BILL ANALYSIS �
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THIRD READING
Bill No: AB 2512
Author: Skinner (D)
Amended: 4/10/12 in Assembly
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 6-3, 6/20/12
AYES: Wolk, DeSaulnier, Hernandez, Kehoe, Liu, Yee
NOES: Dutton, Fuller, La Malfa
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 48-27, 5/7/12 - See last page for vote
SUBJECT : Income taxes: limited liability company:
penalties
SOURCE : Author
DIGEST : This bill imposes a $2,000 penalty on certain
limited liability companies (LLCs) for failure to file a
tax return.
ANALYSIS : Existing state law, SB 469 (Beverly, Chapter
1200, Statutes of 1994), authorizes formation of LLCs in
California. An LLC is a business entity formed by members
by filing "Articles of Organization," with an officer
designated by state law.
Existing law authorizes the Franchise Tax Board (FTB) to
suspend a corporation's and an LLC's powers, rights and
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AB 2512
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privileges for non-payment of fees due or non-filing of tax
returns. The law also provides that any corporation or any
LLC that fails to file a tax return after receiving a
notice of demand to file may be subject to a demand
penalty. In addition, a foreign corporation that fails to
qualify to do business in California, or any corporation
whose powers, rights or privileges have been forfeited or
suspended, and which is doing business in California, may
also be subject to a $2,000 penalty for failure to file a
return (unless the failure to file is due to reasonable
cause). This penalty only applies to corporations,
including S corporations and domestic corporations, but not
LLCs.
Existing law allows the "demand" penalty to be imposed on
all taxpayers in an amount equal to 25% of the tax -
including LLCs - for failure or refusal to furnish any
information requested in writing by the FTB or for failure
to make and file a return upon notice and demand by the
FTB, unless the failure is due to reasonable cause and not
willful neglect.
This bill makes the existing $2,000 corporate failure
penalty apply to foreign and domestic LLCs unless there is
reasonable cause and not willful neglect. This bill
provides that the penalty shall be imposed if the return is
not filed within 60 days after FTB sends the LLC a notice
and demand to file the required return.
Comments
According to the author, "When the legislature approved the
Beverly-Killea Limited Liability Company Act in 1994, a
code section regarding the penalty for failure to file
while suspended, forfeited, or not qualified to do business
within the State was not amended to include LLCs. As a
result, in some situations, the Franchise Tax Board (FTB)
does not have the authority to treat LLCs in the same
manner as corporations. To be qualified to do business
within the state, a corporation or LLC must first register
with the Secretary of State (SOS). When a corporation or
LLC fails to pay taxes, penalties, or interest, or fails to
provide a required tax return, the FTB may submit the
corporation or LLC to the SOS for suspension or forfeiture
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of the corporation's or LLC's powers, rights and
privileges. When a corporation is suspended, forfeited, or
is unqualified to do business, the FTB has discretionary
authority to penalize the corporation if the entity fails
to file a return after the FTB issues a formal demand. The
FTB does not have the same authority for LLCs. Corporations
can be charged a $2000 penalty, while LLCs do not face any
penalty for committing the same infraction. There were an
estimated 1,011 LLCs that failed to file a tax return in
2010."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the FTB, this bill will result in the
following revenue gains:
$330,000 in 2011-12
$400,000 in 2012-13
$490,000 in 2013-14
$600,000 in 2014-15
$700,000 in 2015-16
SUPPORT : (Verified 7/2/12)
AFSCME
California Federation of Teachers
California Professional Firefighters
California School Employees Association
California Tax Reform Association
Franchise Tax Board
ASSEMBLY FLOOR : 48-27, 5/7/12
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Buchanan, Butler, Charles
Calderon, Campos, Carter, Cedillo, Chesbro, Davis,
Dickinson, Eng, Feuer, Fong, Fuentes, Galgiani, Gatto,
Gordon, Hayashi, Roger Hern�ndez, Hill, Huber, Hueso,
Huffman, Lara, Bonnie Lowenthal, Ma, Mendoza, Mitchell,
Monning, Pan, Perea, V. Manuel P�rez, Skinner, Solorio,
Swanson, Torres, Wieckowski, Williams, Yamada, John A.
P�rez
NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly,
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Beth Gaines, Garrick, Gorell, Grove, Hagman, Halderman,
Harkey, Jeffries, Jones, Knight, Logue, Mansoor, Miller,
Morrell, Nestande, Nielsen, Norby, Olsen, Silva, Smyth,
Valadao, Wagner
NO VOTE RECORDED: Brownley, Fletcher, Furutani, Hall,
Portantino
AGB:m 7/3/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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