BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2126
                                                                  Page  1

          Date of Hearing:   May 28, 2010

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                    AB 2126 (Garrick) - As Amended:  May 18, 2010 

          Policy Committee:                              Revenue and  
          Taxation     Vote:                            9-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill allows new small businesses to pay no minimum tax in  
          their first year and a $100 minimum tax in their second through  
          ninth year. Specifically, the bill:

          1)Applies to corporations, limited liability companies (LLCs),  
            and limited liability partnerships with gross receipts of less  
            than $1 million. These entities are currently subject to an  
            annual $800 minimum tax (though corporations are exempt their  
            first year.)

          2)Applies to taxable years beginning 2011 through 2015.

           FISCAL EFFECT  

          FTB estimates the bill will reduce revenues by $11 million in  
          2010-11, $60 million in 2011-12, and about $90 million in the  
          subsequent four years.

           COMMENTS  

           1)Purpose  . The bill is intended to reduce tax burdens on small  
            companies during their early, unprofitable, years. The author  
            asserts that the reduction will bring California's minimum tax  
            more in line with other states and remove one of several  
            barriers to doing business in California.
           
          2)Background  . The minimum tax is applied to California and other  
            states to ensure that all corporations pay at least a minimum  
            amount of franchise tax for the right to exercise the powers  
            granted to a corporation, including the limited liability  








                                                                  AB 2126
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            protection under the laws of this state. California's minimum  
            tax was increased from $100 to $200 in 1972.  It was increased  
            to $300 in 1987, to $600 in 1989, and to $800 in 1990.  
            Legislation in 2000 exempted new corporations from the minimum  
            tax during their first year of operation.  A review of other  
            large states by FTB indicates that minimum franchise tax  
            amounts vary considerably, ranging from $100 up to thousands  
            of dollars for larger companies. 
             
           Analysis Prepared by  :    Brad Williams / APPR. / (916) 319-2081