BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1244| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 1244 Author: Walters (R) Amended: 5/17/10 Vote: 21 SENATE LAB. & INDUST. RELATIONS COMMITTEE : 6-0, 4/19/10 AYES: DeSaulnier, Wyland, Ducheny, Hollingsworth, Leno, Yee SENATE APPROPRIATIONS COMMITTEE : 9-0, 5/10/10 AYES: Kehoe, Cox, Alquist, Leno, Price, Walters, Wolk, Wyland, Yee NO VOTE RECORDED: Corbett, Denham SUBJECT : Employment: taxes and contributions: limited liability company SOURCE : California Society of Enrolled Agents DIGEST : This bill conforms Unemployment Insurance Code to federal regulations on Limited Liability Companies (LLC) so LLCs may offset federal unemployment insurance tax costs. Senate Floor Amendments of 5/17/10 corrects several grammatical errors, as well as a federal code statute citation. ANALYSIS : Existing law requires employers to withhold CONTINUED SB 1244 Page 2 tax and make contribution amounts with respect to unemployment insurance, disability insurance, employee training funding, and personal income tax from the wages paid to their employees. Existing law, with specified exceptions, requires that the determination of the employer-employee relationship be made pursuant to common law principles. Existing law defines "employee" for those purposes to include, among other individuals, any officer of a corporation. This bill additionally includes any member of a limited liability company that is treated as a corporation for federal income tax purposes within that definition of "employee" for those purposes. However, the bill specifies that that definition of "employee" does not include any member of a limited liability company that is treated as a partnership for federal income tax purposes. Existing law also defines "wages" for those purposes, and exempts from that definition certain remuneration. This bill provides that wages includecompensation, as defined, paid to a member of a limited liability company who files a federal income tax return. Prior Legislation AB 1704 (Leach), Statutes of 1998, Chapter 243, conformes the Corporations Code to federal regulations regarding LLCs. SB 1234 (Alpert), Statutes of 1997, Chapter 608, conformes Revenue and Taxation code to federal regulations regarding LLCs. FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes Local: No SUPPORT : (Verified 5/10/10) California Society of Enrolled Agents (source) SB 1244 Page 3 ARGUMENTS IN SUPPORT : According to the author's office, this bill addresses certain conflicts that exist in the Interpretation and application of various Revenue & Taxation and Unemployment Insurance Code sections that require LLCs to treat remuneration to its members differently for California income tax purposes as compared to California employment tax purposes; this inconsistency results in different treatment from federal reporting as well. PQ:do 5/17/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****