BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  SB 1244|
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                                 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  
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          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 include   compensation, 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)








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           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

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