BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    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.

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           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  

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            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,  

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            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,  

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            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

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