BILL ANALYSIS �
------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 1341|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
UNFINISHED BUSINESS
Bill No: SB 1341
Author: Wolk (D), et al.
Amended: 6/13/12
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 8-0, 4/11/12
AYES: Wolk, Dutton, Fuller, Hancock, Hernandez, Kehoe, La
Malfa, Liu
NO VOTE RECORDED: DeSaulnier
SENATE APPROPRIATIONS COMMITTEE : 7-0, 4/30/12
AYES: Kehoe, Walters, Alquist, Dutton, Lieu, Price,
Steinberg
SENATE FLOOR : 38-0, 5/7/12
AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon,
Cannella, Corbett, Correa, De Le�n, DeSaulnier, Dutton,
Emmerson, Evans, Fuller, Gaines, Hancock, Harman,
Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu,
Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio,
Simitian, Steinberg, Vargas, Walters, Wolk, Wright,
Wyland, Yee
NO VOTE RECORDED: Runner, Strickland
ASSEMBLY FLOOR : 79-0, 8/16/12 (Consent) - See last page
for vote
SUBJECT : Corporation Tax Law: charitable corporations
SOURCE : Franchise Tax Board
CONTINUED
SB 1341
Page
2
DIGEST : This bill provides specified charities with a
120-day grace period to come into compliance with
registration and reporting requirements before revocation
of tax-exempt status. This bill also deletes a requirement
that charities pay the minimum franchise tax for any period
in which their tax-exempt status was invalid.
Assembly Amendments make a technical change and add a
coauthor.
ANALYSIS : Charitable corporations are required to
register with the Secretary of State's Office and the
Attorney General's (AG) Office 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.
If a charitable corporation fails to renew its paperwork,
the AG's Office assumes the charitable corporation received
the IRS's maximum tax filing extension (six months) and
gives the charitable corporation this same extension. A
charitable corporation that does not file its paperwork
after this six-month extension receives a letter from the
AG's Office warning of possible fines and taxes if it does
not renew its registration within the given timeframe
(usually 30 days from the date the letter was sent). The
AG's Office may send additional warning letters.
If a charitable corporation does not meet its filing
requirement, the AG's Office sends a request to the FTB to
revoke the charitable corporation's tax exempt status. The
FTB assesses the minimum franchise tax ($800 per year) for
each year the charitable corporation did not file its
paperwork. Many charitable corporations are assessed the
franchise tax for several years of non-filing.
The FTB must tax the charitable corporation once the AG's
Office refers it, and the charitable corporation cannot
clear its tax debt until it pays all amounts due. If the
charitable corporation does not pay the tax, it faces the
same consequences that for-profit corporations do, such as
it cannot transact business legally, bring an action or
SB 1341
Page
3
defend itself in court, receive an automatic extension to
file taxes, file a claim for a refund, file or maintain an
appeal before the Board of Equalization, or begin or
continue a protest.
The AG's registry lists over 50,000 charitable corporations
as "delinquent" because they failed to renew their
registrations. For 2009-10, the FTB imposed taxes on 140
charitable corporations for a total of 664 years of
non-filing and $531,200 in outstanding tax. For 2010-11,
the FTB imposed taxes on 54 charitable corporations for a
total of 388 years and $310,400 in outstanding tax.
However, the state collects only about $20,000 each year
from delinquent charitable corporations because many of
them disband when they cannot afford to pay the bill.
This bill requires the FTB to revoke a charitable
corporation's tax exempt status if the charitable
corporation fails to file registration forms and reports
required by state law with the AG. Under this bill,
revocation occurs only after the AG has notified the FTB
that a charitable corporation failed to file any
registration or periodic report, and the FTB mailed a
notice to the charitable corporation stating it intends to
revoke the exemption if the charitable corporation does not
file all past due and currently due documents with the AG.
After the AG has received all required documents from the
charitable corporation, the AG is required to notify the
FTB and the charitable corporation that all past due and
currently due documents were appropriately filed.
If the AG does not notify the FTB that the charitable
corporation has complied with the filing requirements by
the last day of the applicable period, the FTB must revoke
the charitable corporation's tax exemption on the first day
after the applicable period.
This bill defines the applicable period as:
1. 120 days after the date on which this bill takes effect
for notifications of noncompliance from the AG that the
FTB received before this bill's effective date.
2. 120 days after the FTB mails notification of the intent
SB 1341
Page
4
to revoke the exemption granted to the charitable
corporation for notifications of noncompliance from the
AG that the FTB received on or after this bill's
effective date.
An organization that lost its tax exempt status due to
non-filing may be reestablished as an exempt organization
upon the filing or payment of both of the following:
1. A new application for exemption and payment of the
filing fee;
2. Any returns, statements, or payment of any amounts due
which were not previously submitted or paid and which
resulted in the revocation.
When revocation occurs because the charitable corporation
failed to confine its activities to those permitted by the
section, it may be reestablished as an exempt organization
if it can provide satisfactory proof that all of the
following have occurred:
1. The organization corrected its nonexempt activities.
2. The organization will operate in an "exempt manner"
pursuant to California law.
3. The payment of any tax for periods the organization was
not qualified for exemption.
Comments
The purpose of this bill is to increase compliance with the
AG's filing requirements by providing charitable
corporations--entities that would otherwise not be
taxed--with a 120-day grace period to fulfill their
reporting requirement before the tax is imposed. According
to the AG's Office, charitable corporations that complied
after receiving a bill from the FTB were seldom delinquent
with their registrations again. Because many of these
charitable corporations are small and volunteer-managed,
some are unaware of the filing requirement. (Some of the
groups listed on the AG's Web site of delinquent charitable
corporations include: choral societies, painting groups,
SB 1341
Page
5
volunteer firefighter associations, and park restoration
groups.) When they receive a bill from the FTB, many are
unable to pay the tax and abandon their charitable
corporation altogether. Without this bill, the FTB will
continue to revoke tax exemptions to charitable
corporations that the AG's Office refers, which could lead
to thousands more charitable corporations disbanding.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
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.
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 (Registry of Charitable Trusts
Fund).
SUPPORT : (Verified 8/16/12)
Franchise Tax Board (source)
California Association of Museums
California Association of Nonprofits
California State PTA
Girl Scouts Heart of Central California
Goodwill
Historical Society of Morro Bay
ASSEMBLY FLOOR : 79-0, 8/16/12
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson,
Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani,
Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Gorell,
Grove, Hagman, Halderman, Hall, Harkey, Hayashi, Roger
Hern�ndez, Hill, Huber, Hueso, Huffman, Jeffries, Jones,
SB 1341
Page
6
Knight, Logue, Bonnie Lowenthal, Ma, Mansoor, Mendoza,
Miller, Mitchell, Monning, Morrell, Nestande, Nielsen,
Norby, Olsen, Pan, Perea, V. Manuel P�rez, Portantino,
Silva, Skinner, Smyth, Solorio, Swanson, Torres, Valadao,
Wagner, Wieckowski, Williams, Yamada, John A. P�rez
NO VOTE RECORDED: Lara
AGB:k 8/17/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****