BILL ANALYSIS Ó
AB 557
Page 1
Date of Hearing: May 6, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
557 (Irwin) - As Introduced February 23, 2015
-----------------------------------------------------------------
|Policy |Banking and Finance |Vote:|11 - 0 |
|Committee: | | | |
| | | | |
| | | | |
|-------------+-------------------------------+-----+-------------|
| |Revenue and Taxation |Vote:|9 - 0 |
| | | | |
| | | | |
| | | | |
-----------------------------------------------------------------
Urgency: No State Mandated Local Program: YesReimbursable:
No
SUMMARY:
This bill establishes an administrative dissolution process and
an administrative surrender process for nonprofit corporations.
In summary, this bill:
AB 557
Page 2
1)Creates a mechanism for dissolving or surrendering nonprofit
corporations that have had their corporate powers suspended or
forfeited by the Franchise Tax Board (FTB) or have failed to
file a statement of information (SOI) with the Secretary of
State (SOS), in each case for a period of not less than 48
continuous months.
2)Establishes procedures for notice of pending dissolution or
surrender to nonprofit corporations and allows those nonprofit
corporations an opportunity to provide written objections to
dissolution or surrender.
3)Allows a nonprofit corporation that has objected to
dissolution or surrender a period of 90 days to satisfy any
and all outstanding debts and file a current SOI with the SOS,
before FTB or SOS may proceed with the dissolution or
surrender of the entity. The FTB and SOS are given
flexibility to extend this 90 day period for an additional 90
days.
4)Creates a mechanism for voluntary dissolution of a nonprofit
corporation upon certification of certain matters by the
entity.
AB 557
Page 3
5)Specifies that any liability to creditors of the nonprofit
corporation is not discharged as a result of dissolution or
surrender, and clarifies that dissolution or surrender does
not diminish or adversely affect the ability of the Attorney
General to enforce liabilities.
6)Requires the FTB to abate, upon written request by nonprofit
corporations that had their tax-exempt status revoked or never
conducted business in California at any time following its
incorporation, unpaid California taxes, interest, and
penalties for the taxable years the nonprofit corporation
certifies under penalty of perjury that it was not doing
business, provided the nonprofit corporation must dissolve
within 12 months of requesting abatement.
7)Allows the FTB to disclose contact information for nonprofit
corporations to the SOS for purposes of providing notice to
the corporations.
8)Allows the FTB to prescribe rules and regulations as
necessary.
AB 557
Page 4
FISCAL EFFECT:
1)One-time GF costs of approximately $600,000 to SOS to update
systems and implement new processes; minor and absorbable
costs to FTB; potential long-term savings from no longer
having to track and issue notices to defunct nonprofit
businesses.
2)No impact to state income tax revenues.
COMMENTS:
1)Purpose. The goal of AB 557 is to streamline the dissolution
process for nonprofit corporations. According to the author,
the new process allows FTB and SOS to dissolve nonprofits that
have been inactive for quite some time. Many of these
nonprofit corporations have been disbanded years earlier by
their boards of directors but never took the proper steps to
dissolve, thus causing years of fees and fines to build up and
unnecessary time spent by FTB and SOS staff to proceed through
the dissolutions process. AB 557 will help FTB and SOS
administratively clear the backlog of inactive nonprofit
corporations.
According to the findings and declarations in the bill, every
year, hundreds of nonprofit corporations seek administrative
AB 557
Page 5
changes to expand their mission or alter their tax status,
and, in some cases, to even go out of existence. The current
dissolution process, which involves the winding down of the
nonprofit corporation's affairs, is very cumbersome and
protracted.
Not only is it in the public's interest to establish a
streamlined process to efficiently dissolve a nonprofit
corporation, but doing so will relieve the citizens of
California from unknowingly donating to a nonprofit
corporation that is not complying with the laws of the state.
2)Background. According to the findings and declarations in the
bill, there are more than 150,000 nonprofit corporations in
California that provide a variety of programs and services in
areas as diverse as education, recreation, health care, legal,
job training, and housing to millions of Californians. These
organizations, depending on their formation status, are
required to register with the office of the SOS, the FTB, and
the office of the Attorney General.
3)Prior Legislation. This bill is substantially similar to AB
1529 (J. Perez) of 2014, which was vetoed by the Governor. In
his veto message, the Governor stressed implementing the bill
would require "expensive reprogramming of an obsolescent
computer system that will soon be replaced," and that it was
preferable to wait for that system replacement before
AB 557
Page 6
proceeding with the bill.
While the policy aims of this bill are laudable, and would
eventually improve the efficiency of state government, there
is currently no indication that the Governor's concerns have
been addressed or that he will support AB 557.
Analysis Prepared by:Joel Tashjian / APPR. / (916)
319-2081