BILL NUMBER: AB 404 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 14, 2009
INTRODUCED BY Assembly Member Eng
FEBRUARY 23, 2009
An act to amend Section Sections 19565 and
23701d of the Revenue and Taxation Code, relating to taxation.
LEGISLATIVE COUNSEL'S DIGEST
AB 404, as amended, Eng. Taxation: tax-exempt
Income taxes: exemption: charitable organizations:
administration.
The Corporation Tax Law, in modified conformity with federal
income tax laws, exempts various types of organizations from state
income taxes imposed by that law. Existing law allows organizations
that have obtained a ruling or determination from the Internal
Revenue Code that it is exempt from federal income taxes as an
organization described in Section 501(c)(3) of the Internal Revenue
Code to obtain exemption from state income taxes by submitting to the
Franchise Tax Board a copy of the notification issued by the
Internal Revenue Service approving the organization's tax-exempt
status, as specified.
This bill would additionally , if the central organization
and all of its subordinates are organizations described in Section
501(c)(3), exempt a subordinate organization that is included
in a federal group exemption letter, provided the organization
submits to the board a copy of the group exemption letter issued by
the Internal Revenue Service and substantiation that it is included
in the federal group exemption letter as a subordinate organization.
This bill would require the board to issue an acknowledgment of an
organization's exemption from state income taxes, as provided. This
bill would also, if the board suspends or revokes the exemption of an
organization, provide that the exempt status will not be reinstated
until the organization applies to the Franchise Tax Board for
exemption, and the board issues a determination exempting the
organization from state income taxes, as provided.
This bill would also require documents submitted to the Franchise
Tax Board to verify the exemption, and the acknowledgment letter or
other document issued by the Franchise Tax Board, to be open to
public inspection, as specified.
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. Section 19565 of the Revenue
and Taxation Code is amended to read:
19565. (a) (1) If an organization is exempt
from taxation under Section 23701 for any taxable year, the
application filed by the organization with respect to which the
Franchise Tax Board made its determination that the organization was
entitled to exemption under Section 23701, together with any papers
submitted in support of the application, and any letter or other
document issued by the Franchise Tax Board, with respect to the
application, shall be open to public inspection. Any
inspection under this subdivision may be made at the times, and in
the manner, as the Franchise Tax Board shall by regulations
prescribe. After the application of any organization has
been opened to public inspection under this subdivision, the
Franchise Tax Board shall, on the request of any person with respect
to the organization, furnish a statement indicating the section which
it has been determined describes the organization.
(2) If an organization is exempt from taxation for any taxable
year pursuant to subdivision (c) of Section 23701d, any documents
submitted to the Franchise Tax Board to verify the organization's
federal exemption under Section 501(c)(3) of the Internal Revenue
Code, including any copy of the notification issued by the Internal
Revenue Service approving the organization's tax-exempt status
pursuant to Section 501(c)(3) of the Internal Revenue Code which is
submitted by the organization to the Franchise Tax Board, and the
acknowledgment letter or other document issued by the Franchise Tax
Board, shall be open to public inspection.
(3) Any inspection under paragraph (1) or (2) of this subdivision
may be made at times, and in the manner, as the Franchise Tax Board
shall by regulation prescribe.
(b) Upon request of the organization submitting any supporting
papers described in subdivision (a), the Franchise Tax Board shall
withhold from public inspection any information contained therein
which it determines relates to any trade secret, patent, process,
style of work, or apparatus, of the organization, if it determines
that public disclosure of the information would adversely affect the
organization. The Franchise Tax Board shall withhold from public
inspection any information contained in supporting papers described
in subdivision (a) the public disclosure of which it determines would
adversely affect the national defense.
(c) The Franchise Tax Board may impose a reasonable charge for
supplying any information the disclosure of which is permitted under
this section.
SEC. 2. Section 23701d of the Revenue
and Taxation Code is amended to read:
23701d. (a) A corporation, community chest or trust, organized
and operated exclusively for religious, charitable, scientific,
testing for public safety, literary, or educational purposes, or to
foster national or international amateur sports competition (but only
if no part of its activities involved the provision of athletic
facilities or equipment), or for the prevention of cruelty to
children or animals, no part of the net earnings of which inures to
the benefit of any private shareholder or individual, no substantial
part of the activities of which is carrying on propaganda or
otherwise attempting to influence legislation, (except as otherwise
provided in Section 23704.5), and which does not participate in, or
intervene in (including the publishing or distribution of
statements), any political campaign on behalf of (or in opposition
to) any candidate for public office. An organization is not organized
exclusively for exempt purposes listed above unless its assets are
irrevocably dedicated to one or more purposes listed in this section.
