Bill Text: CA AB1889 | 2013-2014 | Regular Session | Amended
Bill Title: Minimum franchise tax: annual tax: small business.
Spectrum: Moderate Partisan Bill (Republican 9-2)
Status: (Introduced - Dead) 2014-05-13 - In committee: Set, second hearing. Held under submission. [AB1889 Detail]
Download: California-2013-AB1889-Amended.html
BILL NUMBER: AB 1889 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 3, 2014
INTRODUCED BY Assembly Member Hagman
( Coauthors: Assembly Members
Chávez, Donnelly, Harkey,
Jones, Maienschein, Olsen,
Patterson, Wieckowski, and Wilk )
( Coauthor: Senator Vidak
)
FEBRUARY 19, 2014
An act to amend Sections 17935, 17941, 17948, and 23153 of the
Revenue and Taxation Code, relating to taxation, to take effect
immediately, as tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 1889, as amended, Hagman. Minimum franchise tax: annual
tax: small business.
Existing law generally imposes an annual minimum franchise tax of
$800, except as provided, on every corporation incorporated in this
state, qualified to transact intrastate business in this state, or
doing business in this state, and on every limited partnership,
limited liability partnership, and limited liability company
registered, qualified to transact business, or doing business in this
state, as specified. Existing law exempts a corporation from the
payment of minimum tax in its first taxable year.
Existing law imposes an annual minimum franchise tax, except as
provided, on every corporation incorporated in this state, qualified
to transact intrastate business in this state, or doing business in
this state. Existing law exempts a corporation that incorporates or
qualifies to do business in this state from the payment of the
minimum franchise tax in its first taxable year.
Existing law imposes an annual tax in an amount equal to the
minimum franchise tax on every limited partnership, limited liability
company and limited liability partnership doing business in this
state. In addition, existing law requires every limited partnership
that has filed a certificate with the Secretary of State and every
foreign limited partnership that has registered with the Secretary of
State, every limited liability company if the articles of
organization have been accepted by, or a certificate of registration
has been issued by, the Secretary of State, and every registered
limited liability partnership and every foreign limited liability
partnership that has registered with the Secretary of State, to pay
an annual tax in an amount equal to the minimum franchise tax.
This bill would reduce that minimum franchise or annual
tax , as provided in the 2nd taxable year
, for a new corporation, and the first taxable year for a
new limited partnership, new limited liability partnership, and
new limited liability company that is a small business, as
which is defined as a business entity with
gross r eceipts of $5000 or less, as specified .
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 17935 of the Revenue and Taxation Code is
amended to read:
17935. (a) For each taxable year beginning on or after January 1,
1997, every limited partnership doing business in this state (as
defined by Section 23101) and required to file a return under Section
18633 shall pay annually to this state a tax for the privilege of
doing business in this state in an amount equal to the applicable
amount specified in Section 23153.
(b) (1) In addition to any limited partnership that is doing
business in this state and therefore is subject to the tax imposed by
subdivision (a), for each taxable year beginning on or after January
1, 1997, every limited partnership that has executed, acknowledged,
and filed a certificate of limited partnership with the Secretary of
State pursuant to Section 15621 or 15902.01 of the Corporations Code,
and every foreign limited partnership that has registered with the
Secretary of State pursuant to Section 15692 or 15909.01 of the
Corporations Code, shall pay annually the tax prescribed in
subdivision (a). The tax shall be paid for each taxable year, or part
thereof, until a certificate of cancellation is filed on behalf of
the limited partnership with the office of the Secretary of State
pursuant to Section 15623, 15696, 15902.03, or 15909.07 of the
Corporations Code.
(2) If a taxpayer files a return with the Franchise Tax Board that
is designated its final return, that board shall notify the taxpayer
that the tax imposed by this chapter is due annually until a
certificate of cancellation is filed with the Secretary of State
pursuant to Section 15623, 15696, 15902.03, or 15909.07 of the
Corporations Code.
