Bill Text

Bill Information

Add To My Favorites | print page

AB-166 Corporation taxes: minimum franchise tax.(2011-2012)

SHARE THIS:share this bill in Facebookshare this bill in Twitter
AB166:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2011–2012 REGULAR SESSION

Assembly Bill
No. 166


Introduced  by  Assembly Member Cook

January 20, 2011


An act to amend Sections 23151.1, 23151.2, and 23282 of, and to amend and repeal Sections 23153 and 23221 of, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 166, as introduced, Cook. Corporation taxes: minimum franchise tax.
The Corporation Tax Law generally imposes a franchise tax on corporations doing business within the limits of this state, including a minimum franchise tax on specified corporations, as provided.
This bill would eliminate the minimum franchise tax and make related technical amendments.
This bill would take effect immediately as a tax levy.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 The Legislature finds and declares all of the following:
(a) This act will level the playing field with neighboring states that either do not have a minimum franchise tax or one that is a small fraction of California’s.
(c) Nevada does not assess a tax on corporate income but rather imposes a minimum fee of $100.
(d) Arizona assesses only a minimum tax of $50 on financial institutions, corporations, and limited liability companies that elect to be taxed as corporations, and imposes a business license fee of $15.
(e) Oregon assesses a minimum excess tax of $10 on financial institutions, corporations, and limited liability corporations that elect to be taxed as corporations.
(f) Utah imposes only a minimum tax of $100 on “C” corporations.
(g) California has chronic high unemployment compared to neighboring states due to the unfavorable business climate, which includes excessively high taxes on small businesses.
(h) This act will both update and improve California’s outdated taxation system and make it more reflective of our state’s economy, and make it competitive in the national and international markets.

SEC. 2.

 Section 23151.1 of the Revenue and Taxation Code is amended to read:

23151.1.
 Notwithstanding Section 23151, every corporation (except banks and financial corporations) doing business within the limits of this state and not exempted from taxation by the provisions of the Constitution of this state or by this part, shall annually pay to the state for the privilege of exercising its corporate franchises within this state, a tax determined as follows:
(a) With respect to corporations, other than those described in subdivision (b), which commence doing business within the state after December 31, 1971, and before January 1, 2000, the tax for the taxable year of commencement, whether or not for 12 full months, shall be the minimum franchise tax prescribed in Section 23153.
(b) If after December 31, 1972, a corporation commences to do business and ceases doing business in the same taxable year, the tax for that taxable year shall be according to or measured by its net income for the year, to be computed at the rate prescribed in Section 23151.
(c) (1) With respect to taxable years beginning after December 31, 1972, and before January 1, 2000, other than the year of commencement described in subdivision (a) or (b) or the year of cessation described in subdivision (d), the tax for that taxable year shall be according to or measured by its net income for the next preceding taxable year, to be computed at the rate prescribed in Section 23151.
(2) With respect to taxable years beginning on or after January 1, 2000, (other than the first taxable year beginning on or after that date), the tax for the taxable year (including the taxable year of commencement and the taxable year of cessation) shall be according to or measured by its net income for the taxable year to be computed at the rate prescribed in Section 23151.
(d) With respect to corporations which cease doing business in a taxable year beginning after December 31, 1972, and before January 1, 2000, other than those described in subdivision (b), the tax for the taxable year of cessation shall be:
(1) According to or measured by its net income for the next preceding taxable year, to be computed at the rate prescribed in Section 23151, plus
(2) According to or measured by its net income for the taxable year during which the corporation ceased doing business, to be computed at the rate prescribed in Section 23151.

(e)In any event, the tax for any taxable year shall not be less than the minimum tax provided for in Section 23153 for that taxable year.

SEC. 3.

 Section 23151.2 of the Revenue and Taxation Code is amended to read:

23151.2.
 Notwithstanding Section 23151, every corporation (except banks and financial corporations) not exempted from taxation by the provisions of the Constitution of this state or by this part which dissolves or withdraws, shall pay a tax for its taxable year of dissolution or withdrawal according to or measured by its net income for the taxable year in which it ceased doing business, unless that income has previously been included in the measure of tax for any taxable year, to be computed at the rate prescribed in Section 23151 for its taxable year of dissolution or withdrawal. In any event, the tax for the taxable year of its dissolution or withdrawal shall not be less than the minimum tax provided for in Section 23153 for that taxable year.

SEC. 4.

