BILL ANALYSIS �
AB 1413
Page 1
ASSEMBLY THIRD READING
AB 1413 (Revenue and Taxation Committee)
As Introduced March 19, 2013
Majority vote
ARTS, ENTERTAINMENT, SPORTS 7-0 REVENUE &
TAXATION 8-0
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|Ayes:|Ian Calderon, Waldron, |Ayes:|Bocanegra, Dahle, Gordon, |
| |Bloom, Brown, Gomez, | |Mullin, Nestande, Pan, V. |
| |Levine, Wilk | |Manuel P�rez, Ting |
| | | | |
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APPROPRIATIONS 17-0
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|Ayes:|Gatto, Harkey, Bigelow, | | |
| |Bocanegra, Bradford, Ian | | |
| |Calderon, Campos, | | |
| |Donnelly, Eggman, Gomez, | | |
| |Hall, Ammiano, Linder, | | |
| |Pan, Quirk, Wagner, Weber | | |
| | | | |
| | | | |
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SUMMARY : Clarifies the scope of the California Motion Picture
Tax Credit (film tax credit) utilization and simplifies the
process by which certain nonprofit organizations may obtain
tax-exempt status in California. Specifically, this bill :
1)Provides that the film tax credit may be used to reduce a
qualified corporate taxpayer's "regular" income tax beyond the
tentative minimum tax (TMT) for taxable years beginning on or
after January 1, 2011.
2)Permits organizations formed under Internal Revenue Code (IRC)
Section 501(c)(4), (5), (6), or (7) that are tax-exempt for
federal tax purposes to be treated as tax-exempt organizations
for California tax purposes, without approval by the Franchise
Tax Board (FTB). Specifically:
a) Provides that an organization organized and operated for
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nonprofit purposes shall be exempt under the Corporation
Tax (CT) Law upon submission to the FTB a copy of the
determination letter or ruling issued by the Internal
Revenue Service (IRS) approving the organization's
tax-exempt status under IRC Section 501(c)(4), (5), (6), or
(7).
b) Requires the organization to notify the FTB of a
revocation or suspension of tax-exempt status for federal
income tax purposes, and upon receipt thereof, the FTB
shall rescind the organization of tax-exempt status for
state tax purposes.
c) States that the California approval of tax-exempt status
based upon notification of federal approval does not
prevent the FTB from revoking the exemption of an
organization that is not operated in accordance with
California or federal laws.
d) Provides that an organization formed as a California
corporation or is qualified to do business in this state
will not qualify as tax exempt for state tax purposes if it
is listed by the Secretary of State (SOS) or FTB as
"suspended" or "forfeited" and will not receive an
acknowledgment letter from the FTB until it reinstates its
status with the SOS and FTB as an "active" corporation.
e) Specifies that, if the FTB revokes or suspends
tax-exempt status of an organization, the exemption may be
reinstated only upon compliance with state tax laws,
regardless of whether the organization provides a
determination letter from the IRS.
3)Authorizes the FTB to prescribe rules and regulations to
implement this bill.
4)Declares that the retroactive application of amendments made
to the provisions relating to the film tax credit serves a
public purpose for specified reasons and does not constitute a
gift of public funds within the meaning of Section 6 of
Article XVI of the California Constitution.
EXISTING LAW allows a qualified taxpayer, for taxable years
beginning on or after January 1, 2011, a film tax credit, under
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either the Personal Income Tax Law (PIT) or CT Law. Requires
the California Film Commission to allocate $100 million of
credit authorizations each year during the period 2009-10
through 2016-17 Fiscal Year (FYs) on a first-come, first-serve
basis.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)The FTB staff estimates that the provision simplifying the
process for certain nonprofit organizations to obtain
tax-exempt status in California would result in an annual
General Fund (GF) revenue loss of $9,000 in FY 2014-15 and
$20,000 in every FY thereafter.
2)The FTB staff also estimates clarifying the scope of the film
tax credit utilization would result in an annual GF revenue
loss of $9.3 million in FY 2012-13, $800,000 in FY 2013-14,
$1.3 million in FY 2014-15, and $600,000 in FY 2016-17, and
would result in a GF revenue gain of $10,000 in FY 2015-16.
COMMENTS : AB 1413 is set to accomplish two goals: To clarify
that a taxpayer may use the film tax credit to reduce its
regular tax beyond the TMT, and to simplify the process for
applying for California tax-exempt status.
Non-profit Organizations: A Simplified Process for Applying for
Tax-Exempt Status in California : Currently, obtaining
tax-exempt status under California tax law is a separate process
from obtaining a federal exemption. If a California charitable
nonprofit received federal tax-exempt 501(c)(4), (5), (6), or
(7) status from the IRS, it must separately apply for a state
tax exemption.
In 2008, Revenue and Taxation Code (R&TC) Section 23701(d) was
amended to allow a nonprofit organization that has received a
determination letter from the IRS stating that it qualifies as a
charitable organization under IRC Section 501(c)(3) to submit
the letter to the FTB in lieu of submitting Form 3500 for a tax
exemption under California law [AB 897 (Houston), Chapter 238,
Statues of 2007]. The change in law greatly improved and
simplified the application process for non-profit organizations
and benefitted both tax practitioners and the FTB.
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This bill would extend the benefits of this simplified process
to organizations formed under IRC Section 501(c)(4), (5), (6),
and (7), by similarly allowing those organizations to submit a
determination letter from the IRS to the FTB in lieu of filing
Form 3500.
The Exclusion from TMT: The Film Tax Credit : In February 2009,
the film tax credit was enacted as a part of an economic
stimulus plan to promote production spending, jobs, and tax
revenues in California. Originally, the program was scheduled
to sunset in FY 2013-14, but was extended by the Legislature in
2011 for one additional year - until FY 2014-15. [AB 1069
(Fuentes) Chapter 731, Statutes of 2011]. In 2012, the
operation of the film tax credit was extended for two additional
years, thereby authorizing the allocation of an additional $100
million annually in tax credits to qualified productions from
July 1, 2015, until July 1, 2017. [AB 2026 (Fuentes) Chapter
841, Statues of 2012].
The enabling legislation, however, did not expressly add the
film tax credit to the list of tax credits that may be used to
reduce a corporate taxpayer's "regular tax" beyond the
"tentative minimum tax" or TMT. This language is routinely
included in over 97% of the tax credits claimed by California
corporations. As such, the film tax credit may be used to
reduce regular tax liability but only to the TMT level, which
prevents full monetization of the credit as envisioned by the
authors of the original legislation that enacted the film tax
credit program. In many cases, the credit is limited to about
25% of the amount awarded. Because the use of the film tax
credit is similarly limited in future years, even "carried over"
credits may not be fully utilized.
While, as a general rule, tax credits may not be used to reduce
the regular tax below the TMT, R&TC Section 23036 provides an
exception for certain types of credits. It lists 17 former and
present tax credits that may be used to reduce regular tax
beyond TMT. Some of these credits include the research and
development credit, the enterprise zone sales tax credit, the
enterprise zone hiring credit, and the former manufacturing
investment credit. The film tax credit, however, was
inadvertently omitted from that list. The proposed technical
fix is needed to allow taxpayers to utilize the film tax credit
in full, as intended by the Legislature, including the credit
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allocations awarded in prior years. This proposal, however,
would only apply to corporations and not to taxpayers subject to
the PIT Law.
Please see the policy committee analysis for full discussion of
this bill.
Analysis Prepared by : Dana Mitchell / A.,E.,S.,T. & I.M. /
(916) 319-3450
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