BILL ANALYSIS Ó AB 1775 Page 1 Date of Hearing: April 18, 2016 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Sebastian Ridley-Thomas, Chair AB 1775 (Obernolte) - As Amended April 13, 2016 Majority vote. Fiscal committee. SUBJECT: Income taxes: returns: due dates SUMMARY: Conforms with federal law, for taxable years beginning on or after January 1, 2016, the tax return due dates for partnerships, limited liability companies (LLCs), "C" corporations, and "S" corporations under the Personal Income Tax (PIT) Law and Corporation Tax (CT) Law. Specifically, this bill: 1)Requires a "C" corporation or a LLC classified as a corporation to file a return by the fifteenth day of the fourth month following the close of its taxable year. 2)Provides that a "S" corporation must file a return by the fifteenth day of the third month following the close of its taxable year. AB 1775 Page 2 3)Requires a partnership or a LLC classified as a partnership to file a return by the fifteenth day of the third month following the close of its taxable year. 4)Requires a LLC doing business in the state that is disregarded to file a return on the schedule required by the owner entity. 5)Requires that the taxes for a corporation ceasing to do business within the state during any taxable year, that does not dissolve or withdraw from the state nor resume doing business during the following table year, are due and payable upon the latter date: a) At the time the corporation resumes doing business; or, b) On or before the due date of the return for its taxable year. EXISTING LAW: 1)Requires "C" corporations, "S" corporations, and LLCs classified as a corporation to file returns by the fifteenth day of the third month following the close of its taxable year, in conformity with federal law for taxable years beginning before January 1, 2016. 2)Requires a partnership or LLC classified as a partnership to file a return by the fifteenth day of the fourth month following the close of its taxable year, in conformity with federal law for taxable years beginning before January 1, 2016. AB 1775 Page 3 FISCAL EFFECT: The FTB estimates this bill would not impact state income or franchise tax revenues, and would result in undetermined administrative costs. COMMENTS: 1)Author's Statement : The Author has provided the following statement in support of this bill: "AB 1775 would conform state and federal tax law to streamline the preparation process and reduce complexity for taxpayers and businesses." 2)Changes at the Federal Level : In 2015, Congress enacted legislation to shorten the tax return due date for partnerships by one month, and extend the due date for "C" corporations by one month so that the filing deadline for partnerships would precede the due dates of their individual and corporate investors. These new federal due dates are intended to alleviate timing pressures and provide a more logical flow of information for a more efficient tax preparation process. 3)The Importance of Federal Conformity : Changed federal tax return due dates means that California tax return due dates for similar filings are currently out of conformity, impacting many California taxpayers that would then need to comply with multiple tax deadlines for similar returns. When changes are made to the federal income tax law, California does not automatically adopt such provisions. Instead, state legislation is needed to conform to most of those changes. Maintaining conformity with federal law reduces taxpayer AB 1775 Page 4 errors and eases tax filing and administration. 4)Special Rule for "C" Corporations : Federal law now requires "C" corporations to file a return by the fifteenth day of the fourth month following the close of its taxable year. However, a special rule applies to "C" corporations with a fiscal year (FY) ending June 30; the new law will not apply for these taxpayers until returns for tax years beginning after 2025. Thus, these specific "C" corporations will be required to file federal returns one month earlier than their "C" corporation counterparts, on September 15 instead of October 15, until the 2026 tax year. This bill does not make a similar distinction between "C" corporations, and requires all "C" corporations to file state tax returns by the fifteenth day of the fourth month following the close of its taxable year - October 15 for "C" corporations with a FY ending June 30 and April 15 for all others. Thus, the state tax return due date for "C" corporations with a FY ending June 30 will be one month later than the federal tax return due date until the 2026 tax year. Although this provision is technically out of conformity, it is considered to be taxpayer friendly since taxpayers generally file all their taxes at once, and any corporation filing in accordance will federal law will also meet the requirements of state law. 5)Related Legislation : AB 2338 (Chavez) would similarly conform state tax return due dates with federal law, but also makes other changes regarding due dates for certain taxes. This bill is pending hearing by this Committee. REGISTERED SUPPORT / OPPOSITION: AB 1775 Page 5 Support California Taxpayers Association Opposition None on file Analysis Prepared by:Irene Ho / REV. & TAX. / (916) 319-2098