BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           2671 (Cook)
          
          Hearing Date:  08/12/2010           Amended: 07/15/2010
          Consultant: Mark McKenzie       Policy Vote: Rev&Tax 3-0
          _________________________________________________________________ 
          ____
          BILL SUMMARY:  AB 2671 would exempt corporations and limited  
          liability companies (LLCs) from the minimum franchise tax and  
          the annual LLC tax, respectively, if the corporation or LLC is a  
          small business owned by a deployed member of the United States  
          Armed Forces and that business ceases operation or operates at a  
          loss.  This exemption would be operative until taxable years  
          beginning on or after January 1, 2018.
          _________________________________________________________________ 
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2010-11      2011-12       2012-13     Fund
           Tax revenue loss       revenue loss of approximately $50  
          annually                 General
                                                                           
          (see staff comments)
          _________________________________________________________________ 
          ____

          STAFF COMMENTS: SUSPENSE FILE.
          
          Existing law imposes a minimum franchise tax of $800 on every  
          corporation for the privilege of doing business in California.   
          LLCs that are doing business in California, registered or  
          qualified to do business in California, or formed in this state  
          are subject to annual tax in an amount equal to the minimum  
          franchise tax.  This liability exists regardless of whether the  
          corporation or LLC is earning income.  Every corporation that  
          incorporates or is qualified to do business in this state on or  
          after January 1, 2000, is not subject to the minimum franchise  
          tax for its first taxable year.

          AB 2671 would provide an exemption to the minimum franchise tax  
          and annual LLC tax for businesses with total California income  
          of $250,000 or less that operate at a loss or ceases operation  
          in a taxable year, if the business is solely owned by a deployed  
          member of the U.S. Armed Forces.











          Data from the Veterans Administration indicates that there are  
          16,870 deployed members of the U.S. Armed Forces with California  
          addresses as of December 31, 2008.  There is no known data that  
          indicates how many deployed personnel are small business owners.

          Staff notes that the fiscal impact of this bill would depend  
          upon the number of small business owners who are deployed in a  
          given year, and whose business either operates at a loss or  
          ceases operation in a taxable year.  The Franchise Tax Board  
          estimates that approximately 60 small corporations and LLCs  
          owned by deployed U.S. Armed Forces members would either cease  
          operation or operate at a loss in a given year, which would  
          result in an annual revenue loss of $48,000.  Actual losses are  
          indeterminable, based on available data, and could be somewhat  
          higher.