BILL ANALYSIS
AB 2676
Page 1
ASSEMBLY THIRD READING
AB 2676 (Ma)
As Amended April 27, 2010
Majority vote
REVENUE & TAXATION 6-3 APPROPRIATIONS 11-5
-----------------------------------------------------------------
|Ayes:|Portantino, Beall, |Ayes:|Fuentes, Hill, Bradford, |
| |Charles Calderon, Coto, | |Charles Calderon, Coto, |
| |Fuentes, Saldana | |Davis, Hall, Skinner, |
| | | |Solorio, Torlakson, |
| | | |Torrico |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Conway, Harkey, Nestande |Nays:|Conway, Harkey, Miller, |
| | | |Nielsen, Norby |
| | | | |
-----------------------------------------------------------------
SUMMARY : Implements a number of tax-related proposals sponsored
by the State Board of Equalization (BOE). Specifically, this
bill :
1)Reinstates and makes permanent the statutory provisions
allowing taxpayers to elect to report and remit qualified use
tax on an acceptable income tax return, as defined.
2)Provides that, upon suspension of a "closely held corporation"
or "closely held limited liability company" (closely held
LLC), certain individuals shall be held personally liable for
any unpaid sales or use tax (SUT) liability of that business
entity incurred during the period of suspension.
a) Provides that the following individuals shall be subject
to personal liability:
i) Any corporate officer, shareholder, or member with
"control over operations or management" during a time in
which the entity's powers, rights, and privileges are
suspended; or,
ii) Any "responsible person" who fails to pay any taxes
due from the business entity during a time in which the
entity's powers, rights, and privileges are suspended.
AB 2676
Page 2
b) Provides that the corporate officer, shareholder,
member, or responsible person shall be liable for the
unpaid tax, along with interest and penalties, regardless
of the basis for the business entity's suspension.
c) Provides that, if the business entity can establish that
it has taken all actions necessary to qualify for revival
within 60 days of suspension, no personal liability shall
be imposed.
d) Provides that personal liability applies only when BOE
establishes that, during the period of suspension, the
business entity did any of the following:
i) Sold tangible personal property (TPP) in the conduct
of its business and collected sales tax reimbursement
without remitting the tax when due;
ii) Collected use tax without reporting and paying the
tax; or,
iii) Consumed TPP without paying the applicable tax to
the seller or BOE.
e) Defines a "closely held corporation" as a corporation in
which ownership is concentrated in one individual, one
family, or a small number of individuals and the majority
stockholders manage the business or have delegated the
management to the corporate officers.
f) Defines a "closely held LLC" as a LLC in which ownership
is concentrated in one individual, one family, or a small
number of individuals, and the majority members manage the
business or have delegated management to the company
officers.
g) Defines "control over operations or management" to mean
the power to manage or affect day-to-day operations of the
business. It shall be rebuttably presumed that an officer
has control over operations and management.
h) Defines a "responsible person" as any officer,
shareholder, or member who is charged with the
AB 2676
Page 3
responsibility for the filing of returns or the payment of
tax or who has a duty to act for the business entity in
complying with any provision of the SUT Law, and who
derives a direct financial benefit from the failure to pay
the tax liability.
i) Provides that a suspended corporation or LLC shall
remain liable for the unpaid tax, interest, and penalties
incurred during the period of suspension without regard to
any personal liability imposed.
3)Adds personal liability provisions comparable to those
contained in Revenue and Taxation Code (R&TC) Section 6829, as
amended, to various special tax and fee programs that BOE
administers. Specifically, personal liability provisions
would be added to the following:
a) The Motor Vehicle Fuel Tax Law;
b) The Use Fuel Tax Law;
c) The Hazardous Substances Tax Law;
d) The Integrated Waste Management Fee Law;
e) The Oil Spill Response, Prevention, and Administration
Fees Law;
f) The Fee Collection Procedures Law; and,
g) The Diesel Fuel Tax Law.
4)Grants BOE authority to use the information contained in the
Employment Development Department's (EDD) new employee
registry for tax or fee enforcement purposes.
EXISTING LAW :
1)Imposes a sales tax on retailers for the privilege of selling
TPP, absent a specific exemption. The tax is based upon the
retailer's gross receipts from TPP sales in this state.
2)Imposes a complementary use tax on the storage, use, or other
consumption of TPP purchased out of state and brought into
AB 2676
Page 4
California. The use tax is imposed on the purchaser , and
unless the purchaser pays the use tax to an out-of-state
retailer registered to collect California's use tax, the
purchaser remains liable for the tax. The use tax is set at
the same rate as the state's sales tax and must be remitted to
BOE.
3)Allows taxpayers to elect to report and remit qualified use
tax on an acceptable income tax return, as defined.
4)Provides that, upon the termination, dissolution, or
abandonment of the business of a corporation, partnership,
limited partnership, limited liability partnership, or LLC,
specified individuals shall be held personally liable for any
unpaid SUT if the individual willfully fails to pay any SUT
owed by the business entity, as specified.
5)Provides the Franchise Tax Board, but not BOE, with access to
information contained in the new employee registry maintained
by EDD.
FISCAL EFFECT :
1)The extension of the use tax line on the personal income tax
returns will result in $11 million annually in use tax
collections beginning in fiscal year 2010-11.
2)This bill's other provisions will result in an annual revenue
gain of about $1.5 million.
COMMENTS : The author states, "AB 2676 is sponsored by the Board
of Equalization and contains various provisions that will assist
the BOE in its administration of its various tax and fee
programs."
Personal Liability: It is unclear to Committee staff why this
bill is treating business entities under R&TC Section 6829(a)
differently from closely held business entities under proposed
R&TC Section 6829(d). Specifically, this bill would allow the
imposition of personal liability during periods of a closely
held entity's suspension, while no such provisions apply to
larger corporations.
AB 2676
Page 5
Analysis Prepared by : M. David Ruff / Carlos Anguiano / REV. &
TAX. / (916) 319-2098
FN: 0004408