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SB-851 Personal Income Tax Law: Small Business Relief Act: elective tax.(2021-2022)



Current Version: 09/28/22 - Chaptered

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SB851:v94#DOCUMENT

Senate Bill No. 851
CHAPTER 705

An act to amend Sections 17052.10 and 19904 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

[ Approved by Governor  September 28, 2022. Filed with Secretary of State  September 28, 2022. ]

LEGISLATIVE COUNSEL'S DIGEST


SB 851, Portantino. Personal Income Tax Law: Small Business Relief Act: elective tax.
Existing law, the Small Business Relief Act, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, authorizes 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 Personal Income Tax Law allows various credits against the taxes imposed by that law, including 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 Small Business Relief Act, 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 Personal Income Tax Law provides a credit against the taxes imposed by that law, not to exceed the net tax, as defined, payable under that law, to residents for specified taxes paid to another state on income derived from sources within that state.
This bill would, for taxable years beginning on or after January 1, 2022, and before January 1, 2026, increase the maximum credit allowed to residents for specified taxes paid to another state by the amount by which their net tax, as defined, is decreased by the credit allowed to a partner, shareholder, or member of an entity that elects to pay the elective tax authorized by the Small Business Relief Act.
This bill would also make a nonsubstantive change to the Small Business Relief Act.
Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill would state that the requirement for additional information in a bill authorizing a new tax expenditure does not apply in this case.
This bill would take effect immediately as a tax levy.
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 of the Revenue and Taxation Code is amended 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 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 sum of the qualified taxpayer’s guaranteed payments as defined by Section 707(c) of the Internal Revenue Code, relating to guaranteed payments, and the qualified taxpayer’s pro rata share or distributive share, as applicable, of income, as determined under this part and Part 11 (commencing with Section 23001), subject to tax under this part included in qualified net income, as defined in Section 19900, subject to the election made by an electing qualified entity under Part 10.4 (commencing with Section 19900).
(3) “Qualified taxpayer” means:
(A) A taxpayer, as defined in Section 17004, excluding partnerships, that is a partner, shareholder, or member of an electing qualified entity that consented to have the sum of their guaranteed payments and pro rata share or distributive share of income, as determined under this part and Part 11 (commencing with Section 23001), subject to tax under this part included in the qualified net income, as defined in Section 19900, of the electing qualified entity.
(B) “Qualified taxpayer” does not include a business entity that is disregarded for federal tax purposes, as described in Section 23038, or its partners or members.
(C) Subparagraph (B) shall not apply to a limited liability company that is disregarded for federal tax purposes, as described in Section 23038, and meets both of the following:
(i) Is owned by a taxpayer, as defined in Section 17004, excluding partnerships, that consented to have the sum of their guaranteed payments and pro rata share or distributive share of income, as determined under this part and Part 11 (commencing with Section 23001), subject to tax under this part included in the qualified net income, as defined in Section 19900, of the electing qualified entity.
(ii) 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 four years, if necessary, until the credit is exhausted.
(d) (1) Any disallowance of a credit under this section due to any of the following conditions shall be treated as a mathematical error appearing on the return:
(A) Timely payment was not made under subdivision (b) of Section 19904.
(B) Payments made for the taxable year exceed the elective tax computed under Part 10.4 (commencing with Section 19900).
(C) No election was made or allowed under Part 10.4 (commencing with Section 19900).
(2) Any amount of tax resulting from such disallowance may be assessed by the Franchise Tax Board in the same manner as provided by Section 19051.
(e) (1) For each taxable year the credit is allowed, for purposes of Sections 18001 and 18002, “‘net tax’ (as defined by Section 17039) payable under this part” shall be increased by the amount of credit under this section that reduced the “net tax,” as defined in Section 17039, in that taxable year.
(2) This subdivision shall apply for taxable years beginning on or after January 1, 2022, and before January 1, 2026.
(3) Section 41 shall not apply to the expansion of existing tax expenditures resulting from application of this subdivision.
(f) (1) The Franchise Tax Board may adopt regulations that are necessary or appropriate to implement this section.
(2) 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 section.
(g) 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.
(h) The amendments made to this section by Chapter 3 of the Statutes of 2022 shall apply for taxable years beginning on or after January 1, 2021, and before January 1, 2026.
(i) This section shall remain in effect only until December 1, 2026, and as of that date is repealed.

SEC. 2.

 Section 19904 of the Revenue and Taxation Code is amended to read:

19904.
 (a) The elective tax authorized by this part shall be due and payable as follows:
(1) For taxable years beginning on or after January 1, 2021, and before January 1, 2022, on or before the due date of the original return that the qualified entity is required to file pursuant to Part 10.2 (commencing with Section 18401) without regard to any extension of time for filing the return, for the taxable year of the election made pursuant to Section 19900.
(2) For each taxable year beginning on or after January 1, 2022, and before January 1, 2026, as follows:
(A) On or before June 15th during the taxable year of the election, an amount equal to, or greater than, either 50 percent of the elective tax paid the prior taxable year or one thousand dollars ($1,000), whichever is greater.
(B) On or before the due date of the original return that the qualified entity is required to file pursuant to Part 10.2 (commencing with Section 18401) without regard to any extension of time for filing the return for the taxable year of the election made pursuant to Section 19900, an amount equal to the amount of the elective tax under subdivision (a) of Section 19900, less the payment made on or before June 15th of the taxable year pursuant to subparagraph (A).
(b) For each taxable year beginning on or after January 1, 2022, and before January 1, 2026, if no payment is made as required in subparagraph (A) of paragraph (2) of subdivision (a) in the form and manner as prescribed by the Franchise Tax Board, the qualified entity may not make the election under Section 19900 for that taxable year.
(c) 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).
(d) (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.

SEC. 3.

  This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.