 Section 23153 of the Revenue and Taxation Code is amended to read:

23153.
 (a) Every corporation described in subdivision (b) shall be subject to the minimum franchise tax specified in subdivision (d) from the earlier of the date of incorporation, qualification, or commencing to do business within this state, until the effective date of dissolution or withdrawal as provided in Section 23331 or, if later, the date the corporation ceases to do business within the limits of this state.
(b) Unless expressly exempted by this part or the California Constitution, subdivision (a) shall apply to each of the following:
(1) Every corporation that is incorporated under the laws of this state.
(2) Every corporation that is qualified to transact intrastate business in this state pursuant to Chapter 21 (commencing with Section 2100) of Division 1 of Title 1 of the Corporations Code.
(3) Every corporation that is doing business in this state.
(c) The following entities are not subject to the minimum franchise tax specified in this section:
(1) Credit unions.
(2) Nonprofit cooperative associations organized pursuant to Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code that have been issued the certificate of the board of supervisors prepared pursuant to Section 54042 of the Food and Agricultural Code. The association shall be exempt from the minimum franchise tax for five consecutive taxable years, commencing with the first taxable year for which the certificate is issued pursuant to subdivision (b) of Section 54042 of the Food and Agricultural Code. This paragraph only applies to nonprofit cooperative associations organized on or after January 1, 1994.
(d) (1) Except as provided in paragraph (2), paragraph (1) of subdivision (f) of Section 23151, paragraph (1) of subdivision (f) of Section 23181, and paragraph (1) of subdivision (c) of Section 23183, corporations subject to the minimum franchise tax shall pay annually to the state a minimum franchise tax of eight hundred dollars ($800).
(2) The minimum franchise tax shall be twenty-five dollars ($25) for each of the following:
(A) A corporation formed under the laws of this state whose principal business when formed was gold mining, which is inactive and has not done business within the limits of the state since 1950.
(B) A corporation formed under the laws of this state whose principal business when formed was quicksilver mining, which is inactive and has not done business within the limits of the state since 1971, or has been inactive for a period of 24 consecutive months or more.
(3) For purposes of paragraph (2), a corporation shall not be considered to have done business if it engages in other than mining.
(e) Notwithstanding subdivision (a), for taxable years beginning on or after January 1, 1999, and before January 1, 2000, every “qualified new corporation” shall pay annually to the state a minimum franchise tax of five hundred dollars ($500) for the second taxable year. This subdivision shall apply to any corporation that is a qualified new corporation and is incorporated on or after January 1, 1999, and before January 1, 2000.
(1) The determination of the gross receipts of a corporation, for purposes of this subdivision, shall be made by including the gross receipts of each member of the commonly controlled group, as defined in Section 25105, of which the corporation is a member.
(2) “Gross receipts, less returns and allowances reportable to this state,” means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(3) “Qualified new corporation” means a corporation that is incorporated under the laws of this state or has qualified to transact intrastate business in this state, that begins business operations at or after the time of its incorporation and that reasonably estimates that it will have gross receipts, less returns and allowances, reportable to this state for the taxable year of one million dollars ($1,000,000) or less. “Qualified new corporation” does not include any corporation that began business operations as a sole proprietorship, a partnership, or any other form of business entity prior to its incorporation. This subdivision shall not apply to any corporation that reorganizes solely for the purpose of reducing its minimum franchise tax.
(4) This subdivision shall not apply to limited partnerships, as defined in Section 17935, limited liability companies, as defined in Section 17941, limited liability partnerships, as defined in Section 17948, charitable organizations, as described in Section 23703, regulated investment companies, as defined in Section 851 of the Internal Revenue Code, real estate investment trusts, as defined in Section 856 of the Internal Revenue Code, real estate mortgage investment conduits, as defined in Section 860D of the Internal Revenue Code, qualified Subchapter S subsidiaries, as defined in Section 1361(b)(3) of the Internal Revenue Code, or to the formation of any subsidiary corporation, to the extent applicable.
(5) For any taxable year beginning on or after January 1, 1999, and before January 1, 2000, if a corporation has qualified to pay five hundred dollars ($500) for the second taxable year under this subdivision, but in its second taxable year, the corporation’s gross receipts, as determined under paragraphs (1) and (2), exceed one million dollars ($1,000,000), an additional tax in the amount equal to three hundred dollars ($300) for the second taxable year shall be due and payable by the corporation on the due date of its return, without regard to extension, for that year.
(f) (1) Notwithstanding subdivision (a), every corporation that incorporates or qualifies to do business in this state on or after January 1, 2000, shall not be subject to the minimum franchise tax for its first taxable year.
(2) This subdivision shall not apply to limited partnerships, as defined in Section 17935, limited liability companies, as defined in Section 17941, limited liability partnerships, as defined in Section 17948, charitable organizations, as described in Section 23703, regulated investment companies, as defined in Section 851 of the Internal Revenue Code, real estate investment trusts, as defined in Section 856 of the Internal Revenue Code, real estate mortgage investment conduits, as defined in Section 860D of the Internal Revenue Code, and qualified Subchapter S subsidiaries, as defined in Section 1361(b)(3) of the Internal Revenue Code, to the extent applicable.
(3) This subdivision shall not apply to any corporation that reorganizes solely for the purpose of avoiding payment of its minimum franchise tax.
(g) Notwithstanding subdivision (a), a domestic corporation, as defined in Section 167 of the Corporations Code, that files a certificate of dissolution in the office of the Secretary of State pursuant to subdivision (b) of Section 1905 of the Corporations Code, prior to its amendment by the act amending this subdivision, and that does not thereafter do business shall not be subject to the minimum franchise tax for taxable years beginning on or after the date of that filing.
(h) The minimum franchise tax imposed by paragraph (1) of subdivision (d) shall not be increased by the Legislature by more than 10 percent during any calendar year.
(i) (1) Notwithstanding subdivision (a), a corporation that is a small business solely owned by a deployed member of the United States Armed Forces shall not be subject to the minimum franchise tax for any taxable year the owner is deployed and the corporation 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 negative net income as defined in Section 24341.
(C) “Small business” means a corporation 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.
(j) This section shall remain in effect until January 1, 2011, and as of that date is repealed.

