BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1143| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 CONTINUED AB 1143 Page 2 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. AB 1143 Page 3 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, AB 1143 Page 4 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 **** END ****