BILL NUMBER: SB 1234 CHAPTERED
BILL TEXT
CHAPTER 608
FILED WITH SECRETARY OF STATE OCTOBER 3, 1997
APPROVED BY GOVERNOR OCTOBER 1, 1997
PASSED THE SENATE SEPTEMBER 9, 1997
PASSED THE ASSEMBLY SEPTEMBER 4, 1997
AMENDED IN ASSEMBLY AUGUST 25, 1997
AMENDED IN ASSEMBLY JULY 11, 1997
AMENDED IN ASSEMBLY JUNE 30, 1997
AMENDED IN SENATE MAY 1, 1997
INTRODUCED BY Senator Alpert
FEBRUARY 28, 1997
An act to amend Sections 17009, 17039, 17941, 18633.5, 23036, and
23038 of the Revenue and Taxation Code, relating to taxation, to take
effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 1234, Alpert. Personal Income Tax Law: Bank and Corporation
Tax Law: corporations and limited liability companies:
classification.
The Personal Income Tax Law imposes, for each taxable year
beginning on or after January 1, 1997, a specified tax upon limited
liability companies doing business in this state. For purposes of
this tax, a "limited liability company" is defined to mean an
organization that is, among other things, classified as a partnership
for California tax purposes.
This bill would eliminate this portion of the definition of a
limited liability company and instead include in that definition that
the entity is not taxable as a corporation. This bill would
eliminate related provisions with respect to tax liability. This
bill would, as provided, also require each limited liability company
that is disregarded for tax purposes pursuant to specified provisions
of the Bank and Corporation Tax Law to file a return containing
specified information.
The Personal Income Tax Law and the Bank and Corporation Tax Law
each generally specifies certain limitations and requirements with
respect to the application of credits against the taxes imposed under
those laws.
This bill would, for purposes of both of these laws, specify
certain additional limits on the application and carryover of credit
amounts with respect to any taxpayer that owns a business entity that
is disregarded for tax purposes under specified provisions of the
Bank and Corporation Tax Law.
The Personal Income Tax Law defines a "corporation" to include,
among other entities, business trusts.
This bill would also include within that definition other business
entities taxable as a corporation under regulations of the Franchise
Tax Board.
The Bank and Corporation Tax Law defines the term "corporation" to
exclude banks and include associations, excluding banking
associations and including nonprofit associations that perform
services, borrow money, or own property, and Massachusetts or
business trusts, as defined.
This bill would instead define the term "corporation" to include
banks, unless specifically provided otherwise. This bill would also
define the term "corporation," for income and taxable years beginning
on or after January 1, 1997, to exclude banking associations and to
include associations, as provided, business trusts, and other
business entities that are classified under regulations, as provided,
of the Franchise Tax Board as associations taxable as corporations.
This bill would incorporate additional changes in Section 18633.5
of the Revenue and Taxation Code, proposed by SB 1106, to be
operative only if SB 1106 and this bill are both chaptered and become
effective on or before January 1, 1998, and this bill is chaptered
last.
This bill would incorporate additional changes in Section 23038 of
the Revenue and Taxation Code, proposed by AB 1040, to be operative
only if AB 1040 and this bill are both chaptered and become effective
on or before January 1, 1998, and this bill is chaptered last.
This bill would take effect immediately as a tax levy.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 17009 of the Revenue and Taxation Code is
amended to read:
17009. "Corporation" includes joint stock companies or
associations (including nonprofit associations that perform services,
borrow money or own property, and business trusts or other business
entities taxable as a corporation under regulations of the Franchise
Tax Board) and insurance companies. "Corporation" also includes a
trust organized and operated exclusively for purposes contained in
Section 23701d.
SEC. 2. Section 17039 of the Revenue and Taxation Code is amended
to read:
17039. (a) Notwithstanding any provision in this part to the
contrary, for the purposes of computing tax credits, the term "net
tax" means the tax imposed under either Section 17041 or 17048 plus
the tax imposed under Section 17504 (relating to lump-sum
distributions) less the credits allowed by Section 17054 (relating to
personal exemption credits) and any amount imposed under paragraph
(1) of subdivision (d) and paragraph (1) of subdivision (e) of
Section 17560. Notwithstanding the preceding sentence, the "net tax"
shall not be less than the tax imposed under Section 17504 (relating
to the separate tax on lump-sum distributions), if any. Credits
shall be allowed against "net tax" in the following order:
(1) Credits that do not contain carryover or refundable
provisions, except those described in paragraphs (4) and (5).
