California Legislature—2015–16 Regular Session

Assembly Bill No. 328

Introduced by Assembly Member Grove

February 13, 2015

An act to amend Sections 17941 and 23153 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 328, as introduced, Grove. Minimum franchise tax: annual tax: exemption: veteran-owned small businesses.

Existing law imposes an annual minimum franchise tax, except as provided, on every corporation incorporated in this state, qualified to transact intrastate business in this state, or doing business in this state. Existing law exempts a corporation that incorporates or qualifies to do business in this state from the payment of the minimum franchise tax in its first taxable year.

Existing law imposes an annual tax in an amount equal to the minimum franchise tax on every limited liability company doing business in this state. In addition, existing law requires every limited liability company if the articles of organization have been accepted by, or a certificate of registration has been issued by, the Secretary of State to pay an annual tax in an amount equal to the minimum franchise tax.

This bill, for taxable years beginning on or after January 1, 2016, would additionally eliminate that minimum franchise tax, in the 2nd and 3rd taxable years, for a corporation that is a new veteran-owned small business, and that annual tax, in the first 3 taxable years, for a limited liability company that is a new veteran-owned small business, as defined.

This bill would take effect immediately as a tax levy.

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 17941 of the Revenue and Taxation Code
is amended to read:

17941.  

(a) For each taxable year beginning on or after January
1, 1997, a limited liability company doing business in this state
(as defined in Section 23101) shall pay annually to this state a tax
for the privilege of doing business in this state in an amount equal
to the applicable amount specified in begin insert paragraph (1) of end insert subdivision
(d) of Section 23153 for the taxable year.

(b) (1) In addition to any limited liability company that is doing
business in this state and is therefore subject to the tax imposed
by subdivision (a), for each taxable year beginning on or after
January 1, 1997, a limited liability company shall pay annually
the tax prescribed in subdivision (a) if articles of organization have
been accepted, or a certificate of registration has been issued, by
the office of the Secretary of State. The tax shall be paid for each
taxable year, or part thereof, until a certificate of cancellation of
registration or of articles of organization is filed on behalf of the
limited liability company with the office of the Secretary of State.

(2) If a taxpayer files a return with the Franchise Tax Board that
is designated as its final return, the Franchise Tax Board shall
notify the taxpayer that the annual tax shall continue to be due
annually until a certificate of dissolution is filed with the Secretary
of State pursuant to Section 17707.08 of the Corporations Code
or a certificate of cancellation is filed with the Secretary of State
pursuant to Section 17708.06 of the Corporations Code.

(c) The tax assessed under this section shall be due and payable
on or before the 15th day of the fourth month of the taxable year.

(d) For purposes of this section, “limited liability company”
means an organization, other than a limited liability company that
is exempt from the tax and fees imposed under this chapter
pursuant to Section 23701h or begin delete Section end delete 23701x, that is formed by
one or more persons under the law of this state, any other country,
or any other state, as a “limited liability company” and that is not
taxable as a corporation for California tax purposes.

(e) Notwithstanding anything in this section to the contrary, if
the office of the Secretary of State files a certificate of cancellation
pursuant to Section 17707.02 of the Corporations Code for any
limited liability company, then paragraph (1) of subdivision (f) of
Section 23153 shall apply to that limited liability company as if
the limited liability company were properly treated as a corporation
for that limited purpose only, and paragraph (2) of subdivision (f)
of Section 23153 shall not apply. Nothing in this subdivision
entitles a limited liability company to receive a reimbursement for
any annual taxes or fees already paid.

(f) (1) Notwithstanding any provision of this section to the
contrary, a limited liability company that is a small business solely
owned by a deployed member of the United States Armed Forces
shall not be subject to the tax imposed under this section for any
taxable year the owner is deployed and the limited liability
company operates at a loss or ceases operation.

(2) The Franchise Tax Board may promulgate regulations as
necessary or appropriate to carry out the purposes of this
subdivision, including a definition for “ceases operation.”

(3) For the purposes of this subdivision, all of the following
definitions apply:

(A) “Deployed” means being called to active duty or active
service during a period when a Presidential Executive order
specifies that the United States is engaged in combat or homeland
defense. “Deployed” does not include either of the following:

(i) Temporary duty for the sole purpose of training or processing.

(ii) A permanent change of station.

(B) “Operates at a loss” means a limited liability company’s
expenses exceed its receipts.

(C) “Small business” means a limited liability company with
total income from all sources derived from, or attributable, to the
state of two hundred fifty thousand dollars ($250,000) or less.

