Amended in Senate September 6, 2013

Amended in Assembly March 21, 2013

California Legislature—2013–14 Regular Session

Assembly BillNo. 1173


Introduced by Assembly Member Bocanegra

February 22, 2013


An actbegin insert to amend Sections 19565, 23036, 23701, and 23701d of, andend insert to add Section 17508.2 tobegin insert,end insert the Revenue and Taxation Code, relating tobegin delete taxation, to take effect immediately, tax levy.end deletebegin insert taxation. end insert

LEGISLATIVE COUNSEL’S DIGEST

AB 1173, as amended, Bocanegra. Personalbegin delete income taxes:end deletebegin insert Income and Corporation Tax Law:end insert nonqualified deferred compensationbegin delete plan.end deletebegin insert plan: tentative minimum tax: credits: exempt organizations.end insert

The Personal Income Tax Law conforms to the federal income tax law that includes in gross income the compensation from nonqualified deferred compensation plans that fail to meet specified requirements. These laws require the amount of tax imposed to be increased by the amount of interest at the underpayment rate, as specified, and 20% of the compensation that is required to be included in gross income.

This bill would substitute 5% in lieu of 20%begin insert for taxable years beginning on or after January 1, 2013end insert.

begin insert

The Corporation Tax Law provides various credits against the taxes imposed by that law, including a credit for qualified expenditures for the production of qualified motion pictures in the state. Existing law provides for a tentative minimum tax and further provides that, except for specified credits, no other credit shall reduce the tax imposed below the tentative minimum tax.

end insert
begin insert

This bill would additionally allow, for taxable years beginning on or after January 1, 2011, the credit for qualified expenditures for the production of qualified motion pictures to reduce the tentative minimum tax. This bill would make findings related to the public purpose served by the bill.

end insert
begin insert

The Corporation Tax Law, in modified conformity with federal income tax laws, exempts various types of organizations from state income taxes imposed by that law. Existing law establishes a streamlined method by which organizations that have obtained a ruling or determination from the Internal Revenue Code that it is exempt from federal income taxes as an organization described in Section 501(c)(3) of the Internal Revenue Code may obtain exemption from state income taxes, as provided.

end insert
begin insert

This bill would allow an organization that has obtained a ruling or determination from the Internal Revenue Code that it is exempt from federal income taxes as an organization described in Section 501(c)(3), (c)(4), (c)(5), (c)(6), or (c)(7) of the Internal Revenue Code to use this streamlined method.

end insert
begin insert

This bill would also make conforming changes.

end insert
begin delete

This bill would take effect immediately as a tax levy.

end delete

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

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

P2    1

SECTION 1.  

Section 17508.2 is added to the Revenue and
2Taxation Code
, to read:

3

17508.2.  

begin insertFor taxable years beginning on or after January 1,
42013, end insert
Section 409A of the Internal Revenue Code is modified as
5follows:

6(a) By substituting the phrase “five percent” in lieu of the phrase
7“20 percent” in Section 409A(a)(1)(B)(i)(II) of the Internal
8Revenue Code.

9(b) By substituting the phrase “five percent” in lieu of the phrase
10“20 percent” in Section 409A(b)(5)(A)(ii) of the Internal Revenue
11Code.

12begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 19565 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
13amended to read:end insert

14

19565.  

(a) (1) If an organization is exempt from taxation
15under Section 23701 for any taxable year, the application filed by
P3    1the organization with respect to which the Franchise Tax Board
2made its determination that the organization was entitled to
3exemption under Section 23701, together with any papers
4submitted in support of the application,begin delete andend delete any letter or other
5document issued by the Franchise Tax Board, with respect to the
6application,begin insert and any copy of the notification issued by the Internal
7Revenue Service approving the organization’s tax-exempt status
8pursuant to the Internal Revenue Code which is submitted by the
9organization to the Franchise Tax Board,end insert
shall be open to public
10inspection. After the application of any organization has been
11opened to public inspection under this subdivision, the Franchise
12Tax Board shall, on the request of any person with respect to the
13organization, furnish a statement indicating the section which it
14has been determined describes the organization.

begin delete

15(2) If an organization is exempt from taxation for any taxable
16year pursuant to subdivision (c) of Section 23701d, any documents
17submitted to the Franchise Tax Board to verify the organization’s
18federal exemption under Section 501(c)(3) of the Internal Revenue
19Code, including any copy of the notification issued by the Internal
20Revenue Service approving the organization’s tax-exempt status
21pursuant to Section 501(c)(3) of the Internal Revenue Code which
22is submitted by the organization to the Franchise Tax Board, and
23the acknowledgment letter or other document issued by the
24Franchise Tax Board, shall be open to public inspection.

