Amended in Assembly April 6, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 2625

Introduced by Assembly Member Lopez

February 19, 2016

An act to amend Sections 17935, 17941, 17948, and 23153 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 2625, as amended, Lopez. Corporation taxes: minimum franchise tax: annual tax: microbusiness.

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 begin delete , end delete 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 partnership, limited liability company, and limited liability partnership that is doing business in this state or that has filed or registered with the Secretary of State.

The minimum franchise tax imposed on a corporation, and the annual tax imposed on a limited liability company, must be paid by the 15th day of the 4th month of the taxable year. The annual tax imposed on a limited partnership or on a limited liability partnership, must be paid by the original due date of the partnership return.

This bill, for taxable years beginning on or after January 1, begin delete 2016, end delete begin insert 2017, end insert would reduce that minimum franchise tax to specified amounts, in the 2nd, 3rd, 4th, and 5th taxable years, for a corporation that is a new microbusiness, or that annual tax, begin delete in the first 5 taxable years, end delete begin insert for each of the first 5 taxable years of its existence, end insert for a limited liability company, limited partnership, or limited liability partnership that is a new microbusiness, 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 17935 of the Revenue and Taxation Code
is amended to read:

17935.  

(a) For each taxable year beginning on or after January
1, 1997, every limited partnership doing business in this state, as
defined by Section 23101, and required to file a return under
Section 18633 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 paragraph (1) of subdivision (d) of Section
23153.

(b) (1) In addition to any limited partnership that is doing
business in this state and therefore is subject to the tax imposed
by subdivision (a), for each taxable year beginning on or after
January 1, 1997, every limited partnership that has executed,
acknowledged, and filed a certificate of limited partnership with
the Secretary of State pursuant to Section 15621 or 15902.01 of
the Corporations Code, and every foreign limited partnership that
has registered with the Secretary of State pursuant to Section 15692
or 15909.01 of the Corporations Code, shall pay annually the tax
prescribed in subdivision (a). The tax shall be paid for each taxable
year, or part thereof, until a certificate of cancellation is filed on
behalf of the limited partnership with the office of the Secretary
of State pursuant to Section 15902.03 or 15909.07 of the
Corporations Code.

(2) If a taxpayer files a return with the Franchise Tax Board that
is designated its final return, that board shall notify the taxpayer
that the tax imposed by this chapter is due annually until a
certificate of cancellation is filed with the Secretary of State
pursuant to Section 15902.03 or 15909.07 of the Corporations
Code.

(c) The tax imposed by this chapter shall be due and payable
on the date the return is required to be filed under former Section
18432 or 18633.

(d) For purposes of this section, “limited partnership” means
any partnership formed by two or more persons under the laws of
this state or any other jurisdiction and having one or more general
partners and one or more limited partners.

(e) Notwithstanding subdivision (b), any limited partnership
that ceased doing business prior to January 1, 1997, filed a final
return with the Franchise Tax Board for a taxable year ending
before January 1, 1997, and filed a certificate of dissolution with
the Secretary of State pursuant to Section 15623 of the
Corporations Code prior to January 1, 1997, shall not be subject
to the tax imposed by this chapter for any period following the
date the certificate of dissolution was filed with the Secretary of
State, but only if the limited partnership files a certificate of
cancellation with the Secretary of State pursuant to Section 15623
of the Corporations Code. In the case where a notice of proposed
deficiency assessment of tax or a notice of tax due (whichever is
applicable) is mailed after January 1, 2001, the first sentence of
this subdivision shall not apply unless the certificate of cancellation
is filed with the Secretary of State not later than 60 days after the
date of the mailing of the notice.

(f) (1) Notwithstanding subdivision (a) or (b), for taxable years
beginning on or after January 1, begin delete 2016, end delete begin insert 2017, end insert every limited
partnership that is a new microbusiness shall, for begin delete its first five
taxable years, end delete begin insert each of the first five taxable years of its existence
for which it qualifies as a new microbusiness, end insert pay to the state an
annual tax of:

(A) Two hundred dollars ($200) for a new microbusiness that
has gross receipts, less returns and allowances, begin delete reportable end delete begin insert derived
from or attributable end insert to this state for the taxable year of begin delete one hundred
thousand dollars ($100,000) end delete begin insert fifty thousand dollars ($50,000) end insert or
less.

