<p>Thank you all for your help and ideas. I did call CA Franchise Tax board first this this morning. The phone answers and says they are too busy to take any calls and then hangs up! MuddKid, I guess that’s worse than hold time at the IRS.</p>
<p>I did chat instead and found that yes, he has to pay California tax on the total income from California AND New York but there is a California Schedule S Other State Tax Credit (ie double taxed on same income) that will give him some credit for taxes paid to New York. Hopefully, there will be something similar for New York so I am going to work on that now. </p>
<p>The interesting thing about all this new “scholarship as investment income” treatment is that I was told we did NOT have to use CA form 3800 “tax computation for certain children with investment income” that taxes the child’s income at the parents rate. We did have to use the federal form that matches (Form 8615) but the California rep said that scholarship/grant money was NOT investment income in California. I think that is wrong-ugh.</p>
<p>Thanks again for all of your help and great ideas!</p>