What the FTB Is Arguing

The case is Garcia-Rojas v. California Franchise Tax Board. The taxpayer is a radiologist in Texas who works as an independent contractor for a California radiology practice. He physically reads scans on a workstation in his home in Texas, never travels to California, and never sees a California patient in person. The radiology group sends him a 1099 each year for his share of the work. Texas has no individual income tax. He filed nothing in California.

The FTB argued the radiologist’s contract income is California-source under the unitary business doctrine because his work is integrated into the California group’s operations. The trial court agreed. The case is now on appeal.

Why NYC Professionals Should Care

If the appellate court sides with the FTB, the rule reaches a long list of common arrangements:

• The NYC consultant who has a California-based PE-firm client and bills monthly fees from a Manhattan office.
• The NYC tax lawyer co-counseling on a California real estate matter from a New York desk.
• The NYC accountant providing fractional CFO services to a Bay Area startup, never traveling out.
• The NYC physician reading consults for a California medical group via telehealth.
• The NYC freelancer writing software contracts for a California product team via Slack and GitHub.

The current NY-CA framework treats most of those arrangements as fully taxable in New York and not in California (with credit mechanisms layering in). A unitary-business theory that reaches non-resident contractors would mean California gets a piece, NY gives credit only for what California actually charges, and the net cost to the professional goes up.

How Big Is the Hit, Realistically

For a NYC professional billing $200K of fees to a California client per year, an aggressive FTB position could mean an additional $9K–$18K of California tax annually depending on apportionment, with NY giving partial credit. For a NYC firm with several California clients, the number scales. This is not catastrophic, but it is real, and the compliance cost (filing California returns, dealing with FTB notices, registering with California Secretary of State if entity-level activity is implicated) often exceeds the tax itself.

The Doctrine Itself

The unitary business doctrine has historically applied to multistate corporations — the question of whether a parent and subsidiary in different states should file combined returns. The U.S. Supreme Court has policed it heavily under Mobil Oil v. Vermont (1980) and successors. Applying the same theory to a single individual contractor is a stretch — and that is exactly what the FTB is testing.

If the appellate court limits the doctrine to corporate filers, the case dies and life goes on. If it accepts the FTB’s expansion, expect copycat positions in other revenue-hungry states (New York included, ironically). California is often the first state to push aggressive nexus theories; other states copy what works.

What This Means for Reedcorp Clients With California Exposure

For NYC clients with California-source professional income, the firm’s working position is to keep current filings as-is until the appeal resolves, but document the structure of the engagement carefully — written agreements, invoices, correspondence — in case the FTB issues a Notice of Proposed Assessment (“NPA”) down the road. Documentation that the work is performed entirely outside California, that the contractor has no California-based equipment or staff, and that the relationship is one of true independent contractor (not de facto employee) all support the position that unitary doctrine should not reach.

For high-net-worth NYC clients with California-based partnerships or operating companies, the case is also worth tracking, because the same logic could be pushed to allocate more partnership income to California through formula apportionment or unitary-business arguments at the entity level.

Coordination on multistate work runs through the firm’s multi-state tax returns practice, with support from our freelancer, consultant, and HNW client teams. Read our double taxation guide for the conceptual framework that informs how state-level credits interact with federal positions.

Common Questions

Should I stop billing my California client?

No. The case is on appeal. Until there is a final appellate decision, current filing positions can stand. What you should do is keep clean records and not provide the FTB any new ammunition.

Should I register a California LLC?

Almost certainly not. Registering a California LLC creates a clear nexus and triggers the $800 minimum franchise tax annually plus potential California source income reporting. Don’t volunteer for an obligation you may not have.

If California sends me a notice, what do I do?

Reply timely. Explain that all services were performed outside California, no California-based equipment was used, and the relationship is independent contractor (not employee). Provide the engagement documentation. Do not ignore the notice — California’s collection apparatus is aggressive and assessments can become final by default if you don’t respond.

Does this affect my federal return?

Federal-level taxation does not change. This is purely about which state(s) get a slice of your income.

What if I do travel to California occasionally?

Even a few business days in California can establish nexus and a filing obligation. The number of days varies by activity. A traveling consultant who is in California 10+ days per year on a single client matter has meaningfully more exposure than someone billing remotely.

When will the appeal be decided?

California appellate timelines run roughly 12–18 months from briefing to decision. A late-2027 decision is realistic. Plan filings on the assumption the current rules apply, then revisit when there is an outcome.

Source

Coverage of the Garcia-Rojas appeal: The Daily Record — California Taxes Texas Radiologist Under Unitary Business Doctrine (April 27, 2026). Background on the doctrine’s general application is at the California Franchise Tax Board.