreign construction
108 Cal App 4th 976, 134 Cal Rptr. 2nd 390,
2008.
projects. A construction project is defined as
the California Court of Appeal found R&TC
an activity related to alteration or improvement
The amount of the dividends that qualify for
Section 24402 to be unconstitutional. A statute
of land. The construction project, the location
the dividends received deduction is the total
that is held to be unconstitutional is invalid and
of which is not subject to the taxpayer’s
amount of dividends received from that insurer,
unenforceable. Therefore, R&TC Section 24402
control, must be undertaken for an entity,
multiplied by the insurer’s qualified dividend
deduction is not available.
including a governmental entity, that is
percentage. The qualified dividend percentage
For taxable years beginning on or after
not affiliated with the taxpayer. See R&TC
is determined under R&TC Section 24410(c).
January 1, 2008, dividend elimination is allowed
Section 24411 for more information.
To complete Part III:
regardless of whether the payer/payee are
In no event will an R&TC Section 24411
taxpayer members of the California combined
1. Fill in columns (a) through (c).
deduction be allowed with respect to a dividend
unitary group return, or whether the payer/
2. Enter in column (d) the total amount of
for which a deduction was allowed under R&TC
payee had previously filed California tax returns,
insurance dividends received.
Section 24410 or which was eliminated under
as long as the payer/payee filed as members
3. Enter the qualified dividend percentage in
R&TC Section 25106.
of a comparable unitary business outside of
column (e).
California when the earnings and profits from
Current year qualifying dividends are dividends
4. Multiply the amount in column (d) by the
which the dividends were paid arose.
received by any current member of the water’s-
qualified dividend percentage in column (e)
edge group from a corporation (regardless of
and enter that amount in column (f).
In addition, dividend elimination is allowed
the place of incorporation) if both the following
5. Multiply the amount in column (f) by 85%
for dividends paid from a member of a
conditions are met:
and enter the result in column (g).
combined unitary group to a newly formed
6. Total amounts in Part III, line 4, column
member of the combined unitary group if the
• The average of the payer’s property, payroll,
(g). Enter the amount from Part III, line 4,
recipient corporation has been a member of
and sales factors within the U.S. is less
column (g) on Form 100W, Side 1, line 11b.
the combined unitary group from its formation
than 20%.
to its receipt of the dividends. Earnings and
• More than 50% of the total combined
The calculation of the qualified dividend
profits earned before becoming a member of
voting power of all classes of voting stock
percentage should be presented in a
the unitary group do not qualify for elimination.
is owned directly or indirectly by a member
supplemental schedule that is attached to
See R&TC Section 25106 for more information.
of the water’s-edge group at the time the
the taxpayer’s return. That schedule should
dividend is received.
identify the amount of the net written
Specific Instructions
premiums for all the insurance companies
The payer need not be in a unitary relationship
in the commonly controlled group for the
A corporation may eliminate or deduct dividend
with the recipient or any other member of the
preceding five years (including an identification
income when certain requirements are met.
water’s-edge group.
of property/casualty premiums, life insurance
The available eliminations or deductions are
Intercompany dividends received within the
premiums, and financial guarantee premiums),
described below.
current year’s water’s-edge group should be
the relative weight given to each class of net
eliminated pursuant to R&TC Section 25106
Part I – Elimination of
written premiums, and the total income of
before computing the dividend deduction.
the insurance companies in the commonly
Intercompany Dividends
Report the dividends received from certain
controlled group (including premium and
(R&TC Section 25106)
foreign constructions projects in Part II,
investment income for the preceding five
column (g). Write the dividend payer’s name
years). See R&TC Section 24410 for more
A corporation may eliminate dividends received
and label dividends received from certain
information.
from unitary subsidiaries but only to the
foreign construction projects as “FCP” in
extent that the dividends are paid from unitary
Part II, column (a).
earnings and profits accumulated while both
the payee and payer were members of the
combined report. See R&TC Section 25106 for
more information.
Page 28 Form 100W Booklet 2013
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