(2) Credits that contain carryover provisions but do not contain
refundable provisions.
(3) Credits that contain both carryover and refundable provisions.
(4) The minimum tax credit allowed by Section 17063 (relating to
the alternative minimum tax).
(5) Credits for taxes paid to other states allowed by Chapter 12
(commencing with Section 18001).
(6) Credits that contain refundable provisions but do not contain
carryover provisions.
The order within each paragraph shall be determined by the
Franchise Tax Board.
(b) Notwithstanding the provisions of Sections 17053.5 (relating
to the renter's credit), 17061 (relating to refunds pursuant to the
Unemployment Insurance Code), and 19002 (relating to tax
withholding), the credits provided in those sections shall be allowed
in the order provided in paragraph (6) of subdivision (a).
(c) (1) Notwithstanding any other provision of this part, no tax
credit shall reduce the tax imposed under Section 17041 or 17048 plus
the tax imposed under Section 17504 (relating to the separate tax on
lump-sum distributions) below the tentative minimum tax, as defined
by Section 17062, except the following credits, but only after
allowance of the credit allowed by Section 17063:
(A) The credit allowed by former Section 17052.4 (relating to
solar energy).
(B) The credit allowed by former Section 17052.5 (relating to
solar energy).
(C) The credit allowed by Section 17052.5 (relating to solar
energy).
(D) The credit allowed by Section 17052.12 (relating to research
expenses).
(E) The credit allowed by former Section 17052.13 (relating to
sales and use tax credit).
(F) The credit allowed by Section 17052.15 (relating to Los
Angeles Revitalization Zone sales tax credit).
(G) The credit allowed by Section 17053.5 (relating to the renter'
s credit).
(H) The credit allowed by former Section 17053.8 (relating to
enterprise zone hiring credit).
(I) The credit allowed by Section 17053.10 (relating to Los
Angeles Revitalization Zone hiring credit).
(J) The credit allowed by former Section 17053.11 (relating to
program area hiring credit).
(K) For each taxable year beginning on or after January 1, 1994,
the credit allowed by Section 17053.17 (relating to Los Angeles
Revitalization Zone hiring credit).
(L) The credit allowed by Section 17053.49 (relating to qualified
property).
(M) The credit allowed by Section 17053.70 (relating to enterprise
zone sales or use tax credit).
(N) The credit allowed by Section 17053.74 (relating to enterprise
zone hiring credit).
(O) The credit allowed by Section 17057 (relating to clinical
testing expenses).
(P) The credit allowed by Section 17058 (relating to low-income
housing).
(Q) The credit allowed by Section 17061 (relating to refunds
pursuant to the Unemployment Insurance Code).
(R) Credits for taxes paid to other states allowed by Chapter 12
(commencing with Section 18001).
(S) The credit allowed by Section 19002 (relating to tax
withholding).
(2) Any credit that is partially or totally denied under paragraph
(1) shall be allowed to be carried over and applied to the net tax
in succeeding taxable years, if the provisions relating to that
credit include a provision to allow a carryover when that credit
exceeds the net tax.
(d) Unless otherwise provided, any remaining carryover of a credit
allowed by a section that has been repealed or made inoperative
shall continue to be allowed to be carried over under the provisions
of that section as it read immediately prior to being repealed or
becoming inoperative.
(e) (1) Unless otherwise provided, if two or more taxpayers (other
than husband and wife) share in costs that would be eligible for a
tax credit allowed under this part, each taxpayer shall be eligible
to receive the tax credit in proportion to his or her respective
share of the costs paid or incurred.
(2) In the case of a partnership, the credit shall be allocated
among the partners pursuant to a written partnership agreement in
accordance with Section 704 of the Internal Revenue Code, relating to
partner's distributive share.
(3) In the case of a husband and wife who file separate returns,
the credit may be taken by either or equally divided between them.
(f) Unless otherwise provided, in the case of a partnership, any
credit allowed by this part shall be computed at the partnership
level, and any limitation on the expenses qualifying for the credit
or limitation upon the amount of the credit shall be applied to the
partnership and to each partner.
(g) (1) With respect to any taxpayer that directly or indirectly
owns an interest in a business entity that is disregarded for tax
purposes pursuant to Section 23038 and any regulations thereunder,
the amount of any credit or credit carryforward allowable for any
taxable year attributable to the disregarded business entity shall be
limited in accordance with paragraphs (2) and (3).
