BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 1546 - Committee on Revenue and Taxation
Amended: June 30, 2009
Hearing: July 8, 2009 Fiscal:
SUMMARY: Allows Limited Partnerships to Apply for a
Certificate of Revival; Requires Limited
Partnerships Seeking Revival to Pay All
Outstanding Taxes and $100 Fee; Cleans Up Recent
Changes to Estimated Payments, Underpayment
Penalties, Dependent Credit, and Sales
Factor-Only Apportionment
I. Reviving Limited Partnerships
EXISTING LAW provides that a domestic limited
partnership (LP) formed on or after January 1, 2008, is
subject to the provisions of the Uniform Limited
Partnerships Act (ULPA) of 2008 (AB 339, Harman, 2006). 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. When dissolving, ULPA requires a
domestic LP to file a certificate of cancellation with the
Secretary of State. A domestic LP filing the certificate
may decide later to revive its active status and apply for
a certificate of revival. Once received, the law treats
the domestic LP as if it had not been canceled.
EXISTING LAW further provides that the certificate of
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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. Corporations seeking to expedite processing of
its revival request must pay a $100 service fee; however,
LPs are not eligible for the expedited processing requested
by domestic LPs.
THIS BILL Requires a canceled domestic limited
partnership (LP), seeking to revive its active status to
remit outstanding fees and file missing tax returns with
FTB, allows FTB to charge up to a $100 service fee for LPs
seeking expedited revival confirmation requests. The
measure also authorizes FTB, after January 1, 2011, to
establish the amount of the expedited service fee by
regulation, and calculated in the manner and in the amount
necessary to reimburse the FTB for the costs of
administering the specialized services, including FTB's
direct and indirect costs of providing those services. AB
1546 applies to written confirmations made by FTB on or
after January 1, 2010.
II. Cleanup
EXISTING LAW requires individual and corporate
taxpayers to make quarterly payments of their estimated
full-year tax liability. Prior to January 1, 2009,
taxpayers remitted four estimated tax payments equal 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, Committee on Budget, 2008).
Additionally, taxpayers may 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
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of the regular percentages of 30%, 30%, 20%, and 20% (SBx1
28, Committee on Budget, 2009).
THIS BILL revises the percentages used to determine
the amounts of estimated tax payments under the "annualized
income installment method" to harmonize the percentages
paid under both methods of making estimated payments.
THIS BILL also makes corrections to ensure applicable
tax years for reductions in the dependent credit,
underpayment penalties, and sales-factor only
apportionment.
FISCAL EFFECT:
According to FTB, the changes authorizing LPs to
expedite revival applications, and FTB to charge a fee for
those revivals, results in fee revenue of approximately
$1,000 per year.
AB 1546's provisions conforming recent changes in
estimated tax payments to taxpayers using the annualized
income installment method result in revenue accelerations
of $60 million in 2009-10, $12 million in 2010-11, $2
million in 2011-12, and $8 million in 2012-13.
COMMENTS:
A. Purpose of the Bill
According to the Author, "This bill requires a
canceled domestic limited partnership, 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. This bill also revises the
"annualized income installment method" to be consistent
with recently enacted law. Finally, this bill clarifies
and resolves several issues that have emerged relating to
implementation of recently enacted budget trailer bills."
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B. Estimated Payments Cleanup Provisions
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 withheld from the taxpayer's salary, pension,
or other income is not enough. 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
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that the acceleration would be applicable to both
installment methods. Consistently with the recently
enacted law, this bill increases the percentages used to
determine quarterly payments under the "annualized income
installment" methods to 27%, 54%, 72%, and 90% of the
annualized tax due.
Support and Opposition
Support:None received
Oppose:None received
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Consultant: Colin Grinnell