BILL ANALYSIS �
AB 1984
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Date of Hearing: May 14, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1984 (Harkey) - As Amended: May 1, 2014
Policy Committee: Revenue &
Taxation Vote: 8-0
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill generally conforms California tax law to federal tax
law with respect to the extension of time for repayment of taxes
by corporations expecting net operating loss (NOL) carrybacks
and the tentative refund adjustment for NOL carrybacks.
FISCAL EFFECT
1)Potentially significant costs to the Franchise Tax Board (FTB)
to update forms and processes for the NOL carryback rule
changes and quick refund issuances.
2)Estimated decreases to GF revenues of $85 million, $100
million, $150 million, and $90 million for FY 2013-14, FY
2014-15, FY 2015-16, and FY 2016-17, respectively.
COMMENTS
1) Purpose. The NOL law was generally suspended for the 2008
through 2011 tax years, and NOL carrybacks were suspended
until the 2013 tax year. Now that those suspensions have been
lifted, the author argues this is an appropriate time to
revisit the NOL rules and conform to federal law. The three
areas of conformity addressed in this bill are:
a) Allowing taxpayers to file an application for tentative
adjustment, known popularly as a "quickie refund," and
requiring the FTB to process those applications within 180
days.
b) Allowing taxpayers expecting an NOL carryback from a
AB 1984
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current tax year to extend the time for payment of all or
part of the tax payable for the immediately preceding tax
year.
c) Allowing taxpayers that file a refund claim to apply the
overpayment to an outstanding liability and/or estimated
tax payment or refund.
2) NOL Rules Generally. The basic rationale for allowing losses
to be carried forward and backward stems from a recognition
that businesses seek to make profit over business cycles
rather than particular years. The NOL rules help smooth tax
expenses over a business cycle, allowing businesses to make
efficient decisions regarding financing and investment.
3) Tentative "Quickie" Refund. Federal law allows corporations,
other than an S corporation, to apply for a quick refund of
NOL carrybacks. In order to qualify, the corporation must
file for the refund within 12 months of the end of the tax
year in which the NOL was incurred, and the IRS must process
the application within 90 days from the date the application
is filed or the last day of the month in which the taxpayer is
required to file a tax return. The sponsors note the current
state process for obtaining a refund can take as long as two
years, which burdens business owners trying to pay debts and
other obligations. This bill requires the FTB to process
tentative refund applications in 180 days.
The quickie refund, however, is technically a tentative
adjustment of the taxpayer's tax liability. It is not a
settlement of liability for the year or a formal claim for
refund, and the adjustment can lead to a post-refund
examination. The quickie refund does not preclude the FTB's
ability to process and audit the tax filing.
4) Extension for Current-year NOL. Federal law allows a
corporation anticipating a current-year NOL to postpone the
payment of some or all of its income tax for the immediately
preceding year. Allowing a corporation to file for
postponement allows it to avoid having to wait for the current
tax year to conclude and then file an amended return or ask
for a quick refund.
AB 1984
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Analysis Prepared by : Joel Tashjian / APPR. / (916) 319-2081