(B) Four hundred dollars ($400) for a new microbusiness that
has gross receipts, less returns and allowances, begin delete reportable end delete begin insert derived
from or attributable end insert to this state for the taxable year of begin delete two hundred
thousand dollars ($200,000) end delete begin insert one hundred thousand dollars
($100,000) end insert or less, but more than begin delete one hundred thousand dollars
($100,000). end delete begin insert fifty thousand dollars ($50,000). end insert

(C) Six hundred dollars ($600) for a new microbusiness that
has gross receipts, less returns and allowances, begin delete reportable end delete begin insert derived
from or attributable end insert to this state for the taxable year of begin delete three
hundred thousand dollars ($300,000) end delete begin insert one hundred fifty thousand
dollars ($150,000) end insert or less, but more than begin delete two hundred thousand
dollars ($200,000). end delete begin insert one hundred thousand dollars ($100,000). end insert

(2) For purposes of this subdivision, the following definitions
shall apply:

(A)  begin insert (i) end insert begin insert   end insert “Gross receipts, less returns and begin delete allowances reportable
to this state,” end delete begin insert allowances, end insert begin insert ” end insert 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.

begin delete

(B) “New microbusiness” means a limited partnership that on
or after January 1, 2016, is organized 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 organization.
“New microbusiness” does not include any limited partnership
that began business operations as, or acquired its business
operations from, a sole proprietorship, a limited liability company,
a general partnership, a corporation, or any other form of business
entity prior to its organization or that acquired its business
operations from a partnership.

end delete begin delete

(3) This subdivision shall not apply to a new microbusiness that
is owned directly or indirectly by a limited partnership, limited
liability company, limited liability partnership, or corporation
subject to this part or Part 11 (commencing with Section 23101).

end delete begin delete

(4) This subdivision shall not apply to any limited partnership
that reorganizes solely for the purpose of reducing its annual tax.

end delete begin insert

(ii) “Gross receipts, less returns and allowances, derived from
or attributable to this state” shall be determined using the rules
for assigning sales under Sections 25135 and 25136 and the
regulations thereunder, as modified by the regulations under
Section 25137, other than those provisions that exclude receipts
from the sales factor.

end insert begin insert

(B) “New microbusiness” means a limited partnership that on
or after January 1, 2017, is organized under the laws of this state
or has qualified to transact intrastate business in this state and
has first commenced doing business in this state on or after the
time of its organization. In determining whether the taxpayer has
first commenced doing business in this state during the taxable
year, subdivision (f) of Section 17276, without application of
paragraph (7) of that subdivision, shall apply, except that “new
microbusiness” shall be substituted for “new business.”

end insert begin insert

(3) For purposes of this subdivision, the gross receipts derived
from or attributable to the state of any other business, in whatever
form conducted, that is owned, directly or indirectly, by persons,
within the meaning of Section 17007, that are treated as related,
within the meaning of Section 267, 318, or 707 of the Internal
Revenue Code, to the new microbusiness, shall be aggregated with
the gross receipts derived from or attributable to the state of the
new microbusiness to determine whether the new microbusiness
qualifies for the reduced annual tax under this subdivision.

end insert

SEC. 2.  

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 paragraph (1) of 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 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.

(g) (1) Notwithstanding begin delete any provision of this section to the
contrary, end delete begin insert subdivision (a) or (b), end insert for taxable years beginning on or
after January 1, begin delete 2016, end delete begin insert 2017, end insert every limited liability company that
is a new microbusiness shall, for begin delete its first five taxable years, end delete begin insert each
of the first five taxable years of its existence for which it qualifies
as a new microbusiness, end insert pay to the state an annual tax of:

(A) Two hundred dollars ($200) for a new microbusiness that
begin insert reasonably estimates it end insert will have gross receipts, less returns and
allowances, begin delete reportable end delete begin insert derived from or attributable end insert to this state
for the taxable year of begin delete one hundred thousand dollars ($100,000) end delete
begin insert fifty thousand dollars ($50,000) end insert or less.

