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: 6/9/14 in Senate Vote: 27 - Urgency SENATE GOVERNANCE & FINANCE COMMITTEE. : 7-0, 6/5/13 AYES: Wolk, Knight, Beall, DeSaulnier, Emmerson, Hernandez, Liu SENATE GOVERNANCE & FINANCE COMMITTEE : 7-0, 6/18/14 (pursuant to Senate Rule 29.10) AYES: Wolk, Knight, Beall, DeSaulnier, Hernandez, Liu, Walters 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: check-the-box regulations: property tax assessment SOURCE : Franchise Tax Board California Assessors' Association 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. This bill conforms state law to federal changes to "check-the-box" regulations. CONTINUED AB 1143 Page 2 Senate Floor Amendments of 6/9/14 direct assessors when establishing value using comparable sales to not include sales more than 90 days after the valuation date, not the lien date as currently required, and conform state law to federal changes to "check-the-box" regulations. 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 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. 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. 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. 6.Precludes assessors from considering comparable sales within 90 days of the "lien date" when valuing a property after a change in ownership. The term "lien date" refers to two CONTINUED AB 1143 Page 3 distinct dates: January 1st for the regular roll, and the date of the change in ownership for the supplemental roll. 7.Provides, under United States Department of Treasury regulations, many business taxpayers can choose to be treated as a corporation for tax purposes, or as a partnership if it has more than one owner or a disregarded entity if it has only one owner. California generally conforms to federal tax law and regulations either automatically, or as of a specified date, currently January 1, 2009. However, California law explicitly conforms to federal "check-the-box" regulations as of January1, 1997. This bill: 1.Changes the term "lien date" to "valuation date," thereby ensuring that assessors use appropriate comparisons, but not ones outside a reasonable period of time to assess the market. 2.Check-the-box regulations. Changes the date January 1, 1997, to May 1, 2014, thereby updating California's definition for corporations subject to the Corporation Tax Law to account for changes made in the intervening period. 3.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. 4.Clarifies the existing definition of a "taxpayer" for purposes of the contract voidability provisions to include a business entity that is: A. A corporation subject to tax under this bill. B. Organized as an LLC under a statute or law, a state or a federally recognized Indian Tribe, or another jurisdiction; or C. Identified in the FTB regulations as being organized under the laws of a foreign country as an LLC. 1.Specifies that the contract voidability provisions, with regard to an LLC, are applicable beginning on January 1, 2014, CONTINUED AB 1143 Page 4 or the first day of the taxable years for which the taxpayer has failed to file a return, whichever is later, and ending on the earlier of the dates the taxpayer qualified to do business in California or on the date the taxpayer obtained an account number from the FTB. 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 6/11/14) California Assessors' Association (co-source) Franchise Tax Board (co-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, CONTINUED AB 1143 Page 5 Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A. Pérez NO VOTE RECORDED: Allen, Ammiano, Donnelly, Hagman, Holden, Lowenthal, Vacancy AB:e 6/18/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED