BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair AB 1677 (Nestande) - Tax exempt organizations: filing requirements. Amended: June 4, 2012 Policy Vote: G&F 9-0 Urgency: No Mandate: No Hearing Date: July 2, 2012 Consultant: Mark McKenzie This bill meets the criteria for referral to the Suspense File. Bill Summary: AB 1677 would expand the current exemption from annual informational return filing requirements for certain small tax-exempt organizations. Fiscal Impact: The Franchise Tax Board (FTB) estimates an annual revenue loss of $90,000 in 2012-13 and $100,000 annually thereafter (General Fund). Background: Existing law, in general conformity with federal law, exempts certain nonprofit organizations that comply with specified qualification and reporting requirements from income and franchise taxation. Religious services, educational programs, medical care, fundraising, political activities, among others, generally qualify as exempt-purpose activities. Tax-exempt nonprofit organizations are required to file an annual informational return and pay a $10 filing fee. Existing law provides specified exemptions from this filing requirement, including an exemption for smaller organizations with normal annual gross receipts of less than $25,000. Rather than filing the two-page informational return, these exempt organizations submit basic information on a California e-Postcard (Form 199-N) and are relieved from paying the $10 filing fee. Federal law was recently amended to allow small tax-exempt organizations that have gross receipts of less than $50,000 annually to file the federal e-Postcard rather than an informational return. Proposed Law: AB 1677 would expand the exemption that relieves specified tax-exempt organizations from the requirement to file an annual return with FTB for taxable years on or after January 1, 2012. Specifically, this bill would increase the gross receipts threshold for filing an informational return from > (>) Page 1 $25,000 to $50,000. Related Legislation: SB 1526 (La Malfa), currently pending a hearing in the Assembly Revenue and Taxation Committee, is effectively identical to this bill. SB 1526 was approved by this Committee on May 24, 2012 on a vote of 7-0. Staff Comments: FTB indicates that this bill would annually impact approximately 10,000 exempt organizations. The revenue losses noted above are a result of the loss of fees that would otherwise have been paid by these organizations when filing an informational return.