(2) The amount of any credit otherwise allowed under this part,
including any credit carryover from prior years, that may be applied
to reduce the taxpayer's "net tax," as defined in subdivision (a),
for the taxable year shall be limited to an amount equal to the
excess of the taxpayer's regular tax (as defined in Section 17062),
determined by including income attributable to the disregarded
business entity that generated the credit or credit carryover, over
the taxpayer's regular tax (as defined in Section 17062), determined
by excluding the income attributable to that disregarded business
entity. No credit shall be allowed if the taxpayer's regular tax (as
defined in Section 17062), determined by including the income
attributable to the disregarded business entity, is less than the
taxpayer's regular tax (as defined in Section 17062), determined by
excluding the income attributable to the disregarded business entity.
(3) If the amount of a credit allowed pursuant to the section
establishing the credit exceeds the amount allowable under this
subdivision in any taxable year, the excess amount may be carried
over to subsequent taxable years pursuant to subdivisions (c) and
(d).
SEC. 3. 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, every 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) In addition to any limited liability company which 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.
(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 any organization 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.
SEC. 4. Section 18633.5 of the Revenue and Taxation Code is
amended to read:
18633.5. (a) Every limited liability company which is classified
as a partnership for California tax purposes that is doing business
in this state, organized in this state, or registered with the
Secretary of State shall file its return within three months and 15
days after the close of its taxable year, shall make a return for
that taxable year, stating specifically the items of gross income and
the deductions allowed by Part 10 (commencing with Section 17001).
The return shall include the names, addresses, and taxpayer
identification numbers of the persons, whether residents or
nonresidents, who would be entitled to share in the net income if
distributed and the amount of the distributive share of each person.
The return shall contain or be verified by a written declaration
that it is made under the penalties of perjury, signed by one of the
limited liability company members.
(b) Each limited liability company required to file a return under
subdivision (a) for any limited liability company taxable or income
year shall, on or before the day on which the return for that taxable
or income year was required to be filed, furnish to each person who
holds an interest in that limited liability company at any time
during that taxable year a copy of that information required to be
shown on that return as may be required by forms and instructions
prescribed by the Franchise Tax Board.
(c) Any person who holds an interest in a limited liability
company as a nominee for another person shall do both of the
following:
(1) Furnish to the limited liability company, in the manner
prescribed by the Franchise Tax Board, the name, address, and
taxpayer identification number of that person, and any other
information for that taxable or income year as the Franchise Tax
Board may prescribe by forms and instructions.
(2) Furnish to that other person, in the manner prescribed by the
Franchise Tax Board, the information provided by that limited
liability company under subdivision (b).
(d) The provisions of Section 6031(d) of the Internal Revenue
Code, relating to the separate statement of items of unrelated
business taxable income, shall apply.
(e) (1) A limited liability company shall file with its return
required under subdivision (a), in the form required by the Franchise
Tax Board, the agreement of each nonresident member to file a return
pursuant to Section 18501, to make timely payment of all taxes
imposed on the member by this state with respect to the income of the
limited liability company, and to be subject to personal
jurisdiction in this state for purposes of the collection of income
taxes, together with related interest and penalties, imposed on the
member by this state with respect to the income of the limited
liability company. If the limited liability company fails timely to
file the agreements on behalf of each of its nonresident members,
then the limited liability company shall, at the time set forth in
subdivision (f), pay to this state on behalf of each nonresident
member of whom an agreement has not been timely filed an amount equal
to the highest marginal tax rate in effect under Section 17041 in
the case of members which are individuals, estates, or trusts, and
Section 23151 in the case of members which are corporations,
multiplied by the amount of the member's distributive share of the
income source to the state reflected on the limited liability company'
s return for the taxable period. A limited liability company shall
be entitled to recover the payment made from the member on whose
behalf the payment was made.
(2) If a limited liability company fails to attach the agreement
or to timely pay the payment required by paragraph (1), the payment
shall be considered the tax of the limited liability company for
purposes of the penalty prescribed by Section 19132 and interest
prescribed by Section 19101 for failure to timely pay tax. Payment
of the penalty and interest imposed on the limited liability company
for failure to timely pay the amount required by this subdivision
shall extinguish the liability of a nonresident member for the
penalty and interest for failure to make timely payment of all taxes
imposed on that member by this state with respect to the income of
the limited liability company.
(3) No penalty or interest shall be imposed on the limited
liability company under paragraph (2) if the nonresident member
timely files and pays all taxes imposed on the member by this state
with respect to the income of the limited liability company.
(f) Any agreement of a nonresident member required to be filed
pursuant to subdivision (e) shall be filed at either of the following
times:
(1) The time the annual return is required to be filed pursuant to
this section for the first taxable period for which the limited
liability company became subject to tax pursuant to Chapter 1.6
(commencing with Section 23091).