(c) The tax imposed by this chapter shall be due and payable on
the date the return is required to be filed under former Section
18432 or 18633.
(d) For purposes of this section, "limited partnership" means any
partnership formed by two or more persons under the laws of this
state or any other jurisdiction and having one or more general
partners and one or more limited partners.
(e) Notwithstanding subdivision (b), any limited partnership that
ceased doing business prior to January 1, 1997, filed a final return
with the Franchise Tax Board for a taxable year ending before January
1, 1997, and filed a certificate of dissolution with the Secretary
of State pursuant to Section 15623 of the Corporations Code prior to
January 1, 1997, shall not be subject to the tax imposed by this
chapter for any period following the date the certificate of
dissolution was filed with the Secretary of State, but only if the
limited partnership files a certificate of cancellation with the
Secretary of State pursuant to Section 15623 of the Corporations
Code. In the case where a notice of proposed deficiency assessment of
tax or a notice of tax due (whichever is applicable) is mailed after
January 1, 2001, the first sentence of this subdivision shall not
apply unless the certificate of cancellation is filed with the
Secretary of State not later than 60 days after the date of the
mailing of the notice.
(f) (1) Notwithstanding subdivisions (a) and (b), for taxable
years beginning on or after January 1, 2015, every new limited
partnership that is a small business shall pay to the state
a minimum franchise an annual tax of four
hundred dollars ($400) for its first taxable year.
(2) For purposes of this subdivision:
(A) "Gross receipts, less returns and allowances reportable to
this state," means the sum of the gross receipts from the production
of business income, as defined in subdivision (a) of Section 25120,
and the gross receipts from the production of nonbusiness income, as
defined in subdivision (d) of Section 25120.
(B) "New limited partnership" means a limited partnership that is
organized under the laws of this state or has qualified to transact
intrastate business in this state that begins business operations at
or after the time of its organization. "New limited partnership" does
not include any limited partnership that began business operations
as , or acquired its business operations from, a sole
proprietorship, a limited liability company, general
partnership, a corporation, or any other form of business
entity prior to its organization or that acquired its business
operations from a partnership . This subdivision shall not
apply to any limited partnership that reorganizes solely for the
purpose of reducing its minimum franchise
annual tax.
(C) "Small business" means a limited partnership that
reasonably estimates that it will have gross receipts, less
returns and allowances, reportable to this state for the taxable
year of five thousand dollars ($5,000) or less.
(3) This subdivision shall not apply to a limited
partnership that does not file a timely return.
SEC. 2. Section 17941 of the Revenue and Taxation Code is amended
to read:
17941. (a) For each taxable year beginning on or after January 1,
1997, a limited liability company doing business in this state (as
defined in Section 23101) shall pay annually to this state a tax for
the privilege of doing business in this state in an amount equal to
the applicable amount specified in subdivision (d) of Section 23153
for the taxable year.
(b) (1) In addition to any limited liability company that is doing
business in this state and is therefore subject to the tax imposed
by subdivision (a), for each taxable year beginning on or after
January 1, 1997, a limited liability company shall pay annually the
tax prescribed in subdivision (a) if articles of organization have
been accepted, or a certificate of registration has been issued, by
the office of the Secretary of State. The tax shall be paid for each
taxable year, or part thereof, until a certificate of cancellation of
registration or of articles of organization is filed on behalf of
the limited liability company with the office of the Secretary of
State.
(2) If a taxpayer files a return with the Franchise Tax Board that
is designated as its final return, the Franchise Tax Board shall
notify the taxpayer that the annual tax shall continue to be due
annually until a certificate of dissolution is filed with the
Secretary of State pursuant to Section 17707.08 of the Corporations
Code or a certificate of cancellation is filed with the Secretary of
State pursuant to Section 17708.06 of the Corporations Code.
(c) The tax assessed under this section shall be due and payable
on or before the 15th day of the fourth month of the taxable year.
