BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1775|
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THIRD READING
Bill No: AB 1775
Author: Obernolte (R)
Amended: 4/13/16 in Assembly
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 6/15/16
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach
NO VOTE RECORDED: Pavley
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 79-0, 5/5/16 (Consent) - See last page for
vote
SUBJECT: Income taxes: returns: due dates
SOURCE: Author
DIGEST: This bill conforms tax return deadlines for business
entities to recent changes in federal law.
ANALYSIS:
Existing law:
1)Applies an 8.84% franchise tax on C Corporations, and taxes
shareholders' dividends as ordinary income.
2)Imposes an entity-level tax (currently 1.5%) on S
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Corporations, in addition to taxing shareholders on net income
derived from them.
3)Requires Limited Liability Companies (LLCs) to pay an annual
fee based on its total income from all sources reportable to
this state for the taxable year.
4)Applies a minimum tax of $800 per year on all of the above
corporations that derive little or no profits, called the
"minimum franchise tax," except in specified circumstances.
5)Does not impose a tax on partnerships at the business entity
level. Instead, taxes apply to profits when they "pass
through" to owners.
6)Generally requires personal income taxpayers, including
partnerships, to file income tax returns under both state and
federal law on or before the 15th day of the fourth month
following the end of the taxable year. For a partnership with
a taxable year that is a calendar year, that date is April
15th.
7)Requires a C or S corporation to file its federal income tax
return on or before the 15th day of the third month following
the close of the corporation's taxable year, or March 15th for
a corporation with a taxable year that is a calendar year.
8)States that LLCs treated as corporations must file returns on
or before the 15th day of the third month following the close
of the corporation's taxable year, or March 15th for a
corporation with a taxable year that is a calendar year, while
LLCs treated as partnerships or disregarded entities have a
deadline of on or before the 15th day of the fourth month
after the end of the taxable year.
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This bill:
1)Moves back the deadline for "C" corporations to file its
return from the 15th day of the third month following the
close of the taxable year to the fourth month following the
close of the taxable year. The bill maintains this current
deadline for "S" corporations or LLCs classified as a
corporations, consistent with federal law.
2)Advances the deadline for partnerships, or LLCs filing as
partnerships, up from the 15th day of the fourth month
following the close of the taxable year to the third month
following the close of the taxable year.
3)Provides that the filing deadline for LLCs as disregarded
entities is the same as its owner, except for those owned by
"S" corporations, in which case the deadline would be the same
as that corporation, or the 15th day of the third month
Background
California law does not automatically conform to changes to
federal tax law, except for specific retirement provisions.
Instead, the Legislature must affirmatively conform to federal
changes. Conformity legislation is introduced either as
individual tax bills to conform to specific federal changes,
like the Mortgage Debt Forgiveness Relief Act (AB 1393, Perea,
Chapter 152, Statutes of 2014), or as one omnibus bill that
provides that state law conforms to federal law as of a
specified date, currently January 1, 2015 (AB 154, Ting, Chapter
359, Statutes of 2015).
Business owners can choose between several different entity
types established in federal and state law, with varying tax
rates, liability protections, and shareholder structures;
however, simply put, a business can be a partnership, a
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corporation, or a LLC. Unlike corporations and LLCs,
partnerships do not protect their owners from legal liability
arising from the business's activities such as contract debt and
tort liability, but also do not generally pay tax on profits at
the business entity level. Instead, taxes apply to profits when
they "pass through" to owners. In contrast, owners of
corporations do have liability protections, but may be subject
to tax at the business entity level depending on its corporation
type.
In July, 2015, Congress enacted and President Obama signed the
Surface Transportation and Veterans Health Care Choice
Improvement Act of 2015, which shortened the due date for
partnership returns by one month, and extended the due date for
C corporation returns by one month, to ensure that the filing
deadline for partnerships would precede the due dates of their
individual and corporate investors. AB 1775 conforms California
deadlines to account for these recent federal changes.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
SUPPORT: (Verified6/28/16)
California Society of Certified Public Accountants
California Society of Enrolled Agents
California Taxpayers Association
OPPOSITION: (Verified6/28/16)
None received
ARGUMENTS IN SUPPORT: According to the author, "A recent
change to federal tax laws modified the due dates for several
common federal returns. The new federal due dates are designed
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to provide a more logical flow of information for a more
efficient tax preparation process that reduced the number of
estimates, extensions, and amended returns. Due to these
changes at the federal level, many due dates for similar tax
filings in California no longer conform to federal law. This
discrepancy complicates the process for many of the state's
taxpayers and businesses that will need to comply with multiple
tax deadlines for the same returns. The complexity increases
the potential for taxpayer errors or inadvertent non-compliance,
which could result in costly penalties for a number of
Californians. AB 1775 would update California's due dates for
LLCs and C corporations to make them consistent with federal law
for taxable years beginning on or after January 1, 2016:
LLC return due dates would move to March 15 (current
state law is April 15)
C corporation return due dates would move to April 15
(current state law is March 15)"
ASSEMBLY FLOOR: 79-0, 5/5/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,
Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier,
Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,
Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger
Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey,
Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes,
McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte,
O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez,
Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting,
Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon
NO VOTE RECORDED: Beth Gaines
Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119
6/29/16 15:45:57
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