(4) This subdivision shall become inoperative for taxable years
beginning on or after January 1, 2018.

begin insert

(g) (1) Notwithstanding subdivision (a) or (b), for taxable years
beginning on or after January 1, 2016, a limited liability company
that is a new veteran-owned small business shall not be subject to
the tax imposed by this section for its first three taxable years.

end insert begin insert

(2) For purposes of this subdivision:

end insert begin insert

(A) “New veteran-owned small business” means a
veteran-owned limited liability company that is formed under the
laws of this state or has qualified to transact intrastate business
in this state that begins business operations at or after the time of
its formation, and that has a total income derived from, or
attributable to, the state of two hundred fifty thousand dollars
($250,000) or less. “New veteran-owned small business” does not
include any limited liability company that began business
operations as a sole proprietorship, a partnership, a corporation,
or any other form of business entity prior to its formation.

end insert begin insert

(B) “Veteran” means an individual honorably discharged from
the Armed Forces of the United States.

end insert begin insert

(C) “Veteran-owned limited liability company” means a limited
liability company in which more than 50 percent of the membership
interest is owned by one or more veterans.

end insert begin insert

(3) This subdivision shall not apply to any limited liability
company that reorganizes solely for the purpose of reducing its
tax imposed under this section.

end insert

SEC. 2.  

Section 23153 of the Revenue and Taxation Code is
amended to read:

23153.  

(a) Every corporation described in subdivision (b) shall
be subject to the minimum franchise tax specified in subdivision
(d) from the earlier of the date of incorporation, qualification, or
commencing to do business within this state, until the effective
date of dissolution or withdrawal as provided in Section 23331 or,
if later, the date the corporation ceases to do business within the
limits of this state.

(b) Unless expressly exempted by this part or the California
Constitution, subdivision (a) shall apply to each of the following:

(1) Every corporation that is incorporated under the laws of this
state.

(2) Every corporation that is qualified to transact intrastate
business in this state pursuant to Chapter 21 (commencing with
Section 2100) of Division 1 of Title 1 of the Corporations Code.

(3) Every corporation that is doing business in this state.

(c) The following entities are not subject to the minimum
franchise tax specified in this section:

(1) Credit unions.

(2) Nonprofit cooperative associations organized pursuant to
Chapter 1 (commencing with Section 54001) of Division 20 of the
Food and Agricultural Code that have been issued the certificate
of the board of supervisors prepared pursuant to Section 54042 of
the Food and Agricultural Code. The association shall be exempt
from the minimum franchise tax for five consecutive taxable years,
commencing with the first taxable year for which the certificate
is issued pursuant to subdivision (b) of Section 54042 of the Food
and Agricultural Code. This paragraph only applies to nonprofit
cooperative associations organized on or after January 1, 1994.

(d) (1) Except as provided in paragraph (2), paragraph (1) of
subdivision (f) of Section 23151, paragraph (1) of subdivision (f)
of Section 23181, and paragraph (1) of subdivision (c) of Section
23183, corporations subject to the minimum franchise tax shall
pay annually to the state a minimum franchise tax of eight hundred
dollars ($800).

(2) The minimum franchise tax shall be twenty-five dollars
($25) for each of the following:

(A) A corporation formed under the laws of this state whose
principal business when formed was gold mining, which is inactive
and has not done business within the limits of the state since 1950.

(B) A corporation formed under the laws of this state whose
principal business when formed was quicksilver mining, which is
inactive and has not done business within the limits of the state
since 1971, or has been inactive for a period of 24 consecutive
months or more.

(3) For purposes of paragraph (2), a corporation shall not be
considered to have done business if it engages in business other
than mining.

(e) Notwithstanding subdivision (a), for taxable years beginning
on or after January 1, 1999, and before January 1, 2000, every
“qualified new corporation” shall pay annually to the state a
minimum franchise tax of five hundred dollars ($500) for the
second taxable year. This subdivision shall apply to any corporation
that is a qualified new corporation and is incorporated on or after
January 1, 1999, and before January 1, 2000.

(1) The determination of the gross receipts of a corporation, for
purposes of this subdivision, shall be made by including the gross
receipts of each member of the commonly controlled group, as
defined in Section 25105, of which the corporation is a member.

(2) “Gross receipts, less returns and allowances reportable to
this state,” means the sum of the gross receipts from the production
of business income, as defined in subdivision (a) of Section 25120,
and the gross receipts from the production of nonbusiness income,
as defined in subdivision (d) of Section 25120.

(3) “Qualified new corporation” means a corporation that is
incorporated under the laws of this state or has qualified to transact
intrastate business in this state, that begins business operations at
or after the time of its incorporation and that reasonably estimates
that it will have gross receipts, less returns and allowances,
reportable to this state for the taxable year of one million dollars
($1,000,000) or less. “Qualified new corporation” does not include
any corporation that began business operations as a sole
proprietorship, a partnership, or any other form of business entity
prior to its incorporation. This subdivision shall not apply to any
corporation that reorganizes solely for the purpose of reducing its
minimum franchise tax.