(2) The time the annual return is required to be filed pursuant to
this section for any taxable period in which the limited liability
company had a nonresident member on whose behalf the agreement has
not been previously filed.
(g) Any amount paid by the limited liability company to this state
pursuant to paragraph (1) of subdivision (e) shall be considered to
be a payment by the member on account of the income tax imposed by
this state on the member for the taxable period.
(h) Every limited liability company that is classified as a
corporation for California tax purposes shall be subject to the
requirement to file a tax return under the provisions of Part 10.2
(commencing with Section 18401) and the applicable taxes imposed by
Part 11 (commencing with Section 23001) including Section 23221
relating to the prepayment of the minimum tax to the Secretary of
State.
(i) (1) Every limited liability company doing business in this
state, organized in this state, or registered with the Secretary of
State, that is disregarded pursuant to Section 23038 shall file a
return that includes information necessary to verify its liability
under Sections 17941 and 17942, provides its sole owner's name and
taxpayer identification number, includes the consent of the owner to
California tax jurisdiction, and includes other information necessary
for the administration of this part, Part 10 (commencing with
Section 17001), or Part 11 (commencing with Section 23001).
(2) If the owner's consent required under paragraph (1) is not
included, the limited liability company shall pay on behalf of its
owner an amount consistent with, and treated the same as, the amount
to be paid under subdivision (e) by a limited liability company on
behalf of a nonresident member for whom an agreement required by
subdivision (e) is not attached to the return of the limited
liability company.
(3) The return required under paragraph (1) shall be filed within
three months and 15 days after the close of the taxable or income
year of the owner.
(4) For limited liability companies disregarded pursuant to
Section 23038, "taxable or income year of the owner" shall be
substituted for "taxable year" in Sections 17941 and 17942.
SEC. 4.5. Section 18633.5 of the Revenue and Taxation Code is
amended to read:
18633.5. (a) Every limited liability company which is classified
as a partnership for California tax purposes that is doing business
in this state, organized in this state, or registered with the
Secretary of State shall file its return within three months and 15
days after the close of its taxable year, shall make a return for
that taxable year, stating specifically the items of gross income and
the deductions allowed by Part 10 (commencing with Section 17001).
The return shall include the names, addresses, and taxpayer
identification numbers of the persons, whether residents or
nonresidents, who would be entitled to share in the net income if
distributed and the amount of the distributive share of each person.
The return shall contain or be verified by a written declaration
that it is made under the penalties of perjury, signed by one of the
limited liability company members. In the case of a limited
liability company not doing business in this state, and subject to
the tax imposed by subdivision (b) of Section 17941 or 23091, the
Franchise Tax Board shall, for returns required to be filed on or
after January 1, 1998, prescribe the manner and extent to which the
information identified in this subdivision shall be included with the
return required by this subdivision.
(b) Each limited liability company required to file a return under
subdivision (a) for any limited liability company taxable or income
year shall, on or before the day on which the return for that taxable
or income year was required to be filed, furnish to each person who
holds an interest in that limited liability company at any time
during that taxable or income year a copy of that information
required to be shown on that return as may be required by forms and
instructions prescribed by the Franchise Tax Board.
(c) Any person who holds an interest in a limited liability
company as a nominee for another person shall do both of the
following:
(1) Furnish to the limited liability company, in the manner
prescribed by the Franchise Tax Board, the name, address, and
taxpayer identification number of that person, and any other
information for that taxable or income year as the Franchise Tax
Board may prescribe by forms and instructions.
(2) Furnish to that other person, in the manner prescribed by the
Franchise Tax Board, the information provided by that limited
liability company under subdivision (b).
(d) The provisions of Section 6031(d) of the Internal Revenue
Code, relating to the separate statement of items of unrelated
business taxable income, shall apply.
(e) (1) A limited liability company shall file with its return
required under subdivision (a), in the form required by the Franchise
Tax Board, the agreement of each nonresident member to file a return
pursuant to Section 18501, to make timely payment of all taxes
imposed on the member by this state with respect to the income of the
limited liability company, and to be subject to personal
jurisdiction in this state for purposes of the collection of income
taxes, together with related interest and penalties, imposed on the
member by this state with respect to the income of the limited
liability company. If the limited liability company fails to timely
file the agreements on behalf of each of its nonresident members,
then the limited liability company shall, at the time set forth in
subdivision (f), pay to this state on behalf of each nonresident
member of whom an agreement has not been timely filed an amount equal
to the highest marginal tax rate in effect under Section 17041, in
the case of members which are individuals, estates, or trusts, and
Section 23151, in the case of members which are corporations,
multiplied by the amount of the member's distributive share of the
income source to the state reflected on the limited liability company'
s return for the taxable period. A limited liability company shall
be entitled to recover the payment made from the member on whose
behalf the payment was made.
