BILL ANALYSIS Ó
AB 1677
Page 1
Date of Hearing: April 9, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 1677 (Nestande) - As Amended: March 14, 2012
Majority vote. Fiscal committee.
SUBJECT : Corporate income taxes: filing requirements: tax
exempt organizations.
SUMMARY : Revises the annual filing requirements for certain
small tax-exempt organizations. Specifically, this bill :
1)Expands the current exemption from the annual informational
return filing requirement for small tax-exempt organizations,
by increasing the gross-receipt threshold for filing from
$25,000 of average gross receipts to $50,000.
2)Becomes effective on January 1, 2013, but applies to taxable
years beginning on or after January 1, 2012.
EXISTING FEDERAL LAW:
1)Exempts organizations from tax in specified circumstances and
under specified provisions of the Internal Revenue Code (IRC).
The most common category of tax-exempt organizations are
known as 501(c)(3) organizations, being identified by
reference to the IRC section under which they are exempt.
These include religious, charitable, scientific, testing for
public safety, literary, or educational purposes, or to
promote sports activities, prevent cruelty to children or
animals, etc.
2)Requires an exempt organization to file an annual information
return, unless its gross receipts for the taxable year are
$50,000 or less. An exempt organization that is not required
to file an annual informational return is instead required to
submit limited basic information electronically, on a federal
e-Postcard.
3)Exempts from these annual filing requirements churches, their
integrated auxiliaries, conventions or associations of
churches, the exclusive religious activity of any religious
order, and certain governmental and political organizations.
AB 1677
Page 2
EXISTING STATE LAW :
1)Conforms to provisions of the IRC on the taxability of exempt
organizations by providing that an organization organized and
operated for nonprofit purposes shall be exempt for California
purposes upon submission to the Franchise Tax Board (FTB) a
copy of the notice issued by the Internal Revenue Service
(IRS) approving the organization's tax-exempt status under IRC
Section 501(c)(3).
2)Requires the organization to notify FTB of a federal
revocation of tax-exempt status.
3)Requires the FTB to rescind the organization's tax-exempt
status for state tax purposes, upon receipt of the federal
revocation.
4)Specifies that the California approval of tax-exempt status
based upon notification of federal approval does not prevent
FTB from revoking the exemption of an organization that is not
operated in accordance with California or federal laws.
5)Requires an exempt organization to file a two-page annual
information return and pay a $10 filing fee, unless the
organization's gross receipts for the taxable year are less
than $25,000. Provides that the exempt organization, instead,
must submit certain basic information to the FTB
electronically, by filing a California e-Postcard.
6)Exempts from the annual filing requirements, in conformity
with the federal law, churches, their integrated auxiliaries,
conventions or associations of churches, the exclusive
religious activity of any religious order, and certain
governmental and political organizations.
FISCAL EFFECT : The FTB staff estimates that this bill will
result in annual loss of $90,000 in the fiscal year (FY)
2012-13, $100,000 in FY 2013-14, and $100,000 in FY 2014-15.
COMMENTS :
1)Author's Statement . The author states that, "Non-profit
organizations, more often than not, pay tax accountants to
prepare their taxes. However, by filing a "Postcard," a
AB 1677
Page 3
simpler tax form, these non-profits are able to save the money
that would otherwise go to pay a tax accountant and use it to
further their good cause. Not only would this bill save
non-profits money, it does not cost the state money but it
also mirrors state tax law with the federal government's tax
law."
2)Arguments in Support . The proponents state that this bill is
necessary to bring the state tax law in conformity with the
federal law in order to help small non-profit organizations
whose annual revenues do not exceed $50,000.
3)What Does This Bill Do? AB 1677 is intended to relieve the
tax compliance burden for some small tax-exempt organizations
- an annual filing of a two-page informational return and a
payment of a $10 fee. Under existing California law, an
organization may be exempt from the income and franchise taxes
if it is organized and operated for exempt purposes and
complies with qualification and reporting requirements. For
example, religious services, educational programs, medical
care, fundraising, governmental or political activities, among
others, qualify as exempt-purpose activities. Even though a
qualified exempt organization may be relieved from paying
taxes, it still must file an annual information return, unless
it is falls into one of the enumerated exemptions. One of the
exemptions is allowed to any organization, other than a
private foundation, whose gross receipts in the taxable year
are less than $25,000.
This bill, in conformity with the federal law, would increase
the amount of gross receipts that triggers an annual filing
requirement from $25,000 to $50,000. Instead of filing an
annual informational return, a qualified organization would be
required to submit basic information on a California
e-Postcard, Form 199-N, and would be relieved from the $10
fee. According to the FTB staff analysis of this bill, other
states comparable to California do not require exempt
organizations to file annual returns, unless organizations
have unrelated business taxable income. Annually, this bill
is estimated to impact approximately 10,000 exempt
organizations.
REGISTERED SUPPORT / OPPOSITION :
Support
AB 1677
Page 4
Blindness Support Services, Inc.
Navy League of the United States
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098