Dedication of assets requires that in the event of dissolution of an
organization or the impossibility of performing the specific
organizational purposes the assets would continue to be devoted to
exempt purposes. Assets shall be deemed irrevocably dedicated to
exempt purposes if the articles of organization provide that upon
dissolution the assets will be distributed to an organization which
is exempt under this section or Section 501(c)(3) of the Internal
Revenue Code or to the federal government, or to a state or local
government for public purposes; or by a provision in the articles of
organization, satisfactory to the Franchise Tax Board; that the
property will be distributed in trust for exempt purposes; or by
establishing that the assets are irrevocably dedicated to exempt
purposes by operation of law. The irrevocable dedication requirement
shall not be a sole basis for revocation of an exempt determination
made by the Franchise Tax Board prior to the effective date of this
amendment.
(b) (1) In the case of a qualified amateur sports organization--
(A) The requirement of subdivision (a) that no part of its
activities involves the provision of athletic facilities or equipment
shall not apply.
(B) That organization shall not fail to meet the requirements of
subdivision (a) merely because its membership is local or regional in
nature.
(2) For purposes of this subdivision, "qualified amateur sports
organization" means any organization organized and operated
exclusively to foster national or international amateur sports
competition if that organization is also organized and operated
primarily to conduct national or international competition in sports
or to support and develop amateur athletes for national or
international competition in sports.
(c) (1) Notwithstanding subdivisions (a), (b), and (c) of Section
23701, an organization organized and operated for nonprofit purposes
in accordance with this section shall be exempt from taxes imposed by
this part, except as provided in this article or in Article 2
(commencing with Section 23731), upon its submission to the Franchise
Tax Board of a one of the following:
(A) A copy of the
notification determination letter or ruling
issued by the Internal Revenue Service approving
recognizing the organization's tax-exempt status
pursuant to exemption from federal income tax under
Section 501(a) of the Internal Revenue Code, as an organization
described in Section 501(c)(3) of the Internal Revenue Code.
The effective date of an organization's tax-exempt status
for state income tax purposes pursuant to this subdivision shall be
no later than the effective date of the organization's tax-exempt
status, under Section 501(c)(3) of the Internal Revenue Code, for
federal income tax purposes.
(B) A copy of the group exemption letter issued by the Internal
Revenue Service that states that both the central organization and
all of its subordinates are tax-exempt under Section 501(c)(3) of the
Internal Revenue Code and substantiation that the organization is
included in the federal group exemption letter as a subordinate
organization.
(2) Upon receipt of the documents required in subparagraph (A) or
(B) of paragraph (1), the Franchise Tax Board shall issue an
acknowledgment that the organization is exempt from taxes imposed by
this part, except as provided in this article or in Article 2
(commencing with Section 23731). The acknowledgment may refer to the
organization's recognition by the Internal Revenue Service of
exemption from federal income tax as an organization described in
Section 501(c)(3) of the Internal Revenue Code and, if applicable,
the organization's subordinate organization status under a federal
group exemption letter. The effective date of an organization's
exemption from state income tax pursuant to this subdivision shall be
no later than the effective date of the organization's recognition
of exemption from federal income tax as an organization described in
Section 501(c)(3) of the Internal Revenue Code, or its status as a
subordinate organization under a federal group exemption letter, as
applicable.
(2)
(3) If, for federal income tax purposes, an
organization's tax-exempt status under
exemption from tax as an organization described in Section 501
(c)(3) of the Internal Revenue Code is suspended or revoked, the
organization shall notify the Franchise Tax Board of the suspension
or revocation, in the form and manner prescribed by the Franchise Tax
Board. Upon notification, the board shall suspend or revoke,
whichever is applicable, for state income tax purposes, an
the organization's tax-exempt status
granted pursuant to exemption under paragraph
(1) of this subdivision.
(3)
(4) This subdivision shall not be construed to prevent
the Franchise Tax Board from revoking the exemption of an
organization that is not organized or operated in accordance with
this chapter or Section 501(c)(3) of the Internal Revenue Code.
(5) If the Franchise Tax Board suspends or revokes the exemption
of an organization pursuant to paragraph (3) or (4), the exemption
shall be reinstated only upon compliance with Section 23701,
regardless of whether the organization can establish exemption under
paragraph (1).
(d) The Franchise Tax Board may prescribe rules and regulations to
implement this section.
