BILL NUMBER: AB 831 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Silva
FEBRUARY 17, 2011
An act to amend Sections 17941, 17942, 18633.5, and 23701d of the
Revenue and Taxation Code, relating to taxation.
LEGISLATIVE COUNSEL'S DIGEST
AB 831, as introduced, Silva. Minimum annual tax: exemption:
single member limited liability company.
Existing law, generally, imposes a minimum franchise tax of $800,
except as provided, on every corporation incorporated in this state,
qualified to transact intrastate business in this state, or doing
business in this state, and an annual tax in an amount equal to the
minimum franchise tax on every limited partnership, limited liability
partnership, and limited liability company registered, qualified to
transact business, or doing business in this state, as specified.
Existing law requires every limited liability company subject to the
annual tax to pay annually to this state a fee equal to specified
amounts based upon total income from all sources reportable to this
state. Existing law also requires limited liability companies
classified as partnerships for California tax purposes to file
certain information returns.
This bill would exempt a single member limited liability company,
as defined, or a federal, state, or local governmental entity from
that annual tax, that annual fee, and that information return.
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. Existing law requires the board to issue an
acknowledgment of an organization's exemption from state income
taxes, as provided.
This bill would prohibit an organization formed as a California
corporation or qualified to do business in California that, as of the
date of receipt by the Franchise Tax Board of that notification, is
listed by the Secretary of State or Franchise Tax Board as "suspended"
or "forfeited" from establishing its exemption from state income
taxes and would provide that the organization would not receive an
acknowledgement from the board of the organization's exemption until
that corporation is listed by the Secretary of State and the board as
an "active" corporation.
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 17941 of the Revenue and Taxation Code is
amended to read:
17941. (a) For each taxable year beginning on or after January 1,
1997, a limited liability company doing business in this state (as
defined in Section 23101) shall pay annually to this state a tax for
the privilege of doing business in this state in an amount equal to
the applicable amount specified in paragraph (1) of subdivision (d)
of Section 23153 for the taxable year.
(b) (1) In addition to any limited liability company that is doing
business in this state and is therefore subject to the tax imposed
by subdivision (a), for each taxable year beginning on or after
January 1, 1997, a limited liability company shall pay annually the
tax prescribed in subdivision (a) if articles of organization have
been accepted, or a certificate of registration has been issued, by
the office of the Secretary of State. The tax shall be paid for each
taxable year, or part thereof, until a certificate of cancellation of
registration or of articles of organization is filed on behalf of
the limited liability company with the office of the Secretary of
State.
(2) If a taxpayer files a return with the Franchise Tax Board that
is designated as its final return, the Franchise Tax Board shall
notify the taxpayer that the annual tax shall continue to be due
annually until a certificate of cancellation is filed with the
Secretary of State pursuant to Section 17356 or 17455 of the
Corporations Code.
(c) Notwithstanding subdivisions (a) and (b) of this section and
clause (iii) of subparagraph (B) of paragraph (2) of subdivision (b)
of Section 23038, a limited liability company whose separate
existence is disregarded pursuant to Section 23038 and whose sole
member is either an entity exempt under Chapter 7 (commencing with
Section 17631) of Part 10, or an entity exempt under Chapter 4
(commencing with Section 23701) of Part 11, or a federal, state, or
local governmental entity shall not be subject to the tax imposed
under this section, except for an insurance company described in
Section 28 of Article XIII of the California Constitution.
(c)
(d) The tax assessed under this section shall be due
and payable on or before the 15th day of the fourth month of the
taxable year.
(d)
(e) For purposes of this section, "limited liability
company" means an organization, other than a limited liability
company that is exempt from the tax and fees imposed under this
chapter pursuant to Section 23701h or Section 23701x, that is formed
by one or more persons under the law of this state, any other
country, or any other state, as a "limited liability company" and
that is not taxable as a corporation for California tax purposes.
(e)
(f) Notwithstanding anything in this section to the
contrary, if the office of the Secretary of State files a certificate
of cancellation pursuant to Section 17350.5 of the Corporations Code
for any limited liability company, then paragraph (1) of subdivision
(f) of Section 23153 shall apply to that limited liability company
as if the limited liability company were properly treated as a
corporation for that limited purpose only, and paragraph (2) of
subdivision (f) of Section 23153 shall not apply. Nothing in this
subdivision entitles a limited liability company to receive a
reimbursement for any annual taxes or fees already paid.