25(3)

end delete

26begin insert(2)end insert Any inspection under paragraph (1)begin delete or (2) of this subdivisionend delete
27 may be made at times, and in the manner, as the Franchise Tax
28Board shall by regulation prescribe.

29(b) Upon request of the organization submitting any supporting
30papers described in subdivision (a), the Franchise Tax Board shall
31withhold from public inspection any information contained therein
32which it determines relates to any trade secret, patent, process,
33style of work, or apparatus, of the organization, if it determines
34that public disclosure of the information would adversely affect
35the organization. The Franchise Tax Board shall withhold from
36public inspection any information contained in supporting papers
37described in subdivision (a) the public disclosure of which it
38determines would adversely affect the national defense.

P4    1(c) The Franchise Tax Board may impose a reasonable charge
2for supplying any information the disclosure of which is permitted
3under this section.

4begin insert

begin insertSEC. 3.end insert  

end insert

begin insertSection 23036 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
5amended to read:end insert

6

23036.  

(a) (1) The term “tax” includes any of the following:

7(A) The tax imposed under Chapter 2 (commencing with Section
823101).

9(B) The tax imposed under Chapter 3 (commencing with Section
1023501).

11(C) The tax on unrelated business taxable income, imposed
12under Section 23731.

13(D) The tax on S corporations imposed under Section 23802.

14(2) The term “tax” does not include any amount imposed under
15paragraph (1) of subdivision (e) of Section 24667 or paragraph (2)
16of subdivision (f) of Section 24667.

17(b) For purposes of Article 5 (commencing with Section 18661)
18of Chapter 2, Article 3 (commencing with Section 19031) of
19Chapter 4, Article 6 (commencing with Section 19101) of Chapter
204, and Chapter 7 (commencing with Section 19501) of Part 10.2,
21and for purposes of Sections 18601, 19001, and 19005, the term
22“tax” also includes all of the following:

23(1) The tax on limited partnerships, imposed under Section
2417935, the tax on limited liability companies, imposed under
25Section 17941, and the tax on registered limited liability
26partnerships and foreign limited liability partnerships imposed
27under Section 17948.

28(2) The alternative minimum tax imposed under Chapter 2.5
29(commencing with Section 23400).

30(3) The tax on built-in gains of S corporations, imposed under
31Section 23809.

32(4) The tax on excess passive investment income of S
33corporations, imposed under Section 23811.

34(c) Notwithstanding any other provision of this part, credits are
35allowed against the “tax” in the following order:

36(1) Credits that do not contain carryover provisions.

37(2) Credits that, when the credit exceeds the “tax,” allow the
38excess to be carried over to offset the “tax” in succeeding taxable
39years, except for those credits that are allowed to reduce the “tax”
40below the tentative minimum tax, as defined by Section 23455.
P5    1The order of credits within this paragraph shall be determined by
2the Franchise Tax Board.

3(3) The minimum tax credit allowed by Section 23453.

4(4) Credits that are allowed to reduce the “tax” below the
5tentative minimum tax, as defined by Section 23455.

6(5) Credits for taxes withheld under Section 18662.

7(d) Notwithstanding any other provision of this part, each of
8the following applies:

9(1) begin deleteNo end deletebegin insertA end insertcredit maybegin insert notend insert reduce the “tax” below the tentative
10minimum tax (as defined by paragraph (1) of subdivision (a) of
11Section 23455), except the following credits:

12(A) The credit allowed by former Section 23601 (relating to
13solar energy).

14(B) The credit allowed by former Section 23601.4 (relating to
15solar energy).