(2) If a limited liability company fails to attach the agreement
or to timely pay the payment required by paragraph (1), the payment
shall be considered the tax of the limited liability company for
purposes of the penalty prescribed by Section 19132 and interest
prescribed by Section 19101 for failure to timely pay the tax.
Payment of the penalty and interest imposed on the limited liability
company for failure to timely pay the amount required by this
subdivision shall extinguish the liability of a nonresident member
for the penalty and interest for failure to make timely payment of
all taxes imposed on that member by this state with respect to the
income of the limited liability company.
(3) No penalty or interest shall be imposed on the limited
liability company under paragraph (2) if the nonresident member
timely files and pays all taxes imposed on the member by this state
with respect to the income of the limited liability company.
(f) Any agreement of a nonresident member required to be filed
pursuant to subdivision (e) shall be filed at either of the following
times:
(1) The time the annual return is required to be filed pursuant to
this section for the first taxable period for which the limited
liability company became subject to tax pursuant to Chapter 1.6
(commencing with Section 23091).
(2) The time the annual return is required to be filed pursuant to
this section for any taxable period in which the limited liability
company had a nonresident member on whose behalf an agreement
described in subdivision (e) has not been previously filed.
(g) Any amount paid by the limited liability company to this state
pursuant to paragraph (1) of subdivision (e) shall be considered to
be a payment by the member on account of the income tax imposed by
this state on the member for the taxable period.
(h) Every limited liability company that is classified as a
corporation for California tax purposes shall be subject to the
requirement to file a tax return under the provisions of Part 10.2
(commencing with Section 18401) and the applicable taxes imposed by
Part 11 (commencing with Section 23001) including Section 23221
relating to the prepayment of the minimum tax to the Secretary of
State.
(i) (1) Every limited liability company doing business in this
state, organized in this state, or registered with the Secretary of
State, that is disregarded pursuant to Section 23038 shall file a
return that includes information necessary to verify its liability
under Sections 17941 and 17942, provides its sole owner's name and
taxpayer identification number, includes the consent of the owner to
California tax jurisdiction, and includes other information necessary
for the administration of this part, Part 10 (commencing with
Section 17001), or Part 11 (commencing with Section 23001).
(2) If the owner's consent required under paragraph (1) is not
included, the limited liability company shall pay on behalf of its
owner an amount consistent with, and treated the same as, the amount
to be paid under subdivision (e) by a limited liability company on
behalf of a nonresident member for whom an agreement required by
subdivision (e) is not attached to the return of the limited
liability company.
(3) The return required under paragraph (1) shall be filed within
three months and 15 days after the close of the taxable or income
year of the owner.
(4) For limited liability companies disregarded pursuant to
Section 23038, "taxable or income year of the owner" shall be
substituted for "taxable year" in Sections 17941 and 17942.
SEC. 5. Section 23036 of the Revenue and Taxation Code is amended
to read:
23036. (a) (1) The term "tax" includes any of the following:
(A) The tax imposed under Chapter 2 (commencing with Section
23101).
(B) The tax imposed under Chapter 3 (commencing with Section
23501).
(C) The tax on unrelated business taxable income, imposed under
Section 23731.
(D) The tax on S corporations imposed under Section 23802.
(2) The term "tax" does not include any amount imposed under
paragraph (1) of subdivision (e) of Section 24667 or paragraph (2) of
subdivision (f) of Section 24667.
(b) For purposes of Article 5 (commencing with Section 18661) of
Chapter 2, Article 3 (commencing with Section 19031) of Chapter 4,
Article 6 (commencing with Section 19101) of Chapter 4, and Chapter 7
(commencing with Section 19501) of Part 10.2, and for purposes of
Sections 18601, 19001, and 19005, the term "tax" shall also include
all of the following:
(1) The tax on limited partnerships, imposed under Section 17935
or Section 23081, the tax on limited liability companies, imposed
under Section 17941 or Section 23091, and the tax on registered
limited liability partnerships and foreign limited liability
partnerships imposed under Section 17948 or Section 23097.
(2) The alternative minimum tax imposed under Chapter 2.5
(commencing with Section 23400).
(3) The tax on built-in gains of S corporations, imposed under
Section 23809.
