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

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Date Published: 05/26/2018 04:00 AM
AB2731:v97#DOCUMENT

Amended  IN  Assembly  May 25, 2018
Amended  IN  Assembly  May 01, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill
No. 2731

Introduced by Assembly Members Gipson and Bonta

February 15, 2018

An act to add Section 17044 to the Revenue and Taxation Code, relating to taxation, and making an appropriation therefor. therefor, and declaring the urgency thereof, to take effect immediately.


LEGISLATIVE COUNSEL'S DIGEST


AB 2731, as amended, Gipson. Income taxes: investment management services interest: education funding.
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, no more than 30 days thereafter, 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 repeal, make inoperative, or continue in effect the tax. The bill would also require the revenues derived from this tax to be deposited in the College, Career, and Community Ready Fund, which the bill would establish.
The bill would require the moneys deposited in the College, Career, and Community Ready Fund to be continuously appropriated to the State Department of Education for apportionment to local educational agencies for designated categories of programs, thereby making an appropriation. The bill would authorize the department to adopt regulations and procedures to implement these provisions of the bill relating to the distribution of the apportioned funds and to effectuate the intent of the Legislature as to the distribution of these funds among those categories. The bill would also authorize the Franchise Tax Board to prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of the bill, as specified.
The funds apportioned to local educational agencies pursuant to this bill for the specified purposes would be applied toward the minimum funding requirements for school districts and community college districts imposed by Section 8 of Article XVI of the California Constitution.

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 23 of the membership of each house of the Legislature.

This bill would declare that it is to take effect immediately as an urgency statute.
Vote: 2/3   Appropriation: YES   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) Revenues derived from the tax imposed by this section shall be deposited in the College, Career, and Community Ready Fund, which is hereby created. Notwithstanding Section 13340 of the Government Code, the moneys deposited in the College, Career, and Community Ready Fund shall be continuously appropriated without regard to fiscal year to the State Department of Education, for apportionment, on the basis of average daily attendance, to local educational agencies. The funds apportioned under this subdivision shall only be expended by local educational agencies to support programs relating to one or more of the following purposes:
(A) Career technical education.
(B) Early childhood education.
(C) Staffing to provide counseling in social-emotional, mental, physical, and academic health and positive behavior, and to provide counseling and support for pupils, teachers, and staff in trauma-informed and culturally responsive strategies.
(2) At least 5 percent of the moneys apportioned under this subdivision shall be used to supplement, and not supplant, the Agricultural Career Technical Education Incentive Program established pursuant to Article 7.5 (commencing with Section 52460) of Chapter 9 of Part 28 of Division 4 of Title 2 of the Education Code.
(3) It is the intent of the Legislature that each of the categories listed in subparagraphs (A) to (C), inclusive, of paragraph (1) shall be allocated at least 10 percent, but no more than 50 percent, of the moneys apportioned under this subdivision in each fiscal year.
(4) The State Department of Education is authorized to adopt regulations and procedures to implement this subdivision and to effectuate the intent of the Legislature as expressed in paragraph (3).
(e) (1) The Franchise Tax Board shall report to the Legislature, no more than 30 days thereafter, 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.
(f) The Franchise Tax Board may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section.

SEC. 2.

 This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect. The facts constituting the necessity are:
In order to facilitate the timely implementation of this act by allowing the Franchise Tax Board to begin implementing it immediately, it is necessary that this act take effect immediately.