BILL ANALYSIS
AB 1546
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Date of Hearing: May 20, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 1546 (Committee on Revenue and Taxation) - As Amended: May
14, 2009
Policy Committee: Revenue and
Taxation Vote: 6-2
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill (a) includes changes inadvertently omitted from
2008-09 budget-related legislation, which accelerated payments
of quarterly estimated taxes, and (b) requires a domestic
limited partnership seeking to revive its active status to pay
outstanding fees, file missing tax returns, and pay a service
fee for any expedited revival requests. Specifically, the bill:
1)Accelerates quarterly estimated taxes owed for taxpayers using
the "annualized income method" in conformance with the
increases enacted by SBX1 28 (Senate Committee on Budget),
Chapter 1, First Extraordinary Session/2008, for taxpayers
using the "regular installment" method (see discussion below).
2)Authorizes FTB to assess, for the period between January 1,
2010 and January 1, 2011 a $100 service fee for the expedited
processing of limited partnership (LP) revival confirmation
letter requests, and allows FTB to establish future fee levels
by regulation.
FISCAL EFFECT
The increase in percentages used under the "annualized income
installment method" would have no impact relative to the
assumptions in the 2008-09 and 2009-10 budgets. However,
compared to current law, these increases are estimated by FTB to
result in a gain of $60 million in FY 2009-10, $12 million in FY
2010-11, $2 million in FY 2011-12, and $8 million in FY 2012-13.
AB 1546
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COMMENTS
1)Background-estimated taxes . The estimated tax is the method
used to pay tax on income that is not subject to withholding.
This includes income from self-employment, interest,
dividends, alimony, rent, gains from the sale of assets,
prizes and awards. There are two methods of calculating
estimated taxes-the regular installment method and the
annualized income installment method.
a) Regular installment method . Generally, taxpayers will
use the regular installment method in instances where their
income is steady throughout the year. Prior to the 2009
tax year, taxpayers using this method were required to
remit four quarterly estimated tax payments, each equal to
25% of the taxpayer's annual tax liability. As part of the
2008-09 budget package, the Legislature enacted SBX1 28,
which increased the first two estimated payments required
in April and June to 30% each and reduced the amounts paid
in September and December to 20% each.
b) Annualized income installment method . Taxpayer often use
the annualized income installment when their income
fluctuates throughout the year. This method is based on an
estimate of the taxpayer's annualized income at the
conclusion of each quarter. (Thus a taxpayer making $20,000
taxable income in the first quarter would multiply the
amount four to get an annualized income amount of
$100,000.) The taxpayer calculates the tax on the
annualized income amount, and then multiplies the resulting
amount by increasing percentages of 22.5% for the first
quarter, 45% for the first two quarters, 67.5% for the
first three quarters, and 90% for the full year.
While SB1X 28 modified the the percentages for the regular
installment method, it did not make comparable changes to the
percentages used for the annualized income installment method.
The omission was inadvertant, as the fiscal estimates
displayed in the budget package were based on adjustments to
both the regular and annualize income installment percentages.
This bill makes conforming changes to the annualized income
installment percentages, raising them to 27%, 54%, 72%, and
90% of the annualized tax due.
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2)Background - revival fees . Under current law, an inactive
partnerships may revive its active status upon written
confirmation stating it has paid all of its taxes, penalties
and interest. A corporation suspended by the FTB may revive by
filing delinquent tax returns, paying any balance due,
including taxes, penalties, interest and fees. A corporation
seeking to expedite processing of its request is also required
to pay a service fee, currently set at $100. Current law does
not include a similar requirement for the expedited processing
requested by a limited partnership.
3)Purpose. The increase in the annualized income installment
percentages is intended to ensure that the acceleration in
estimated taxes needed to help balance the budget will occur
in accordance with the assumptions in the 2008-09 and 2009-10
budget acts. The provision related to revival requirements is
intended to ensure equitable treatment among taxpayers by
ensuring that the revival requirements applicable to limited
partnerships are the same as those applicable to corporations.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081