BILL ANALYSIS
AB 1546
Page 1
ASSEMBLY THIRD READING
AB 1546 (Revenue and Taxation Committee)
As Amended May 14, 2009
Majority vote
REVENUE & TAXATION 6-2 APPROPRIATIONS 11-4
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|Ayes:|Charles Calderon, Beall, |Ayes:|De Leon, Ammiano, Charles |
| |Coto, Ma, Portantino, | |Calderon, Davis, Fuentes, |
| |Fong | |Hall, John A. Perez, |
| | | |Price, Skinner, Solorio, |
| | | |Torlakson |
| | | | |
|-----+--------------------------+-----+---------------------------|
|Nays:|DeVore, Harkey |Nays:|Nielsen, Duvall, Harkey, |
| | | |Audra Strickland |
| | | | |
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SUMMARY : Requires a canceled domestic limited partnership (LP),
which is seeking to revive its active status, to pay outstanding
fees, file missing tax returns, and pay a service fee for any
expedited revival requests. Revises the "annualized income
installment method" to be consistent with the recently enacted
law. Specifically, this bill :
1)Requires a domestic LP to pay all outstanding fees and to file
all required tax returns to receive the written confirmation
from the Franchise Tax Board (FTB) needed for the domestic LP
to revive its status.
2)Authorizes FTB to assess, on or after January 1, 2010 and
before January 1, 2011, a $100 service fee for the expedited
processing of LP revival confirmation letter requests.
3)Authorizes FTB, after January 1, 2011, to establish, by
regulation adopted pursuant to Government Code Chapter 3.5
(commencing with Section 11340), the amount of the expedited
service fee.
4)Provides that the amount of the expedited service fee for
domestic LPs must be established in the manner and in the
amount necessary to reimburse the FTB for the costs of
administering the specialized services, including FTB's direct
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and indirect costs of providing those services.
5)Applies to written confirmations made by FTB on or after
January 1, 2010.
6)Revises the percentages used to determine the amounts of
estimated tax payments under the "annualized income
installment method" to be consistent with the recently enacted
law.
EXISTING LAW :
1)Provides that a domestic LP formed on or after January 1,
2008, is subject to the provisions of the Uniform Limited
Partnerships Act (ULPA) of 2008. A domestic LP that was
formed before January 1, 2008, may elect to be subject to
those provisions between January 1, 2008 and January 1, 2010.
As of January 1, 2010, all domestic LPs will be governed by
the ULPA, regardless of their date of formation.
2)Defines "limited partnership" as an entity that has one or
more general partners and one or more limited partners and
formed by two or more persons.
3)Requires a domestic LP to file a certificate of cancellation
with the Secretary of State to complete the dissolution
process. A domestic LP that filed such a certificate may
decide later to revive its active status. Once it files the
certificate of revival, the domestic LP is treated as if it
had not been canceled.
4)Provides that the certificate of revival filed by a domestic
LP must be accompanied by the FTB written confirmation stating
that the domestic LP has paid all of the annual tax,
penalties, and interest due, including those amounts for each
year between cancellation and revival.
5)Authorizes FTB to suspend a corporation's powers, rights, and
privileges for non-payment of fees due or non-filing of tax
returns. [Revenue and Taxation Code (R&TC) Section 23301 and
Section 23301.5].
6)Provides that a corporation suspended by the FTB may revive by
filing an Application for Certificate of Revivor, provided it
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files all delinquent tax returns and pays any balance due,
including taxes, penalties, interest and fees. (R&TC Section
23305).
7)Requires a corporation that is looking to expedite processing
of its revivor request to pay a service fee, currently in the
amount of $100. (R&TC Section 19591). Does not contain a
similar requirement for the expedited processing requested by
domestic LPs.
8)Requires individual and corporate taxpayers to make quarterly
payments of their estimated full-year tax liability. Prior to
January 1, 2009, taxpayers were required to remit four
estimated tax payments, each equaled to 25% of the taxpayer's
annual tax liability. However, for taxable years beginning on
or after January 1, 2009, the amount of the first two
estimated payments due in April and June were increased to 30%
of the annual tax liability, and the amounts due in September
and December were reduced to 20% of that liability. [SBx1 28
(Senate Committee on Budget), Chapter 1, Statutes of 2008].
