BILL ANALYSIS
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THIRD READING
Bill No: AB 2458
Author: Saldana (D)
Amended: 6/29/10 in Senate
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE : 3-0, 6/23/10
AYES: Wolk, Alquist, Padilla
NO VOTE RECORDED: Walters, Ashburn
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 72-0, 5/20/10 - See last page for vote
SUBJECT : Taxation: penalties: corporations
SOURCE : Author
DIGEST : This bill extends the due date for the payment
of the limited liability company fee underpayment penalty
imposed on small businesses, as defined, and requires the
provision to be applied to penalties imposed on or after
January 1, 2011, and before January 1, 2016.
ANALYSIS :
Existing law:
1. Imposes the $800 annual minimum franchise tax on a
limited liability company (LLC) not classified as a
corporation and the annual LLC fee if it is organized,
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doing business, or registered in California. The annual
LLC fee is based on total income from all sources
derived from, or attributable to, this state.
2. Requires an LLC to estimate and pay its LLC fee by the
15th day of the sixth month of the taxable year (e.g.,
June 15th for calendar year taxpayers). The LLC fee
ranges from zero for LLCs with total income from all
sources reportable to this state of less than $250,000,
to a maximum of $11,790 for LLCs with total income from
all sources reportable to this state of $5 million or
more.
3. Imposes a 10 percent penalty for an underpayment of the
estimated LLC fee. However, the underpayment penalty is
not imposed when the estimated fee payment for a taxable
year is greater than or equal to the LLC's prior year
fee liability. Requires an LLC to pay by the due date
of the LLC's return any amount of the LLC fee due that
was not paid as an estimated fee payment.
This bill:
1. Allows a small business to pay the 10 percent penalty
for the underpayment of the estimated LLC fee within 60
days from the date on which the small business is
notified of the penalty.
2. Defines the phrase "small business" as a business whose
total income from all sources derived from, or
attributable to, this state for the taxable years is
$500,000 or less.
3. Applies to penalties imposed or assessed on or after
January 1, 2011, and before January 1, 2016.
Comments
According to the author's office, this bill is intended to
provide some relief to struggling companies and to help
Californians stay employed. California is unique in that a
majority of the businesses in the state are small
businesses. Many small businesses are experiencing
financial hardship and, if those companies go out of
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business, the state would lose revenue from employment and
personal income taxes. As a result, the state will,
likely, have to pay for services, such as health coverage
and unemployment compensation, needed by the laid off
employees. This bill provides small businesses that are
organized as LLCs an additional 60 days to pay the
understatement penalty assessed due to their inability to
pay the required annual LLC fee on time.
Background
An LLC is a business entity formed by members by filing a
document, usually called "Articles of Organization," with
an officer designated by state law (in California, it is
the Secretary of State). An LLC combines aspects of
partnerships and corporations, so an LLC is less formal and
more flexible than a typical corporation, yet offers
protection as well as certain advantages that are much the
same. For example, its owners have limited liability for
the entity's debts and obligations, similar to the status
of shareholders in a corporation. Their assets are
separate from the assets of the LLC so they cannot be
seized and, generally, there is no requirement that there
be at least one general partner liable for the debts and
obligations of the partnership. Members of the LLC may
choose for the LLC to be taxed as a regular corporation or
as a partnership, where the income and losses are normally
passed through to the owners. Flow-through taxation is
advantageous since members are only required to pay taxes
on their earnings once, instead of paying both corporate
and individual taxes.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Assembly Appropriations Committee, the
Franchise Tax Board staff estimates that this bill will
result in a loss of less than $150,000 in fiscal year
2010-11, and less than $10,000 in fiscal years 2011-12
through 2015-16, due to a delay in the timing of the
collection of the underpayment penalty and interest
thereon.
SUPPORT : (Verified 8/4/10)
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California Taxpayers Association
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall,
Bill Berryhill, Tom Berryhill, Blakeslee, Block,
Blumenfield, Bradford, Brownley, Buchanan, Caballero,
Charles Calderon, Carter, Chesbro, Conway, Cook, Coto,
Davis, De Leon, DeVore, Emmerson, Eng, Feuer, Fong,
Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Hayashi, Hernandez, Hill, Huber,
Huffman, Jeffries, Jones, Knight, Lieu, Logue, Bonnie
Lowenthal, Ma, Mendoza, Miller, Monning, Nestande,
Niello, Nielsen, Norby, V. Manuel Perez, Portantino,
Ruskin, Salas, Saldana, Silva, Skinner, Smyth, Solorio,
Audra Strickland, Swanson, Torlakson, Torres, Torrico,
Tran, Yamada
NO VOTE RECORDED: De La Torre, Evans, Fletcher, Harkey,
Nava, Villines, John A. Perez, Vacancy
DLW:mw 8/4/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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