(d) For purposes of this section, "limited liability company"
means an organization, other than a limited liability company that is
exempt from the tax and fees imposed under this chapter pursuant to
Section 23701h or Section 23701x, that is formed
by one or more persons under the law of this state, any other
country, or any other state, as a "limited liability company" and
that is not taxable as a corporation for California tax purposes.
(e) Notwithstanding anything in this section to the contrary, if
the office of the Secretary of State files a certificate of
cancellation pursuant to Section 17707.02 of the Corporations Code
for any limited liability company, then paragraph (1) of subdivision
(f) of Section 23153 shall apply to that limited liability company as
if the limited liability company were properly treated as a
corporation for that limited purpose only, and paragraph (2) of
subdivision (f) of Section 23153 shall not apply. Nothing in this
subdivision entitles a limited liability company to receive a
reimbursement for any annual taxes or fees already paid.
(f) (1) Notwithstanding any provision of this section to the
contrary, a limited liability company that is a small business solely
owned by a deployed member of the United States Armed Forces shall
not be subject to the tax imposed under this section for any taxable
year the owner is deployed and the limited liability company operates
at a loss or ceases operation.
(2) The Franchise Tax Board may promulgate regulations as
necessary or appropriate to carry out the purposes of this
subdivision, including a definition for "ceases operation."
(3) For the purposes of this subdivision, all of the following
definitions apply:
(A) "Deployed" means being called to active duty or active service
during a period when a Presidential Executive order specifies that
the United States is engaged in combat or homeland defense. "Deployed"
does not include either of the following:
(i) Temporary duty for the sole purpose of training or processing.
(ii) A permanent change of station.
(B) "Operates at a loss" means a limited liability company's
expenses exceed its receipts.
(C) "Small business" means a limited liability company with total
income from all sources derived from, or attributable, to the state
of two hundred fifty thousand dollars ($250,000) or less.
(4) This subdivision shall become inoperative for taxable years
beginning on or after January 1, 2018.
(g) (1) Notwithstanding any provision of this section to the
contrary, for taxable years beginning on or after January 1, 2015,
every new limited liability company that is a small business in a
taxable year shall pay to the state a minimum franchise
an annual tax of four hundred dollars ($400) for
its first taxable year.
(2) For purposes of this subdivision:
(A) "Gross receipts, less returns and allowances reportable to
this state," means the sum of the gross receipts from the production
of business income, as defined in subdivision (a) of Section 25120,
and the gross receipts from the production of nonbusiness income, as
defined in subdivision (d) of Section 25120.
(B) "New limited liability company" means a limited liability
company that is organized under the laws of this state or has
qualified to transact intrastate business in this state that begins
business operations at or after the time of its organization. "New
limited liability company" does not include any limited liability
company that began business operations as , or acquired its
business operations from, a sole proprietorship, a partnership,
a corporation, or any other form of business entity prior to its
organization or that acquired its business operations from a
limited liability company . This subdivision shall not apply to
any limited liability company that reorganizes solely for the
purpose of reducing its minimum franchise
annual tax.
(C) "Small business" means a limited liability company that
reasonably estimates that it will have gross receipts, less returns
and allowances, reportable to this state for the taxable year of five
thousand dollars ($5,000) or less.
(3) This subdivision shall not apply to a limited
liability company that does not file a timely return.
(4) If the limited liability company's gross receipts, as
determined by subparagraph (A) of paragraph (2), exceed five thousand
dollars ($5,000), an additional tax in the amount equal to four
hundred dollars ($400) for the taxable year shall be due and payable
by the corporation on the due date of its return, without regard to
extension, for that year.
SEC. 3. Section 17948 of the Revenue and Taxation Code is amended
to read:
17948. (a) For each taxable year beginning on or after January 1,
1997, every limited liability partnership doing business in this
state (as defined in Section 23101) and required to file a return
under Section 18633 shall pay annually to the Franchise Tax Board a
tax for the privilege of doing business in this state in an amount
equal to the applicable amount specified in paragraph (1) of
subdivision (d) of Section 23153 for the taxable year.