(f)
(g) (1) Notwithstanding any provision of this section
to the contrary, a limited liability company that is a small business
solely owned by a deployed member of the United States Armed Forces
shall not be subject to the tax imposed under this section for any
taxable year the owner is deployed and the limited liability company
operates at a loss or ceases operation.
(2) The Franchise Tax Board may promulgate regulations as
necessary or appropriate to carry out the purposes of this
subdivision, including a definition for "ceases operation."
(3) For the purposes of this subdivision, all of the following
definitions apply:
(A) "Deployed" means being called to active duty or active service
during a period when a Presidential Executive order specifies that
the United States is engaged in combat or homeland defense. "Deployed"
does not include either of the following:
(i) Temporary duty for the sole purpose of training or processing.
(ii) A permanent change of station.
(B) "Operates at a loss" means a limited liability company's
expenses exceed its receipts.
(C) "Small business" means a limited liability company with total
income from all sources derived from, or attributable, to the state
of two hundred fifty thousand dollars ($250,000) or less.
(4) This subdivision shall become inoperative for taxable years
beginning on or after January 1, 2018.
SEC. 2. Section 17942 of the Revenue and Taxation Code is amended
to read:
17942. (a) In addition to the tax imposed under Section 17941,
every limited liability company subject to tax under Section 17941
shall pay annually to this state a fee equal to:
(1) Nine hundred dollars ($900), if the total income from all
sources derived from or attributable to this state for the taxable
year is two hundred fifty thousand dollars ($250,000) or more, but
less than five hundred thousand dollars ($500,000).
(2) Two thousand five hundred dollars ($2,500), if the total
income from all sources derived from or attributable to this state
for the taxable year is five hundred thousand dollars ($500,000) or
more, but less than one million dollars ($1,000,000).
(3) Six thousand dollars ($6,000), if the total income from all
sources derived from or attributable to this state for the taxable
year is one million dollars ($1,000,000) or more, but less than five
million dollars ($5,000,000).
(4) Eleven thousand seven hundred ninety dollars ($11,790), if the
total income from all sources derived from or attributable to this
state for the taxable year is five million dollars ($5,000,000) or
more.
(b) (1) (A) For purposes of this section, "total income from all
sources derived from or attributable to this state" means gross
income, as defined in Section 24271, plus the cost of goods sold that
are paid or incurred in connection with the trade or business of the
taxpayer. However, "total income from all sources derived from or
attributable to this state" shall not include allocation or
attribution of income or gain or distributions made to a limited
liability company in its capacity as a member of, or holder of an
economic interest in, another limited liability company if the
allocation or attribution of income or gain or distributions are
directly or indirectly attributable to income that is subject to the
payment of the fee described in this section.
(B) For purposes of this section, "total income from all sources
derived from or attributable to this state" shall be determined using
the rules for assigning sales under Sections 25135 and 25136 and the
regulations thereunder, as modified by regulations under Section
25137, other than those provisions that exclude receipts from the
sales factor.
(C) Notwithstanding clause (iii) of subparagraph (B) of paragraph
(2) of subdivision (b) of Section 23038, a limited liability company
whose separate existence is disregarded pursuant to Section 23038 and
whose sole member is either an entity exempt under Chapter 7
(commencing with Section 17631) of Part 10, or an entity exempt under
Chapter 4 (commencing with Section 23701) of Part 11, or a federal,
state, or local governmental entity shall not be subject to the fee
imposed under this section, except for an insurance company described
in Section 28 of Article XIII of the California Constitution.
(2) In the event a taxpayer is a commonly controlled limited
liability company, the total income from all sources derived from or
attributable to this state, taking into account any election under
Section 25110, may be determined by the Franchise Tax Board to be the
total income of all the commonly controlled limited liability
company members if it determines that multiple limited liability
companies were formed for the primary purpose of reducing fees
payable under this section. A determination by the Franchise Tax
Board under this subdivision may only be made with respect to one
limited liability company in a commonly controlled group. However,
each commonly controlled limited liability company shall be jointly
and severally liable for the fee. For purposes of this section,
commonly controlled limited liability companies shall include the
taxpayer and any other partnership or limited liability company doing
business (as defined in Section 23101) in this state and required to
file a return under Section 18633 or 18633.5, in which the same
persons own, directly or indirectly, more than 50 percent of the
capital interests or profits interests.
