California Legislature—2015–16 Regular Session

Assembly Bill No. 2544

Introduced by Assembly Members Travis Allen and Quirk

(Coauthors: Assembly Members Chang, Mullin, and Obernolte)

February 19, 2016

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

LEGISLATIVE COUNSEL’S DIGEST

AB 2544, as introduced, Travis Allen. Income taxes: limited liability company: qualified investment partnership.

Existing law imposes a minimum franchise tax of $800, except as provided, on every corporation incorporated in this state, qualified to transact intrastate business in this state, or doing business, as defined, in this state, and an annual tax in an amount equal to the minimum franchise tax on every limited liability company registered, qualified to transact business, or doing business in this state, as specified. Existing law requires every limited liability company subject to that annual tax to pay annually to this state a fee equal to specified amounts based upon total income from all sources attributable to this state. Existing law requires every partnership to file a return that includes specified information, verified by a written declaration made under the penalty of perjury and signed by one of the partners, within a specified time period.

This bill would exempt a limited liability company that is a qualified investment partnership, as defined, from that annual tax and fee by excluding it from the definition of a limited liability company. The bill would require that entity to submit a return under the conditions applicable to a partnership.

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 begin delete state
(as end delete begin insert state, as end insert defined in Section begin delete 23101) end delete begin insert 23101, end insert 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)  begin delete For end delete begin insert (1) end insert begin insert   end insert begin insert Except as provided in paragraph (2), for end insert purposes
of this section, begin insert a end insert “limited liability company” means an
begin delete organization, other than a limited liability company that is exempt
from the tax and fees imposed under this chapter pursuant to
Section 23701h or Section 23701x, end delete begin insert organization end insert 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.

begin insert

(2) Notwithstanding subdivisions (a) and (b), a limited liability
company is not subject to the tax imposed under this section if
either of the following applies:

end insert begin insert

(A) The limited liability company is exempt from the tax and
fees imposed under this chapter pursuant to Section 23701h or
23701x.

end insert begin insert

(B) (i) The limited liability company is a qualified investment
partnership.

end insert begin insert

(ii) For purposes of this subparagraph, a “qualified investment
partnership” means a limited liability company that meets all of
the following requirements:

end insert begin insert

(I) It is classified as a partnership for California income tax
purposes.

end insert begin insert

(II) No less than 90 percent of the costs of its total assets consist
of qualifying investment securities, deposits at banks or other
financial institutions, interest or investments in a partnership, or
office space and equipment reasonably necessary to carry on its
activities as a qualified investment partnership.

end insert begin insert

(III) No less than 90 percent of its gross income consists of
interest, dividends, and gains from the sale or exchange of
qualifying investment securities or investments in a partnership.

end insert begin insert

(iii) For purposes of this subparagraph, “qualifying investment
securities” has the same meaning as that term is described in
subparagraph (A) of paragraph (3) of subdivision (c) of Section
17955.

end insert begin insert

(iv) Notwithstanding Section 18633.5, the following rules shall
apply with respect to the filing requirements of a qualified
investment partnership.

end insert begin insert

(I) A qualified investment partnership required to file a federal
return pursuant to Section 6031 of the Internal Revenue Code,
relating to return of partnership income, shall file a partnership
return pursuant to Section 18633 for that taxable year.

end insert begin insert

(II) A qualified investment partnership that is not required to
file a federal return pursuant to Section 6031 of the Internal
Revenue Code, relating to return of partnership income, shall file
an information return as prescribed by the Franchise Tax Board
for that taxable year.

end insert

(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 begin delete attributable, to end delete
begin insert attributable to, end insert 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.

SEC. 2.  

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