BILL ANALYSIS
SB 41
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Date of Hearing: January 30, 2007
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles Calderon, Chair
SB 41 (Battin) - As Amended: January 29, 2007
Majority vote. Tax Levy. Fiscal Committee.
SENATE VOTE : 36-0
SUBJECT : Taxation: California Fallen Firefighters Assistance
Tax Clarification Act of 2006
SUMMARY : Adopts recent federal legislation to permit an exempt
organization to make payments to family members of firefighters
that died as a result of the October 2006 Esperanza Incident
fire (Esperanza fire). Specifically, this bill :
1)Provides that payments made by certain tax exempt
organizations to any family member of a firefighter who died
as a result of the Esperanza fire shall be treated as related
to the organization's tax exempt purpose if the payments are
made in good faith using a reasonable and objective formula
consistently applied.
2)Applies only to payments made on or after October 26, 2006,
and before June 1, 2007.
3)Contains legislative findings and declarations that the
enactment and retroactive application of the act are necessary
for the public purpose of providing relief to the families of
the fallen firefighters without interfering with the exempt
status of the organization providing the relief.
4)Provides for a tax levy and is effective immediately.
EXISTING LAW exempts certain corporations from tax, provided
that the corporation is organized in accordance with, and
continually complies with, specified rules. Relevant to this
bill are rules that prohibit payments by exempt organizations
that inure to the benefit of any private shareholder or
individual. Should an organization be formed with an express
purpose of benefiting individuals in times of need, the
organization must strictly comply with rules governing
SB 41
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accounting for and distribution of funds set out in Treasury
Regulations promulgated by the Internal Revenue Service.
Failure to comply with the rules might place the organization's
tax exempt status at risk.
FISCAL EFFECT : According to Franchise Tax Board staff, the
revenue loss for fiscal year 2006-07 is expected to be
insignificant (less than $150,000). Any revenue loss occurring
with passage of this bill would be directly related to the fact
that an organization would retain its tax-exempt status (thereby
not becoming taxable) even though the organization made payments
to the families of the five fallen firefighters. It is a
one-year impact only because the exempt status would likely be
restored the year following the disqualifying distributions.
COMMENTS :
1)Proponents support the action to adopt the federal emergency
legislation to allow charitable donations received to be
distributed to families of the fallen firefighters.
Proponents state, "[t]he people of this state recognize that
brave men and women are on the alert to respond within minutes
to a wide range of disasters" and assert that this bill
formalizes the intent of the people. According to proponents,
this bill will facilitate distribution of the funds received
to the survivors of the five brave firefighters.
2)Coverage of the Esperanza fire and the resulting loss of life
for five firefighters yielded cash contributions from people
throughout the country. A primary recipient of the funds
incorrectly accounted for the contributions and was concerned
that a subsequent distribution of the funds collected to the
specific individuals might threaten its tax-exempt status.
This situation is extremely rare; it is not expected to become
a problem that the Legislature will be called upon to address
in the future except in an extreme circumstance. In December,
2006, similar legislation was enacted at the federal level to
address this specific and limited problem.
REGISTERED SUPPORT / OPPOSITION :
Support
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California Professional Firefighters (Co-Sponsor)
California Fire Chiefs Association
Fire Districts Association of California
United Ways of California
Opposition
None on file
Analysis Prepared by : Kimberly Bott / REV. & TAX. / (916)
319-2098