(B) Four hundred dollars ($400) for a new microbusiness that
begin insert reasonably estimates it end insert will have gross receipts, less returns and
allowances, begin delete reportable end delete begin insert derived from or attributable end insert to this state
for the taxable year of begin delete two hundred thousand dollars ($200,000) end delete
begin insert one hundred thousand dollars ($100,000) end insert or less, but more than

begin delete one hundred thousand dollars ($100,000). end delete begin insert fifty thousand dollars
($50,000). end insert

(C) Six hundred dollars ($600) for a new microbusiness that
begin insert reasonably estimates it end insert will have gross receipts, less returns and
allowances, begin delete reportable end delete begin insert derived from or attributable end insert to this state
for the taxable year of begin delete three hundred thousand dollars ($300,000) end delete
begin insert one hundred fifty thousand dollars ($150,000) end insert or less, but more
than begin delete two hundred thousand dollars ($200,000). end delete begin insert one hundred
thousand dollars ($100,000). end insert

(2) For purposes of this subdivision, the following definitions
shall apply:

(A)  begin insert (i) end insert begin insert   end insert “Gross receipts, less returns and begin delete allowances reportable
to this state,” end delete begin insert allowances end insert begin insert ” end insert 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.

begin delete

(B) “New microbusiness” means a limited liability company
that on or after January 1, 2016, is organized 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
organization. “New microbusiness” does not include any limited
liability company that began business operations as, or acquired
its business operations from, a sole proprietorship, a partnership,
a limited liability company, a corporation, or any other form of
business entity prior to its organization or that acquired its business
operations from a limited liability corporation.

(3) This subdivision shall not apply to a new microbusiness that
is owned directly or indirectly by a limited liability company,
limited partnership, limited liability partnership, or corporation
subject to this part or Part 11 (commencing with Section 23101).

(4) This subdivision shall not apply to any limited liability
company that reorganizes solely for the purpose of reducing its
annual tax.

end delete begin insert

(ii) “Gross receipts, less returns and allowances, derived from
or attributable to this state” shall be determined using the rules
for assigning sales under Sections 25135 and 25136 and the
regulations thereunder, as modified by the regulations under
Section 25137, other than those provisions that exclude receipts
from the sales factor.

end insert begin insert

(B) “New microbusiness” means a limited liability company
that on or after January 1, 2017, is organized under the laws of
this state or has qualified to transact intrastate business in this
state and has first commenced doing business in this state on or
after the time of its organization. In determining whether the
taxpayer has first commenced doing business in this state during
the taxable year, subdivision (f) of Section 17276, without
application of paragraph (7) of that subdivision, shall apply, except
that “new microbusiness” shall be substituted for “new business.”

end insert begin insert

(3) For purposes of this subdivision, the gross receipts derived
from or attributable to the state of any other business, in whatever
form conducted, that is owned, directly or indirectly, by persons,
within the meaning of Section 17007, that are treated as related,
within the meaning of Section 267, 318, or 707 of the Internal
Revenue Code, to the new microbusiness, shall be aggregated with
the gross receipts derived from or attributable to the state of the
new microbusiness to determine whether the new microbusiness
qualifies for the reduced annual tax under this subdivision.

end insert begin insert

(4) For any taxable year beginning on or after January 1, 2017,
if a limited liability company has qualified to pay a reduced annual
tax under this subdivision for any taxable year, but in that taxable
year, the limited liability company’s gross receipts, less returns
and allowances, derived from or attributable to this state, exceed
the amount specified for that reduced amount, an additional tax
in an amount equal to six hundred dollars ($600), four hundred
dollars ($400), or two hundred dollars ($200), as applicable, for
that taxable year shall be due and payable by the limited liability
company on the due date of its return, without regard to extension,
for that taxable year.

end insert

SEC. 3.  

Section 17948 of the Revenue and Taxation Code is
amended to read:

17948.  

(a) For each taxable year beginning on or after January
1, 1997, every limited liability partnership doing business in this
state, as defined in Section 23101, and required to file a return
under Section 18633 shall pay annually to the Franchise Tax Board
a tax for the privilege of doing business in this state in an amount
equal to the applicable amount specified in paragraph (1) of
subdivision (d) of Section 23153 for the taxable year.

(b) In addition to any limited liability partnership that is doing
business in this state and therefore is subject to the tax imposed
by subdivision (a), for each taxable year beginning on or after
January 1, 1997, every registered limited liability partnership that
has registered with the Secretary of State pursuant to Section 16953
of the Corporations Code and every foreign limited liability
partnership that has registered with the Secretary of State pursuant
to Section 16959 of the Corporations Code shall pay annually the
tax prescribed in subdivision (a). The tax shall be paid for each
taxable year, or part thereof, until any of the following occurs:

(1) A notice of cessation is filed with the Secretary of State
pursuant to subdivision (b) of Section 16954 or 16960 of the
Corporations Code.

