BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1526 HEARING: 4/25/12
AUTHOR: LaMalfa FISCAL: Yes
VERSION: 4/18/12 TAX LEVY: No
CONSULTANT: Phan
CHARITABLE ORGANIZATIONS: REPORTING
Raises the FTB filing threshold for certain charities from
$25,000 to $50,000.
Background and Existing Law
Federal Law
Certain corporations qualify for tax-exempt status with the
Internal Revenue Service (IRS). The Internal Revenue Code
Sections 501(c) and 501(d) list categories of tax-exempt
organizations, such as religious, charitable, scientific,
literary, or educational organizations. Generally,
tax-exempt organizations file an annual information return,
but some small organizations are exempt from this annual
filing requirement. Prior to 2010, the IRS allowed
tax-exempt organizations with gross revenue or assets below
$25,000 to file a simpler, online e-Postcard called Form
990-N. In 2010, the IRS raised the filing threshold so
that tax-exempt organizations with gross revenue or assets
below $50,000 did not have to file the various 990 Forms,
only the e-Postcard.
California Law
California's laws on tax-exempt organizations generally
conform to federal laws. The FTB typically requires
tax-exempt organizations to file a two-page annual
information return, FTB Form 199, and pay a $10 filing fee,
by the 15th day of the fifth full calendar month following
the close of the taxable year. California law exempts some
organizations, including churches, their integrated
auxiliaries, and conventions or association of churches,
from these annual filings. Similar to the IRS's policy,
tax-exempt organizations with gross revenue or assets below
$25,000 do not have to file the FTB Form 199. They can
SB 1526 - 4/18/12 -- Page 2
choose to file the simpler, online e-Postcard called Form
199-N. When the IRS raised its filing threshold in 2010 to
$50,000, California's filing threshold remained at $25,000.
Proposed Law
Senate Bill 1526 exempts tax-exempt organizations, as
specified, with gross receipts not more than $50,000 in
each taxable year from filing an annual return with the
FTB.
This amendment applies to taxable years beginning on or
after January 1, 2012.
State Revenue Impact
The FTB estimates that this bill will have the following
impact on state revenue:
-----------------------------------------------------------
|2012-2013 |2013-2014 |2014-2015 |
|-------------------+-------------------+-------------------|
|-$90,000 |-$100,000 |-$100,000 |
-----------------------------------------------------------
Comments
1.Purpose of the bill . SB 1526 conforms state tax laws to
federal tax laws and relieves the annual filing burden
for some small tax-exempt organizations. When the IRS
raised its filing threshold to $50,000, California's
tax-exempt organizations with gross revenue or assets
between $25,000 and $50,000 found they no longer had to
file the extensive 990 Forms with the IRS but still had
to file the complicated 199 Forms with the FTB. The IRS
recognizes that tax-exempt organizations with gross
revenue or assets below $50,000 should not be burdened
SB 1526 - 4/18/12 -- Page 3
with certain filing requirements. This bill will allow
the same treatment for CA's tax-exempt organizations,
allowing these charities to use their resources on
charity related purposes instead of expending their
finances to meet FTB filing requirements.
The FTB estimates that this bill will impact
approximately 10,000 tax-exempt organizations annually.
This bill will not only ease the reporting burden on
these organizations, it will save FTB staff's time and
resources because they can review more of the simpler
199-N Forms.
2.A minimal requirement . Because SB 1526 exempts certain
organizations from filing Form 199, the state will lose
approximately $100,000 annually in filing fee revenue.
However, the FTB Form 199 is only 2 pages long. Although
it is more complicated than the e-Postcard Form 199-N,
Form 199 costs only $10 to file and is not exponentially
more burdensome than Form 199-N. The Committee may wish
to consider whether eliminating this minimal filing
requirement justifies the annual state revenue loss.
3.Gut-and-amend . SB 1526 was originally a bill regarding
charitable organizations' filing requirements with the
Attorney General's Office. It was gut-and-amended to
mirror AB 1677 (Nestande). AB 1677 passed out of the
Assembly Revenue and Taxation Committee with a 9-0 vote
and awaits a hearing in the Assembly Appropriations
Committee.
Support and Opposition (4/19/12)
Support : Unknown.
Opposition : Unknown.