16(C) The credit allowed by former Section 23601.5 (relating to
17solar energy).

18(D) The credit allowed by Section 23609 (relating to research
19expenditures).

20(E) The credit allowed by former Section 23609.5 (relating to
21clinical testing expenses).

22(F) The credit allowed by Section 23610.5 (relating to
23low-income housing).

24(G) The credit allowed by former Section 23612 (relating to
25sales and use tax credit).

26(H) The credit allowed by Section 23612.2 (relating to enterprise
27zone sales or use tax credit).

28(I) The credit allowed by former Section 23612.6 (relating to
29Los Angeles Revitalization Zone sales tax credit).

30(J) The credit allowed by former Section 23622 (relating to
31enterprise zone hiring credit).

32(K) The credit allowed by Section 23622.7 (relating to enterprise
33zone hiring credit).

34(L) The credit allowed by former Section 23623 (relating to
35program area hiring credit).

36(M) The credit allowed by former Section 23623.5 (relating to
37Los Angeles Revitalization Zone hiring credit).

38(N) The credit allowed by former Section 23625 (relating to
39Los Angeles Revitalization Zone hiring credit).

P6    1(O) The credit allowed by Section 23633 (relating to targeted
2tax area sales or use tax credit).

3(P) The credit allowed by Section 23634 (relating to targeted
4tax area hiring credit).

5(Q) The credit allowed bybegin insert formerend insert Section 23649 (relating to
6qualified property).

begin insert

7(R) For taxable years beginning on or after January 1, 2011,
8the credit allowed by Section 23685 (relating to qualified motion
9 pictures).

end insert

10(2) begin deleteNo end deletebegin insertA end insertcredit against the tax maybegin insert notend insert reduce the minimum
11franchise tax imposed under Chapter 2 (commencing with Section
1223101).

13(e) Any credit which is partially or totally denied under
14subdivision (d) is allowed to be carried over to reduce the “tax”
15in the following year, and succeeding years if necessary, if the
16provisions relating to that credit include a provision to allow a
17carryover of the unused portion of that credit.

18(f) Unless otherwise provided, any remaining carryover from a
19credit that has been repealed or made inoperative is allowed to be
20carried over under the provisions of that section as it read
21immediately prior to being repealed or becoming inoperative.

22(g) Unless otherwise provided, if two or more taxpayers share
23in costs that would be eligible for a tax credit allowed under this
24part, each taxpayer is eligible to receive the tax credit in proportion
25to his or her respective share of the costs paid or incurred.

26(h) Unless otherwise provided, in the case of an S corporation,
27any credit allowed by this part is computed at the S corporation
28level, and any limitation on the expenses qualifying for the credit
29or limitation upon the amount of the credit applies to the S
30corporation and to each shareholder.

31(i) (1) With respect to any taxpayer that directly or indirectly
32owns an interest in a business entity that is disregarded for tax
33purposes pursuant to Section 23038 and any regulations thereunder,
34the amount of any credit or credit carryforward allowable for any
35taxable year attributable to the disregarded business entity is limited
36in accordance with paragraphs (2) and (3).

37(2) The amount of any credit otherwise allowed under this part,
38including any credit carryover from prior years, that may be applied
39to reduce the taxpayer’s “tax,” as defined in subdivision (a), for
40the taxable year is limited to an amount equal to the excess of the
P7    1taxpayer’s regular tax (as defined in Section 23455), determined
2by including income attributable to the disregarded business entity
3that generated the credit or credit carryover, over the taxpayer’s
4regular tax (as defined in Section 23455), determined by excluding
5the income attributable to that disregarded business entity.begin delete Noend deletebegin insert Aend insert
6 credit isbegin insert notend insert allowed if the taxpayer’s regular tax (as defined in
7Section 23455), determined by including the income attributable
8to the disregarded business entity is less than the taxpayer’s regular
9tax (as defined in Section 23455), determined by excluding the
10income attributable to the disregarded business entity.

11(3) If the amount of a credit allowed pursuant to the section
12establishing the credit exceeds the amount allowable under this
13subdivision in any taxable year, the excess amount may be carried
14over to subsequent taxable years pursuant to subdivisions (d), (e),
15and (f).

