BILL ANALYSIS �
SB 1341
Page 1
Date of Hearing: August 8, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 1341 (Wolk) - As Amended: June 13, 2012
Policy Committee: Revenue and
Taxation Vote: 9-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill provides a 120-day grace period for certain charitable
corporations to comply with specified registration and reporting
requirements in order to maintain their tax-exempt status for
state tax purposes. Specifically, this bill:
1)Requires the Franchise Tax Board (FTB) to revoke the
tax-exempt status of a charitable organization that has failed
to file any required registration or periodic report with the
Attorney General's Office, provided that FTB has followed
specified notification procedures and timelines.
2)Allows FTB to reestablish a charitable corporation's
tax-exempt status, after receipt of notification from the
Attorney General (AG), if the charitable corporation completes
specified filings and, if applicable, limits its activities to
allowable exempt purposes.
FISCAL EFFECT
1)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 AG filing requirements.
2)AG staffing costs of up to $54,000 in 2013-13 and up to
$76,000 ongoing to update regulations and perform new
administrative duties.
COMMENTS
SB 1341
Page 2
1)Purpose. According to the author, the AG's current compliance
mechanism taxes charitable corporations that otherwise would
not be taxed, even forcing some to disband. The author states
SB 1341 allows the FTB to give a charity a 120-day grace
period to file its paperwork before revoking its tax-exempt
status and will help the AG monitor charities by increasing
charities' compliance with the AG's regulations.
The author notes that with only an estimated revenue loss of
only $20,000 per year, this bill allows charities that comply
with the AG's filing requirement to use their funds for
charitable purposes instead of paying the franchise tax.
2)Support. The proponents of this bill, including FTB, explain
that smaller nonprofits need adequate time to complete and
file required tax exemption paperwork with the AG. Supporters
argue many of these nonprofits are run by volunteers and
part-time staff and are unaware that under existing law they
must meet annual filing requirements with the AG. They note
as a result, dozens of charities lose their tax-exempt status
and are unable to pay the minimum franchise tax. The
proponents argue SB 1341 makes it possible for charities that
ultimately comply with the filing requirement to continue to
meet community needs without having to pay the state's
franchise tax.
3)Background. Charitable corporations are required to register
with the Secretary of State's Office and the AG upon creation
and may apply for tax exemption with the Internal Revenues
Service (IRS) and the FTB. The Attorney General requires all
charitable corporations to renew their registration annually
as a way to monitor their activities. If a charitable
corporation fails to files its paperwork, the AG's Office
assumes the charity has received the IRS's maximum tax filing
extensions (six months) and gives the charitable corporation
this same extension. A charity that has not filed its
paperwork after this six-month extension receives a letter
from the AG warning of possible fines and taxes if it does not
renew its registration. If the charitable corporation does
not meet the filing requirements, the AG refers the charitable
corporation to the FTB, which is then required to levy the
minimum franchise tax on that charitable corporation ($800 for
each year of non-filing).
According to the FTB, in the fiscal year 2010-11, it imposed
SB 1341
Page 3
taxes on 54 charitable corporations for a total of $310,400 in
outstanding tax. However, the state collects only about
$20,000 each year from delinquent charitable corporations
because many of them disband because they cannot afford to pay
the tax bill.
4)There is no registered opposition to this bill.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081