BILL NUMBER: SB 615 CHAPTERED 09/09/04 CHAPTER 388 FILED WITH SECRETARY OF STATE SEPTEMBER 9, 2004 APPROVED BY GOVERNOR SEPTEMBER 9, 2004 PASSED THE SENATE AUGUST 17, 2004 PASSED THE ASSEMBLY JULY 2, 2004 AMENDED IN ASSEMBLY APRIL 1, 2004 AMENDED IN ASSEMBLY FEBRUARY 5, 2004 INTRODUCED BY Senator Cedillo FEBRUARY 20, 2003 An act to repeal and add Section 17140.5 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. LEGISLATIVE COUNSEL'S DIGEST SB 615, Cedillo. Income taxes: servicemembers. The Personal Income Tax Law provides that gross income does not include compensation for military or naval service within the meaning of the federal Soldiers' and Sailors' Civil Relief Act of 1940 performed by a nonresident not domiciled in this state and attributable to a resident spouse solely because of the application of community property laws. This bill would, for purposes of the Personal Income Tax Law or the Corporation Tax Law, or both, provide additional relief to servicemembers in conjunction with the recently enacted federal Servicemembers Civil Relief Act with respect to, among other things, the duration and term of stays of specified legal proceedings, applicable interest rates, residency for tax purposes, and tax treatment of compensation for military service. This bill would take effect immediately as a tax levy. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 17140.5 of the Revenue and Taxation Code is repealed. SEC. 2. Section 17140.5 is added to the Revenue and Taxation Code, to read: 17140.5. (a) Pursuant to Section 206 of the Servicemembers Civil Relief Act (50 U.S.C. Appen. Sec. 526), the period of a servicemember' s military service may not be included in computing any period limited by law, regulation, or order for the bringing of any action or proceeding under this part, Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001), by or against the servicemember or the servicemember's heirs, executors, administrators, or assigns. (b) Section 19521 is modified to provide that, pursuant to Section 207 of the Servicemembers Civil Relief Act (50 U.S.C. Appen. Sec. 527), the maximum rate of interest on any underpayment incurred by a servicemember, or the servicemember and the servicemember's spouse jointly, before the servicemember enters military service may not bear interest at a rate in excess of 6 percent per year during the period of military service. (c) Pursuant to Section 511 of the Servicemembers Civil Relief Act (50 U.S.C. Appen. Sec. 571): (1) A servicemember not domiciled in this state does not become a resident of this state by reason of being present in this state solely in compliance with military orders. (2) Compensation for military service of a servicemember not domiciled in this state is not income for services performed or from sources within this state. (3) The military compensation of a servicemember not domiciled in this state may not be used to increase the tax liability imposed on other income of that servicemember or that servicemember's spouse. (4) A Native American servicemember whose legal residence or domicile is a federal Indian reservation shall be treated as living on the federal Indian reservation and the compensation of that servicemember for military service shall be deemed to be income derived wholly from federal Indian reservation sources. (d) For purposes of this part and Part 10.2 (commencing with Section 18401), in the case of a servicemember not domiciled in this state, all of the following shall apply: (1) Compensation for military service shall not be included in any of the following: (A) Gross income of that servicemember or the spouse of that servicemember. (B) "Entire taxable income" for purposes of computing the tax imposed under subdivision (b) or (d) of Section 17041. (C) "Alternative minimum taxable income" for purposes of computing tax imposed under subparagraph (B) of paragraph (3) of subdivision (b) of Section 17062. (2) Paragraph (2) of subdivision (h) of Section 17024.5 is modified to provide that references to "adjusted gross income" for purposes of computing limitations based upon adjusted gross income, shall mean the amount required to be shown as adjusted gross income on the federal tax return for the same taxable year reduced by the amount of the compensation for military service for that taxable year of a servicemember not domiciled in this state. (e) (1) "Federal Indian reservation," "servicemember," "military service," "period of military service," and "compensation for military service" shall have the same meanings as applicable for purposes of the Servicemembers Civil Relief Act (50 U.S.C. Appen. Sec. 501 et seq.). (2) "Native American" has the same meaning as the term "Indian" for purposes of applying Section 511(e) of the Servicemembers Civil Relief Act (50 U.S.C. Appen. Sec. 571(e)) for federal purposes. (f) The amendments made to this section by the act adding this subdivision shall apply to any taxable year for which the period for making assessments or allowing a claim for refund or credit has not expired as of December 19, 2003. SEC. 3. The Legislature declares that this act is necessary for the public purpose of making state law compatible with recently enacted federal law on December 19, 2003 (the Servicemembers Civil Relief Act (Public Law 108-189)), that specifically provides rules for servicemembers. SEC. 4. This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.