BILL ANALYSIS
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THIRD READING
Bill No: AB 1452
Author: Assembly Budget Committee
Amended: 9/15/08 in Senate
Vote: 27 - Urgency
PRIOR VOTES NOT RELEVANT
SUBJECT : State Revenue and Tax Administration: Budget
Trailer Bill
SOURCE : Author
DIGEST : This bill provides the necessary statutory
changes in the area of state revenue and tax administration
in order to enact the 2008 Budget Act.
Senate Floor Amendments of 9/15/08 (1) delete the sales tax
increase, (2) add carry-back provisions to the net
operating loss deduction, (3) accelerate limit liability
company projects, and (4) limit the business tax credits in
2008-09 and 2009-10.
ANALYSIS : This bill makes the following statutory
changes:
1. Suspends the Net Operating Loss deduction . Suspends the
Net Operating Loss (NOL) deduction in the 2008 and 2009
tax years. The NOL was last suspended in the 2002 and
2003 tax years. This bill exempts taxpayers with net
business income of less than $500,000 from the
CONTINUED
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suspension. Taxpayers with losses incurred before
January 1, 2010, will still have 10 years to utilize
their NOL deductions. For taxpayers with NOLs incurred
before 2008, their 10-year carry forward period will
simply be tolled between 2008 and 2010. This bill also
expands the NOL carry forward period from 10 years to 20
years for losses incurred after January 1, 2010, bringing
state law into greater conformity with federal law. This
bill also adds a two-year carry-back provision that allow
taxpayers to carry losses back up to two years. The
carry-back provisions will be implemented over three
years - with 50 percent of NOL allowable for carry-back
in 2011, 75 percent in 2012, and 100 percent carry-back
thereafter.
2. Acceleration of limited liability company (LLC) payment .
Requires payment of the estimated LLC payment by June 15
of the current taxable year, instead of April 15 of the
following year. This results in a one-time double
payment in the first half of 2009 - the 2008 payment by
April 15 and the estimated 2009 payment by June 15. This
change results in a one-time General Fund benefit of $360
million in 2008-09, and an ongoing General Fund benefit
of approximately $35 million. This bill conforms the
treatment of LLCs to local business license taxes and
personal income taxes, which require estimated payment in
the tax year, instead of the following year. LLC fees
range from $900 for gross incomes under $500,000 to
$11,790 for gross incomes at or over $5,000,000. This
bill includes a 10 percent penalty for late or
underpayment, but includes a safe-harbor if the estimated
payment is equal to or greater than the fee that was due
in the previous year.
3. Limit business tax credits in 2008-09 and 2009-10 .
Limits the amounts of business incentive tax credits that
can be used to reduce tax liability in 2008-09 and
2009-10. Use of credits will be limited to 50 percent of
the taxpayer's liability, and this increases General Fund
revenue by $890 million in 2008-09 and $415 million in
2009-10. Taxpayers with net business income of less than
$500,000 will be exempted from this change. Various tax
credits are included in these amendments, including the
Research and Development credit, the Enterprise Zone
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credit, and Low-Income Housing credits. Beginning in
2010, these amendments liberalize the use of credits such
that businesses could assign credits to any affiliated
corporation. This increases the use of tax credits in
2010, and thereafter, resulting in a loss of General Fund
revenues.
4. Use Tax - Vehicles, Vessels, and Aircraft . Reinstates
the 12-month use tax presumption period for yachts and
aircraft purchased out of state and brought into
California, which will increase General Fund revenues by
$17 million in 2008-09. In addition, use tax revenues
allocated to local governments will increase by about
$11.8 million annually. Current law includes a 3-month
use tax presumption period. This bill establishes a
rebuttable presumption that any vehicle, vessel, or
aircraft purchased outside of the state by a California
resident and brought into the state within 12 months was
purchased for use in California and therefore is subject
to the payment of Use Tax (equivalent to sales tax). For
vehicles, vessels, and aircraft purchased by
nonresidents, the presumption of Use Tax liability
applies if, within 12 months of purchase, a vehicle
becomes subject to California registration or a vessel or
aircraft is subject to California property tax or if,
during the 12-month period following an out-of-state
purchase, a vehicle, vessel, or aircraft is used or
stored in California more than half the time. The
presumption can be controverted by documentary evidence
of intent to use the property outside California, such as
registration with another state. This provision exempts
vehicles, vessels or aircraft used in interstate or
foreign commerce or brought into the state for limited
periods for repair, modification, or retrofit.
5. Modify Tax Amnesty . Deletes a provision that extended
the payment due date beyond the date the assessment is
final, as specified. The current provision was found by
the Franchise Tax Board to reduce the revenue benefit of
the amnesty from the $360 million previously scored to
$57 million. This bill maintains the revenue benefit of
the amnesty at $360 million.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
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Local: No
DLW:mw 9/15/08 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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