BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2754 HEARING: 6/25/14
AUTHOR: Revenue and Taxation FISCAL: Yes
VERSION: 6/16/14 TAX LEVY: No
CONSULTANT: Bouaziz
FRANCHISE TAX BOARD: CREDITS: ELECTRONIC FILING
Enacts three changes to the Personal Income and Corporate
Tax Laws.
Background and Existing Law
I. GO-Biz California Competes Tax Credit and the Tentative
Minimum Tax.
In 2013, Governor Brown signed the GO-Biz California
Competes Tax Credit as a part of the 2013 Budget plan to
grant a hiring credit under the Personal Income Tax (PIT)
and Corporation Tax (CT) for employment in specified
geographic areas. The Governor's Office of Business and
Economic Development allocates the tax credit.
Usually, state law does not allow taxpayers to use tax
credits to reduce its tax liability under the tentative
minimum tax (TMT); a part of the alternative minimum tax
(AMT) intended to ensure that corporations that receive
significant tax liability pay some share of the cost of
public services. Without an AMT, corporations with
significant tax credits can avoid taxes altogether when the
value of the credits it applies exceeds its net income in a
taxable year. To calculate AMT, a taxpayer compares his or
her regular tax before applying credits to his or her TMT,
a tax calculated using a separate method for deriving
income that reduces or eliminates the effect of exclusions
or deductions. If TMT exceeds regular tax, the difference
is the taxpayer's AMT. However, in so doing, the taxpayer
generates an AMT credit that he or she can use in future
years.
Generally, taxpayers cannot use tax credits to reduce TMT;
however, the Legislature has allowed some credits to do so,
such as:
Research and Development Tax Credit,
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Geographically Targeted Economic Development Area,
such as Enterprise Zone, hiring and sales and use tax
credit),
Motion Picture Production Credit.
II. Dependent Tax Identification Number.
State law does not require that the Taxpayer Identification
Number (TIN) of dependents be included on state tax returns
to take advantage of the dependent exemption. State law
prohibits the disallowance of the Dependent Credit if the
return lacks a TIN. This Legislature added this provision
in 1997 following the IRC change that required the TIN of
dependents on the personal income tax return in response to
concerns about obtaining a TIN for newborns in time to
include the TIN on the return.
Federal law requires that the TIN of the dependent be
included on the federal return to take advantage of the
dependent exemption
III. E-File Requirement.
State law requires income tax preparers who prepare more
than 100 California individual income tax returns annually
or prepare one or more using tax preparation software to
e-file all personal income tax returns. If the return is
filed on paper that should have been e-filed, there is a
failure to e-file penalty of $50 per return, unless it is
shown that the failure to e-file is due to reasonable cause
and not due to willful neglect.
Federal Law mandates e-filing for the following:
Large corporations with $10 million or more in
total assets;
A partnership with more than 100 partners;
Certain large tax-exempt organizations with total
assets of $10 million;
Private foundations and charitable trust regardless
of their size; and,
Tax preparers that file at least 250 returns,
including income tax returns, exempt organization
returns, information returns, excise tax returns, and
employment tax returns.
Federal law allows exceptions and hardship waivers from the
e-filing requirement. A taxpayer may request a waiver if
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the taxpayer is unable to meet e-filing requirements due to
technology constraints or where compliance with the
requirements would result in undue financial burden on the
taxpayer. The penalty for failing to file is generally
five percent of the tax owed for each month, up to a
maximum of 25%. If the return is over 60 days late, the
minimum penalty for late filing is the lesser of $135 or
100% of the tax owed.
Proposed Law
Assembly Bill 2754 makes three changes to tax law:
Allows taxpayers to use GO-Biz California Competes
tax credits to reduce tentative minimum tax,
Requires that the dependent's tax identification
number be included on a return when claiming a
Dependent Exemption Credit,
Requires a business entity that prepares a return
using tax preparation software to file the return
electronically.
State Revenue Impact
There is no estimate available for the provision allowing
the reduction to the tentative minimum tax by the GO-Biz
California Competes tax credit.
FTB estimates that the inclusion of dependent taxpayer
identification numbers on tax returns will increase GF
revenues by $10 million in fiscal year (FY) 2014-15, $10
million in FY 2015-16, and $11 million in 2016-17.
FTB estimates that the e-filing requirement will not have
an impact on General Fund (GF) revenues.
Comments
1. Purpose of the bill . AB 2754 is a Committee bill
authored by the Assembly Committee on Revenue and Taxation
and makes three changes to the Personal Income Tax and
Corporation Tax Law.
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Assembly Actions
Assembly Revenue & Taxation 6-2
Assembly Appropriations 12-5
Assembly Floor 55-20
Support and Opposition (06/19/14)
Support : Franchise Tax Board.
Opposition : None received.