BILL ANALYSIS �
AB 2512
Page 1
Date of Hearing: May 2, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2512 (Skinner) - As Amended: April 10, 2012
Policy Committee: Revenue and
Taxation Vote: 6-2
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill expands the existing $2,000 penalty on certain foreign
and domestic limited liability company LLCs, as specified, for
failure to file a tax return. Specifically, this bill:
1)Makes the existing $2,000 penalty imposed for each taxable
year for failure to file a tax return applicable to both of
the following entities:
a) A foreign LLC that fails to qualify to do business in
this state, or whose powers, rights, and privileges have
been forfeited.
b) A domestic LLC that has been suspended.
2)Provides the penalty will not be imposed if the failure to
file is due to reasonable cause and not willful neglect.
FISCAL EFFECT
This bill will have negligible administrative costs for the
Franchise Tax Board (FTB). The FTB staff estimates this bill
will result in the following revenue gains.
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|Fiscal Year |2011-12 |2012-13 |2013-14 |2014-15 |2015-16. |
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|Revenues |$330,00|$400,00|$490,00|$600,00|$700,00|
| |0 |0 |0 |0 |0 |
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AB 2512
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COMMENTS
1)Purpose. The author states AB 2512 helps to conform treatment
of corporations and LLCs by FTB, while ensuring that
businesses in California are in compliance with the law.
According to FTB, the sponsor, this bill is intended to
provide consistent and equitable treatment for failure to file
a return for both LLCs and corporations by subjecting LLCs to
the same penalty that currently applies to similarly situated
corporations.
2)Background. An LLC is a business entity formed by members
with an officer designated by state law. 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 personal assets are
separate from the assets of the LLC so they cannot be seized.
LLCs are specifically included in the definition of "taxpayer"
and the FTB was authorized to submit LLCs for suspension to
the Secretary of State for non-payment of taxes or for failure
to file required tax returns.
3)Existing penalty . FTB is authorized to impose a $2,000
penalty on a corporation for failure to file a tax return.
This penalty was created to apply only to corporations,
including "S" corporations, doing business in the state while
suspended or unqualified to do business in California.
Specifically, it applies to any foreign corporation that fails
to qualify to do business in California or whose powers,
rights, and privileges have been forfeited. It also applies
to any domestic corporation that has been suspended. In both
cases, a corporation must be doing business in California.
The penalty is imposed if the return is not filed within 60
days after the FTB sends the taxpayer a notice and demand to
file the required tax return.
4)Treatment of other entities. Under R&TC Section 19135, the
FTB is authorized to penalize corporations that are suspended,
forfeited, or are unqualified to do business in California.
The penalty also applies to "S" corporations, which are
AB 2512
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pass-through entities. However, the FTB does not have the
same authority to impose a $2,000 penalty on an LLC that is
suspended or otherwise not qualified to do business in
California, even if the LLC is doing business in the state and
failed to file a required tax return.
The FTB estimates that during the 2010 calendar year, over
20,000 LLCs were suspended. FTB staff estimates that about
1,000 of those LLCs would have been subject to the $2,000
penalty.
5)There is no registered opposition to this bill.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081