(2) A foreign limited liability partnership withdraws its
registration pursuant to subdivision (a) of Section 16960 of the
Corporations Code.

(3) The registered limited liability partnership or foreign limited
liability partnership has been dissolved and finally wound up.

(c) The tax assessed under this section shall be due and payable
on the date the return is required to be filed under Section 18633.

(d) 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 cancellation is filed with the Secretary
of State pursuant to Section 16954 or 16960 of the Corporations
Code.

(e) (1) Notwithstanding subdivision (a) or (b), for taxable years
beginning on or after January 1, begin delete 2016, end delete begin insert 2017, end insert every limited liability
partnership that is a new microbusiness shall, for begin delete its first five
taxable years, end delete begin insert each year of the first five taxable years of its
existence for which it qualifies as a new microbusiness, end insert pay
annually to the state an annual tax of:

(A) Two hundred dollars ($200) for a new microbusiness that
has gross receipts, less returns and allowances, begin delete reportable end delete begin insert derived
from or attributable end insert to this state for the taxable year of begin delete one hundred
thousand dollars ($100,000) end delete begin insert fifty thousand dollars ($50,000) end insert or
less.

(B) Four hundred dollars ($400) for a new microbusiness that
has gross receipts, less returns and allowances, begin delete reportable end delete begin insert derived
from or attributable end insert to this state for the taxable year of begin delete two hundred
thousand dollars ($200,000) end delete begin insert one hundred thousand dollars
($100,000) end insert or less, but more than begin delete one hundred thousand dollars
($100,000). end delete begin insert fifty thousand dollars ($50,000). end insert

(C) Six hundred dollars ($600) for a new microbusiness that
has gross receipts, less returns and allowances, begin delete reportable end delete begin insert derived
from or attributable end insert to this state for the taxable year of begin delete three
hundred thousand dollars ($300,000) end delete begin insert one hundred fifty thousand
dollars ($150,000) end insert or less, but more than begin delete two hundred thousand
dollars ($200,000). end delete begin insert one hundred thousand dollars ($100,000). end insert

(2) For purposes of this subdivision, the following definitions
shall apply:

(A)  begin insert (i) end insert begin insert   end insert “Gross receipts, less returns and begin delete allowances reportable
to this state,” end delete begin insert allowances, end insert begin insert ” end insert 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.

begin delete

(B) “New microbusiness” means a limited liability partnership
that on or after January 1, 2016, is organized 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
organization. “New microbusiness” does not include any limited
liability partnership that began business operations as, or acquired
its business operations from, a sole proprietorship, a limited
liability company, a partnership, a corporation, or any other form
of business entity prior to its organization or that acquired its
business operations from a limited partnership.

(3) This subdivision shall not apply to a new microbusiness that
is owned directly or indirectly by a corporation subject to Part 11
(commencing with Section 23101).

(4) This subdivision shall not apply to any limited liability
partnership that reorganizes solely for the purpose of reducing its
annual tax.

end delete begin insert

(ii) “Gross receipts, less returns and allowances, derived from
or attributable to this state” shall be determined using the rules
for assigning sales under Sections 25135 and 25136 and the
regulations thereunder, as modified by the regulations under
Section 25137, other than those provisions that exclude receipts
from the sales factor.

end insert begin insert

(B) “New microbusiness” means a limited liability partnership
that on or after January 1, 2017, is organized under the laws of
this state or has qualified to transact intrastate business in this
state and has first commenced doing business in this state on or
after the time of its organization. In determining whether the
taxpayer has first commenced doing business in this state during
the taxable year, subdivision (f) of Section 17276, without
application of paragraph (7) of that subdivision, shall apply, except
that “new microbusiness” shall be substituted for “new business.”

end insert begin insert

(3) For purposes of this subdivision, the gross receipts derived
from or attributable to the state of any other business, in whatever
form conducted, that is owned, directly or indirectly, by persons,
within the meaning of Section 17007, that are treated as related,
within the meaning of Section 267, 318, or 707 of the Internal
Revenue Code, to the new microbusiness, shall be aggregated with
the gross receipts derived from or attributable to the state of the
new microbusiness to determine whether the new microbusiness
qualifies for the reduced annual tax under this subdivision.

end insert

SEC. 4.  