(c) The fee assessed under this section shall be due and payable
on the date the return of the limited liability company is required
to be filed under Section 18633.5, shall be collected and refunded in
the same manner as the taxes imposed by this part, and shall be
subject to interest and applicable penalties.
(d) (1) The fee imposed by this section shall be estimated and
paid on or before the 15th day of the sixth month of the current
taxable year.
(2) A penalty of 10 percent of the amount of any underpayment
shall be added to the fee. The underpayment amount shall be equal to
the difference between the total amount of the fee imposed by this
section for the taxable year less the amount paid under paragraph (1)
by the date specified in that paragraph. A penalty shall not be
imposed with respect to any fee estimated and paid under this section
if the amount paid by the date prescribed in this subdivision is
equal to or greater than the total amount of the fee of the limited
liability company for the preceding taxable year.
SEC. 3. Section 18633.5 of the Revenue and Taxation Code is
amended to read:
18633.5. (a) Every limited liability company which is classified
as a partnership for California tax purposes that is doing business
in this state, organized in this state, or registered with the
Secretary of State shall file its return on or before the fifteenth
day of the fourth month following the close of its taxable year,
stating specifically the items of gross income and the deductions
allowed by Part 10 (commencing with Section 17001). The return shall
include the names, addresses, and taxpayer identification numbers of
the persons, whether residents or nonresidents, who would be entitled
to share in the net income if distributed and the amount of the
distributive share of each person. The return shall contain or be
verified by a written declaration that it is made under penalty of
perjury, signed by one of the limited liability company members. In
the case of a limited liability company not doing business in this
state, and subject to the tax imposed by subdivision (b) of Section
17941, the Franchise Tax Board shall, for returns required to be
filed on or after January 1, 1998, prescribe the manner and extent to
which the information identified in this subdivision shall be
included with the return required by this subdivision.
(b) Each limited liability company required to file a return under
subdivision (a) for any limited liability company taxable year
shall, on or before the day on which the return for that taxable year
was required to be filed, furnish to each person who holds an
interest in that limited liability company at any time during that
taxable year a copy of that information required to be shown on that
return as may be required by forms and instructions prescribed by the
Franchise Tax Board.
(c) Any person who holds an interest in a limited liability
company as a nominee for another person shall do both of the
following:
(1) Furnish to the limited liability company, in the manner
prescribed by the Franchise Tax Board, the name, address, and
taxpayer identification number of that person, and any other
information for that taxable year as the Franchise Tax Board may
prescribe by forms and instructions.
(2) Furnish to that other person, in the manner prescribed by the
Franchise Tax Board, the information provided by that limited
liability company under subdivision (b).
(d) The provisions of Section 6031(d) of the Internal Revenue
Code, relating to the separate statement of items of unrelated
business taxable income, shall apply.
(e) (1) A limited liability company shall file with its return
required under subdivision (a), in the form required by the Franchise
Tax Board, the agreement of each nonresident member to file a return
pursuant to Section 18501, to make timely payment of all taxes
imposed on the member by this state with respect to the income of the
limited liability company, and to be subject to personal
jurisdiction in this state for purposes of the collection of income
taxes, together with related interest and penalties, imposed on the
member by this state with respect to the income of the limited
liability company. If the limited liability company fails to timely
file the agreements on behalf of each of its nonresident members,
then the limited liability company shall, at the time set forth in
subdivision (f), pay to this state on behalf of each nonresident
member of whom an agreement has not been timely filed an amount equal
to the highest marginal tax rate in effect under Section 17041, in
the case of members which are individuals, estates, or trusts, and
Section 23151, in the case of members that are corporations,
multiplied by the amount of the member's distributive share of the
income source to the state reflected on the limited liability company'
s return for the taxable period, reduced by the amount of tax
previously withheld and paid by the limited liability company
pursuant to Section 18662 and the regulations thereunder with respect
to each nonresident member. A limited liability company shall be
entitled to recover the payment made from the member on whose behalf
the payment was made.
