On September 10, 2025, California’s Franchise Tax Board (“ FTB ”) adopted final regulations (“ Final Regulations ”) amending the rules regarding market-based sourcing for sales other than sales of tangible personal property. This brings to an end the FTB’s long-running process toward formally adopting the amendments first approved in 2016 and subsequently revised in September 2024 and in May 2025 (described in the following blog posts ). The Final Regulations are substantially identical to the proposed regulations and will apply to taxable years starting on or after January 1, 2026.

As was the case in the proposed regulations, the Final Regulations alter the existing language of section 25136-2 by implementing a look-through approach in how California assigns income to the appli

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