BILL ANALYSIS
------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 1580|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: AB 1580
Author: Charles Calderon (D)
Amended: 9/1/09 in Senate
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE : 5-2, 8/24/09
AYES: Wolk, Alquist, Florez, Padilla, Wiggins
NOES: Walters, Runner
NO VOTE RECORDED: Ashburn
SENATE APPROPRIATIONS COMMITTEE : 8-5, 8/27/09
AYES: Kehoe, Corbett, Hancock, Leno, Oropeza, Price, Wolk,
Yee
NOES: Cox, Denham, Runner, Walters, Wyland
ASSEMBLY FLOOR : Not relevant
SUBJECT : Taxation: federal conformity
SOURCE : Author
DIGEST : This bill generally conforms California personal
income tax, corporation tax, and administration of
franchise and income tax laws to federal income tax laws as
set forth in the Internal Revenue Code (IRC) as of January
1, 2009.
ANALYSIS : Under the Personal Income Tax Law and the
Corporation Tax Law, various provisions of the federal
Internal Revenue Code, as enacted as of a specified date,
CONTINUED
AB 1580
Page
2
are referenced in various sections of the Revenue and
Taxation Code. Those laws provide that for taxable years
beginning on or after January 1, 2005, the specified date
of those referenced Internal Revenue Code sections is
January 1, 2005, unless otherwise specifically provided.
Existing law requires, for any introduced bill that
proposes changes in any of those dates, that the Franchise
Tax Board prepare a complete analysis of the bill that
describes all changes to state law that will automatically
occur by reference to federal law as of the changed date.
It further requires the Franchise Tax Board to immediately
update and supplement that analysis upon any amendment to
the bill, and requires that analysis be made available to
the public and be submitted to the Legislature for
publication in the daily journal of each house of the
Legislature.
This bill changes the specified date of those referenced
Internal Revenue Code sections to January 1, 2009, for
taxable years beginning on or after January 1, 2009, and
thereby would make numerous substantive changes to both the
Personal Income Tax Law and the Corporation Tax Law with
respect to those areas of preexisting conformity that are
subject to changes under federal laws enacted after January
1, 2005, and that have not been, or are not being, excepted
or modified. This bill makes certain other changes in
federal income tax laws applicable, with specified
exceptions and modifications, and makes specified
supplemental, technical, or clarifying changes for purposes
of the Personal Income Tax Law or the Corporation Tax Law,
or both, with respect to, among other things, the tax
treatment of qualifying income of publicly traded
partnerships certain disaster mitigation payments,
depreciation of electric transmission property and natural
gas gathering lines, nuclear decommissioning cost
provisions, a small refiner exception to oil depletion
deduction, recapture rules for amortizable Section 197
intangibles, amortization of expenses incurred in creating
or acquiring music or music copyrights, treatment of
certain self-created musical works and qualified retirement
income, funding for self-employed defined benefit pension
plans and for multiemployer defined benefit pension plans,
withdrawals from retirement plans for individuals called to
active duty, waiver of an early withdrawal penalty tax on
AB 1580
Page
3
certain distributions of pension plans for public safety
employees, allowance of additional IRA payments in certain
bankruptcy cases, inflation indexing of gross income
limitations on certain retirement savings incentives,
treatment of death benefits from corporate-owned life
insurance, exemption of income from leveraged real estate
held by church plans, gratuitous transfer for benefits of
employees, exclusion from gross income with respect to a
specified tragic event, discharge of qualified principal
residence indebtedness, penalties for bad checks, penalty
for understatement of taxpayer's liability by a tax
preparer, frivolous tax submissions, exclusion of gain from
sale of principal residence by certain employees of the
intelligence community, sale of property by judicial
officers, excise tax on UBTI of charitable remainder
trusts, certain listed and reportable transactions
provisions, the taxation of certain settlement funds, the
active business requirement, loans to qualified continuing
care facilities, exception from suspension rules, and
specified federal acts. This bill also increases the age
of children whose unearned income is taxed as if a parent's
income, would require a penalty to be imposed for a claim
or credit made for an excessive amount, would increase the
penalty for willful failure to file specified returns, and
would revise, in modified conformity with the federal
income tax laws, various provisions applicable to
tax-exempt organizations.
This bill also specifies various dates on which specified
provisions apply, make findings and declarations that
certain provisions are declaratory of existing law, specify
the intent and operation in the application of provisions
conforming to various federal acts, repeal obsolete
provisions, and declare that the retroactive application of
specified provisions serves public purposes, as defined.
