BILL ANALYSIS                                                                                                                                                                                                    �




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de Le�n, Chair


          SB 641 (Anderson) - Corporation Taxes: Minimum Franchise Tax:  
          Exemptions
          
          Amended: January 6, 2014        Policy Vote: G&F 6-0
          Urgency: No                     Mandate: No
          Hearing Date: January 21, 2014                          
          Consultant: Robert Ingenito     
          
          This bill meets the criteria for referral to the Suspense File.


          Bill Summary: SB 641 would exempt a qualified new organization,  
          as defined, from paying the minimum franchise tax during its  
          second, third and fourth taxable years. As a tax levy, this bill  
          would be effective immediately upon enactment, and thus would be  
          operative for taxable years beginning on or after January 1,  
          2014.

          Fiscal Impact: The Franchise Tax Board (FTB) estimates that this  
          measure would result in an annual revenue loss of $8 million in  
          2014-15, $34 million in 2015-16, and $55 million in 2016-17  
          (General Fund). Costs to FTB to implement the bill are unknown,  
          but likely in excess of $50,000 (General Fund).

          Background: Corporations in the State generally must pay either  
          the minimum franchise tax of $800, or the measured franchise tax  
          of 8.84 percent of apportioned net income if that amount is in  
          excess of $800 (except during their first year of operation).  
          Beginning in taxable year 1997, only taxpayers with net income  
          less than approximately $9,040 pay the minimum franchise tax  
          because the amount of measured tax owed would be less than $800  
          ($9,039 multiplied by 8.84 percent equals $799).

          Proposed Law: This bill would exempt a corporation from the  
          minimum franchise tax for its second, third and fourth taxable  
          years provided that does the following on or after the effective  
          date of the bill:

                 Incorporates or becomes qualified to transact intrastate  
               business in the State; 
                 Begins business operations at or after the time of its  
               incorporation;








          SB 641 (Anderson)
          Page 1


                 Reasonably estimates and reports gross receipts in  
               California under $10,000 for each taxable year.


          Related Legislation: 
                 AB 166 (Cook, 2011/2012) would have eliminated the  
               minimum franchise tax. AB 166 failed passage out of the  
               Assembly Revenue and Taxation Committee.
                 AB 368 (Morrell, 2011/2012) would have reduced the  
               minimum franchise tax to $400 for qualified small  
               businesses. AB 368 failed passage out of the Assembly by  
               the constitutional deadline.

          Staff Comments: California's minimum tax was increased from $100  
          to $200 in 1972.  It was increased to $300 in 1987, to $600 in  
          1989, and to $800 in 1990.