(4) The tax on excess passive investment income of S corporations,
imposed under Section 23811.
(c) Notwithstanding any other provision of this part, credits
shall be allowed against the "tax" in the following order:
(1) Credits that do not contain carryover provisions.
(2) Credits that, when the credit exceeds the "tax," allow the
excess to be carried over to offset the "tax" in succeeding taxable
years. The order of credits within this paragraph shall be
determined by the Franchise Tax Board.
(3) The minimum tax credit allowed by Section 23453.
(4) Credits for taxes withheld under Section 18662.
(d) Notwithstanding any other provision of this part, each of the
following shall be applicable:
(1) No credit shall reduce the "tax" below the tentative minimum
tax (as defined by paragraph (1) of subdivision (a) of Section
23455), except the following credits, but only after allowance of the
credit allowed by Section 23453:
(A) The credit allowed by former Section 23601 (relating to solar
energy).
(B) The credit allowed by former Section 23601.4 (relating to
solar energy).
(C) The credit allowed by Section 23601.5 (relating to solar
energy).
(D) The credit allowed by Section 23609 (relating to research
expenditures).
(E) The credit allowed by Section 23609.5 (relating to clinical
testing expenses).
(F) The credit allowed by Section 23610.5 (relating to low-income
housing).
(G) The credit allowed by former Section 23612 (relating to sales
and use tax credit).
(H) The credit allowed by Section 23612.2 (relating to enterprise
zone sales or use tax credit).
(I) The credit allowed by Section 23612.6 (relating to Los Angeles
Revitalization Zone sales tax credit).
(J) The credit allowed by former Section 23622 (relating to
enterprise zone hiring credit).
(K) The credit allowed by Section 23622.7 (relating to enterprise
zone hiring credit).
(L) The credit allowed by former Section 23623 (relating to
program area hiring credit).
(M) For each income year beginning on or after January 1, 1994,
the credit allowed by Section 23623.5 (relating to Los Angeles
Revitalization Zone hiring credit).
(N) The credit allowed by Section 23625 (relating to Los Angeles
Revitalization Zone hiring credit).
(O) The credit allowed by Section 23649 (relating to qualified
property).
(2) No credit against the tax shall reduce the minimum franchise
tax imposed under Chapter 2 (commencing with Section 23101).
(e) Any credit which is partially or totally denied under
subdivision (d) shall be allowed to be carried over to reduce the
"tax" in the following year, and succeeding years if necessary, if
the provisions relating to that credit include a provision to allow a
carryover of the unused portion of that credit.
(f) Unless otherwise provided, any remaining carryover from a
credit that has been repealed or made inoperative shall continue to
be allowed to be carried over under the provisions of that section as
it read immediately prior to being repealed or becoming inoperative.
(g) Unless otherwise provided, if two or more taxpayers share in
costs that would be eligible for a tax credit allowed under this
part, each taxpayer shall be eligible to receive the tax credit in
proportion to its respective share of the costs paid or incurred.
(h) Unless otherwise provided, in the case of an S corporation,
any credit allowed by this part shall be computed at the S
corporation level, and any limitation on the expenses qualifying for
the credit or limitation upon the amount of the credit shall be
applied to the S corporation and to each shareholder.
(i) (1) With respect to any taxpayer that directly or indirectly
owns an interest in a business entity that is disregarded for tax
purposes pursuant to Section 23038 and any regulations thereunder,
the amount of any credit or credit carryforward allowable for any
income year attributable to the disregarded business entity shall be
limited in accordance with paragraphs (2) and (3).
(2) The amount of any credit otherwise allowed under this part,
including any credit carryover from prior years, that may be applied
to reduce the taxpayer's "tax," as defined in subdivision (a), for
the income year shall be limited to an amount equal to the excess of
the taxpayer's regular tax (as defined in Section 23455), determined
by including income attributable to the disregarded business entity
that generated the credit or credit carryover, over the taxpayer's
regular tax (as defined in Section 23455), determined by excluding
the income attributable to that disregarded business entity. No
credit shall be allowed if the taxpayer's regular tax (as defined in
Section 23455), determined by including the income attributable to
the disregarded business entity is less than the taxpayer's regular
tax (as defined in Section 23455), determined by excluding the income
attributable to the disregarded business entity.
(3) If the amount of a credit allowed pursuant to the section
establishing the credit exceeds the amount allowable under this
subdivision in any income year, the excess amount may be carried over
to subsequent income years pursuant to subdivisions (d), (e) and
(f).
