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SB-104 Elective tax: limited partnership: limited liability partnership: limited liability company: “S” corporation: exclusion. (2021-2022)

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Date Published: 01/05/2021 09:00 PM
SB104:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Senate Bill
No. 104


Introduced by Senators McGuire and Caballero
(Principal coauthors: Assembly Members Burke and Chiu)

January 05, 2021


An act to add and repeal Section 17132.9 of, and to add and repeal Part 10.4 (commencing with Section 19900) of Division 2 of, the Revenue and Taxation Code, relating to taxation.


LEGISLATIVE COUNSEL'S DIGEST


SB 104, as introduced, McGuire. Elective tax: limited partnership: limited liability partnership: limited liability company: “S” corporation: exclusion.
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.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 Section 17132.9 is added to the Revenue and Taxation Code, to read:

17132.9.
 (a) For taxable years beginning on or after January 1, 2021, and before January 1, 2026, for a qualified taxpayer, gross income shall not include the qualified amount paid by a qualified entity for that taxable year.
(b) For purposes of this section, all of the following shall apply:
(1) “Qualified amount” means an amount equal to the qualified taxpayer’s pro rata share of the amount of elective tax paid by a qualified entity under Part 10.4 (commencing with Section 19900).
(2) “Qualified entity” means an entity authorized, and elected, to pay the elective tax under Part 10.4 (commencing with Section 19900).
(3) (A) “Qualified taxpayer” means an individual who is a partner, shareholder, or member of a qualified entity.
(B) A qualified taxpayer may be a resident, nonresident, or part-year resident.
(c) A qualified taxpayer shall not be eligible for the Earned Income Tax Credit if their income eligibility derives from the exclusion allowed by this section.
(d) This section shall not change any filing requirements for a qualified taxpayer under Part 10 (commencing with Section 17001) or Part 10.2 (commencing with Section 18401).
(e) For the purposes of complying with Section 41, the Legislature finds and declares that the goal of this exclusion is to provide tax relief to small businesses facing unprecedented economic hurtles due to COVID-19.
(f) This section shall remain in effect only until December 1, 2026, and as of that date is repealed.

SEC. 2.

 Part 10.4 (commencing with Section 19900) is added to Division 2 of the Revenue and Taxation Code, to read:

PART 10.4. Small Business Relief Act

19900.
 (a) For taxable years beginning on or after January 1, 2021, and before January 1, 2026, a qualified taxpayer doing business in this state, as defined by Section 23101, and required to file a return under Section 18633, may elect to annually pay an elective tax according to or measured by its net income computed at the rate of _____ percent upon the basis of its net income for the last preceding taxable year.
(b) (1) The elective tax authorized by this part shall be in addition to, and not in place of, any other tax required to be paid under Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001).
(2) The collection and administration of the elective tax described in this part shall be governed by the provisions of Part 10.2 (commencing with Section 18401) unless expressly superseded by the provisions of this part.
(3) Unless the context otherwise requires, the definitions set forth in this part and those in Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001) govern the construction of this part.
(c) The determination by a qualified taxpayer of whether to elect to pay the elective tax authorized by this part shall be made at the entity level. All partners, shareholders, and members shall be bound by the decision of the entity made with respect to this part for that taxable year.

19902.
 (a) For purposes of this part, “qualified taxpayer” means an entity that meets both of the following requirements:
(1) The entity is taxed as a partnership or “S” corporation under Section 17935, 17941, 17948, or 23802.
(2) The partners, shareholders, or members in that taxable year are exclusively individuals.
(b) “Qualified taxpayer” shall not include taxpayers in a combined reporting group, as defined in paragraph (3) of subdivision (b) of Section 25106.5 of Title 18 of the California Code of Regulations.
(c) The determination of whether a taxpayer is a qualified taxpayer under this part shall be made at the entity level.

19904.
 (a) The elective tax authorized by this part shall be due and payable on the original and timely filed return.
(b) This part shall not change any filing requirements under Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001).
(c) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance 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 part.

19906.
 This part shall remain in effect only until December 1, 2026, and as of that date is repealed.