(b) In addition to any limited liability partnership that is doing
business in this state and therefore is subject to the tax imposed
by subdivision (a), for each taxable year beginning on or after
January 1, 1997, every registered limited liability partnership that
has registered with the Secretary of State pursuant to Section 16953
of the Corporations Code and every foreign limited liability
partnership that has registered with the Secretary of State pursuant
to Section 16959 of the Corporations Code shall pay annually the tax
prescribed in subdivision (a). The tax shall be paid for each taxable
year, or part thereof, until any of the following occurs:
(1) A notice of cessation is filed with the Secretary of State
pursuant to subdivision (b) of Section 16954 or 16960 of the
Corporations Code.
(2) A foreign limited liability partnership withdraws its
registration pursuant to subdivision (a) of Section 16960 of the
Corporations Code.
(3) The registered limited liability partnership or foreign
limited liability partnership has been dissolved and finally wound
up.
(c) The tax assessed under this section shall be due and payable
on the date the return is required to be filed under Section 18633.
(d) If a taxpayer files a return with the Franchise Tax Board that
is designated as its final return, the Franchise Tax Board shall
notify the taxpayer that the annual tax shall continue to be due
annually until a certificate of cancellation is filed with the
Secretary of State pursuant to Section 16954 or 16960 of the
Corporations Code.
(e) (1) Notwithstanding subdivisions (a) and (b), for taxable
years beginning on or after January 1, 2015, a new limited liability
partnership that is a small business shall pay to the state
a minimum franchise an annual tax of four
hundred dollars ($400) for its first taxable year.
(2) For purposes of this subdivision:
(A) "Gross receipts, less returns and allowances reportable to
this state," means the sum of the gross receipts from the production
of business income, as defined in subdivision (a) of Section 25120,
and the gross receipts from the production of nonbusiness income, as
defined in subdivision (d) of Section 25120.
(B) "New limited liability partnership" means a limited liability
partnership that is organized under the laws of this state or has
qualified to transact intrastate business in this state that begins
business operations at or after the time of its organization. "New
limited liability partnership" does not include any limited liability
partnership that began business operations as , or acquired its
business operations from, a sole proprietorship, a limited
liability company, a corporation, a partnership, or any
other form of business entity prior to its organization or that
acquired its business operations from a limited liability partnership
. This subdivision shall not apply to any limited partnership
that reorganizes solely for the purpose of reducing its
minimum franchise annual tax.
(C) "Small business" means a limited partnership that
reasonably estimates that it will have gross receipts, less
returns and allowances, reportable to this state for the taxable
year of five thousand dollars ($5,000) or less.
(3) This subdivision shall not apply to a limited
liability partnership that does not file a timely return.
SEC. 4. Section 23153 of the Revenue and Taxation Code is amended
to read:
23153. (a) Every corporation described in subdivision (b) shall
be subject to the minimum franchise tax specified in subdivision (d)
from the earlier of the date of incorporation, qualification, or
commencing to do business within this state, until the effective date
of dissolution or withdrawal as provided in Section 23331 or, if
later, the date the corporation ceases to do business within the
limits of this state.
(b) Unless expressly exempted by this part or the California
Constitution, subdivision (a) shall apply to each of the following:
(1) Every corporation that is incorporated under the laws of this
state.
(2) Every corporation that is qualified to transact intrastate
business in this state pursuant to Chapter 21 (commencing with
Section 2100) of Division 1 of Title 1 of the Corporations Code.
(3) Every corporation that is doing business in this state.
(c) The following entities are not subject to the minimum
franchise tax specified in this section:
(1) Credit unions.
(2) Nonprofit cooperative associations organized pursuant to
Chapter 1 (commencing with Section 54001) of Division 20 of the Food
and Agricultural Code that have been issued the certificate of the
board of supervisors prepared pursuant to Section 54042 of the Food
and Agricultural Code. The association shall be exempt from the
minimum franchise tax for five consecutive taxable years, commencing
with the first taxable year for which the certificate is issued
pursuant to subdivision (b) of Section 54042 of the Food and
Agricultural Code. This paragraph only applies to nonprofit
cooperative associations organized on or after January 1, 1994.
