BILL ANALYSIS Ó
AB 2754
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2754 (Revenue and Taxation Committee)
As Amended August 22, 2014
Majority vote
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|ASSEMBLY: |55-20|(May 29, 2014) |SENATE: |24-12|(August 26, |
| | | | | |2014) |
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Original Committee Reference: REV. & TAX.
SUMMARY : Requires that the dependent's tax identification
number be included on a return when claiming a Dependent
Exemption Credit, requires a business entity that prepares a
return using tax preparation software to file the return
electronically, allows taxpayers to use the Governor's Office of
Business and Economic Development (GO-Biz) California Competes
tax credits to reduce the tentative minimum tax (TMT), and
allows a charitable remainder trust (CRT), in modified
conformity with the federal income tax law, to retain its
tax-exempt status when it has an unrelated business taxable
income (UBTI) by paying tax on that income..
The Senate amendments :
1)Add language allowing taxpayers to use GO-Biz California
Competes tax credits to reduce the TMT.
2)Add language that allows a CRT, in modified conformity with
the federal income tax law, to retain its tax-exempt status
when it has a UBTI by paying tax on that income.
3)Address chaptering out issues.
AS PASSED BY THE ASSEMBLY , this bill:
1)Provided, beginning on or after January 1, 2015, that a
Dependent Exemption Credit exemption shall not be allowed
unless the identification number, as defined in Internal
Revenue Code (IRC) Section 6109, of the dependent is included
on the return.
2)Provided that a taxpayer shall have the right to claim the
credit or refund of adjusted amounts within the statute of
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limitation.
3)Required, beginning on or after January 1, 2014, that a
business return be filed using electronic technology if the
return was prepared using a tax preparation software. The
return shall be filed in a manner prescribed by the Franchise
Tax Board (FTB). This provision applies to returns required
to be filed on or after January 1, 2015.
4)Provided that a business entity required to file a return
electronically under this section may annually request a
waiver of the requirement from the FTB for a taxable year.
The FTB may grant the waiver if it determines that the
business entity is unable to comply with the requirements due
to technology constraints, where compliance would result in
undue financial burden, or due to circumstances that
constitute reasonable cause, and not willful neglect.
5)Provided that a business entity that is required to
electronically file a return and fails to comply shall be
subject to a penalty of $100 for the first year and $500 each
year thereafter unless the failure is due to reasonable cause,
and not willful neglect. This provision applies to returns
filed for taxable years beginning on or after January 1, 2017.
6)Provided that the penalty shall apply per combined reporting
group, not per taxpayer included in a combined reporting
group.
7)Provided that the FTB shall conduct a robust education program
advising businesses of the new electronic filing requirements
and shall liberally interpret and grant waivers of the penalty
to minimize unnecessary adverse impacts to businesses that
experience difficulty complying with these requirements.
8)Defined an "acceptable return" as an original or amended
return that is required to be filed by a business entity other
than the return for unrelated business taxable income.
9)Defined a "business entity" as a corporation, including an "S"
corporation, an organization exempt from tax, a partnership,
or a limited liability company.
10)Defined "tax preparation software" as any computer software
program used to prepare an acceptable return or for use in tax
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compliance.
11)Defined "electronic technology" to include, but is not
limited to, the Internet, cloud computing, or an electronic
information delivery system.
12)Defined "technology constraints" as an inability of the tax
preparation software to electronically file the acceptable
return as required by this section as a result of the complex
nature of the return or inadequacy of the software.
FISCAL EFFECT : Unknown
COMMENTS :
CRT. California will conform to the federal tax treatment of
CRTs that have UBTI in order to allow such trusts to retain
their tax-exempt status for California tax purposes. Currently,
a CRT that has UBTI is treated differently under the federal and
California tax laws. Under federal law, such a CRT will be
subject to the 100% excise tax on its UBTI, but it will retain
its tax-exempt status, which means other types of income
generated by the CRT will continue being exempted from the
federal income tax. In contrast, under California's law, which
was federal law prior to 2007, the CRT will lose its tax-exempt
status and all of its income, including UBTI, will be subject to
the income tax in California.
Reducing TMT with GO-Biz tax credits. While, as a general rule,
tax credits may not be used to reduce the regular tax below the
TMT, both the Corporate Tax and Personal Income Tax Law provide
exceptions for certain tax credits. 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. As such, the GO-Biz
California Competes tax credit may be used to reduce regular tax
liability but only to the TMT level, which prevents full
monetization of the credit. The proposed technical fix is
needed to allow taxpayers to utilize the GO-Biz credit in full.
The purpose of e-filing. If the return of a business entity is
prepared using tax preparation software, but a paper return for
that business entity is filed, the FTB must process that return
using costly manual data capture methods that lack the accuracy
and efficiency associated with e-filing. This bill would
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require a business entity that files an acceptable return that
was prepared using tax preparation software to file the return
by electronic technology in a form and manner prescribed by the
FTB, unless the business entity, upon request, is granted a
waiver. Requiring a business entity to e-file a return when a
taxpayer uses tax preparation software would result in the FTB
processing returns more quickly, which would expedite approved
refunds and utilize cost-effective technology to meet
operational goals. E-filing a return lowers the initial cost of
processing returns. The FTB estimates that the average cost to
the department to process a business entity paper filed return
is $6 (includes complex and smaller taxpayer returns), as
opposed to $0.36 (primarily based on smaller taxpayer returns)
for an e-filed return.
The purpose for requiring a tax identification number (TIN).
Not requiring a TIN for each dependent be included on the state
tax return precludes the department from validating Dependent
Exemption Credits during return processing, which delays the
correction of erroneous or duplicated dependent credits and
increases the cost of correcting these errors for taxpayers and
the department. This bill would allow the FTB to confirm that a
dependent's TIN is used only once, which would increase the
integrity of the returns, reduce inaccurate returns, and
erroneous dependent credits. This bill would also increase the
timeliness of the FTB's compliance efforts, and decrease the
amount of incorrect refunds issued to taxpayers. Additionally,
this bill would allow the FTB to create an automated versus
manual method for examining dependent credits that could reduce
departmental cost.
Analysis Prepared by : Carlos Anguiano / REV. & TAX. / (916)
319-2098
FN: 0005442