California Legislature—2013–14 Regular Session

Assembly Bill No. 1413

Introduced by Committee on Revenue and Taxation (Bocanegra (Chair), Gordon, Mullin, Pan, V. Manuel Pérez, and Ting)

March 19, 2013

An act to amend Sections 19565, 23036, 23701, and 23701d of the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL’S DIGEST

AB 1413, as introduced, Committee on Revenue and Taxation. Corporation Tax Law: tentative minimum tax: credits: exempt organizations.

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.

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.

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.

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.

This bill would also make conforming changes.

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

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

SECTION 1.  

Section 19565 of the Revenue and Taxation Code
is amended to read:

19565.  

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

begin delete

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

(3)

end delete

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

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

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

SEC. 2.  

Section 23036 of the Revenue and Taxation Code is
amended to read:

23036.  

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

(A) The tax imposed under Chapter 2 (commencing with Section
23101).

(B) The tax imposed under Chapter 3 (commencing with Section
23501).

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

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

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

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

(1) The tax on limited partnerships, imposed under Section
17935, the tax on limited liability companies, imposed under
Section 17941, and the tax on registered limited liability
partnerships and foreign limited liability partnerships imposed
under Section 17948.

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

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

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

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

(1) Credits that do not contain carryover provisions.

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

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

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

(5) Credits for taxes withheld under Section 18662.

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

(1)  begin delete No end delete begin insert A end insert credit may begin insert not end insert reduce the “tax” below the tentative
minimum tax (as defined by paragraph (1) of subdivision (a) of
Section 23455), except the following credits:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(Q) The credit allowed by begin insert former end insert Section 23649 (relating to
qualified property).

begin insert

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

end insert

(2)  begin delete No end delete begin insert A end insert credit against the tax may begin insert not end insert reduce the minimum
franchise tax imposed under Chapter 2 (commencing with Section
23101).

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

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

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

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

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

(2) The amount of any credit otherwise allowed under this part,
including any credit carryover from prior years, that may be applied
to reduce the taxpayer’s “tax,” as defined in subdivision (a), for
the taxable year is limited to an amount equal to the excess of the
taxpayer’s regular tax (as defined in Section 23455), determined
by including income attributable to the disregarded business entity
that generated the credit or credit carryover, over the taxpayer’s
regular tax (as defined in Section 23455), determined by excluding
the income attributable to that disregarded business entity. begin delete No end delete begin insert A end insert
credit is begin insert not end insert allowed if the taxpayer’s regular tax (as defined in
Section 23455), determined by including the income attributable
to the disregarded business entity is less than the taxpayer’s regular
tax (as defined in Section 23455), determined by excluding the
income attributable to the disregarded business entity.

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

(j) (1) Unless otherwise specifically provided, in the case of a
taxpayer that is a partner or shareholder of an eligible pass-through
entity described in paragraph (2), any credit passed through to the
taxpayer in the taxpayer’s first taxable year beginning on or after
the date the credit is no longer operative may be claimed by the
taxpayer in that taxable year, notwithstanding the repeal of the
statute authorizing the credit prior to the close of that taxable year.

(2) For purposes of this subdivision, “eligible pass-through
entity” means any partnership or S corporation that files its return
on a fiscal year basis pursuant to Section 18566, and that is entitled
to a credit pursuant to this part for the taxable year that begins
during the last year a credit is operative.

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

SEC. 3.  

Section 23701 of the Revenue and Taxation Code is
amended to read:

23701.  

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

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

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

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

begin delete

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

end delete begin insert

(d) (1) Notwithstanding subdivisions (a), (b), and (c), an
organization organized and operated for nonprofit purposes in
accordance with Section 23701a, 23701d, 23701e, 23701f, or
23701g shall be exempt from taxes imposed by this part, except
as provided in this article or in Article 2 (commencing with Section
23731), upon its submission to the Franchise Tax Board of one of
the following:

end insert begin insert

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

end insert begin insert

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

end insert begin insert

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

end insert begin insert

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

end insert begin insert

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

end insert begin insert

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

end insert begin insert

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

end insert begin insert

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

end insert begin delete

The

end delete

begin insert (f) end insert begin insert   end insert begin insert The end insert Franchise Tax Board may begin delete issue rulings end delete begin insert prescribe rules end insert
and regulations begin delete as are necessary and reasonable to carry out end delete begin insert to
implement end insert the provisions of this article.

SEC. 4.  

Section 23701d of the Revenue and Taxation Code is
amended to read:

23701d.  

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

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

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

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

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

begin delete

(c) (1) Notwithstanding subdivisions (a), (b), and (c) of Section
23701, an organization organized and operated for nonprofit
purposes in accordance with this section shall be exempt from
taxes imposed by this part, except as provided in this article or in
Article 2 (commencing with Section 23731), upon its submission
to the Franchise Tax Board of one of the following:

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

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

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

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

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

(5) If the Franchise Tax Board suspends or revokes the
exemption of an organization pursuant to paragraph (3) or (4), the
exemption shall be reinstated only upon compliance with Section
23701, regardless of whether the organization can establish
exemption under paragraph (1).

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

end delete

SEC. 5.  

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