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SB-104 Elective tax: partnership: “S” corporation: credit.(2021-2022)



Current Version: 04/12/21 - Amended Senate Compare Versions information image


SB104:v96#DOCUMENT

Amended  IN  Senate  April 12, 2021
Amended  IN  Senate  April 05, 2021
Amended  IN  Senate  March 09, 2021

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Senate Bill
No. 104


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

January 05, 2021


An act to amend Section 17055 of, to add and repeal Section 17052.10 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 amended, McGuire. Elective tax: partnership: “S” corporation: credit.
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.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 Section 17052.10 is added to the Revenue and Taxation Code, to read:

17052.10.
 (a) For taxable years beginning on or after January 1, 2021, and before January 1, 2026, there shall be allowed to a qualified taxpayer a credit against the “net tax,” as defined in Section 17039, in an amount equal to 94.9 percent of the qualified amount.
(b) For purposes of this section:
(1) “Electing qualified entity” means a qualified entity, as defined by Section 19902, that has elected to pay the elective tax under Part 10.4 (commencing with Section 19900).
(2) “Qualified amount” means an amount equal to 9.3 percent of the qualified taxpayer’s pro rata share or distributive share, as applicable, of income subject to the election made by an electing qualified entity under Part 10.4 (commencing with Section 19900).
(3) “Qualified taxpayer” means a taxpayer, as defined in Section 17004, excluding partnerships, that is a partner, shareholder, or member of an electing qualified entity.
(c) In the case where the credit allowed by this section exceeds the “net tax,” the excess may be carried over to reduce the “net tax” in the following taxable year, and succeeding two years, if necessary, until the credit is exhausted.
(d) For the purposes of complying with Section 41, the Legislature finds and declares that the goal of this tax credit is to provide tax relief to small businesses facing unprecedented economic hurdles due to COVID-19.
(e) This section shall remain in effect only until December 1, 2026, and as of that date is repealed.

SEC. 2.

 Section 17055 of the Revenue and Taxation Code is amended to read:

17055.
 (a) Any An individual who is a nonresident or a part-year resident shall be allowed all credits provided under this part against the “net tax,” as defined by Section 17039, except those described in subdivision (b) and in Section 17053.5, relating to the renter’s credit, and Section 18002, relating to taxes paid to another state, in the same proportion as the ratio that “taxable income of a nonresident or part-year resident” computed under paragraph (1) of subdivision (i) of Section 17041 bears to “total taxable income,” as defined in Section 17031.5.
(b) Credits allowed under this part which are conditional upon a transaction occurring wholly within California and the credit allowed under Section 17052.10 shall be allowed in their entirety.

SEC. 3.

 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) (1) For taxable years beginning on or after January 1, 2021, and before January 1, 2026, a qualified entity doing business in this state, as defined in Section 23101, and required to file a return under Section 18633 or 18633.5, may elect to annually pay an elective tax according to or measured by its net income computed at the rate of 9.3 percent for the taxable year for which the election is made.
(2) For taxable years beginning on or after January 1, 2021, and before January 1, 2026, a qualified entity doing business in this state, as defined in Section 23101, and required to file a return under subdivision (a) of Section 18601, may elect to annually pay an elective tax according to or measured by its net income computed at the rate of 9.3 percent for the taxable year for which the election is made.
(3) For purposes of this section, the net income of a qualified entity shall be equal to the total of the resident owners’ share of the qualified entity’s net income from all sources and the total of the nonresident owners’ share of the qualified entity’s net income determined under Chapter 17 (commencing with Section 25101) of Part 11.
(b) (1) The elective tax authorized by this part shall be in addition to, and not in place of, any other tax or fee 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) shall apply.
(c) A qualified entity may elect to pay the elective tax authorized by this part. All partners, shareholders, and members of the qualified entity shall be bound by the election made with respect to this part for the taxable year.
(d) The election shall be irrevocable and shall be made on an original, timely filed return for the taxable year of the election in the form and manner as prescribed by the Franchise Tax Board.

19902.
 (a) For purposes of this part, “qualified entity” means an entity that meets both of the following requirements for the taxable year:
(1) The entity is taxed as a partnership or “S” corporation.
(2) The entity’s partners, shareholders, or members in that taxable year are exclusively taxpayers as defined in Section 17004, excluding partnerships.
(b) “Qualified entity” shall not include taxpayers permitted or required to be 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.

19904.
 (a) The elective tax authorized by this part shall be due and payable on or before the due date of the return without regard to any extension of time for filing the return, for the taxable year of the election pursuant to Section 19900.
(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) (1) The Franchise Tax Board may adopt regulations that are necessary or appropriate to implement this part.
(2) The Administrative Procedure Act (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 regulation, 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.