BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1244|
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THIRD READING
Bill No: SB 1244
Author: Walters (R)
Amended: 5/17/10
Vote: 21
SENATE LAB. & INDUST. RELATIONS COMMITTEE : 6-0, 4/19/10
AYES: DeSaulnier, Wyland, Ducheny, Hollingsworth, Leno,
Yee
SENATE APPROPRIATIONS COMMITTEE : 9-0, 5/10/10
AYES: Kehoe, Cox, Alquist, Leno, Price, Walters, Wolk,
Wyland, Yee
NO VOTE RECORDED: Corbett, Denham
SUBJECT : Employment: taxes and contributions: limited
liability
company
SOURCE : California Society of Enrolled Agents
DIGEST : This bill conforms Unemployment Insurance Code
to federal regulations on Limited Liability Companies (LLC)
so LLCs may offset federal unemployment insurance tax
costs.
Senate Floor Amendments of 5/17/10 corrects several
grammatical errors, as well as a federal code statute
citation.
ANALYSIS : Existing law requires employers to withhold
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tax and make contribution amounts with respect to
unemployment insurance, disability insurance, employee
training funding, and personal income tax from the wages
paid to their employees. Existing law, with specified
exceptions, requires that the determination of the
employer-employee relationship be made pursuant to common
law principles.
Existing law defines "employee" for those purposes to
include, among other individuals, any officer of a
corporation.
This bill additionally includes any member of a limited
liability company that is treated as a corporation for
federal income tax purposes within that definition of
"employee" for those purposes. However, the bill specifies
that that definition of "employee" does not include any
member of a limited liability company that is treated as a
partnership for federal income tax purposes.
Existing law also defines "wages" for those purposes, and
exempts from that definition certain remuneration.
This bill provides that wages include compensation, as
defined, paid to a member of a limited liability company
who files a federal income tax return.
Prior Legislation
AB 1704 (Leach), Statutes of 1998, Chapter 243, conformes
the Corporations Code to federal regulations regarding
LLCs.
SB 1234 (Alpert), Statutes of 1997, Chapter 608, conformes
Revenue and Taxation code to federal regulations regarding
LLCs.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/10/10)
California Society of Enrolled Agents (source)
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ARGUMENTS IN SUPPORT : According to the author's office,
this bill addresses certain conflicts that exist in the
Interpretation and application of various Revenue &
Taxation and Unemployment Insurance Code sections that
require LLCs to treat remuneration to its members
differently for California income tax purposes as compared
to California employment tax purposes; this inconsistency
results in different treatment from federal reporting as
well.
PQ:do 5/17/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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