BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 1341 (Wolk) - Charitable corporations: tax exempt status
Amended: March 27, 2012 Policy Vote: G&F 8-0
Urgency: No Mandate: No
Hearing Date: April 30, 2012
Consultant: Mark McKenzie
This bill does not meet the criteria for referral to the
Suspense File.
Bill Summary: SB 1341 would provide specified charities with a
120-day grace period to come into compliance with registration
and reporting requirements before revocation of tax-exempt
status. The bill would also delete a requirement that charities
pay the minimum franchise tax for any period in which their
tax-exempt status was invalid.
Fiscal Impact:
Annual General Fund revenue losses of approximately $20,000
by providing relief from payment of the minimum franchise
tax for charitable corporations that reinstate tax exempt
status by complying with Attorney General (AG) filing
requirements.
Attorney General staffing costs of up to $54,000 in 2013-13
and up to $76,000 ongoing to update regulations and perform
new administrative duties (Registry of Charitable Trusts
Fund).
Background: Charitable corporations are required to register
with the Secretary of State and the Attorney General upon
formation and may apply for tax exemption from the Internal
Revenue Service (IRS) and the Franchise Tax Board (FTB). The
AG's Office requires charitable corporations to renew their
registrations annually and file periodic financial reports. If
a charity fails to meet these requirements, the AG notifies FTB
of that entity's period of noncompliance, the tax-exempt status
is revoked, and the charity is subject to tax for all tax years
within that period, including the annual $800 minimum franchise
tax. If a charitable corporation subsequently comes into
compliance with AG registration and filing requirements, FTB can
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reinstate tax-exempt status, but existing law requires payment
of the minimum franchise tax for all years of noncompliance with
AG requirements.
Proposed Law: SB 1341 would provide a 120-day grace period for a
charitable corporation to return to compliance with AG
registration and filing requirements before revoking the
tax-exempt status of that charity. Specifically, this bill
would:
Require FTB to mail a notice to a charity stating that its
tax-exempt status will be revoked if all past due and
currently due documents are not filed with the AG.
Require the AG, after receiving all requisite documents, to
provide prompt notice to FTB and the charity indicating that
the entity is in compliance with all past due and currently
due filing requirements.
Require FTB to revoke the tax-exempt status of a charity if
notification of compliance is not received from the AG within
120 days, as specified.
Provide for reinstatement of tax-exempt status if a charitable
corporation submits a new application for tax exemption,
complies with specified requirements, and pays the filing fee.
Delete the requirement that FTB assess the minimum franchise
tax on a charitable corporation during the period in which the
charity is out of compliance with AG registration and filing
requirements..
Staff Comments: FTB estimates that this bill would result in
revenue losses of approximately $20,000 annually related to the
new authority to abate the minimum franchise tax for charitable
corporations that come into compliance with AG filing
requirements. This figure assumes the annual abatement of 25
tax years of minimum franchise taxes, and is based upon
historical data over a ten-year period and projections for
ongoing compliance.
SB 1341 would place some new administrative requirements on the
AG. Specifically, the bill would require the AG to notify both
the charitable corporation and FTB that the corporation has
returned to compliance after filing all past due and currently
due documents. The AG estimates that 1.0 Staff Services Analyst
position with a full year cost of $76,000 would be required to
perform the following duties related to implementation and
ongoing administration: updating regulations, monitoring
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charities for compliance, preparing and mailing notifications to
FTB and charities, and updating the Charitable Trust Registry to
reflect current status of charities. It is unclear that the AG
would need a full PY to perform these duties since some of these
activities are existing ongoing responsibilities related to the
AG's oversight of charities.