(4) This subdivision shall not apply to limited partnerships, as
defined in Section 17935, limited liability companies, as defined
in Section 17941, limited liability partnerships, as described in
Section 17948, charitable begin delete organizations, end delete begin insert corporations, end insert as described
in Section 23703, regulated investment companies, as defined in
Section 851 of the Internal Revenue Code, real estate investment
trusts, as defined in Section 856 of the Internal Revenue Code,
real estate mortgage investment conduits, as defined in Section
860D of the Internal Revenue Code, qualified Subchapter S
subsidiaries, as defined in Section 1361(b)(3) of the Internal
Revenue Code, or to the formation of any subsidiary corporation,
to the extent applicable.

(5) For any taxable year beginning on or after January 1, 1999,
and before January 1, 2000, if a corporation has qualified to pay
five hundred dollars ($500) for the second taxable year under this
subdivision, but in its second taxable year, the corporation’s gross
receipts, as determined under paragraphs (1) and (2), exceed one
million dollars ($1,000,000), an additional tax in the amount equal
to three hundred dollars ($300) for the second taxable year shall
be due and payable by the corporation on the due date of its return,
without regard to extension, for that year.

(f) (1) Notwithstanding subdivision (a), every corporation that
incorporates or qualifies to do business in this state on or after
January 1, 2000, shall not be subject to the minimum franchise tax
for its first taxable year.

(2) This subdivision shall not apply to limited partnerships, as
defined in Section 17935, limited liability companies, as defined
in Section 17941, limited liability partnerships, as described in
Section 17948, charitable begin delete organizations, end delete begin insert corporations, end insert as described
in Section 23703, regulated investment companies, as defined in
Section 851 of the Internal Revenue Code, real estate investment
trusts, as defined in Section 856 of the Internal Revenue Code,
real estate mortgage investment conduits, as defined in Section
860D of the Internal Revenue Code, and qualified Subchapter S
subsidiaries, as defined in Section 1361(b)(3) of the Internal
Revenue Code, to the extent applicable.

(3) This subdivision shall not apply to any corporation that
reorganizes solely for the purpose of avoiding payment of its
minimum franchise tax.

(g) Notwithstanding subdivision (a), a domestic corporation, as
defined in Section 167 of the Corporations Code, that files a
certificate of dissolution in the office of the Secretary of State
pursuant to subdivision (b) of Section 1905 of the Corporations
Code, prior to its amendment by the act amending this subdivision,
and that does not thereafter do business shall not be subject to the
minimum franchise tax for taxable years beginning on or after the
date of that filing.

(h) The minimum franchise tax imposed by paragraph (1) of
subdivision (d) shall not be increased by the Legislature by more
than 10 percent during any calendar year.

(i) (1) Notwithstanding subdivision (a), a corporation that is a
small business solely owned by a deployed member of the United
States Armed Forces shall not be subject to the minimum franchise
tax for any taxable year the owner is deployed and the corporation
operates at a loss or ceases operation.

(2) The Franchise Tax Board may promulgate regulations as
necessary or appropriate to carry out the purposes of this
subdivision, including a definition for “ceases operation.”

(3) For the purposes of this subdivision, all of the following
definitions apply:

(A) “Deployed” means being called to active duty or active
service during a period when a Presidential Executive order
specifies that the United States is engaged in combat or homeland
defense. “Deployed” does not include either of the following:

(i) Temporary duty for the sole purpose of training or processing.

(ii) A permanent change of station.

(B) “Operates at a loss” means negative net income as defined
in Section 24341.

(C) “Small business” means a corporation with total income
from all sources derived from, or attributable, to the state of two
hundred fifty thousand dollars ($250,000) or less.

(4) This subdivision shall become inoperative for taxable years
beginning on or after January 1, 2018.

begin insert

(j) (1) Notwithstanding subdivision (a) or (b) and subject to
subdivision (f), for taxable years beginning on or after January 1,
2016, every corporation that is a new veteran-owned small business
shall not be subject to the tax imposed by this section for its second
and third taxable years.

end insert begin insert

(2) For purposes of this subdivision:

end insert begin insert

(A) “New veteran-owned small business” means a
veteran-owned corporation that is incorporated under the laws of
this state or has qualified to transact intrastate business in this
state that begins business operations at or after the time of its
incorporation, and that has a total income derived from, or
attributable to, the state of two hundred fifty thousand dollars
($250,000) or less. “New veteran-owned small business” does not
include any corporation that began business operations as a sole
proprietorship, a partnership, or any other form of business entity
prior to its incorporation.

end insert begin insert

(B) “Veteran” means an individual honorably discharged from
the Armed Forces of the United States.

end insert begin insert

(C) “Veteran-owned corporation” means a corporation in which
stock representing more than 50 percent of the voting power of
the corporation and representing more than 50 percent value of
the stock of the corporation is owned by one or more veterans.

end insert begin insert

(3) This subdivision shall not apply to any corporation that
reorganizes solely for the purpose of reducing its minimum
franchise tax.

end insert

SEC. 3.  

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