BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 404|
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THIRD READING
Bill No: AB 404
Author: Eng (D)
Amended: 4/14/09 in Assembly
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE : 8-0, 7/8/09
AYES: Wolk, Walters, Alquist, Ashburn, Florez, Padilla,
Runner, Wiggins
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 77-0, 5/21/09 - See last page for vote
SUBJECT : Income taxes: exemption: charitable
organizations
SOURCE : Nonprofit and Unincorporated Organizations
Committee of
the Business Law Section of the State Bar of
California
DIGEST : This bill facilitates a streamlined
documentation process for specified nonprofit organizations
to receive an exemption from state corporation income
taxes.
ANALYSIS : Existing law:
1.Provides that specified nonprofit organizations are
exempt from taxes imposed under the Corporation Tax Law
CONTINUED
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if:
A. An application for exemption is submitted in the
form FTB prescribes along with a filing fee of $25.
B. FTB issues a determination exempting the
organization from tax.
2.Provides that under R&TC Section 23701d, for the
exemption of corporations, community chests, or trusts,
organized exclusively for religious, charitable,
scientific, literary, educational, or other specified
purposes.
This bill specifies that:
1.An organization (including a subordinate within a group
of organizations) can receive the exemption upon
submission of a copy of the relevant IRS determination
letter or ruling recognizing the organization's exemption
from federal income tax as an Internal Revenue Code (IRC)
Section 501(c)(3) organization.
2.The effective date of an organization's exemption from
state income tax shall be no later than the effective
date of the organization's recognition of exemption from
federal income tax.
3.If the FTB suspends or revokes an organization's
exemption, the exemption shall only be reinstated upon a
more detailed determination by FTB, regardless of whether
the organization can establish exemption under the
streamlined documentation process set forth above.
Comments
According to the author's office:
AB 404 provides the mechanism for the FTB to issue an
acknowledgment letter when an organization applies for
state exemption from income taxation based upon the
simplified application procedure added by AB 897
(application Form 3500A) and retains the current
method by which the FTB may issue a determination
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letter when the organization relies upon the
traditional application for tax-exemption (application
Form 3500). It provides that any documents submitted
to the FTB to verify an organization's exemption from
taxation under 501(c)(3) of the IRC and the
acknowledgement letter or other document issued by the
FTB shall be open to public inspection. It clarifies
which organizations exempt under a federal group
exemption letter may rely upon the simplified
procedure to be recognized as an exempt organization
under California law. Finally, it makes clear that an
organization whose exempt status is revoked by the FTB
must apply for exempt status under the procedure that
requires a determination by the FTB and cannot seek to
be reinstated by simply submitting a copy of their IRS
determination letter.
This bill is sponsored by the Nonprofit & Unincorporated
Organizations Committee of the Business Law Section of the
State Bar of California. They note that, "AB [897] greatly
simplified the tax exemption process in California, but it
also caused uncertainty and confusion in implementation.
The purpose of AB 404 is to clarify the new simplified
process for applying for tax exemption as a charitable
organization under Revenue and Taxation Code Section
23701d."
Prior Legislation
AB 897 (Houston), Chapter 238, Statutes of 2007, provided
that specified organizations exempt under IRC Section
501(c)(3) could bypass the FTB determination process and
obtain tax-exempt status for state purposes by providing
FTB with proof of their federal exemption. While AB 897
greatly simplified the procedure for recognized IRC Section
501(c)(3) organizations to be recognized as tax-exempt
under state law, certain ambiguities have arisen in the
implementation process, which this bill seeks to address.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 7/20/09)
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Nonprofit and Unincorporated Organizations Committee of the
Business
Law Section of the State Bar of California (source)
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Duvall, Emmerson, Eng, Evans, Feuer, Fletcher,
Fong, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,
Huber, Huffman, Jeffries, Jones, Knight, Krekorian, Lieu,
Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning,
Nestande, Niello, Nielsen, John A. Perez, V. Manuel
Perez, Portantino, Price, Ruskin, Salas, Silva, Skinner,
Smyth, Solorio, Audra Strickland, Swanson, Torlakson,
Torres, Torrico, Tran, Villines, Yamada, Bass
NO VOTE RECORDED: Fuentes, Nava, Saldana
DLW:nl 7/20/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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