BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 692|
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THIRD READING
Bill No: AB 692
Author: Charles Calderon (D)
Amended: 8/26/09 in Senate
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE : 5-2, 7/8/09
AYES: Wolk, Alquist, Florez, Padilla, Wiggins
NOES: Walters, Ashburn
NO VOTE RECORDED: Runner
ASSEMBLY FLOOR : 51-17, 5/11/09 - See last page for vote
SUBJECT : Taxation: corporate reorganizations
SOURCE : Author
DIGEST : This bill specifies the circumstances when a
federal regulation or federal administrative guidance is
considered to be "in conflict with" the provisions of the
Personal Income Tax Law and Corporation Tax Law.
Senate Floor Amendments of 8/26/08 double-joint the bill
with AB 1580 (Calderon).
ANALYSIS : Existing federal law allows a corporate
taxpayer to carry forward a net operating loss for 20
years, or carry it back for two years, to reduce future or
past taxable income, as long as the corporation's legal
identity is maintained. After certain asset acquisitions
in which the acquired corporation goes out of existence,
CONTINUED
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the acquired corporation's net operating loss carry
forwards, generally, are inherited by the acquiring
corporation. However, in order to limit tax-motivated
acquisitions of loss corporations, the use of those net
operating losses and other carry forwards may be subject to
special limitations. Generally, the acquiring corporation
may use the acquired corporation's losses in the amount
equal to the value of the acquired corporation, measured by
the value of its stock immediately before the acquisition,
multiplied by the long-term tax exempt rate, a base
interest computed by the Internal Revenue Service (IRS).
Existing state law conforms the Internal Revenue Code (IRC)
either by reference to federal law as of a "specified date"
or by stand-along language that mirrors the federal
provision. Currently, certain provisions of the Personal
Income Tax Law and the Corporation Tax Law are conformed to
the IRC as of January 1, 2005, unless otherwise provided.
Where state law conforms to federal law, Revenue and
Taxation Code Sections 17024.5 and 23051 provide that
temporary and final regulations issued by the United States
Treasury Department apply to California, unless the
regulations conflict with state law or state regulations.
Even though the Revenue and Taxation Code is silent with
respect to other federal administrative guidance and
pronouncements, such as the IRS notices, the Franchise Tax
Board (FTB) consistently followed such guidance.
This bill:
1.Provides, expressly, that federal administrative guidance
regarding an interpretation of a provision of the IRC
that is applicable to the Personal Income Tax Law or
Corporation Tax Law apply as administrative guidance
issued by the FTB, but only to the extent that the
guidance "does not conflict with" the Personal Income Tax
Law or the Corporation Tax Law, whichever is applicable,
or with regulations issued by the FTB.
2.Defines "federal administrative guidance" as federal
revenue rulings, notices, revenue procedures,
announcements, or other published administrative guidance
promulgated by the Commissioner of the IRS or the Chief
Counsel of the IRS.
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3.Specifies that "federal administrative guidance" excludes
private letter rulings or any other administrative
guidance issued by the Commissioner or the Chief Counsel
of the IRS with respect to a particular taxpayer.
4.Provides that the phrase "conflict with this part"
includes, but is not limited to, any temporary for final
federal regulation or any federal administrative guidance
that, except as otherwise provided, constitute a
substantive change in federal law that is inconsistent
with the statute or statutes to which such advice relates
or is beyond the scope of the Secretary of the Treasury's
authority.
5.Specifies that, unless otherwise specifically provided,
federal regulations or any federal administrative
guidance do not apply for purposes of the Personal Income
Tax Law and Corporation Tax Law prior to the applicable
date, as provided.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/27/09)
American Federation of State, County and Municipal
Employees, AFL-CIO
California Church IMPACT
California School Employees Association
California Tax Reform Association
OPPOSITION : (Verified 8/28/09)
California Bankers Association
California Chamber of Commerce
ARGUMENTS IN SUPPORT : According to the author's office,
this bill is needed to ensure that, in the future, the
Legislature's authority to enact laws is not impinged by a
federal notice or guidance of doubtful legal authority and
that General Fund revenues are protected.
The proponents believe that this bill is necessary to
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protect California's General Fund from losing
desperately-needed tax revenue. Proponents argue that,
while the FTB has already taken regulatory action to
address this issue, this bill will bolster FTB's efforts
and will provide heightened legal assurances to the FTB's
actions against any legal challenges.
ARGUMENTS IN OPPOSITION : The California Bankers
Association states: "We are opposed to this bill because
it grants the FTB excessive authority to deconform with
federal law. Although existing law grants the FTB
authority to decouple when federal guidance conflicts with
FTB guidance with respect to a particular statute, it does
not allow the FTB to make policy statements related to
purely federal law and federal authority. Under AB 692,
taxpayers would be faced with greater uncertainty regarding
whether federal guidance is applicable for state purposes
with respect to statutes to which the state conforms.
Conformity with federal law is desirable because it reduces
administrative burdens for taxpayers and enhances
compliance. This bill authorizes a greater degree of
nonconformity with federal regulations, even where
California conforms to the federal statute to which the
federal regulations apply, creating greater uncertainty and
compliance burdens for taxpayers. If California wants to
encourage businesses to relocate to this state, it must
provide a stable, consistent road map for tax preparers.
Companies looking to expand their operations to California
do so only after consideration of the state's tax structure
and the long term impact the state's tax policy would have
on their business."
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Beall, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Coto, Davis, De La Torre, De Leon, Eng, Evans,
Feuer, Fong, Fuentes, Furutani, Galgiani, Hall, Hayashi,
Hernandez, Hill, Huber, Huffman, Jones, Krekorian, Lieu,
Bonnie Lowenthal, Ma, Mendoza, Monning, Nava, John A.
Perez, V. Manuel Perez, Portantino, Price, Ruskin, Salas,
Saldana, Skinner, Solorio, Swanson, Torlakson, Torres,
Torrico, Yamada, Bass
NOES: Anderson, Bill Berryhill, Tom Berryhill, Conway,
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DeVore, Fuller, Gaines, Garrick, Hagman, Jeffries,
Knight, Logue, Miller, Niello, Silva, Audra Strickland,
Villines
NO VOTE RECORDED: Adams, Blakeslee, Cook, Duvall,
Emmerson, Fletcher, Gilmore, Harkey, Nestande, Nielsen,
Smyth, Tran
DLW:cm 9/2/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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