SECTION 1. Section 23701d of the Revenue and
Taxation Code is amended to read:
23701d. (a) A corporation, community chest or trust, organized
and operated exclusively for religious, charitable, scientific,
testing for public safety, literary, or educational purposes, or to
foster national or international amateur sports competition (but only
if no part of its activities involved the provision of athletic
facilities or equipment), or for the prevention of cruelty to
children or animals, no part of the net earnings of which inures to
the benefit of any private shareholder or individual, no substantial
part of the activities of which is carrying on propaganda or
otherwise attempting to influence legislation, (except as otherwise
provided in Section 23704.5), and which does not participate in, or
intervene in (including the publishing or distribution of
statements), any political campaign on behalf of (or in opposition
to) any candidate for public office. An organization is not organized
exclusively for exempt purposes listed above unless its assets are
irrevocably dedicated to one or more purposes listed in this section.
Dedication of assets requires that in the event of dissolution of an
organization or the impossibility of performing the specific
organizational purposes the assets would continue to be devoted to
exempt purposes. Assets shall be deemed irrevocably dedicated to
exempt purposes if the articles of organization provide that upon
dissolution the assets will be distributed to an organization which
is exempt under this section or Section 501(c)(3) of the Internal
Revenue Code or to the federal government, or to a state or local
government for public purposes; or by a provision in the articles of
organization, satisfactory to the Franchise Tax Board; that the
property will be distributed in trust for exempt purposes; or by
establishing that the assets are irrevocably dedicated to exempt
purposes by operation of law. The irrevocable dedication requirement
shall not be a sole basis for revocation of an exempt determination
made by the Franchise Tax Board prior to the effective date of this
amendment.
(b) (1) In the case of a qualified amateur sports organization--
(A) The requirement of subdivision (a) that no part of its
activities involves the provision of athletic facilities or equipment
shall not apply.
(B) That organization shall not fail to meet the requirements of
subdivision (a) merely because its membership is local or regional in
nature.
(2) For purposes of this subdivision, "qualified amateur sports
organization" means any organization organized and operated
exclusively to foster national or international amateur sports
competition if that organization is also organized and operated
primarily to conduct national or international competition in sports
or to support and develop amateur athletes for national or
international competition in sports.
(c) (1) Notwithstanding subdivisions (a), (b), and (c) of Section
23701, an organization organized and operated for nonprofit purposes
in accordance with this section shall be exempt from taxes imposed by
this part, except as provided in this article or in Article 2
(commencing with Section 23731), upon its submission to the Franchise
Tax Board of one of the following:
(A) A copy of the determination letter or ruling issued by the
Internal Revenue Service recognizing the organization's exemption
from federal income tax under Section 501(a) of the Internal Revenue
Code, as an organization described in Section 501(c)(3) of the
Internal Revenue Code.
(B) A copy of the group exemption letter issued by the Internal
Revenue Service and substantiation that the organization is included
in the federal group exemption letter as a subordinate organization.
(2) Upon receipt of the documents required in subparagraph (A) or
(B) of paragraph (1), the Franchise Tax Board shall issue an
acknowledgment that the organization is exempt from taxes imposed by
this part, except as provided in this article or in Article 2
(commencing with Section 23731). The acknowledgment may refer to the
organization's recognition by the Internal Revenue Service of
exemption from federal income tax as an organization described in
Section 501(c)(3) of the Internal Revenue Code and, if applicable,
the organization's subordinate organization status under a federal
group exemption letter. The effective date of an organization's
exemption from state income tax pursuant to this subdivision shall be
no later than the effective date of the organization's recognition
of exemption from federal income tax as an organization described in
Section 501(c)(3) of the Internal Revenue Code, or its status as a
subordinate organization under a federal group exemption letter, as
applicable.
(3) If, for federal income tax purposes, an organization's
exemption from tax as an organization described in Section 501(c)(3)
of the Internal Revenue Code is suspended or revoked, the
organization shall notify the Franchise Tax Board of the suspension
or revocation, in the form and manner prescribed by the Franchise Tax
Board. Upon notification, the board shall suspend or revoke,
whichever is applicable, for state income tax purposes, the
organization's exemption under paragraph (1) of this subdivision.
(4) This subdivision shall not be construed to prevent the
Franchise Tax Board from revoking the exemption of an organization
that is not organized or operated in accordance with this chapter or
Section 501(c)(3) of the Internal Revenue Code.
(5) If the Franchise Tax Board suspends or revokes the exemption
of an organization pursuant to paragraph (3) or (4), the exemption
shall be reinstated only upon compliance with Section 23701,
regardless of whether the organization can establish exemption under
paragraph (1).
(d) The Franchise Tax Board may prescribe rules and regulations to
implement this section.