Amended in Assembly May 7, 2014

Amended in Assembly April 21, 2014

Amended in Assembly March 28, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2086

Introduced by Assembly Member Ian Calderon

(Principal coauthor: Assembly Member Dababneh)

February 20, 2014

An act to amend Sections 17941 begin delete , 17942, end delete and 19025 of the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL’S DIGEST

AB 2086, as amended, Ian Calderon. Business entities: annual tax: minimum franchise tax: fees.

Existing law imposes an annual tax in an amount equal to the minimum franchise tax on every limited liability company doing business in this state. In addition, existing law requires every limited liability company, if the articles of organization have been accepted by, or a certificate of registration has been issued by, the Secretary of State, to pay an annual tax in an amount equal to the minimum franchise tax. Existing law requires the tax assessed under these provisions to be due and payable on or before the 15th day of the 4th month of the taxable year. begin delete 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 attributable to this state. Existing law makes this fee due and payable on the date the return of the limited liability company is required to be filed. end delete

Existing law imposes an annual minimum franchise tax, except as provided, on every corporation incorporated in this state, qualified to transact intrastate business in this state, or doing business in this state. Existing law exempts a corporation that incorporates or qualifies to do business in this state from the payment of the minimum franchise tax in its first taxable year. Existing law requires corporations subject to the minimum franchise tax to pay annually to the state a minimum franchise tax of $800 and provides that the estimated tax shall not be less than the minimum tax. If the amount of estimated tax does not exceed the minimum franchise tax, existing law requires the entire amount of the estimated tax to be due and payable on or before the 15th day of the 4th month of the taxable year.

This bill would also provide for that annual tax begin delete , fee, end delete and minimum franchise tax to be due and payable in 2 or 3 equal installments, on or before specified dates.

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 17941 of the Revenue and Taxation Code
is amended to read:

17941.  

(a) For each taxable year beginning on or after January
1, 1997, a limited liability company doing business in this state
(as defined in Section 23101) 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)  begin insert (1) end insert begin insert   end insert The tax assessed under this section shall be due and
payable according to one of the following:

begin delete

(1)

end delete

begin insert (A) end insert  On or before the 15th day of the fourth month of the taxable
year.

begin delete

(2)

end delete

begin insert (B) end insert  In three equal installments on or before the 15th day of the
4th, 8th, and 12th months of the taxable year.

begin delete

(3)

end delete

begin insert (C) end insert  In two equal installments, with the first installment on or
before the 15th day of the fourth month of the taxable year and
the second installment on or before 12 months of that date.

begin insert

(2) The Franchise Tax Board shall develop procedures for
taxpayers to notify the Franchise Tax Board of the payment option
used under this subdivision.

end insert begin insert

(3) Penalties and interest shall not be imposed on a taxpayer
for electing to use an alternative payment option under this
subdivision.

end insert

(d) For purposes of this section, “limited liability company”
means an organization, other than a 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.

(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.

begin delete

SEC. 2.  

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 collected and
refunded in the same manner as the taxes imposed by this part,
shall be subject to interest and applicable penalties, and shall be
due and payable according to one of the following:

(1) On the date the return of the limited liability company is
required to be filed under Section 18633.5.

(2) In three equal installments on or before the 15th day of the
4th, 8th, and 12th months from the date the return of the limited
liability company is required to be filed under Section 18633.5.

(3) In two equal installments, with the first installment on or
before the 15th day of the fourth month from the date the return
of the limited liability company is required to be filed under Section
18633.5 and the second installment on or before 12 months of that
date.

(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.

end delete

begin delete SEC. 3. end delete
begin insert SEC. 2. end insert   

Section 19025 of the Revenue and Taxation Code is
amended to read:

19025.  

(a)  begin insert (1) end insert begin insert   end insert If the amount of estimated tax does not exceed
the minimum tax specified by Section 23153, the entire amount
of the estimated tax shall be due and payable according to one of
the following:

begin delete

(1)

end delete

begin insert (A) end insert  On or before the 15th day of the fourth month of the taxable
year.

begin delete

(2)

end delete

begin insert (B) end insert  In three equal installments on or before the 15th day of the
4th, 8th, and 12th months of the taxable year.

begin delete

(3)

end delete

begin insert (C) end insert  In two equal installments, with the first installment on or
before the 15th day of the fourth month of the taxable year and
the second installment on or before 12 months of that date.

begin insert

(2) The Franchise Tax Board shall develop procedures for
taxpayers to notify the Franchise Tax Board of the payment option
used under this subdivision.

end insert begin insert

(3) Penalties and interest shall not be imposed on a taxpayer
for electing to use an alternative payment option under this
subdivision.

end insert

(b) Except as provided in subdivision (c), if the amount of
estimated tax exceeds the minimum tax specified by Section 23153,
the amount payable shall be paid in installments as follows:

 

If the requirements	The following percentages of the estimated tax shall be paid on the 15th day of the--
of this subdivision are first met--	4th month	6th month	9th month	12th month
Before the 1st day of the 4th month of the taxable year	30 (but not less than the minimum tax provided in Section 23153 and any tax under Section 23800.5)	40	0	30
After the last day of the 3rd month and before the 1st day of the 6th month of the taxable year	__	60	0	40
After the last day of the 5th month and before the 1st day of the 9th month of the taxable year	__	__	70	30
After the last day of the 8th month and before the 1st day of the 12th month of the taxable year	__	__	__	100

 

(c) If a wholly owned subsidiary is first subject to tax under
Section 23800.5 after the last day of the third month of the taxable
year of owner, the amount of the next installment of estimated tax
under subdivision (b) after the wholly owned subsidiary is subject
to tax under Section 23800.5 shall not be less than the amount of
the tax of the wholly owned subsidiary under Section 23800.5 and
an amount equal to that amount shall be due and payable on the
date the installment is required to be paid. For purposes of
determining which installment is the next installment of estimated
tax under subdivision (b), subdivision (b) shall be modified by
substituting “includes the tax of a wholly owned subsidiary under
Section 23800.5” for “exceeds the minimum tax specified by
Section 23153.”

(d) The amendments made to this section by Section 1 of
Chapter 1 of the First Extraordinary Session of the Statutes of 2008
shall apply to installments due for each taxable year beginning on
or after January 1, 2009, and before January 1, 2010.

(e) The amendments made to this section by the act adding this
subdivision shall apply to installments due for each taxable year
beginning on or after January 1, 2010.