Vanguard researched this issue and reported to me: According to CA Rev & Tax Code § 17145 "A regulated investment company, as defined in Section 851 of the Internal Revenue Code, relating to definition of regulated investment company, or series thereof, is qualified to pay exempt-interest dividends to its shareholders if, at the close of each quarter of its taxable year, at least 50 percent of the value of its total assets consists of obligations which, when held by an individual, the interest therefrom is exempt from taxation by this state."
My comments:
The California Schedule CA (540) Instructions skirt the question of whether one annual test or four quarterly tests are required by saying, “If the mutual fund has at least 50% of its assets invested in tax-exempt U.S. obligations and/or in California or its municipal obligations, that amount of dividend is exempt from California tax.”
It's possible that the Instructions reflect an administrative decision to do something simpler than following the letter of the law. But the California Schedule CA (540) Instructions include this warning: "The instructions provided with California tax forms are a summary of California tax law and are only intended to aid taxpayers in preparing their state income tax returns. We include information that is most useful to the greatest number of taxpayers in the limited space available. It is not possible to include all requirements of the California Revenue and Taxation Code (R&TC) in the instructions. Taxpayers should not consider the instructions as authoritative law."
So when there's a conflict between the Instructions and the R&TC, I will assume that the R&TC prevails.
With the information that California requires a quarterly asset test, I will rely on the double-asterisk footnote in Vanguard's "U.S. Government Obligations Income Information."
My comments:
The California Schedule CA (540) Instructions skirt the question of whether one annual test or four quarterly tests are required by saying, “If the mutual fund has at least 50% of its assets invested in tax-exempt U.S. obligations and/or in California or its municipal obligations, that amount of dividend is exempt from California tax.”
It's possible that the Instructions reflect an administrative decision to do something simpler than following the letter of the law. But the California Schedule CA (540) Instructions include this warning: "The instructions provided with California tax forms are a summary of California tax law and are only intended to aid taxpayers in preparing their state income tax returns. We include information that is most useful to the greatest number of taxpayers in the limited space available. It is not possible to include all requirements of the California Revenue and Taxation Code (R&TC) in the instructions. Taxpayers should not consider the instructions as authoritative law."
So when there's a conflict between the Instructions and the R&TC, I will assume that the R&TC prevails.
With the information that California requires a quarterly asset test, I will rely on the double-asterisk footnote in Vanguard's "U.S. Government Obligations Income Information."
Statistics: Posted by bargainhunter578 — Thu May 30, 2024 9:22 pm