Amended in Senate June 9, 2014

Amended in Assembly April 22, 2013

California Legislature—2013–14 Regular Session

Assembly Bill No. 1143

Introduced by Assembly Member Skinner

February 22, 2013

An act to amend Sections begin insert 402.5, 23038, end insert 23304.1 begin insert , end insert and 23305.5 of the Revenue and Taxation Code, relating to taxation, and declaring the urgency thereof, to take effect immediately.

LEGISLATIVE COUNSEL’S DIGEST

AB 1143, as amended, Skinner. Tax administration: suspension or forfeiture: limited liability begin delete companies. end delete begin insert companies: check the box regulations: property tax assessment. end insert

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(1) Existing property tax law requires, when valuing property by comparison with sales of other properties, that to be considered comparable the sales be sufficiently near in time to the valuation date, as defined, and that the properties sold be located sufficiently near, and be sufficiently alike, the property being valued, as specified.

end insert begin insert

This bill would revise that definition.

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(2) Existing federal law imposes a tax, for each taxable year, on the taxable income of every corporation, as defined, and includes an association within the definition of a corporation. Existing federal law permits specified business entities to elect their classification for federal income tax purposes as an association, a partnership, or disregarded as an entity separate from its owner and provides for a default classification.

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Existing state law, the Corporation Tax Law, generally imposes a tax on every corporation, as defined, for each taxable year, according to or measured by its net income. Existing law requires the classification of a business entity, for state corporate income tax purposes, to be determined pursuant to the regulations of the Franchise Tax Board, consistent with federal regulations as in effect January 1, 1997, that classify a business entity as a partnership or an association taxable as a corporation or disregard the separate existence of certain business entities for tax purposes. Existing law requires that the state classification of an eligible business entity to be the same as the federal classification of that entity for tax purposes.

end insert begin insert

This bill would instead require that the regulations issued by the Franchise Tax Board, related to the classification of a business entity, be consistent with federal regulations as in effect May 1, 2014.

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Existing

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begin insert (3) end insert begin insert   end insert begin insert Existing end insert law provides that specified limited liability companies and corporations that are suspended or forfeited for failure to file a tax return or for failure to pay delinquent taxes, penalties, or interest are subject to specified consequences, including contract voidability begin delete for the period in which the entity is suspended or forfeited end delete .

This bill would subject foreign nonregistered limited liability companies to contract voidability begin delete where end delete begin insert if end insert the foreign nonregistered limited liability company is subject to suspension or forfeiture for failure to file a tax return or for failure to pay delinquent taxes, penalties, or interest.

This bill would declare that it is to take effect immediately as an urgency statute.

Vote: ²⁄₃. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

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begin insert SECTION 1. end insert   

end insert

begin insert Section 402.5 of the end insert begin insert Revenue and Taxation Code end insert
begin insert is amended to read: end insert

402.5.  

When valuing property by comparison with sales of
other properties, in order to be considered comparable, the sales
shall be sufficiently near in time to the valuation date, and the
properties sold shall be located sufficiently near the property being
valued, and shall be sufficiently alike in respect to character, size,
situation, usability, zoning begin insert , end insert or other legal restriction as to use unless
rebutted pursuant to Section 402.1, to make it clear that the
properties sold and the properties being valued are comparable in
value and that the cash equivalent price realized for the properties
sold may fairly be considered as shedding light on the value of the
property being valued. “Near in time to the valuation date” does
not include any sale more than 90 days after the begin delete lien end delete begin insert valuation end insert
date.

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 23038 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

23038.  

(a) “Corporation” includes every corporation except
corporations expressly exempt from the tax by this part or the
Constitution of this state.

(b) (1) For the purposes of the tax imposed under Chapter 3
(commencing with Section 23501), “corporation” also includes
associations (including nonprofit associations that perform services,
borrow money or own property), other than banking associations,
and Massachusetts or business trusts. For the purposes of this part,
a Massachusetts or business trust includes every business
organization consisting essentially of an arrangement whereby
property is conveyed to one, or more than one, trustee for purposes
other than the mere conservation of assets, collecting and
disbursing of fixed or periodic income, or the securing of an
obligation. This paragraph shall apply for income or taxable years
beginning before January 1, 1997.

(2) (A) For the purposes of the tax imposed under Chapter 3
(commencing with Section 23501), “corporation” also includes
associations (other than banking associations but including
nonprofit associations that perform services, borrow money or
own property), business trusts, and other business entities classified
as associations.

(B) (i) For purposes of the preceding subparagraph, the
classification of a business entity (including a business trust) as
an association taxable as a corporation (under Chapter 3
(commencing with Section 23501)) shall be determined under
regulations of the Franchise Tax Board, begin delete which end delete begin insert that end insert shall be
consistent with federal regulations as in effect begin delete January 1, 1997, end delete
begin insert May 1, 2014, end insert that classify a business entity as a partnership or an
association taxable as a corporation or disregard the separate
existence of certain business entities for tax purposes.

(ii) The classification of an eligible business entity as a
partnership or an association taxable as a corporation for purposes
of this part, Part 10 (commencing with Section 17001), and Part
10.2 (commencing with Section 18401) shall be the same as the
classification of the entity for federal tax purposes.

(iii) If the separate existence of an eligible business entity is
disregarded for federal tax purposes, the separate existence of that
business entity shall be disregarded for purposes of this part, Part
10 (commencing with Section 17001), and Part 10.2 (commencing
with Section 18401), other than Section 17941 (relating to the tax
of a limited liability company), Section 17942 (relating to the fee
of a limited liability company), Section 18633.5 (relating to the
return of a limited liability company), and Sections 17039 and
23036 (relating to tax credits).