16(j) (1) Unless otherwise specifically provided, in the case of a
17taxpayer that is a partner or shareholder of an eligiblebegin delete pass-throughend delete
18begin insert pass-thruend insert entity described in paragraph (2), any credit passed
19through to the taxpayer in the taxpayer’s first taxable year
20beginning on or after the date the credit is no longer operative may
21be claimed by the taxpayer in that taxable year, notwithstanding
22the repeal of the statute authorizing the credit prior to the close of
23that taxable year.

24(2) For purposes of this subdivision, “eligiblebegin delete pass-throughend delete
25begin insert pass-thruend insert entity” means any partnership or S corporation that files
26its return on a fiscal year basis pursuant to Section 18566, and that
27is entitled to a credit pursuant to this part for the taxable year that
28begins during the last year a credit is operative.

29(3) This subdivision applies to credits that become inoperative
30on or after the operative date of the act adding this subdivision.

31begin insert

begin insertSEC. 4.end insert  

end insert

begin insertSection 23701 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
32amended to read:end insert

33

23701.  

Organizations which are organized and operated for
34nonprofit purposes within the provisions of a specific section of
35this article, or are defined in Section 23701h (relating to certain
36title-holding companies) or Section 23701x (relating to certain
37title-holding companies), are exempt from taxes imposed under
38this part, except as provided in this article or in Article 2
39(commencing with Section 23731) of this chapter, if:

P8    1(a) An application for exemption is submitted in the form
2prescribed by the Franchise Tax Board; and

3(b) A filing fee of twenty-five dollars ($25) is paid with each
4application for exemption filed with the Franchise Tax Board after
5December 31, 1969; and

6(c) The Franchise Tax Board issues a determination exempting
7the organization from tax.

begin delete

8This section shall not prevent a determination from having
9retroactive effect and does not prevent the issuance of a
10determination with respect to a domestic organization which was
11in existence prior to January 1, 1970, and exempt under prior law
12without the submission of a formal application or payment of a
13filing fee. For the purpose of this section, the term “domestic”
14means created or organized under the laws of this state.

end delete
begin insert

15(d) (1) Notwithstanding subdivisions (a), (b), and (c), an
16organization organized and operated for nonprofit purposes in
17accordance with Section 23701a, 23701d, 23701e, 23701f, or
1823701g shall be exempt from taxes imposed by this part, except
19as provided in this article or in Article 2 (commencing with Section
2023731), upon its submission to the Franchise Tax Board of one of
21the following:

end insert
begin insert

22(A) A copy of the determination letter or ruling issued by the
23Internal Revenue Service recognizing the organization’s exemption
24from federal income tax under Section 501(a) of the Internal
25Revenue Code, as an organization described in Section 501(c)(3),
26(c)(4), (c)(5), (c)(6), or (c)(7) of the Internal Revenue Code.

end insert
begin insert

27(B) A copy of the group exemption letter issued by the Internal
28 Revenue Service that states that both the central organization and
29all of its subordinates are tax-exempt under Section 501(c)(3),
30(c)(4), (c)(5), (c)(6), or (c)(7) of the Internal Revenue Code and
31substantiation that the organization is included in the federal group
32exemption letter as a subordinate organization.

end insert
begin insert

33(2) (A) Upon receipt of the documents required in subparagraph
34(A) or (B) of paragraph (1), the Franchise Tax Board shall issue
35an acknowledgment that the organization is exempt from taxes
36imposed by this part, except as provided in this article or in Article
372 (commencing with Section 23731). The acknowledgment may
38refer to the organization’s recognition by the Internal Revenue
39Service of exemption from federal income tax as an organization
40described in Section 501(c)(3), (c)(4), (c)(5), (c)(6), or (c)(7) of
P9    1the Internal Revenue Code and, if applicable, the organization’s
2subordinate organization status under a federal group exemption
3letter. The effective date of an organization’s exemption from state
4income tax pursuant to this subdivision shall be no later than the
5effective date of the organization’s recognition of exemption from
6federal income tax as an organization described in Section
7501(c)(3), (c)(4), (c)(5), (c)(6), or (c)(7) of the Internal Revenue
8Code, or its status as a subordinate organization under a federal
9group exemption letter, as applicable.

