California law requires companies to withhold 7% on payments made to nonresident vendors (vendors from outside California without a California business license) for services performed within the state. In BQE CORE, this requirement is supported by automatically applying tax withholding when specific conditions are met, recording the withheld amount in the designated tax liability account. Do note that they are to pay California Withholding Services quarterly. Check out this blog post on California’s Nonresident Tax Withholding for Vendor Payments or watch this video for more.
Enabling Tax Withholding
- In CORE, open Settings > Accounting > Tax Withholding.
- Turn on the toggle option for California. When enables, the State field becomes required on both vendor and project records.
- Make sure each project based in California has its State field filled in the Projects > Settings > Details screen, and all vendors linked to those projects have their State fields filled in the Vendors > General > Details screen. Withholding will not apply if this information is missing in the screens.
Conditions for Withholding
Tax withholding is applied only when all of the following conditions are true:
- Project State is California (work is done in California).
- Vendor State is not California (vendor is based outside California).
- The bill line item is marked as Services (not goods).
- Vendor payments are expected to exceed $1,500 per year (CORE assumes this threshold is met).
If any of these conditions are not met, the Tax Withholding field defaults to 0 and cannot be edited.
Note: Only California is supported for now; other states do have regulations that can apply to A&E businesses sometimes, but for service-based companies, the California regulation is much more likely to be triggered. Other states often have it specific to a particular kind of service or international vendors only.
Calculations
CORE calculates withholding as 7% of the line item cost, including any applicable purchase tax, unless specified otherwise.
When you save a vendor bill:
- Debit: Expense Account (full amount)
- Credit: Accounts Payable (net payable)
- Credit: Tax Withholding Payable (withheld amount)
When you pay the vendor bill:
- Debit: Accounts Payable (net payable)
- Credit: Bank account (net amount)
The Tax Withholding checkbox on the Vendors > General > Details screen determines whether a vendor is eligible for withholding.
- If checked, withholding applies (when other conditions are met).
- If unchecked, withholding does not apply.
Example: A vendor based in Arizona works on a California project. The bill includes:
- $1,100 for environmental audit services
- $1,650 for compliance consulting services
- $550 for travel reimbursement
- $330 for office supplies
Only the service line items ($1,100 + $1,650 = $2,750) are subject to withholding. CORE calculates 7% of $2,750, which is $192.50. The withheld amount reduces the net payable to $3,437.50, while the bill still reflects the full amount of $3,630.