Amended in Assembly April 1, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 1778

Introduced by Assembly Member Allen

February 18, 2014

An act to amend Section begin delete 241 end delete begin insert 17941 end insert of the Revenue and Taxation Code, relating to begin delete taxation end delete begin insert taxation, to take effect immediately, tax levy end insert .

LEGISLATIVE COUNSEL’S DIGEST

AB 1778, as amended, Allen. begin delete Property taxation: exempt property. end delete begin insert Corporation taxes: minimum annual tax: limited liability company: exemption. end insert

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Existing law generally imposes an annual minimum franchise tax of $800, except as provided, on every limited liability company doing business in this state or registered in this state, as specified. Existing law defines the term “limited liability company,” for purposes of the payment of the annual minimum franchise tax, to exclude a limited liability company that is exempt from the payment of the tax and certain fees under other existing law.

end insert begin insert

This bill would also exclude from that definition a limited liability company that is formed for the exclusive purpose of acquiring and holding title to intangible personal property constituting equity or debt interests, or both, in a single other corporation, limited liability company, or partnership, collecting income therefrom, and turning over the entire amount thereof, less expenses, to its members, thereby exempting such an entity from that minimum tax.

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This bill would take effect immediately as a tax levy.

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Existing law exempts from property taxation the first $50,000 worth of hand tools that are owned and supplied by an employee as a condition of employment.

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This bill would make technical, nonsubstantive changes to this provision.

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Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program: no.

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

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begin insert SECTION 1. end insert   

end insert

begin insert Section 17941 of the end insert begin insert Revenue and Taxation Code end insert
begin insert is amended to read: end insert

17941.  

(a) For each taxable year beginning on or after January
1, 1997, a limited liability company doing business in this begin delete state
(as end delete begin insert state, as end insert defined in Section begin delete 23101) end delete begin insert 23101, end insert shall pay annually
to this state a tax for the privilege of doing business in this state
in an amount equal to the applicable amount specified in
subdivision (d) of Section 23153 for the taxable year.

(b) (1) In addition to any limited liability company that is doing
business in this state and is therefore subject to the tax imposed
by subdivision (a), for each taxable year beginning on or after
January 1, 1997, a limited liability company shall pay annually
the tax prescribed in subdivision (a) if articles of organization have
been accepted, or a certificate of registration has been issued, by
the office of the Secretary of State. The tax shall be paid for each
taxable year, or part thereof, until a certificate of cancellation of
registration or of articles of organization is filed on behalf of the
limited liability company with the office of the Secretary of State.

(2) If a taxpayer files a return with the Franchise Tax Board that
is designated as its final return, the Franchise Tax Board shall
notify the taxpayer that the annual tax shall continue to be due
annually until a certificate of dissolution is filed with the Secretary
of State pursuant to Section 17707.08 of the Corporations Code
or a certificate of cancellation is filed with the Secretary of State
pursuant to Section 17708.06 of the Corporations Code.

(c) The tax assessed under this section shall be due and payable
on or before the 15th day of the fourth month of the taxable year.

(d) For purposes of this section, “limited liability company”
means an organization, other than begin delete a end delete begin insert the following: end insert

begin insert (1) end insert begin insert   end insert begin insert A end insert limited liability company that is exempt from the tax and
fees imposed under this chapter pursuant to Section 23701h or
Section 23701x, that is formed by one or more persons under the
law of this state, any other country, or any other state, as a “limited
liability company” and that is not taxable as a corporation for
California tax purposes.

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(2) A limited liability company that is formed for the exclusive
purpose of acquiring and holding title to intangible personal
property constituting equity or debt interests, or both, in a single
other corporation, limited liability company, or partnership,
collecting income therefrom, and turning over the entire amount
thereof, less expenses, to its members.

end insert

(e) Notwithstanding anything in this section to the contrary, if
the office of the Secretary of State files a certificate of cancellation
pursuant to Section 17707.02 of the Corporations Code for any
limited liability company, then paragraph (1) of subdivision (f) of
Section 23153 shall apply to that limited liability company as if
the limited liability company were properly treated as a corporation
for that limited purpose only, and paragraph (2) of subdivision (f)
of Section 23153 shall not apply. Nothing in this subdivision
entitles a limited liability company to receive a reimbursement for
any annual taxes or fees already paid.

(f) (1) Notwithstanding any provision of this section to the
contrary, a limited liability company that is a small business solely
owned by a deployed member of the United States Armed Forces
shall not be subject to the tax imposed under this section for any
taxable year the owner is deployed and the limited liability
company operates at a loss or ceases operation.

(2) The Franchise Tax Board may promulgate regulations as
necessary or appropriate to carry out the purposes of this
subdivision, including a definition for “ceases operation.”

(3) For the purposes of this subdivision, all of the following
definitions apply:

(A) “Deployed” means being called to active duty or active
service during a period when a Presidential Executive order
specifies that the United States is engaged in combat or homeland
defense. “Deployed” does not include either of the following:

(i) Temporary duty for the sole purpose of training or processing.

(ii) A permanent change of station.

(B) “Operates at a loss” means a limited liability company’s
expenses exceed its receipts.

(C) “Small business” means a limited liability company with
total income from all sources derived from, or attributable, to the
state of two hundred fifty thousand dollars ($250,000) or less.

(4) This subdivision shall become inoperative for taxable years
beginning on or after January 1, 2018.

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begin insert SEC. 2. end insert   

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begin insert This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect. end insert

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SECTION 1.  

Section 241 of the Revenue and Taxation Code
is amended to read:

241.  

(a) The first fifty thousand dollars ($50,000) of personal
property that consists of hand tools owned and supplied by an
employee that are required as a condition of that employee’s
employment are exempt from taxation.

(b) For purposes of this section:

(1) “Hand tools” means hand-held implements and equipment,
including hand-held power tools, of which any one may be
transported to and from the workplace and which are necessary
for the ordinary and regular performance of the employee’s work,
and also means the appropriate storage containers used to store
those implements and that equipment.

(2) “Hand tools owned and supplied by an employee” means
only those hand tools that are either owned by the employee prior
to the employment or are acquired and paid for by the employee
during the employment, that the employee will continue to own
after termination of the employment.

(3) “Employee” means an individual who is employed by an
employer that directly or indirectly supervises that person and
exercises control over the wages and working conditions of
individual workers. “Employee” does not include a self-employed
individual or an independent contractor.

end delete