Bill Text: CA SB1192 | 2023-2024 | Regular Session | Amended
Bill Title: Personal Income Tax Law: Small Business Relief Act: elective tax.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Engrossed) 2024-08-15 - August 15 hearing: Held in committee and under submission. [SB1192 Detail]
Download: California-2023-SB1192-Amended.html
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Amended
IN
Assembly
July 01, 2024 |
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Amended
IN
Senate
April 02, 2024 |
CALIFORNIA LEGISLATURE—
2023–2024 REGULAR SESSION
Senate Bill
No. 1192
| Introduced by Senator Portantino |
February 14, 2024 |
An act to amend Sections 17052.10, 19900, 19902, 19904, and 19906 of the Revenue and Taxation Code, relating to taxation.
LEGISLATIVE COUNSEL'S DIGEST
SB 1192, as amended, Portantino.
Personal Income Tax Law: Small Business Relief Act: elective tax.
Existing law, known as the Small Business Relief Act, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, authorizes a partnership or “S” corporation that meets certain other requirements to elect to pay an elective tax at a rate based on its net income, as specified, for the taxable year. Existing law repeals the act on December 1, 2026, or makes it inoperative and repeals the act on an earlier date if a specified federal law is repealed.
Existing law, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, allows a credit against the personal income tax of a taxpayer, other than a partnership, that is a partner, shareholder, or member of an entity that elects to pay the elective tax authorized by the act, in an amount equal to a specified percentage of the partner’s,
shareholder’s, or member’s pro rata share or distributive share, as applicable, of income subject to the elective tax paid by the entity.
This bill would extend the provisions of the act, and the above-described credit against personal income tax, for taxable years beginning before January 1, 2028. The bill would make the provisions of the act inoperative and repeal them on an earlier date if a specified federal law is repealed or becomes inoperative.
Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals that the tax expenditure will achieve.
This bill would include additional information required for any bill authorizing a new tax expenditure.
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 17052.10 of the Revenue and Taxation Code is amended to read:17052.10.
(a) For taxable years beginning on or after January 1, 2021, and before January 1, 2028, there shall be allowed to a qualified taxpayer a credit against the “net tax,” as defined in Section 17039, in an amount equal to the qualified amount.(b) For purposes of this section:
(1) “Electing qualified entity” means a qualified entity, as defined by Section 19902, that has elected to pay the elective tax under Part 10.4 (commencing with Section 19900).
(2) “Qualified amount” means an amount equal to 9.3 percent of the sum of the qualified taxpayer’s guaranteed payments as defined
by Section 707(c) of the Internal Revenue Code, relating to guaranteed payments, and the qualified taxpayer’s pro rata share or distributive share, as applicable, of income, as determined under this part and Part 11 (commencing with Section 23001), subject to tax under this part included in qualified net income, as defined in Section 19900, subject to the election made by an electing qualified entity under Part 10.4 (commencing with Section 19900).
(3) “Qualified taxpayer” means:
(A) A taxpayer, as defined in Section 17004, excluding partnerships, that is a partner, shareholder, or member of an electing qualified entity that consented to have the sum of their guaranteed payments and pro rata share or distributive share of income, as
determined under this part and Part 11 (commencing with Section 23001), subject to tax under this part included in the qualified net income, as defined in Section 19900, of the electing qualified entity.
(B) “Qualified taxpayer” does not include a business entity that is disregarded for federal tax purposes, as described in Section 23038, or its partners or members.
(C) Subparagraph (B) shall not apply to a limited liability company that is disregarded for federal tax purposes, as described in Section 23038, and meets both of the following:
(i) Is owned by a taxpayer, as defined in Section 17004, excluding partnerships, that consented to have the sum of their guaranteed payments and pro rata share or
distributive share of income, as determined under this part and Part 11 (commencing with Section 23001), subject to tax under this part included in the qualified net income, as defined in Section 19900, of the electing qualified entity.
(ii) Is a partner, shareholder, or member of an electing qualified entity.
(c) In the case where the credit allowed by this section exceeds the “net tax,” the excess may be carried over to reduce the “net tax” in the following taxable year, and succeeding four years, if necessary, until the credit is exhausted.
(d) (1) Any disallowance of a credit under this section due to any of the following conditions shall be treated as a mathematical error appearing on the
return:
(A) Timely payment was not made under subdivision (b) of Section 19904.
(B) Payments made for the taxable year exceed the elective tax computed under Part 10.4 (commencing with Section 19900).
(C) No election was made or allowed under Part 10.4 (commencing with Section 19900).
(2) Any amount of tax resulting from such disallowance may be assessed by the Franchise Tax Board in the same manner as provided by Section 19051.
(e) (1) For each taxable year the credit is allowed, for purposes of Sections 18001 and 18002, “‘net tax’ (as defined by Section 17039) payable
under this part” shall be increased by the amount of credit under this section that reduced the “net tax,” as defined in Section 17039, in that taxable year.
(2) This subdivision shall apply for taxable years beginning on or after January 1, 2022, and before January 1, 2028.
(3) Section 41 shall not apply to the expansion of existing tax expenditures resulting from application of this subdivision.
(f) (1) The Franchise Tax Board may adopt regulations that are necessary or appropriate to implement this section.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any
regulation, rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section.
(g) (1) For the purposes of complying with Section 41, the Legislature finds and declares that the goal of this tax credit is to provide tax relief to small businesses facing unprecedented economic hurdles due to COVID-19.