9)Allows a taxpayer to calculate the estimated tax payment due
for each installment period based on an "annualized income
installment method". This method requires that the annualized
tax due be multiplied by an increasing percentage of 22.5%,
45%, 67.5% and 90%, instead of the regular percentages of 30%,
30%, 20%, and 20%.
FISCAL EFFECT : Relative to the assumptions in the 2009-10
Budget, this bill has no fiscal effect over fiscal years (FYs)
2008-09 and 2009-10 combined. On its own, however, this bill is
estimated by FTB staff 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 due to the modification of the
percentages for calculating estimated tax payments under the
"annualized income installment method".
COMMENTS : According to FTB, sponsor of this bill, the purpose
of this bill is to maintain equitable treatment among taxpayers
by ensuring that the revival requirements applicable to a
domestic LP are the same as those applicable to a corporation.
The Committee staff notes all of the following:
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1)A domestic LP, whose certificate of LP has been canceled, may
revive its status by the filing of a "Certificate of Revival"
on a prescribed form that confirms certain items, such as
payment to the FTB of all taxes, penalties, and interest due
for each year, as well as other specified information. A
Certificate of Revival is deemed an amendment to the original
Certificate of LP, and no other amendments need be made to the
Certificate of LP. In effect, once the Certificate of Revival
is filed, the domestic LP is revived with the same force and
effect as if it were never dissolved, and the revival would
validate all contracts, acts, matters, and things done by the
LP and its partners, employees, and agents.
2)The FTB is authorized to impose specialized tax services fees
in connection with a number of listed services enumerated in
R&TC Section 19591, including expedited services for
corporation revivor requests, tax clearance certificate
requests, and tax-exempt status requests. However, existing
law does not contain a similar requirement for the expedited
processing requested by domestic LPs. It is unclear to the
Committee staff why, currently, the same services requested by
a domestic LP are treated differently and are not subject to
the service fee.
3)Even though domestic LPs must pay all of the outstanding tax,
penalties, and interest prior to revival, they are not
required to pay any fees that are due, such as the collection
cost recovery fee, nor are they obligated to file the
delinquent tax returns. In contrast, a corporation seeking to
revive its active status must file all of the required tax
returns and pay all of the tax, additions to tax, penalties,
interest, and any other amounts due, including outstanding
fees, under the R&TC. By subjecting domestic LPs to the same
requirements that are currently applicable to corporate
taxpayers, this bill addresses the inequity of treating
similarly-situated taxpayers differently.
4)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. A taxpayer may
also have to pay estimated tax if the amount of income tax
being withheld from the taxpayer's salary, pension, or other
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income is not enough.
5)For estimated tax purposes, the year is divided into four
payment periods, where each period has a specific payment due
date. Once a taxpayer determines the total annual estimated
tax, the taxpayer may use either a regular installment method
or an "annualized income installment" method to calculate the
amount of required payment. Generally, a taxpayer will use a
regular installment method only if the taxpayer's income is,
basically, the same throughout the year. If the taxpayer's
income fluctuates throughout the year, a lower installment may
be required under the "annualized income installment method".
Prior to the 2009 tax year, most taxpayers were required to
remit four quarterly estimated tax payments, each equal to 25%
of the taxpayer's annual tax liability. Thus, under the
regular installment method, the required payment for each
period was calculated by dividing the annual estimated tax due
by four. In 2008, the Legislature enacted SBx1 28, which
accelerated the payment of estimated tax for both corporate
and individual taxpayers for taxable years beginning on or
after January 1, 2009. SBx1 28 permanently changed the
percentages applicable to the estimated tax payments. It
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. SBx1 28 also accelerated the
payment schedule if the payments begin after one quarter.
While SBx1 28 did not specifically address the "annualized
income installment" method, the intent of the Legislature was
to accelerate estimated tax payments regardless of the
installment method chosen by the taxpayers. Furthermore, one
of the assumptions used to estimate revenue from the
acceleration of the estimated tax provision in SBx1 28 was
that the acceleration would be applicable to both installment
methods. Consistently with the recently enacted law, this
bill increases the percentages used to determine quartely
payments under the "annualized income installment" methods to
27%, 54%, 72%, and 90% of the annualized tax due.
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
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FN: 0000907