SEC. 5.

 Section 23221 of the Revenue and Taxation Code is amended to read:

23221.
 (a) Any credit union that incorporates under the laws of this state or qualifies to transact intrastate business in this state shall thereupon prepay a tax of twenty-five dollars ($25) as provided in Section 23153. The prepayment shall be made to the Secretary of State with the filing of the articles of incorporation or the statement and designation by a foreign corporation. The Secretary of State shall transmit the amount of the prepayment to the Franchise Tax Board. The Franchise Tax Board shall certify to the Secretary of State on an individual or class basis those domestic or foreign corporations that are exempt from prepayment or for which prepayment to the Secretary of State is waived.
(b) This section shall become operative and apply beginning on or after January 1, 2001.
(c) This section shall remain in effect until January 1, 2011, and as of that date is repealed.

SEC. 6.

 Section 23282 of the Revenue and Taxation Code is amended to read:

23282.
 (a) The tax imposed upon any taxpayer which has suffered the suspension or forfeiture provided in Section 23301, and which revives in any taxable year other than the taxable year in which suspension or forfeiture occurred, shall be computed in the same manner as provided in Sections 23222 to 23224, inclusive, relative to the computation of taxes upon taxpayers commencing to do business for the first time after incorporation or qualification. In addition to the taxes, penalties, and interest specified in Section 23305, such taxpayer shall prepay a tax in an amount equal to the minimum tax provided for in Section 23153 as a condition precedent to the issuance of a certificate of revivor.
(b) After December 31, 1971, and before January 1, 2000, the tax imposed upon any taxpayer which has suffered the suspension or forfeiture provided in Section 23301, and which revives in any taxable year other than the taxable year in which suspension or forfeiture occurred, shall be—
(1) In the case of a taxpayer which was doing business in the year next preceding the year in which revivor took place, computed upon the basis of the net income for that next preceding income year,
(2) In the case of a taxpayer which resumed doing business in the year of revivor, computed upon the basis of the net income for the year in which it ceased doing business, unless such income is or has otherwise been subject to tax, tax.

(3)In the case of a taxpayer which first commences to do business in the year of revivor, the minimum tax provided in Section 23153,

(4)In no event less than the minimum tax provided in Section 23153.

In addition to the taxes, penalties, and interest specified in Section 23305, such taxpayer shall prepay the minimum tax imposed by this subdivision as a condition precedent to the issuance of a certificate of revivor.

(c) After December 31, 1999, the tax imposed upon any taxpayer that has suffered the suspension or forfeiture provided in Section 23301, and that revives in any taxable year other than the taxable year in which suspension or forfeiture occurred, shall be computed upon the basis of the net income for the taxable year in which it revives, but in no event less than the minimum tax provided in Section 23153.

SEC. 7.

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