SEC. 6. Section 23038 of the Revenue and Taxation Code is amended
to read:
23038. (a) "Corporation" includes every corporation except
corporations expressly exempt from the tax by this part or the
Constitution of this state.
(b) (1) For the purposes of the tax imposed under Chapter 3
(commencing with Section 23501), "corporation" also includes
associations (including nonprofit associations that perform services,
borrow money or own property), other than banking associations, and
Massachusetts or business trusts. For the purposes of this part, a
Massachusetts or business trust includes every business organization
consisting essentially of an arrangement whereby property is conveyed
to one, or more than one, trustee for purposes other than the mere
conservation of assets, collecting and disbursing of fixed or
periodic income, or the securing of an obligation. This paragraph
shall apply for income or taxable years beginning before January 1,
1997.
(2) (A) For the purposes of the tax imposed under Chapter 3
(commencing with Section 23501), "corporation" also includes
associations (other than banking associations but including nonprofit
associations that perform services, borrow money or own property),
business trusts, and other business entities classified as
associations.
(B) (i) For purposes of the preceding subparagraph, the
classification of a business entity (including a business trust) as
an association taxable as a corporation (under Chapter 3 (commencing
with Section 23501)) shall be determined under regulations of the
Franchise Tax Board, which shall be consistent with federal
regulations as in effect January 1, 1997, that classify a business
entity as a partnership or an association taxable as a corporation or
disregard the separate existence of certain business entities for
tax purposes.
(ii) The classification of an eligible business entity as a
partnership or an association taxable as a corporation for purposes
of this part, Part 10 (commencing with Section 17001), and Part 10.2
(commencing with Section 18401) shall be the same as the
classification of the entity for federal tax purposes.
(iii) If the separate existence of an eligible business entity is
disregarded for federal tax purposes, the separate existence of that
business entity shall be disregarded for purposes of this part, Part
10 (commencing with Section 17001), and Part 10.2 (commencing with
Section 18401), other than Section 17941 (relating to the tax of a
limited liability company), Section 17942 (relating to the fee of a
limited liability company), Section 18633.5 (relating to the return
of a limited liability company), and Sections 17039 and 23036
(relating to tax credits).
(C) Notwithstanding clauses (ii) and (iii) of subparagraph (B), an
eligible business entity that, for any income year beginning within
the 60-month period preceding January 1, 1997, was properly
classified as an association taxable as a corporation for California
tax purposes shall continue to be an association taxable as a
corporation until it elects, under regulations issued pursuant to
subparagraph (B), to be classified or disregarded the same as the
entity is classified or disregarded for federal tax purposes. The
preceding sentence shall not apply to any entity that, during the
60-month period preceding January 1, 1997, was not doing business in
this state, did not derive income from sources within this state, and
had no owner who was a resident of this state.
(D) This paragraph shall apply for income or taxable years
beginning on and after January 1, 1997.
(c) In addition to the above, for purposes of the tax imposed
under Chapter 2 (commencing with Section 23101) for the purpose of
exercising its franchise within this state, "corporation" also
includes any limited liability company that is classified as an
association for California tax purposes.
(d) "Corporation" includes any "corporation" operated by any
receiver, liquidator, referee, trustee or other officers or agents
appointed by any court, or an assignee for the benefit of creditors.
"Corporation" includes any professional corporation incorporated
pursuant to Part 4 (commencing with Section 13400) of Division 3 of
Title 1 of the Corporations Code.
(e) Notwithstanding the above, "corporation" also includes a trust
organized and operated exclusively for purposes contained in Section
23701d.
(f) No provision of the act adding this subdivision shall be
construed to alter existing law with respect to the civil liability
of a limited liability company or its members.
SEC. 6.5. Section 23038 of the Revenue and Taxation Code is
amended to read:
23038. (a) "Corporation" includes every corporation except:
(1) Banks.
(2) Corporations expressly exempt from the tax by this part or the
Constitution of this state.
(b) (1) For the purposes of the tax imposed under Chapter 3
(commencing with Section 23501), "corporation" also includes
associations (including nonprofit associations that perform services,
borrow money or own property), other than banking associations, and
Massachusetts or business trusts. For the purposes of this part, a
Massachusetts or business trust includes every business organization
consisting essentially of an arrangement whereby property is conveyed
to one, or more than one, trustee for purposes other than the mere
conservation of assets, collecting and disbursing of fixed or
periodic income, or the securing of an obligation. This paragraph
shall apply for income or taxable years beginning before January 1,
1997.
