Bill Text: CA AB2929 | 2019-2020 | Regular Session | Introduced
Bill Title: Corporation taxes: annual and minimum franchise tax: single-member limited liability company or single-owner corporation: tax reduction.
Spectrum: Partisan Bill (Democrat 2-0)
Status: (Introduced - Dead) 2020-03-05 - Referred to Com. on REV. & TAX. [AB2929 Detail]
Download: California-2019-AB2929-Introduced.html
CALIFORNIA LEGISLATURE—
2019–2020 REGULAR SESSION
Assembly Bill
No. 2929
| Introduced by Assembly Members Arambula and Muratsuchi |
February 21, 2020 |
An act to amend Sections 17941 and 23153 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 2929, as introduced, Arambula.
Corporation taxes: annual and minimum franchise tax: single-member limited liability company or single-owner corporation: tax reduction.
Existing income tax laws impose a minimum franchise tax on every corporation incorporated in this state, qualified to transact intrastate business in this state, or doing business in this state, and an annual tax in an amount equal to the minimum franchise tax on every limited partnership, limited liability partnership, and limited liability company registered, qualified to transact business, or doing business in this state, as specified.
This bill, for taxable years beginning on or after January 1, 2021, would provide that a single-owner corporation, as defined, or a single-member limited liability company, as defined, is not subject to the minimum franchise tax or annual tax in the company’s first taxable year. The bill would subject those entities to an annual increase in those taxes by $200 commencing in the second taxable year, and every
taxable year thereafter, until the entity is subject to 100% of those taxes. The bill would require the Franchise Tax Board to administer the tax reduction on a first-come-first-served basis, as provided, and limit the total reduction provided for each tax to $100,000,000 per taxable year.
Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
The bill also would include additional information required for any bill authorizing a new tax expenditure.
This bill would take effect immediately as a tax levy.
Digest Key
Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NOBill Text
The people of the State of California do enact as follows:
SECTION 1.
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(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, for taxable years beginning on or after January 1, 2020, 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, 2030.
(g) (1) Notwithstanding any provision of this section to the contrary, for taxable years beginning on or after January 1, 2021, a single-member limited liability company shall be subject to the tax imposed under this section as follows:
(A) A single-member limited liability company shall not be subject to the tax under this section for the first taxable year that the company is subject to the tax imposed under this section.
(B) A single-member limited liability company is subject to an annual increase in the tax by two hundred dollars ($200) commencing in the second taxable year, and every taxable year thereafter, until the company is subject to 100 percent of the tax imposed under this section.
(2) (A) The Franchise Tax Board shall allow the reduction provided by this subdivision on a first-come-first-served basis,
determined by the date the taxpayer’s timely filed original tax return is received by the Franchise Tax Board. The reduction shall not exceed one hundred million dollars ($100,000,000) per taxable year.
(B) For purposes of this paragraph, the date a return is received shall be determined by the Franchise Tax Board. The determination of the Franchise Tax Board as to the date a return is received and whether a return has been timely filed for purposes of this subdivision may not be reviewed in any administrative or judicial proceeding.
(C) Any disallowance of a reduction claimed due to the limitations specified in this subdivision shall be treated as a mathematical error
appearing on the return. Any amount of tax resulting from that disallowance may be assessed by the Franchise Tax Board in the same manner as provided in Section 19051.
(3) For the purposes of this subdivision, both of the following definitions apply:
(A) “Member of low or moderate income” means a person of low or moderate income, as defined by Section 50093 of the Health and Safety Code.
(B) “Single-member limited liability company” means a limited liability company in which the company has only one member of low or moderate income and that member has not previously benefitted from a tax reduction, other than the reduction provided pursuant to this subdivision and subdivision (j) of Section 23153, for the
single-member limited liability company.
SEC. 2.
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) 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.
(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), for taxable years beginning on or after January 1, 2020, 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, 2030.
(j) (1) Notwithstanding subdivision (a), for taxable years beginning on or after January 1, 2021, a single-owner corporation shall be subject to the minimum franchise tax imposed under this section as follows:
(A) A single-owner corporation shall not be subject to the minimum franchise tax under this section for the first taxable year that the corporation is subject to the tax imposed under this section.
(B) A single-owner corporation is subject to an annual increase in the minimum franchise tax by two hundred dollars ($200) commencing in the second taxable year, and every taxable year thereafter, until the corporation is subject to 100 percent of the tax imposed under this section.
(2) (A) The Franchise Tax Board shall allow the reduction provided by this subdivision on a first-come-first-served basis, determined by the date the taxpayer’s timely filed original tax return is received by the Franchise Tax Board. The reduction shall not exceed one hundred million dollars ($100,000,000) per taxable year.
(B) For purposes of this paragraph, the date a return is received shall be determined by the Franchise Tax Board. The determination of the Franchise Tax Board as to the date a return is received and whether a return has been timely filed for purposes of this subdivision may not be reviewed in any administrative or judicial proceeding.
(C) Any disallowance of a reduction claimed due to the limitations specified in this subdivision shall be treated as a mathematical error
appearing on the return. Any amount of tax resulting from that disallowance may be assessed by the Franchise Tax Board in the same manner as provided in Section 19051.
(3) For the purposes of this subdivision, both of the following definitions apply:
(A) “Owner of low or moderate income” means a person of low or moderate income, as defined by Section 50093 of the Health and Safety Code.
(B) “Single-owner corporation” means a corporation in which the corporation has only one owner of low or moderate income and that owner has not previously benefitted from a tax reduction, other than the reduction provided pursuant to this subdivision and subdivision (g) of Section 17941, for the corporation.
SEC. 3.
For purposes of complying with Section 41 of the Revenue and Taxation Code, with respect to the tax benefit allowed by subdivision (g) of Section 17941 and subdivision (j) of Section 23153 of the Revenue and Taxation Code, as added by this act, hereafter “the benefits,” the Legislature finds and declares all of the following:(a) The specific goal, purpose, and objective of the benefits is to assist low and moderate income entrepreneurs in starting small businesses.
(b) The effectiveness of the benefits shall be measured by the number of taxpayers claiming the benefits.
(c) The data collection requirements are
as follows:
(1) The Legislative Analyst’s Office shall prepare and submit a report to the Legislature, on or before December 1, 2023, and every five years thereafter, and in compliance with Section 9795 of the Government Code, on the effectiveness of the benefits. The report shall include information on the number of taxpayers claiming the benefits and total amount of the benefits provided per taxable year. The Legislative Analyst may request information from the Franchise Tax Board for the purposes of this subdivision.
(2) Notwithstanding Section 19542 of the Revenue and Taxation Code, the Franchise Tax Board shall provide any data requested by the Legislative Analyst’s Office pursuant to this subdivision, as allowed pursuant to the Revenue and Taxation Code.
