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AB-2731 Income taxes: investment management services interest.(2017-2018)

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Date Published: 02/15/2018 09:00 PM
AB2731:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill No. 2731


Introduced by Assembly Member Gipson

February 15, 2018


An act to add Section 17044 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 2731, as introduced, Gipson. Income taxes: investment management services interest.
The Personal Income Tax Law imposes taxes based upon taxable income of individuals, estates, and trusts at specified rates from 1% to 9.3%, as provided.
This bill would impose a tax of 17% on that portion of an individual’s taxable income derived from an investment management services interest, as defined. The bill would require the Franchise Tax Board to report to the Legislature if the United States Congress passes and the President of the United States signs legislation having an identical effect as the above-described tax applicable to that income earned in all of the states and territories and would further require the Legislature to determine whether to make the repeal, make inoperative, or continue in effect the tax. The bill would also state the intent of the Legislature that the moneys derived from the imposition of the tax be used for education purposes.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
This bill would take effect immediately as a tax levy.
Vote: 2/3   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 Section 17044 is added to the Revenue and Taxation Code, to read:

17044.
 (a) For each taxable year beginning on or after January 1, 2018, in addition to any other taxes imposed by this part, an additional tax shall be imposed at the rate of 17 percent on that portion of a taxpayer’s taxable income derived from an investment management services interest.
(b) For purposes of this section:
(1) “Investment management services interest” means any interest in a business which is held by any individual if that individual provides, directly or indirectly, in the active conduct of a trade or business, a substantial quantity of any of the following services to the business:
(A) Advising the business, including a partnership, “S” corporation, or any other business entity, as to the advisability of investing in, purchasing, or selling any specified asset.
(B) Managing, acquiring, or disposing of any specified asset.
(C) Arranging financing with respect to acquiring specified assets.
(D) Any activity in support of any service described in subparagraphs (A) to (C), inclusive.
(2) “Specified asset” means securities, as defined in Section 475(c)(2) of the Internal Revenue Code, relating to security defined, real estate held for rental or investment, interest in partnerships, commodities; or as defined in Section 475(e)(2) of the Internal Revenue Code, relating to commodity, or options or derivative contracts to any of these.
(c) A partner or shareholder shall not be deemed to hold an investment management services interest if at least 80 percent of the average fair market value of the specified assets of the business during the taxable year consists of real estate.
(d) (1) The Franchise Tax Board shall report to the Legislature if the United States Congress passes and the President of the United States signs legislation having an identical effect as this section applicable to that income earned in all of the states and territories.
(2) Upon receipt of the report, the Legislature shall, in the same taxable year as in which the report is made, determine whether to repeal, make inoperative, or continue in effect the tax imposed by this section.
(3) A report to be submitted pursuant to paragraph (1) shall be submitted in compliance with Section 9795 of the Government Code.

SEC. 2.

 It is the intent of the Legislature that the moneys derived from the tax imposed by Section 17044 of the Revenue and Taxation Code, as added by this act, will be used for education purposes.

SEC. 3.

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