BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    THIRD READING


          Bill No:  AB 1143
          Author:   Skinner (D)
          Amended:  4/22/13 in Assembly
          Vote:     27 - Urgency


           SENATE GOVERNANCE & FINANCE COMMITTEE  : 7-0, 06/05/13
          AYES: Wolk, Knight, Beall, DeSaulnier, Emmerson, Hernandez, Liu

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

           ASSEMBLY FLOOR  :  73-0, 5/13/13 - See last page for vote


           SUBJECT  :    Tax administration:  suspension or forfeiture:   
          limited liability companies

           SOURCE  :     Franchise Tax Board


           DIGEST  :    This bill adds foreign limited liability companies  
          (LLCs) onto the list of corporations that are subject to  
          contract voidability, and specifies that it commences  
          identically to current treatment of foreign corporations.  The  
          bill also makes a technical and conforming change.

           ANALYSIS  :    

          Existing law:

          1.Authorizes the creation of various business entities,  
            including corporations and LLCs.  Provides that all  
            corporations and LLCs, which are either doing business in  
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            California, or incorporated or registered and qualified by the  
            Secretary of State (SOS) to do business in California, must  
            file appropriate income tax returns or information returns and  
            pay the appropriate tax, penalties, and interest.

          2.Requires every domestic and registered foreign LLC and  
            corporation to file a Statement of Information with the SOS,  
            within 90 days after the filing of its original Articles of  
            Organization or Application for Registration, and biennially  
            thereafter, during the applicable filing period.  Imposes a  
            penalty for failure to file the Statement of Information with  
            the SOS by the due date.

          3.Authorizes the Franchise Tax Board (FTB) to suspend a  
            corporation's and an LLC's powers, rights, and privileges for  
            non-payment of fees due or non-filing of tax returns.   
            (Revenue and Taxation Code (R&TC) Sections 23301 and 23301.5).

          4.Subjects corporations and LLCs, other than foreign  
            nonqualified LLCs, to contract voidability for failure to file  
            required tax returns or to pay taxes, penalties, fees, or  
            interest. (R&TC Section 23304.1).

          5.Allows business entities that are subject to contract  
            voidability to obtain relief by paying all the tax due, filing  
            required tax returns and following certain specified  
            procedures. (R&TC Section 23305.1).

          This bill provides that a foreign nonqualified LLC is subject to  
          contract voidability provisions if it has failed to file a  
          required tax return with the FTB or pay the amount of state tax  
          due.  Specifically, this bill:

          1.Clarifies the existing definition of a "taxpayer" for purposes  
            of the contract voidability provisions to include a business  
            entity that is:

             A.   Organized as an LLC under a statute or law, a state or a  
               federally recognized Indian Tribe, or another jurisdiction;  
               or 

             B.   Identified in the FTB regulations as being organized  
               under the laws of a foreign country as an LLC.








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          1.Specifies that the contract voidability provisions, with  
            regard to an LLC, are applicable beginning on January 1, 2014,  
            or the first day of the taxable years for which the taxpayer  
            has failed to file a return, whichever is later.

          2.Makes other conforming, technical changes.

           Comments
           
          According to the author's office, in 1994, the Legislature  
          authorized the formation of LLCs in California by enacting the  
          Beverly-Killea Limited Liability Company Act.  LLCs organized  
          within California are required to register with the SOS and to  
          pay taxes to the FTB.  Out-of-state LLCs who do business in  
          California are supposed to register with the SOS and pay taxes  
          to the FTB.  However, out-of-state LLCs do not always register  
          with the SOS and do not always pay taxes to the FTB.  In these  
          cases, the penalties for not paying taxes cannot be enforced  
          because of a loophole in the law.  AB 1143 would close this  
          loophole.

           FISCAL EFFECT :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

           SUPPORT  :   (Verified  6/24/13)

          Franchise Tax Board (source)
          California Federation of Teachers
          California Tax Reform Association
          SEIU California


           ASSEMBLY FLOOR  :  73-0, 5/13/13
          AYES:  Achadjian, Alejo, Atkins, Bigelow, Bloom, Blumenfield,  
            Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian  
            Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley,  
            Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier, Beth  
            Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray, Grove,  
            Hall, Harkey, Roger Hernández, Jones, Jones-Sawyer, Levine,  
            Linder, Logue, Maienschein, Mansoor, Medina, Melendez,  
            Mitchell, Morrell, Mullin, Muratsuchi, Nazarian, Nestande,  
            Olsen, Pan, Patterson, Perea, V. Manuel Pérez, Quirk,  
            Quirk-Silva, Rendon, Salas, Skinner, Stone, Ting, Torres,  
            Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada,  







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            John A. Pérez
          NO VOTE RECORDED:  Allen, Ammiano, Donnelly, Hagman, Holden,  
            Lowenthal, Vacancy


          AB:ej  7/3/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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