(2) If a limited liability company fails to attach the agreement
or to timely pay the payment required by paragraph (1), the payment
shall be considered the tax of the limited liability company for
purposes of the penalty prescribed by Section 19132 and interest
prescribed by Section 19101 for failure to timely pay the tax.
Payment of the penalty and interest imposed on the limited liability
company for failure to timely pay the amount required by this
subdivision shall extinguish the liability of a nonresident member
for the penalty and interest for failure to make timely payment of
all taxes imposed on that member by this state with respect to the
income of the limited liability company.
(3) No penalty or interest shall be imposed on the limited
liability company under paragraph (2) if the nonresident member
timely files and pays all taxes imposed on the member by this state
with respect to the income of the limited liability company.
(f) Any agreement of a nonresident member required to be filed
pursuant to subdivision (e) shall be filed at either of the following
times:
(1) The time the annual return is required to be filed pursuant to
this section for the first taxable period for which the limited
liability company became subject to tax pursuant to Chapter 10.6
(commencing with Section 17941).
(2) The time the annual return is required to be filed pursuant to
this section for any taxable period in which the limited liability
company had a nonresident member on whose behalf an agreement
described in subdivision (e) has not been previously filed.
(g) Any amount paid by the limited liability company to this state
pursuant to paragraph (1) of subdivision (e) shall be considered to
be a payment by the member on account of the income tax imposed by
this state on the member for the taxable period.
(h) Every limited liability company that is classified as a
corporation for California tax purposes shall be subject to the
requirement to file a tax return under the provisions of Part 10.2
(commencing with Section 18401) and the applicable taxes imposed by
Part 11 (commencing with Section 23001).
(i) (1) Every limited liability company doing business in this
state, organized in this state, or registered with the Secretary of
State, that is disregarded pursuant to Section 23038 shall file a
return that includes information necessary to verify its liability
under Sections 17941 and 17942, provides its sole owner's name and
taxpayer identification number, includes the consent of the owner to
California tax jurisdiction, and includes other information necessary
for the administration of this part, Part 10 (commencing with
Section 17001), or Part 11 (commencing with Section 23001).
(2) If the owner's consent required under paragraph (1) is not
included, the limited liability company shall pay on behalf of its
owner an amount consistent with, and treated the same as, the amount
to be paid under subdivision (e) by a limited liability company on
behalf of a nonresident member for whom an agreement required by
subdivision (e) is not attached to the return of the limited
liability company.
(3) The return required under paragraph (1) shall be filed on or
before the fifteenth day of the fourth month after the close of the
taxable year of the owner subject to tax under Part 10 (commencing
with Section 17001) of Division 2 or on or before the fifteenth day
of the third month after the close of the taxable year of the owner
subject to tax under Chapter 2 (commencing with Section 23101) of
Part 11 of Division 2, whichever is applicable.
(4) For limited liability companies disregarded pursuant to
Section 23038, "taxable year of the owner" shall be substituted for
"taxable year" in Sections 17941 and 17942.
(5) Notwithstanding paragraph (1) of this subdivision and clause
(iii) of subparagraph (B) of paragraph (2) of subdivision (b) of
Section 23038, a limited liability company whose separate existence
is disregarded pursuant to Section 23038 and whose sole member is
either an entity exempt under Chapter 7 (commencing with Section
17631) of Part 10, or an entity exempt under Chapter 4 (commencing
with Section 23701) of Part 11, or a federal, state, or local
governmental entity shall not file a return under this section,
except for an insurance company described in Section 28 of Article
XIII of the California Constitution.
(j) The amendments made by the act adding this subdivision apply
to taxable years beginning on or after January 1, 2005.
SEC. 4. 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 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) ( A ) 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.
(B) Notwithstanding any other provision of this subdivision, an
organization formed as a California corporation or qualified to do
business in California that, as of the date of receipt by the
Franchise Tax Board of the documents required under paragraph (1), is
listed by the Secretary of State or Franchise Tax Board as
"suspended" or "forfeited" may not establish its exemption under
paragraph (1) and shall not receive an acknowledgement referred to
under subparagraph (A) from the Franchise Tax Board until that
corporation is listed by the Secretary of State and Franchise Tax
Board as an "active" corporation.
(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.