end insert
begin insert

10(B) Notwithstanding any other provision of this subdivision, an
11organization formed as a California corporation or qualified to
12do business in California that, as of the date of receipt by the
13Franchise Tax Board of the documents required under paragraph
14(1), is listed by the Secretary of the State or Franchise Tax Board
15as “suspended” or “forfeited” may not establish its exemption
16under paragraph (1) and shall not receive an acknowledgment
17referred to under subparagraph (A) from the Franchise Tax Board
18until that corporation is listed by the Secretary of State and the
19Franchise Tax Board as an “active” corporation.

end insert
begin insert

20(3) If, for federal income tax purposes, an organization’s
21exemption from tax as an organization described in Section
22501(c)(3), (c)(4), (c)(5), (c)(6), or (c)(7) of the Internal Revenue
23Code is suspended or revoked, the organization shall notify the
24Franchise Tax Board of the suspension or revocation, in the form
25and manner prescribed by the Franchise Tax Board. Upon
26notification, the board shall suspend or revoke, whichever is
27applicable, for state income tax purposes, the organization’s
28exemption under paragraph (1).

end insert
begin insert

29(4) This subdivision shall not be construed to prevent the
30Franchise Tax Board from revoking the exemption of an
31organization that is not organized or operated in accordance with
32California law, this chapter, or Section 501(c)(3), (c)(4), (c)(5),
33(c)(6), or (c)(7) of the Internal Revenue Code.

end insert
begin insert

34(5) If the Franchise Tax Board suspends or revokes the
35exemption of an organization pursuant to paragraph (3) or (4),
36the exemption shall be reinstated only upon compliance with this
37section, regardless of whether the organization can establish
38exemption under paragraph (1).

end insert
begin insert

39(e) This section shall not prevent a determination from having
40retroactive effect and does not prevent the issuance of a
P10   1determination with respect to a domestic organization which was
2in existence prior to January 1, 1970, and exempt under prior law
3without the submission of a formal application or payment of a
4filing fee. For the purpose of this section, the term “domestic”
5means created or organized under the laws of this state.

end insert
begin delete

6 The

end delete

7begin insert(f)end insertbegin insertend insertbegin insertTheend insert Franchise Tax Board maybegin delete issue rulingsend deletebegin insert prescribe rulesend insert
8 and regulationsbegin delete as are necessary and reasonable to carry outend deletebegin insert to
9implementend insert
the provisions of this article.

10begin insert

begin insertSEC. 5.end insert  

end insert

begin insertSection 23701d of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
11amended to read:end insert

12

23701d.  

(a) A corporation, community chest or trust, organized
13and operated exclusively for religious, charitable, scientific, testing
14for public safety, literary, or educational purposes, or to foster
15national or international amateur sports competition (but only if
16no part of its activities involved the provision of athletic facilities
17or equipment), or for the prevention of cruelty to children or
18animals, no part of the net earnings of which inures to the benefit
19of any private shareholder or individual, no substantial part of the
20activities of which is carrying on propaganda or otherwise
21attempting to influence legislationbegin delete,end delete (except as otherwise provided
22in Section 23704.5), and which does not participate in, or intervene
23in (including the publishing or distribution of statements), any
24political campaign on behalf of (or in opposition to) any candidate
25for public office. An organization is not organized exclusively for
26exempt purposes listed above unless its assets are irrevocably
27dedicated to one or more purposes listed in this section. Dedication
28of assets requires that in the event of dissolution of an organization
29or the impossibility of performing the specific organizational
30purposes the assets would continue to be devoted to exempt
31purposes. Assets shall be deemed irrevocably dedicated to exempt
32purposes if the articles of organization provide that upon
33dissolution the assets will be distributed to an organization which
34is exempt under this section or Section 501(c)(3) of the Internal
35Revenue Code or to the federal government, or to a state or local
36government for public purposes; or by a provision in the articles
37of organization, satisfactory to the Franchise Tax Board; that the
38property will be distributed in trust for exempt purposes; or by
39establishing that the assets are irrevocably dedicated to exempt
40purposes by operation of law. The irrevocable dedication
P11   1requirement shall not be a sole basis for revocation of an exempt
2determination made by the Franchise Tax Board prior to the
3effective date of this amendment.

