BILL ANALYSIS
AB 2671
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2671 (Cook)
As Amended July 15, 2010
Majority vote. Tax levy.
-----------------------------------------------------------------
|ASSEMBLY: |72-0 |(May 20, 2010) |SENATE: |35-0 |(August 24, |
| | | | | |2010) |
-----------------------------------------------------------------
Original Committee Reference: REV. & TAX.
SUMMARY : Exempts certain corporations and limited liability
companies (LLCs) owned solely by a deployed member of the United
States (U.S.) Armed Forces from the $800 annual tax and minimum
franchise tax, and applies to taxable years beginning before
January 1, 2018.
The Senate amendments revise the definition of the phrase
"operates at a loss," to clarify that this bill is operative
only for taxable years beginning before January 1, 2018, and
make several technical non-substantive changes to the provisions
of this bill.
AS PASSED BY THE ASSEMBLY , this bill:
1)Provided that a corporation or a limited liability company
solely owned by a deployed member of the U.S. Armed Forces is
not subject to the minimum franchise tax for any taxable year
in which the owner was deployed, provided that the company
operates at a loss or ceases operation.
2)Defined "deployed" as being called to active duty or active
service during a period when a Presidential Executive order
specified that the U.S. was engaged in combat or homeland
defense. The definition of "deployed" did not include a
temporary duty for the sole purpose of training or processing
or a permanent change of station.
3)Defined the phrase "operating at a loss" as negative net
income as defined in Revenue and Taxation Code Section 24341.
4)Defined "small business" as a limited liability company or a
corporation with total income of $250,000 or less.
AB 2671
Page 2
5)Corrected an erroneous cross-reference and deleted provisions
relating to financial asset securitization investment trusts.
6)Would take effect immediately as a tax levy and would become
inoperative on January 1, 2018.
FISCAL EFFECT : The FTB staff estimates this bill will result in
a negligible revenue loss of less than $100,000 each fiscal year
(FY), beginning with FY 2010-11.
COMMENTS :
1)According to the author, this bill is intended to provide tax
relief to members of the U.S. Armed Forces called to service
to defend the Nation.
2)The minimum franchise tax was enacted to ensure that all
corporations pay at least a minimum amount of franchise tax
for the privilege of doing business in this state, regardless
of the corporation's income or loss. Thus, the minimum
franchise tax is not technically an "income tax", but rather
it is a tax on the right to exercise the powers granted to a
corporation doing business in California. Even when a
corporation earns no income, it still receives the benefits of
its corporate status, including the limited liability
protection under the laws of this state.
3)California's minimum tax was increased from $100 to $200 in
1972. It was increased to $300 in 1987, to $600 in 1989, and
to $800 in 1990. It has never been shown that the minimum
franchise tax discourages businesses, particularly, since
small businesses can always organize as sole proprietorships
to avoid paying the minimum franchise tax.
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
FN: 0006059