BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1529|
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THIRD READING
Bill No: AB 1529
Author: John A. Pérez (D)
Amended: 8/4/14 in Senate
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 6-0, 6/25/14
AYES: Wolk, Knight, Beall, DeSaulnier, Hernandez, Walters
NO VOTE RECORDED: Liu
SENATE APPROPRIATIONS COMMITTEE : 5-0, 8/14/14
AYES: De León, Hill, Lara, Padilla, Steinberg
NO VOTE RECORDED: Walters, Gaines
ASSEMBLY FLOOR : 76-0, 5/27/14 - See last page for vote
SUBJECT : Nonprofit corporations: abatement: dissolution:
surrender
SOURCE : Author
DIGEST : This bill enacts an administrative dissolution and
surrender process for nonprofit entities that the Franchise Tax
Board (FTB) has suspended for at least 48 continuous months, or
that have not filed a statement of information for at least 48
continuous months, as specified.
ANALYSIS : California nonprofit, nonstock corporations
organized for religious, charitable, social, educational,
recreational or similar purposes are formed pursuant to the
Nonprofit Corporation Law. Individuals can form nonprofit
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corporations in California by filing articles of incorporation
with the Secretary of State (SOS) that contains specified
information, and paying a $30 fee.
California law requires corporations and limited liability
companies to update the SOS's records on an annual or biannual
basis by filing a statement. The FTB or the SOS can suspend a
corporation for: (1) failure to pay an amount due; (2) failure
to file a statement of information with the SOS's office; or (3)
failure to file any past due returns.
In California, a nonprofit corporation is not necessarily a
tax-exempt one, regardless of its federal tax status. All
nonprofits must apply to the FTB for tax-exempt status, or
provide FTB with a copy of the Internal Revenue Service's (IRS)
determination that the organization is tax-exempt under the
Internal Revenue Code (AB 897, Houston, Chapter 238, Statutes of
2008). FTB then notifies the organization of its determination,
or its acknowledgement of the IRS determination, either of which
entitles the organization to an exemption from the Corporation
Tax. A nonprofit that does not obtain approval from FTB for
their tax-exempt application is subject to the Corporation Tax.
After FTB determination or acknowledgement, all nonchurch
charities must annually file a simple form with FTB, known as
the E-Postcard (Form 199N) with basic information about the
organization. Tax-exempt organizations with average gross
receipts over $50,000 per year must file a more comprehensive
annual return (Form 199). Churches do not have to complete
either form.
This bill enacts an administrative dissolution and surrender
process for nonprofit entities that FTB has suspended for at
least 48 continuous months, or that have not filed a statement
of information for at least 48 continuous months. Before
dissolving or surrendering the entity, FTB or the SOS must mail
a notice to the last known address for the corporation, or if
that fails, provide a 60 day warning of the dissolution by
posting a notice on their Web site listing the corporation's
name, the SOS's file number, and the California corporation
number, as applicable.
If no notice is received, this bill dissolves or surrenders the
corporation. If FTB or the SOS receives a notice protesting the
dissolution or surrender, the corporation has 90 days to pay
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back taxes, penalties, and interest, a period that FTB or the
SOS can only extend once. If the corporation makes the
appropriate payments, the administrative dissolution or
surrender process ceases.
If the nonprofit corporation is administratively dissolved or
surrendered, neither creditor liability nor the liability of the
directors is discharged. This bill clarifies that it does not
affect the Attorney General's (AG) ability to enforce
liabilities as otherwise provided by law.
This bill amends the Nonprofit Public Benefit, and Nonprofit
Mutual Benefit Laws, and the Nonprofit Religious Corporation Law
to allow a majority of the board of directors of one of those
three kinds of corporations to dissolve the corporation. A
majority of the incorporators can dissolve the corporation under
this bill's terms if the articles of incorporation did not name
directors.
To dissolve, the majority of the board of directors or
incorporators may sign and verify a certificate of dissolution
specifying:
1. That the certificate is filed within 24 months from the date
the articles of incorporation are filed.
2. That the corporation does not have any liabilities or debts,
except for taxes that will be paid on a "taxes paid," basis,
or that a corporation, person, or business entity will assume
the liability.