(d) (1) Except as provided in paragraph (2), paragraph (1) of
subdivision (f) of Section 23151, paragraph (1) of subdivision (f) of
Section 23181, and paragraph (1) of subdivision (c) of Section
23183, corporations subject to the minimum franchise tax shall pay
annually to the state a minimum franchise tax of eight hundred
dollars ($800).
(2) The minimum franchise tax shall be twenty-five dollars ($25)
for each of the following:
(A) A corporation formed under the laws of this state whose
principal business when formed was gold mining, which is inactive and
has not done business within the limits of the state since 1950.
(B) A corporation formed under the laws of this state whose
principal business when formed was quicksilver mining, which is
inactive and has not done business within the limits of the state
since 1971, or has been inactive for a period of 24 consecutive
months or more.
(3) For purposes of paragraph (2), a corporation shall not be
considered to have done business if it engages in business other than
mining.
(e) Notwithstanding subdivision (a), for taxable years beginning
on or after January 1, 1999, and before January 1, 2000, every
"qualified new corporation" shall pay annually to the state a minimum
franchise tax of five hundred dollars ($500) for the second taxable
year. This subdivision shall apply to any corporation that is a
qualified new corporation and is incorporated on or after January 1,
1999, and before January 1, 2000.
(1) The determination of the gross receipts of a corporation, for
purposes of this subdivision, shall be made by including the gross
receipts of each member of the commonly controlled group, as defined
in Section 25105, of which the corporation is a member.
(2) "Gross receipts, less returns and allowances reportable to
this state," means the sum of the gross receipts from the production
of business income, as defined in subdivision (a) of Section 25120,
and the gross receipts from the production of nonbusiness income, as
defined in subdivision (d) of Section 25120.
(3) "Qualified new corporation" means a corporation that is
incorporated under the laws of this state or has qualified to
transact intrastate business in this state, that begins business
operations at or after the time of its incorporation and that
reasonably estimates that it will have gross receipts, less returns
and allowances, reportable to this state for the taxable year of one
million dollars ($1,000,000) or less. "Qualified new corporation"
does not include any corporation that began business operations as a
sole proprietorship, a partnership, or any other form of business
entity prior to its incorporation. This subdivision shall not apply
to any corporation that reorganizes solely for the purpose of
reducing its minimum franchise tax.
(4) This subdivision shall not apply to limited partnerships, as
defined in Section 17935, limited liability companies, as defined in
Section 17941, limited liability partnerships, as described in
Section 17948, charitable organizations, as described in Section
23703, regulated investment companies, as defined in Section 851 of
the Internal Revenue Code, real estate investment trusts, as defined
in Section 856 of the Internal Revenue Code, real estate mortgage
investment conduits, as defined in Section 860D of the Internal
Revenue Code, qualified Subchapter S subsidiaries, as defined in
Section 1361(b)(3) of the Internal Revenue Code, or to the formation
of any subsidiary corporation, to the extent applicable.
(5) For any taxable year beginning on or after January 1, 1999,
and before January 1, 2000, if a corporation has qualified to pay
five hundred dollars ($500) for the second taxable year under this
subdivision, but in its second taxable year, the corporation's gross
receipts, as determined under paragraphs (1) and (2), exceed one
million dollars ($1,000,000), an additional tax in the amount equal
to three hundred dollars ($300) for the second taxable year shall be
due and payable by the corporation on the due date of its return,
without regard to extension, for that year.
(f) (1) (A) Notwithstanding subdivision (a), every corporation
that incorporates or qualifies to do business in this state on or
after January 1, 2000, shall not be subject to the minimum franchise
tax for its first taxable year.