This bill would take effect immediately as a tax levy.
AB 115 (Klehs), Chapter 691, Statutes of 2005, was
California's last federal conformity bill. AB 1561
(Calderon), which would have conformed state law to federal
income tax law changes up through December 31, 2007, failed
passage on the Senate Floor last year on a vote of 24-16.
That bill would have resulted in an increase in state tax
AB 1580
Page
4
revenue, which requires approval by two-thirds vote. AB
1580 is the most recent attempt to ease the hardship on
taxpayers and practitioners by bringing the federal and
state tax codes closer together.
September 1, 2009 amendments make several technical changes
suggested by the Franchise Tax Board, add double-jointing
language to SB 401 (Wolk) and AB 692 (Calderon) to avoid
chaptering out conflicts, and make one substantive change
that would increase the adjusted gross income thresholds
for taxpayers that are subject to penalties related to the
erroneous refund provisions. This bill would conform, with
modifications, to a federal provision that imposes a 20
percent penalty on erroneously claimed refunds, unless the
taxpayer shows a reasonable basis for the refund (Public
Law 110-28 of 2007). The current bill is modified to
provide that the penalty would not apply to individuals
with adjusted gross income on the original return of less
than $150,000, in the case of a married filing joint or
surviving spouse, and $75,000 in any other case. Proposed
amendments would increase the income thresholds for
application of the penalty to $250,000 and $125,000,
respectively. FTB indicates that changing the income
thresholds would have a minimal impact on penalty revenues,
resulting in a potential decrease in the penalty revenues
related to this provision by 1-2 percent. Most erroneous
refund claims are from business entities with higher
adjusted gross incomes.
A table of the conformity decisions may be found in the
Senate Revenue and Taxation Committee's analysis of this
bill. Full descriptions of each of the conformity items in
this bill are included in the Franchise Tax Board's (FTB's)
2005, 2006, 2007, and 2008 annual "Summary of Federal
Income Tax Changes" reports to the Legislature.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2008-09
AB 1580
Page
5
2009-10 2010-11 2011-12 Fund
2005 Tax Revenue Totals $3,530 $2,720$2,720
General
2005 Penalty and Interest $0 $0$0
General
2005 Grand Totals $3,530 $2,720$2,720
General
2006 Tax Revenue Totals ($7,232)
($5,242)($5,465) General
2006 Penalty and Interest ($400) ($200)($200)
General
2006 Grand Totals ($7,632)
($5,442)($5,665) General
2007 Tax Revenue Totals ($793) ($688)($1,758)
General
2007 Penalty and Interest ($2,600)
($10,300)($14,200) ($18,250) General
2007 Grand Totals ($2,600) ($11,093)
($14,888)($20,008) General
2008 Tax Revenue Totals ($14,023) $7,864$5,136
General
2008 Penalty and Interest
($3,400)($3,250) ($3,650) General
2008 Grand Totals $10,623 $4,614$1,486
General
____________________________________________________________
_________
(2005, 2006, 2007, 2008 combined)
Combined Tax Revenue Total $9,528 $4,654$633
General
Combined Penalty/Interest ($2,600)
($14,100)($17,650) ($22,100) General
Conformity grand totals ($2,600)
($4,572)($12,996) ($21,467) General
*Note: figures in parentheses represent revenue gains
SUPPORT : (Verified 9/1/09)
- - - -
AB 1580
Page
6
OPPOSITION : (Verified 9/1/09)
California Taxpayers' Association
California Bankers Association
California Chamber of Commerce
California Manufacturers and Technology Association
TechAmerica
Western States Petroleum Association
ARGUMENTS IN SUPPORT : According to the author's office,
"The purpose of the bill is to conform to numerous changes
in federal law to simplify the preparation of California
income tax returns."
ARGUMENTS IN OPPOSITION : Opponents would like an
amendment to "remove provisions that impose a 20 percent
penalty on erroneously claimed refunds. Taxpayers meeting
the adjusted gross income thresholds of $75,000
(individuals) and $150,000 (individuals filing jointly)
will be subject to this penalty if they ask for a refund
that is larger than the law allows, unless the Franchise
Tax Board believes there is a reasonable basis for
requesting it. Taxpayers are not allowed to protest the
penalty administratively."
DLW:nl 9/1/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****