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AB-2086 Business entities: annual tax: minimum franchise tax: fees.(2013-2014)

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AB2086:v96#DOCUMENT

Amended  IN  Assembly  May 07, 2014
Amended  IN  Assembly  April 21, 2014
Amended  IN  Assembly  March 28, 2014

CALIFORNIA LEGISLATURE— 2013–2014 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, 17942, 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. 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.
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, fee, 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   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) (1) The tax assessed under this section shall be due and payable according to one of the following:

(1)

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

(2)

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

(3)

(C) 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.
(2) The Franchise Tax Board shall develop procedures for taxpayers to notify the Franchise Tax Board of the payment option used under this subdivision.
(3) Penalties and interest shall not be imposed on a taxpayer for electing to use an alternative payment option under this subdivision.
(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.

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.

SEC. 3.SEC. 2.

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

19025.
 (a) (1) 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:

(1)

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

(2)

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

(3)

(C) 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.
(2) The Franchise Tax Board shall develop procedures for taxpayers to notify the Franchise Tax Board of the payment option used under this subdivision.
(3) Penalties and interest shall not be imposed on a taxpayer for electing to use an alternative payment option under this subdivision.
(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.