(2) (A) For the purposes of the tax imposed under Chapter 3
(commencing with Section 23501), "corporation" also includes
associations (other than banking associations but including nonprofit
associations that perform services, borrow money, or own property),
business trusts, and other business entities classified as
associations.
(B) (i) For purposes of the preceding subparagraph, the
classification of a business entity (including a business trust) as
an association taxable as a corporation (under Chapter 3 (commencing
with Section 23501)) shall be determined under regulations of the
Franchise Tax Board, which shall be consistent with federal
regulations as in effect January 1, 1997, that classify a business
entity as a partnership or an association taxable as a corporation or
disregard the separate existence of certain business entities for
tax purposes.
(ii) The classification of an eligible business entity as a
partnership or an association taxable as a corporation for purposes
of this part, Part 10 (commencing with Section 17001), and Part 10.2
(commencing with Section 18401) shall be the same as the
classification of the entity for federal tax purposes.
(iii) If the separate existence of an eligible business entity is
disregarded for federal tax purposes, the separate existence of that
business entity shall be disregarded for purposes of this part, Part
10 (commencing with Section 17001), and Part 10.2 (commencing with
Section 18401), other than Section 17941 (relating to the tax of a
limited liability company), Section 17942 (relating to the fee of a
limited liability company), Section 18633.5 (relating to the return
of a limited liability company), and Sections 17039 and 23036
(relating to tax credits).
(C) Notwithstanding clauses (ii) and (iii) of subparagraph (B), an
eligible business entity that, for any income year beginning within
the 60-month period preceding January 1, 1997, was properly
classified as an association taxable as a corporation for California
tax purposes shall continue to be an association taxable as a
corporation until it elects, under regulations issued pursuant to
subparagraph (B), to be classified or disregarded the same as the
entity is classified or disregarded for federal tax purposes. The
preceding sentence shall not apply to any entity which, during the
60-month period preceding January 1, 1997, was not doing business in
this state, did not derive income from sources within this state, and
had no owner who was a resident of this state.
(D) This paragraph shall apply for income or taxable years
beginning on and after January 1, 1997.
(c) In addition to the above, for purposes of the tax imposed
under Chapter 2 (commencing with Section 23101) for the purpose of
exercising its franchise within this state, "corporation" also
includes any limited liability company that is classified as an
association for California tax purposes.
(d) "Corporation" includes any "corporation" operated by any
receiver, liquidator, referee, trustee or other officers or agents
appointed by any court, or an assignee for the benefit of creditors.
"Corporation" includes any professional corporation incorporated
pursuant to Part 4 (commencing with Section 13400) of Division 3 of
Title 1 of the Corporations Code.
(e) Notwithstanding the above, "corporation" also includes a trust
organized and operated exclusively for purposes contained in Section
23701d.
(f) No provision of the act adding this subdivision shall be
construed to alter existing law with respect to the civil liability
of a limited liability company or its members.
SEC. 7. Section 4.5 of this bill incorporates amendments to
Section 18633.5 of the Revenue and Taxation Code proposed by both
this bill and SB 1106. It shall only become operative if (1) both
bills are enacted and become effective on or before January 1, 1998,
(2) each bill amends Section 18633.5 of the Revenue and Taxation
Code, and (3) this bill is enacted after SB 1106, in which case
Section 18633.5 of the Revenue and Taxation Code as amended by SB
1106 shall remain operative only until the operative date of this
bill, at which time Section 4.5 of this bill shall become operative,
and Section 4 of this bill shall not become operative.
SEC. 8. (a) Section 6 of this bill incorporates amendments to
Section 23038 of the Revenue and Taxation Code proposed by both this
bill and AB 1040. It shall only become operative if (1) both bills
are enacted and become effective on or before January 1, 1998, (2)
each bill amends Section 23038 of the Revenue and Taxation Code, and
(3) this bill is enacted after AB 1040, in which case Section 6.5 of
this bill shall remain operative only until the effective date of AB
1040, at which time Section 6 of this bill shall become operative.
(b) If Section 6 of this bill becomes operative, both of the
following shall apply:
(1) The amendments made to Section 23038 of the Revenue and
Taxation Code by AB 1040 shall be applied from the original effective
date of the act enacting Section 23038 of the Revenue and Taxation
Code. The Legislature finds and declares that the amendments made to
Section 23038 of the Revenue and Taxation Code by AB 1040 are
consistent with the intent of the act enacting that section.
(2) The amendments made to Section 23038 of the Revenue and
Taxation Code only by this bill shall be operative for income years
beginning on or after January 1, 1997.
SEC. 9. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.