(B) Notwithstanding subdivision (a), every corporation that is a
new corporation in taxable years beginning on or after January 1,
2015, and is a small business in its first and second taxable year
shall pay to the state a minimum franchise tax of four hundred
dollars ($400) for its second taxable year.
(i) For purposes of this paragraph
subparagraph :
(I) "Gross receipts, less returns and allowances reportable to
this state," means the sum of the gross receipts from the production
of business income, as defined in subdivision (a) of Section 25120,
and the gross receipts from the production of nonbusiness income, as
defined in subdivision (d) of Section 25120.
(II) "New corporation" means a corporation that is incorporated
under the laws of this state or has qualified to transact intrastate
business in this state that begins business operations at or after
the time of its incorporation. "New corporation" does not include any
corporation that began business operations as , or acquired its
business operations from, a sole proprietorship, a
partnership, limited liability company, or any other form of business
entity prior to its incorporation or that acquired its business
operations from a corporation . This paragraph shall not apply
to any corporation that reorganizes solely for the purpose of
reducing its minimum franchise tax.
(III) "Small business" means a corporation that reasonably
estimates that it will have gross receipts, less returns and
allowances, reportable to this state for the taxable year of five
thousand dollars ($5,000) or less.
(ii) (I) This paragraph
subparagraph shall not apply to a corporation
that does not file a timely return.
(II) If the corporation's gross
receipts, as determined by subclause (I) of clause (i) of
subparagraph (B), exceed five thousand dollars ($5,000), an
additional tax in the amount equal to four hundred dollars ($400) for
the taxable year shall be due and payable by the corporation on the
due date of its return, without regard to extension, for that year.
(2) This subdivision shall not apply to limited partnerships, as
defined in Section 17935, limited liability companies, as defined in
Section 17941, limited liability partnerships, as described in
Section 17948, charitable organizations, as described in Section
23703, regulated investment companies, as defined in Section 851 of
the Internal Revenue Code, real estate investment trusts, as defined
in Section 856 of the Internal Revenue Code, real estate mortgage
investment conduits, as defined in Section 860D of the Internal
Revenue Code, and qualified Subchapter S subsidiaries, as defined in
Section 1361(b)(3) of the Internal Revenue Code, to the extent
applicable.
(3) This subdivision shall not apply to any corporation that
reorganizes solely for the purpose of avoiding payment of its minimum
franchise tax.
(g) Notwithstanding subdivision (a), a domestic corporation, as
defined in Section 167 of the Corporations Code, that files a
certificate of dissolution in the office of the Secretary of State
pursuant to subdivision (b) of Section 1905 of the Corporations Code,
prior to its amendment by the act amending this subdivision, and
that does not thereafter do business shall not be subject to the
minimum franchise tax for taxable years beginning on or after the
date of that filing.
(h) The minimum franchise tax imposed by paragraph (1) of
subdivision (d) shall not be increased by the Legislature by more
than 10 percent during any calendar year.
(i) (1) Notwithstanding subdivision (a), a corporation that is a
small business solely owned by a deployed member of the United States
Armed Forces shall not be subject to the minimum franchise tax for
any taxable year the owner is deployed and the corporation operates
at a loss or ceases operation.
(2) The Franchise Tax Board may promulgate regulations as
necessary or appropriate to carry out the purposes of this
subdivision, including a definition for "ceases operation."
(3) For the purposes of this subdivision, all of the following
definitions apply:
(A) "Deployed" means being called to active duty or active service
during a period when a Presidential Executive order specifies that
the United States is engaged in combat or homeland defense. "Deployed"
does not include either of the following:
(i) Temporary duty for the sole purpose of training or processing.
(ii) A permanent change of station.
(B) "Operates at a loss" means negative net income as defined in
Section 24341.
(C) "Small business" means a corporation with total income from
all sources derived from, or attributable, to the state of two
hundred fifty thousand dollars ($250,000) or less.
(4) This subdivision shall become inoperative for taxable years
beginning on or after January 1, 2018.
SEC. 5. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.