3. That a final return will be filed with FTB.
4. That the corporation was created in error.
5. That the known assets of the corporation remaining after
payment of known debts and liabilities have been distributed
according to law, or that the corporation has no known
assets.
6. That the majority of the board of directors or incorporators,
as applicable, authorized the dissolution and elected to
dissolve the corporation.
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7. That the corporation has granted no memberships, and if it
has received payment for memberships, it has refunded those
payments.
8. That the corporation is dissolved.
Any certification filed according to the terms above must be
filed with the SOS, who must notify FTB. The corporation is
dissolved upon filing the certification. If the nonprofit
corporation is administratively dissolved or surrendered,
neither creditor liability nor the liability of the directors is
discharged. This bill clarifies that it does not affect the
ability of the AG to enforce liabilities as otherwise provided
by law.
The FTB must abate unpaid taxes, interest, and penalties for
taxable years the corporation dissolved when it certifies it was
not doing business, upon written request, if the corporation:
1. Ceased operations at the time the request is made,
2. Dissolves in the next 12 months,
3. Had tax-exempt status under state or federal law, but lost
its status, or never had taxable nexus in the state.
The FTB can abate corporation taxes that can apply to the
dissolved nonprofit, but not taxes arising from income unrelated
to the entities' exempt purpose. If the corporation does not
dissolve in the next 12 months, the abatement is cancelled, and
all taxes, penalties, and interest are due and payable.
The FTB and the SOS must share the names of corporations with
each other to implement this bill, and notify each other when
either dissolves or surrenders a corporation. This bill also
allows FTB to issue regulations, exempt from the Administrative
Procedures Act, to implement its provisions. This bill allows
the SOS to obtain address information from FTB, and makes
legislative findings and declarations supporting its purposes.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
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The SOS indicates that this bill will result in one-time costs
of $755,000, and $27,000 annually thereafter (General Fund).
FTB indicates that this bill will not impact state income tax
revenues. Any costs to FTB would be minor and absorbable.
The Department of Justice indicates that this bill will not
significantly impact its operations.
SUPPORT : (Verified 8/15/14)
California Society of Enrolled Agents
California State PTA
California Taxpayers' Association
ARGUMENTS IN SUPPORT : According to the author, "There are
more than 144,000 non-profit corporations in California that
provide various forms of public service or charitable good.
These organizations, depending on their formation status, are
required to register with the office of the SOS, FTB, and the
Office of the AG. Each of these three state agencies has a
specific role in the oversight of non-profit corporations and
protection of the public's trust. The SOS administers the
process for a non-profit corporation that chooses to incorporate
and maintains the required corporate information on each
non-profit. The FTB has the task of continually determining,
reviewing, and monitoring the tax-exempt status of a non-profit
corporation. FTB also has the authority to suspend a non-profit
for failing to file taxes or required documentation. The
California AG regulates non-profit organizations and the
individuals that administer or solicit charitable funds or
assets on their behalf. It has broad legal and statutory
authority to commence enforcement actions. Each year, many
non-profit corporations seek administrative changes to expand
their mission, alter their tax status, or possibly dissolve.
This dissolution process is very cumbersome and protracted. AB
1529 creates a streamlined administrative dissolution process
for non-profits that have been suspended for at least 48
continuous months after proper notice has been served. This new
process will allow FTB and SOS to dissolve non-profits that have
been sitting inactive on the 'books' for quite some time. For
many of these non-profits their Board of Directors disbanded
years earlier but never took the proper steps to dissolve the
entity, thus causing years of fees and fines to build up and
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inordinate amounts of time spent by FTB and SOS staff to proceed
through the dissolution process. By streamlining the process to
dissolve defunct non-profits, AB 1529 will help FTB and SOS
administratively clear away the backlog of inactive non-profit
corporations at both entities."
ASSEMBLY FLOOR : 76-0, 5/27/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,
Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell,
Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Holden,
Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal,
Maienschein, Mansoor, Medina, Melendez, Mullin, Muratsuchi,
Nazarian, Nestande, Olsen, Pan, Perea, John A. Pérez, V.
Manuel Pérez, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas,
Skinner, Stone, Ting, Wagner, Waldron, Weber, Wieckowski,
Wilk, Williams, Yamada, Atkins
NO VOTE RECORDED: Donnelly, Patterson, Quirk-Silva, Vacancy
AB:dk 8/16/2014 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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