The Personal Income Tax Law imposes an annual tax on every limited partnership, limited liability partnership, and limited liability company doing business in this state, as specified, in an amount equal to the minimum franchise tax. The Corporation Tax Law imposes an annual tax on “S” corporations at a rate of 1.5% of its net income, or if greater, the minimum franchise tax, as specified. The Personal Income Tax Law generally defines “gross income” for these purposes as income from whatever source derived, except as specifically excluded, and provides various exclusions from gross income.

Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements.

This bill, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, would authorize specified limited partnerships, limited liability partnerships, limited liability companies, and “S” corporations to elect to pay an annual elective tax at a rate based on its net income for the preceding taxable year. The bill, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, would exclude from gross income, for an individual partner, shareholder, or member of an entity that elects to pay the elective tax authorized by the bill, an amount equal to the partner, shareholder, or member’s pro rata share of the amount of the elective tax paid by the entity. The bill would also provide findings to comply with the additional information requirement for any bill authorizing a new tax expenditure.