BILL NUMBER: AB 1546	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Member Charles Calderon

                        FEBRUARY 23, 2007

   An act to amend Section 17942 of the Revenue and Taxation Code,
relating to limited liability companies, to take effect immediately,
tax levy.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 1546, as introduced, Charles Calderon. Income taxes: limited
liability companies: apportionment.
   The Personal Income Tax Law requires every limited liability
company subject to a specified tax to pay annually to this state a
fee equal to specified amounts based upon total income from all
sources reportable to this state. That law defines total income as
gross income, as defined, plus the cost of goods sold, as specified.
   This bill would clarify that total income from all sources
reportable to this state means gross income, as defined, plus the
cost of goods sold, as specified, derived from or attributable to
this state within the meaning of specified provisions of the
Corporation Tax Law relating to apportionment and allocation, as
provided. This bill would make legislative findings and declarations
regarding the necessity for the equitable treatment of limited
liability companies.
   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.  The Legislature finds and declares that the changes
made by this act with respect to Section 17942 of the Revenue and
Taxation Code are necessary to provide for the equitable tax
treatment for limited liability companies in light of the following:
   (a) The California Limited Liability Act (Ch. 1200, Stats. 1994)
authorized limited liability companies for the first time to organize
and register in the state. The Legislature was advised that an
increasing number of businesses would organize as limited liability
companies rather than corporations, resulting in a decrease in income
and franchise tax revenue. To offset the loss in tax revenue,
certain limited liability companies are required to pay an annual fee
based on total income from all sources reportable to the state.
   (b) The Legislature finds and declares that its intent in adopting
Section 17942 was to ensure that limited liability companies pay a
fair and appropriate amount to the State of California, consistent
with constitutional limits, and the changes made by this act with
respect to Section 17942 serve a public purpose and are in
furtherance of the public interest in the fair taxation of limited
liability companies doing business in the state by applying the
apportionment and allocation provisions to total income for purposes
of determining the amount of the limited liability company fee.
   (c) The Legislature further finds and declares that this act
serves a public purpose and sound tax policy by affording equitable
tax treatment to many taxpayers doing business in this state with the
expectation of paying a limited liability company fee that is
relative to the level of activity in the state.
  SEC. 2.  Section 17942 of the Revenue and Taxation Code is amended
to read:
   17942.  (a) In addition to the tax imposed under Section 17941,
every limited liability company subject to tax under Section 17941
shall pay annually to this state a fee equal to:
   (1) Nine hundred dollars ($900), if the total income from all
sources reportable to this state for the taxable year is two hundred
fifty thousand dollars ($250,000) or more, but less than five hundred
thousand dollars ($500,000).
   (2) Two thousand five hundred dollars ($2,500), if the total
income from all sources reportable to this state for the taxable year
is five hundred thousand dollars ($500,000) or more, but less than
one million dollars ($1,000,000).
   (3) Six thousand dollars ($6,000), if the total income from all
sources reportable to this state for the taxable year is one million
dollars ($1,000,000) or more, but less than five million dollars
($5,000,000).
   (4) Eleven thousand seven hundred ninety dollars ($11,790), if the
total income from all sources reportable to this state for the
taxable year is five million dollars ($5,000,000) or more.
   (5) This subdivision shall apply to taxable years beginning on or
after January 1, 1997.
   (6) The changes made to this subdivision by the act adding this
paragraph shall apply to taxable years beginning on or after January
1, 2001.
   (b) (1) For purposes of this section, "total  income"
  income from all sources reportable to this state"
 means gross income, as defined in Section 24271, plus the cost
of goods sold that are paid or incurred in connection with the trade
or business of the taxpayer  , derived from or attributable to
this state within the meaning of Chapter 17 (commencing with Section
25101) of Part 11  . However, "total  income" 
 income from all sources reportable to this state" shall not
include allocation or attribution of income or gain or distributions
made to a limited liability company in its capacity as a member of,
or holder of an economic interest in, another limited liability
company if the allocation or attribution of income or gain or
distributions are directly or indirectly attributable to income that
is subject to the payment of the fee described in this section.
   (2) In the event a taxpayer is a commonly controlled limited
liability company, the total income from all sources reportable to
this state, taking into account any election under Section 25110, may
be determined by the Franchise Tax Board to be the total income of
all the commonly controlled limited liability company members if it
determines that multiple limited liability companies were formed for
the primary purpose of reducing fees payable under this section. A
determination by the Franchise Tax Board under this subdivision may
only be made with respect to one limited liability company in a
commonly controlled group. However, each commonly controlled limited
liability company shall be jointly and severally liable for the fee.
For purposes of this section, commonly controlled limited liability
companies shall include the taxpayer and any other partnership or
limited liability company doing business (as defined in Section
23101) in this state and required to file a return under Section
18633 or 18633.5, in which the same persons own, directly or
indirectly, more than 50 percent of the capital interests or profits
interests.
   (c) The fee assessed under this section shall be due and payable
on the date the return of the limited liability company is required
to be filed under Section 18633.5, shall be collected and refunded in
the same manner as the taxes imposed by this part, and shall be
subject to interest and applicable penalties.
  SEC. 3.  This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.