The Personal Income Tax Law, in modified conformity with federal law, generally imposes a tax on the income of residents in the state, as specified, and allows various credits against the taxes imposed by that law. The Personal Income Tax Law also 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.

Existing law requires any bill introduced on or after January 1, 2020, authorizing certain tax expenditures, as defined, 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 a partnership or “S” corporation that meets certain other requirements to elect to pay an elective tax at a rate based on its net income, as specified, for the taxable year. The bill would authorize the Franchise Tax Board to adopt regulations to implement the elective tax and exempt those regulations from the rulemaking provisions of the Administrative Procedure Act. The bill, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, would allow a credit against the personal income tax to a taxpayer, other than a partnership, that is a partner, shareholder, or member of an entity that elects to pay the elective tax authorized by the bill, in an amount equal to a specified percentage of the partner’s, shareholder’s, or member’s pro rata share or distributive share, as applicable, of income subject to 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.