(C) Notwithstanding clauses (ii) and (iii) of subparagraph (B),
an eligible business entity that, for any income year beginning
within the 60-month period preceding January 1, 1997, was
properly classified as an association taxable as a corporation for
California tax purposes shall continue to be an association taxable
as a corporation until it elects, under regulations issued pursuant
to subparagraph (B), to be classified or disregarded the same as
the entity is classified or disregarded for federal tax purposes. The
preceding sentence shall not apply to any entity that, during the
60-month period preceding January 1, 1997, was not doing business
in this state, did not derive income from sources within this state,
and had no owner who was a resident of this state.

(D) This paragraph shall apply for income or taxable years
beginning on and after January 1, 1997.

(c) In addition to the above, for purposes of the tax imposed
under Chapter 2 (commencing with Section 23101) for the purpose
of exercising its franchise within this state, “corporation” also
includes any limited liability company that is classified as an
association for California tax purposes.

(d) “Corporation” includes any “corporation” operated by any
receiver, liquidator, referee, trustee or other officers or agents
appointed by any court, or an assignee for the benefit of creditors.

“Corporation” includes any professional corporation incorporated
pursuant to Part 4 (commencing with Section 13400) of Division
3 of Title 1 of the Corporations Code.

(e) Notwithstanding the above, “corporation” also includes a
trust organized and operated exclusively for purposes contained
in Section 23701d.

(f) No provision of the act adding this subdivision shall be
construed to alter existing law with respect to the civil liability of
a limited liability company or its members.

begin delete SECTION 1. end delete
begin insert SEC. 3. end insert   

Section 23304.1 of the Revenue and Taxation Code is
amended to read:

23304.1.  

(a) Every contract made in this state by a taxpayer
during the time that the taxpayer’s powers, rights, and privileges
are suspended or forfeited pursuant to Section 23301, 23301.5, or
23775 shall, subject to Section 23304.5, be voidable at the begin delete instance end delete
begin insert request end insert of any party to the contract other than the taxpayer.

(b) If a foreign taxpayer that neither is qualified to do business
nor has an account number from the Franchise Tax Board, fails to
file a tax return required under this part, any contract made in this
state by that taxpayer during the applicable period specified in
subdivision (c) shall, subject to Section 23304.5, be voidable at
the begin delete instance end delete begin insert request end insert of any party to the contract other than the
taxpayer.

(c) (1) For purposes of subdivision (b), the applicable period
shall be the period beginning on January 1, 1991, or the first day
of the taxable year for which the taxpayer has failed to file a return,
whichever is later, and ending on the earlier of the date the taxpayer
qualified to do business in this state or the date the taxpayer
obtained an account number from the Franchise Tax Board.

(2) With regard to a limited liability company, the applicable
period shall be the period beginning on January 1, 2014, or the
first day of the taxable year for which the taxpayer has failed to
file a return, whichever is begin delete later. end delete begin insert later, and ending on the earlier of
the date the taxpayer qualified to do business in this state or on
the date the taxpayer obtained an account number from the
Franchise Tax Board. end insert

(d) If a taxpayer fails to file a tax return required under this part,
to pay any tax or other amount owing to the Franchise Tax Board
under this part or to file any statement or return required under
Section 23772 or 23774, within 60 days after the Franchise Tax
Board mails a written demand therefor, any contract made in this
state by the taxpayer during the period beginning at the end of the
60-day demand period and ending on the date relief is granted
under Section 23305.1, or the date the taxpayer qualifies to do
business in this state, whichever is earlier, shall be voidable at the
begin delete instance end delete begin insert request end insert of any party to the contract other than the taxpayer.
This subdivision shall apply only to a taxpayer if the taxpayer has
an account number from the Franchise Tax Board, but has not
qualified to do business under the Corporations Code. In the case
of a taxpayer that has not complied with the 60-day demand, the
taxpayer’s name, Franchise Tax Board account number, date of
the demand, date of the first day after the end of the 60-day demand
period, and the fact that the taxpayer did not within that period
pay the tax or other amount or file the statement or return, as the
case may be, shall be a matter of public record.

begin delete SEC. 2. end delete
begin insert SEC. 4. end insert   

Section 23305.5 of the Revenue and Taxation Code is
amended to read:

23305.5.  

For purposes of this article:

(a) “Taxpayer” means either:

(1) A corporation subject to tax under this chapter.

(2) A business entity organized under a statute or law, begin delete or end delete begin insert under end insert
a state or a federally recognized Indian tribe, begin delete or end delete begin insert under end insert another
jurisdiction, if the statute or law describes or refers to the entity
as a limited liability company or if regulations of the Franchise
Tax Board identify a business entity organized under the laws of
a foreign country as a limited liability company.

(b) With regard to a limited liability company:

(1) “Articles of incorporation” shall include a limited liability
company’s articles of organization.

(2) “Tax” shall include the tax and fee imposed by Sections
17941 and 17942, or former Sections 23091 and 23092,
respectively.

begin delete SEC. 3. end delete
begin insert SEC. 5. end insert   

This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:

In order to ensure that all entities doing business in California
are treated equally under the Revenue and Taxation begin delete Code, end delete begin insert Code
and to ensure that a necessary federal law reference for the
classification of a business entity for state corporate income tax
purposes is updated as soon as possible, end insert it is necessary that this
act take effect immediately.