California Legislature—2013–14 Regular Session

Assembly Bill No. 1769

Introduced by Assembly Member Dababneh

February 14, 2014

An act to amend Section 17942 of the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL’S DIGEST

AB 1769, as introduced, Dababneh. Limited liability company: fees: exception.

The Corporation Tax Law imposes a tax according to or measured by net income, computed at a specified rate upon the basis of the net income for that taxable year, on every corporation, except as provided. Existing law, generally, also imposes a minimum franchise tax of $800, except as provided, on every corporation incorporated in this state, qualified to transact intrastate business in this state, or doing business in this state, and an annual tax in an amount equal to the minimum franchise tax on every limited partnership, limited liability partnership, and limited liability company registered, qualified to transact business, or doing business in this state, as specified. Existing law requires every limited liability company subject to that annual tax to pay annually to this state a fee equal to specified amounts based upon total income from all sources reportable to this state.

This bill would eliminate that annual fee, as provided, for a new limited liability company, as defined, that is a small business, as defined for its first 2 taxable years.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 17942 of the Revenue and Taxation Code
is amended to read:

17942.  

(a) In addition to the tax imposed under Section 17941,
every limited liability company subject to tax under Section 17941
shall pay annually to this state a fee equal to:

(1) Nine hundred dollars ($900), if the total income from all
sources derived from or attributable to this state for the taxable
year is two hundred fifty thousand dollars ($250,000) or more, but
less than five hundred thousand dollars ($500,000).

(2) Two thousand five hundred dollars ($2,500), if the total
income from all sources derived from or attributable to this state
for the taxable year is five hundred thousand dollars ($500,000)
or more, but less than one million dollars ($1,000,000).

(3) Six thousand dollars ($6,000), if the total income from all
sources derived from or attributable to this state for the taxable
year is one million dollars ($1,000,000) or more, but less than five
million dollars ($5,000,000).

(4) Eleven thousand seven hundred ninety dollars ($11,790), if
the total income from all sources derived from or attributable to
this state for the taxable year is five million dollars ($5,000,000)
or more.

(b) (1) (A) For purposes of this section, “total income from all
sources derived from or attributable to this state” means gross
income, as defined in Section 24271, plus the cost of goods sold
that are paid or incurred in connection with the trade or business
of the taxpayer. However, “total income from all sources derived
from or attributable to this state” shall not include allocation or
attribution of income or gain or distributions made to a limited
liability company in its capacity as a member of, or holder of an
economic interest in, another limited liability company if the
allocation or attribution of income or gain or distributions are
directly or indirectly attributable to income that is subject to the
payment of the fee described in this section.

(B) For purposes of this section, “total income from all sources
derived from or attributable to this state” shall be determined using
the rules for assigning sales under Sections 25135 and 25136 and
the regulations thereunder, as modified by regulations under
Section 25137, other than those provisions that exclude receipts
from the sales factor.

(2) In the event a taxpayer is a commonly controlled limited
liability company, the total income from all sources derived from
or attributable to this state, taking into account any election under
Section 25110, may be determined by the Franchise Tax Board to
be the total income of all the commonly controlled limited liability
company members if it determines that multiple limited liability
companies were formed for the primary purpose of reducing fees
payable under this section. A determination by the Franchise Tax
Board under this subdivision may only be made with respect to
one limited liability company in a commonly controlled group.
However, each commonly controlled limited liability company
shall be jointly and severally liable for the fee. For purposes of
this section, commonly controlled limited liability companies shall
include the taxpayer and any other partnership or limited liability
company doing business (as defined in Section 23101) in this state
and required to file a return under Section 18633 or 18633.5, in
which the same persons own, directly or indirectly, more than 50
percent of the capital interests or profits interests.

(c) The fee assessed under this section shall be due and payable
on the date the return of the limited liability company is required
to be filed under Section 18633.5, shall be collected and refunded
in the same manner as the taxes imposed by this part, and shall be
subject to interest and applicable penalties.

(d) (1) The fee imposed by this section shall be estimated and
paid on or before the 15th day of the sixth month of the current
taxable year.

(2) A penalty of 10 percent of the amount of any underpayment
shall be added to the fee. The underpayment amount shall be equal
to the difference between the total amount of the fee imposed by
this section for the taxable year less the amount paid under
paragraph (1) by the date specified in that paragraph. A penalty
shall not be imposed with respect to any fee estimated and paid
under this section if the amount paid by the date prescribed in this
subdivision is equal to or greater than the total amount of the fee
of the limited liability company for the preceding taxable year.

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(e) (1) Notwithstanding subdivision (a), for taxable years
beginning on or after January 1, 2015, a “new limited liability
company” that is a small business shall not be subject to the annual
fee imposed under subdivision (a) for its first two taxable years,
provided that it is a small business in each taxable year.

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(2) For purposes of this subdivision:

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(A) “Gross receipts, less returns and allowances reportable to
this state,” means the sum of the gross receipts from the production
of business income, as defined in subdivision (a) of Section 25120,
and the gross receipts from the production of nonbusiness income,
as defined in subdivision (d) of Section 25120.

end insert begin insert

(B) “New limited liability company” means a limited liability
company that is organized under the laws of this state or has
qualified to transact intrastate business in this state that begins
business operations at or after the time of its organization. “New
limited liability company” does not include any limited liability
company that began business operations as a sole proprietorship,
a partnership, a corporation, or any other form of business entity
prior to its organization. This subdivision shall not apply to any
limited liability company that reorganizes solely for the purpose
of reducing its annual fee.

end insert begin insert

(C) “Small business” means a limited liability company that
reasonably estimates that it will have gross receipts, less returns
and allowances, reportable to this state for the taxable year of five
thousand dollars ($5,000) or less.

end insert