4(b) (1) In the case of a qualified amateur sports organization--

5(A) The requirement of subdivision (a) that no part of its
6activities involves the provision of athletic facilities or equipment
7shall not apply.

8(B) That organization shall not fail to meet the requirements of
9subdivision (a) merely because its membership is local or regional
10in nature.

11(2) For purposes of this subdivision, “qualified amateur sports
12organization” means any organization organized and operated
13exclusively to foster national or international amateur sports
14competition if that organization is also organized and operated
15primarily to conduct national or international competition in sports
16or to support and develop amateur athletes for national or
17international competition in sports.

begin delete

18(c) (1) Notwithstanding subdivisions (a), (b), and (c) of Section
1923701, an organization organized and operated for nonprofit
20purposes in accordance with this section shall be exempt from
21taxes imposed by this part, except as provided in this article or in
22Article 2 (commencing with Section 23731), upon its submission
23to the Franchise Tax Board of one of the following:

24(A) A copy of the determination letter or ruling issued by the
25Internal Revenue Service recognizing the organization’s exemption
26from federal income tax under Section 501(a) of the Internal
27Revenue Code, as an organization described in Section 501(c)(3)
28of the Internal Revenue Code.

29(B) A copy of the group exemption letter issued by the Internal
30Revenue Service that states that both the central organization and
31all of its subordinates are tax-exempt under Section 501(c)(3) of
32the Internal Revenue Code and substantiation that the organization
33is included in the federal group exemption letter as a subordinate
34organization.

35(2) Upon receipt of the documents required in subparagraph
36(A) or (B) of paragraph (1), the Franchise Tax Board shall issue
37an acknowledgment that the organization is exempt from taxes
38imposed by this part, except as provided in this article or in Article
392 (commencing with Section 23731). The acknowledgment may
40refer to the organization’s recognition by the Internal Revenue
P12   1Service of exemption from federal income tax as an organization
2described in Section 501(c)(3) of the Internal Revenue Code and,
3if applicable, the organization’s subordinate organization status
4under a federal group exemption letter. The effective date of an
5organization’s exemption from state income tax pursuant to this
6subdivision shall be no later than the effective date of the
7organization’s recognition of exemption from federal income tax
8as an organization described in Section 501(c)(3) of the Internal
9Revenue Code, or its status as a subordinate organization under a
10federal group exemption letter, as applicable.

11(3) If, for federal income tax purposes, an organization’s
12 exemption from tax as an organization described in Section
13501(c)(3) of the Internal Revenue Code is suspended or revoked,
14the organization shall notify the Franchise Tax Board of the
15suspension or revocation, in the form and manner prescribed by
16the Franchise Tax Board. Upon notification, the board shall
17suspend or revoke, whichever is applicable, for state income tax
18purposes, the organization’s exemption under paragraph (1) of this
19subdivision.

20(4) This subdivision shall not be construed to prevent the
21Franchise Tax Board from revoking the exemption of an
22organization that is not organized or operated in accordance with
23this chapter or Section 501(c)(3) of the Internal Revenue Code.

24(5) If the Franchise Tax Board suspends or revokes the
25exemption of an organization pursuant to paragraph (3) or (4), the
26exemption shall be reinstated only upon compliance with Section
2723701, regardless of whether the organization can establish
28exemption under paragraph (1).

29(d) The Franchise Tax Board may prescribe rules and regulations
30to implement this section.

end delete
31begin insert

begin insertSEC. 6.end insert  

end insert
begin insert

The Legislature finds and declares that the retroactive
32application of the amendments made to Section 23036 by this act
33serves a public purpose by attracting equitable tax treatment to
34taxpayers that are stimulating the economy of the state and does
35not constitute a gift of public funds within the meaning of Section
366 of Article XVI of the California Constitution.

end insert
begin delete
37

SEC. 2.  

This act provides for a tax levy within the meaning of
38Article IV of the Constitution and shall go into immediate effect.

end delete


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