(2) For the purposes of complying with Section 41, as it pertains to the amendments made to this section by the act adding this paragraph, the Legislature finds and declares that the goal of the extension of the tax credit provided by this section is to provide tax relief to small businesses facing
unprecedented economic hurdles due to uncertainty related to the limitations on the state and local tax deduction for federal income tax purposes pursuant to Section 164 of the Internal Revenue Code.
(h) The amendments made to this section by Section 8 of Chapter 3 of the Statutes of 2022 shall apply for taxable years beginning on or after January 1, 2021, and before January 1,
2028.
(i) This section shall remain in effect only until December 1, 2028, and as of that date is repealed.
SEC. 2.
Section 19900 of the Revenue and Taxation Code is amended to read:19900.
(a) (1) For taxable years beginning on or after January 1, 2021, and before January 1, 2028, a qualified entity doing business in this state, as defined in Section 23101, and that is required to file a return under Section 18633, 18633.5, or subdivision (a) of Section 18601, may elect to annually pay an elective tax according to or measured by its qualified net income, defined in paragraph (2), computed at the rate of 9.3 percent for the taxable year for which the election is made.(2) For purposes of this section, the “qualified net income” of a qualified entity means the sum of the pro rata share or distributive share of income, and any guaranteed payments, as
described by Section 707(c) of the Internal Revenue Code, relating to guaranteed payments, subject to tax under Part 10 (commencing with Section 17001) for the taxable year of each qualified taxpayer, as defined in Section 17052.10.
(b) (1) The elective tax authorized by this part shall be in addition to, and not in place of, any other tax or fee required to be paid under Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001).
(2) The elective tax described in this part shall be assessed and collected under Part 10.2 (commencing with Section 18401).
(3) Unless the context otherwise requires, the definitions set forth in this part and those in Part 10 (commencing with
Section 17001), Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001) shall apply.
(c) (1) The qualified entity may include in its qualified net income the pro rata share or distributive share of the income of any of its partners, shareholders, or members upon their consent. A partner, shareholder, or member that does not consent does not prevent the qualified entity from making an election to pay the elective tax.
(2) All partners, shareholders, and members of the qualified entity shall be bound by the election made under this part for the taxable year.
(d) The election shall be irrevocable and shall be made on an original, timely filed return required under
Part 10.2 (commencing with Section 18401) for the taxable year of the election in the form and manner as prescribed by the Franchise Tax Board.
(e) The amendments made to this section by Section 14 of Chapter 3 of the Statutes of 2022 shall apply for taxable years beginning on or after January 1, 2021, and before January 1, 2028.
SEC. 3.
Section 19902 of the Revenue and Taxation Code is amended to read:19902.
(a) For purposes of this part, “qualified entity” means an entity that meets both of the following requirements for the taxable year:(1) The entity is taxed as a partnership or “S” corporation.
(2) The entity’s partners, shareholders, or members in that taxable year are exclusively corporations, as defined in Section 23038, or taxpayers as defined in Section 17004.
(b) “Qualified entity” shall not include any of the following:
(1) Publicly traded partnerships, as defined in Section 7704 of the Internal
Revenue Code, as it read on January 1, 2021, as modified by Section 17008.5.
(2) An entity that is permitted or required to be in a combined reporting group, as defined in paragraph (3) of subdivision (b) of Section 25106.5 of Title 18 of the California Code of Regulations.
(c) The amendments made to this section by Section 15 of Chapter 3 of the Statutes of 2022 shall apply for taxable years beginning on or after January 1, 2021, and before January 1, 2028.
SEC. 4.
Section 19904 of the Revenue and Taxation Code is amended to read:19904.
(a) The elective tax authorized by this part shall be due and payable as follows:(1) For taxable years beginning on or after January 1, 2021, and before January 1, 2022, on or before the due date of the original return that the qualified entity is required to file pursuant to Part 10.2 (commencing with Section 18401) without regard to any extension of time for filing the return, for the taxable year of the election made pursuant to Section 19900.
(2) For each taxable year beginning on or after January 1, 2022, and before January 1, 2028, as follows:
(A) On or
before June 15th during the taxable year of the election, an amount equal to, or greater than, either 50 percent of the elective tax paid the prior taxable year or one thousand dollars ($1,000), whichever is greater.
(B) On or before the due date of the original return that the qualified entity is required to file pursuant to Part 10.2 (commencing with Section 18401) without regard to any extension of time for filing the return for the taxable year of the election made pursuant to Section 19900, an amount equal to the amount of the elective tax under subdivision (a) of Section 19900, less the payment made on or before June 15th of the taxable year pursuant to subparagraph (A).
(b) For each taxable year beginning on or after January 1, 2022, and before January 1, 2028, if no payment
is made as required in subparagraph (A) of paragraph (2) of subdivision (a) in the form and manner as prescribed by the Franchise Tax Board, the qualified entity may not make the election under Section 19900 for that taxable year.
(c) This part shall not change any filing requirements under Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001).
(d) (1) The Franchise Tax Board may adopt regulations that are necessary or appropriate to implement this part.
(2) The Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) shall not apply to any regulation,
rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this part.
SEC. 5.
Section 19906 of the Revenue and Taxation Code is amended to read:19906.
(a) Except as provided in subdivision (b), this part shall remain in effect only until December 1, 2028, and as of that date is repealed.(b) If before December 1, 2028, Section 164(b)(6) of the Internal Revenue Code, relating to the limitation on individual deductions for taxable years 2018 to 2025, inclusive, as it read on January 1, 2021, is repealed, this part would become inoperative for taxable years beginning on or after the January 1 after Section 164(b)(6) of the Internal Revenue Code, as it read on January 1, 2021, is repealed, and shall be repealed December 1 of that taxable year.
