BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1677 HEARING: 6/20/12
AUTHOR: Nestande FISCAL: Yes
VERSION: 6/4/12 TAX LEVY: No
CONSULTANT: Phan
NONPROFIT ORGANIZATION'S TAX POLICY
Raises the FTB filing threshold for certain charities from
$25,000 to $50,000.
Background and Existing Law
I. Federal Law: Certain corporations qualify for
tax-exempt status with the Internal Revenue Service (IRS).
The Internal Revenue Code Sections 501(c) and 501(d) list
categories of tax-exempt organizations, such as religious,
charitable, scientific, literary, or educational
organizations. Generally, tax-exempt organizations file an
annual information return, but some small organizations are
exempt from this annual filing requirement. Prior to 2010,
the IRS allowed tax-exempt organizations with gross revenue
or assets below $25,000 to file a simpler, online
e-Postcard called Form 990-N. In 2010, the IRS raised the
filing threshold so that tax-exempt organizations with
gross revenue or assets below $50,000 did not have to file
the various 990 Forms, only the e-Postcard.
II. California Law: California's laws on tax-exempt
organizations generally conform to federal laws. The FTB
typically requires tax-exempt organizations to file a
two-page annual information return, FTB Form 199, and pay a
$10 filing fee, by the 15th day of the fifth full calendar
month following the close of the taxable year. California
law exempts some organizations, including churches, their
integrated auxiliaries, and conventions or association of
churches, from these annual filings. Similar to the IRS's
policy, tax-exempt organizations with gross revenue or
assets below $25,000 do not have to file the FTB Form 199.
They can choose to file the simpler, online e-Postcard
called Form 199-N. When the IRS raised its filing
threshold in 2010 to $50,000, California's filing threshold
remained at $25,000.
AB 1677 -- 6/4/12 -- Page 2
Proposed Law
Assembly Bill 1677 exempts tax-exempt organizations, as
specified, with gross receipts not more than $50,000 in
each taxable year from filing an annual return with the
FTB.
This amendment applies to taxable years beginning on or
after January 1, 2012.
State Revenue Impact
The FTB estimates that this bill will have the following
impact on state revenue:
-----------------------------------------------------------
|2012-2013 |2013-2014 |2014-2015 |
|-------------------+-------------------+-------------------|
|-$90,000 |-$100,000 |-$100,000 |
-----------------------------------------------------------
Comments
1. Purpose of the bill . AB 1677 conforms state tax laws
to federal tax laws and relieves the annual filing burden
for some small tax-exempt organizations. When the IRS
raised its filing threshold to $50,000, California's
tax-exempt organizations with gross revenue or assets
between $25,000 and $50,000 found they no longer had to
file the extensive 990 Forms with the IRS but still had to
file the complicated 199 Forms with the FTB. The IRS
recognizes that tax-exempt organizations with gross revenue
or assets below $50,000 should not be burdened with certain
filing requirements. This bill will allow the same
treatment for CA's tax-exempt organizations, allowing these
charities to use their resources on charity related
purposes instead of expending their finances to meet FTB
filing requirements.
The FTB estimates that this bill will impact approximately
10,000 tax-exempt organizations annually. This bill will
not only ease the reporting burden on these organizations,
AB 1677 -- 6/4/12 -- Page 3
it will save FTB staff's time and resources because they
can review more of the simpler 199-N Forms.
2. A minimal requirement . Because SB 1526 exempts certain
organizations from filing Form 199, the state will lose
approximately $100,000 annually in filing fee revenue.
However, the FTB Form 199 is only 2 pages long. Although it
is more complicated than the e-Postcard Form 199-N, Form
199 costs only $10 to file and is not exponentially more
burdensome than Form 199-N. The Committee may wish to
consider whether eliminating this minimal filing
requirement justifies the annual state revenue loss.
3. Mirror, mirror . Besides some technical differences, AB
1677 and SB 1526 (LaMalfa, 2012) are identical and will
chapter each other out if both pass. SB 1526 passed out of
the Governance and Finance Committee on a 7-0 vote. SB
1526 will next be heard in the Assembly Revenue and
Taxation Committee.
Assembly Actions
Assembly Revenue and Taxation 9-0
Assembly Appropriations 17-0
Assembly Floor 74-0
Support and Opposition (6/14/12)
Support : Navy League; Blindness Support Services, Inc.;
Coachella Valley Rescue Mission; General Patton Memorial
Museum Inc.
Opposition : Unknown.