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 corporations, 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)(B) 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) (A) 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.

(B) Notwithstanding subdivision (a), for taxable years beginning
on or after January 1, begin delete 2016, end delete begin insert 2017, end insert every corporation that is a new
microbusiness begin delete in end delete begin insert up to end insert its first five taxable years shall annually
pay to the state a minimum franchise tax in an amount specified
in clause (i) for its second, third, fourth, and fifth taxable begin delete years. end delete

begin insert years, as long as it is a microbusiness in each year. end insert

(i) (I) Two hundred dollars ($200) for a new microbusiness
that reasonably estimates that it will have gross receipts, less
returns and allowances, begin delete reportable end delete begin insert derived from or attributable end insert to
this state for the taxable year of begin delete one hundred thousand dollars
($100,000) end delete begin insert fifty thousand dollars ($50,000) end insert or less.

(II) Four hundred dollars ($400) for a new microbusiness that
reasonably estimates that it will have gross receipts, less returns
and allowances, begin delete reportable end delete begin insert derived from or attributable end insert to this
state for the taxable year of begin delete two hundred thousand dollars
($200,000) end delete begin insert one hundred thousand dollars ($100,000) end insert or less, but
more than begin delete one hundred thousand dollars ($100,000). end delete begin insert fifty thousand
dollars ($50,000). end insert

(III) Six hundred dollars ($600) for a new microbusiness that
reasonably estimates that it will have gross receipts, less returns
and allowances, begin delete reportable end delete begin insert derived from or attributable end insert to this
state for the taxable year of begin delete three hundred thousand dollars
($300,000) end delete begin insert one hundred fifty thousand dollars ($150,000) end insert or less,
but more than begin delete two hundred thousand dollars ($200,000). end delete begin insert one
hundred thousand dollars ($100,000). end insert

(ii) For purposes of this begin delete subdivision, end delete begin insert subparagraph, end insert the
following definitions shall apply:

(I)  begin insert (ia) end insert begin insert   end insert “Gross receipts, less returns and begin delete allowances reportable
to this state,” end delete begin insert allowances, end insert begin insert ” end insert 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.

begin delete

(II) “New microbusiness” means a corporation that on or after
January 1, 2016, is organized 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 organization. “New
microbusiness” does not include any corporation that began
business operations as, or acquired its business operations from,
a sole proprietorship, a limited liability company, a partnership,
or any other form of business entity prior to its organization or
that acquired its business operations from a corporation.

(iii) This subdivision shall not apply to a corporation that is
owned directly or indirectly by another corporation.

end delete begin insert

(ib) “Gross receipts, less returns and allowances, derived from
or attributable to this state” shall be determined using the rules
for assigning sales under Sections 25135 and 25136 and the
regulations thereunder, as modified by the regulations under
Section 25137, other than those provisions that exclude receipts
from the sales factor.

end insert begin insert

(II) “New microbusiness” means a limited liability company
that on or after January 1, 2017, is organized under the laws of
this state or has qualified to transact intrastate business in this
state and has first commenced doing business in this state on or
after the time of its organization. In determining whether the
taxpayer has first commenced doing business in this state during
the taxable year, subdivision (f) of Section 17276, without
application of paragraph (7) of that subdivision, shall apply, except
that “new microbusiness” shall be substituted for “new business.”

end insert begin insert

(iii) For purposes of this subdivision, the gross receipts derived
from or attributable to the state of any other business, in whatever
form conducted, that is owned, directly or indirectly, by persons,
within the meaning of Section 17007, that are treated as related,
within the meaning of Section 267, 318, or 707 of the Internal
Revenue Code, to the new microbusiness, shall be aggregated with
the gross receipts derived from or attributable to the state of the
new microbusiness to determine whether the new microbusiness
qualifies for the reduced annual tax under this subdivision.

end insert

(2) Subparagraph begin delete (1) of paragraph (A) end delete begin insert (A) of paragraph (1) end insert
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
corporations, 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)(B) of the Internal Revenue Code, to the extent
applicable.

(3)  begin delete This subdivision end delete begin insert Subparagraph (A) of paragraph (1) end insert 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.

SEC. 5.  

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