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SB-1501 Small Business Relief Act: elective tax.(2023-2024)



Current Version: 07/03/24 - Amended Assembly

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SB1501:v96#DOCUMENT

Amended  IN  Assembly  July 03, 2024
Amended  IN  Assembly  June 24, 2024
Amended  IN  Senate  March 20, 2024

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Senate Bill
No. 1501

Introduced by Senator Glazer

February 16, 2024

An act to amend Sections 17052.10, 19101, and 19904 of the Revenue and Taxation Code, relating to taxation.


LEGISLATIVE COUNSEL'S DIGEST


SB 1501, as amended, Glazer. Small Business Relief Act: elective tax.
Existing law, known as 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 to elect to pay an elective tax at a rate based on its net income, as specified, for the taxable year, if it meets certain requirements, including a requirement that the taxpayer makes a prepayment on or before June 15 of the taxable year of the election in an amount equal to the greater of $1,000 or 50% of the elective tax paid by the taxpayer in the prior taxable year. Existing law provides for interest to be imposed on any amount of tax imposed but not paid, as provided.
Existing law, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, allows a credit against the personal income tax of a taxpayer, other than a partnership, that is a partner, shareholder, or member of an entity that elects to pay the above-described elective tax authorized by the 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.
This bill would, for taxable years beginning on or after January 1, 2024, and before January 1, 2026, authorize a partnership or “S” corporation to elect to pay the above-described elective tax without making the above-described prepayment or without making the prepayment in full on or before June 15 if the taxpayer pays the full amount of the elective tax on or before the due date of the original return without regard to any extensions. The bill would impose interest on the amount of the prepayment that was unpaid or underpaid for the period that begins on the June 15 that the prepayment was due and ends on the day of payment, as provided. The bill, for a taxpayer whose entity does not make the above-described prepayment on or before June 15, or makes a payment that is less than the amount due on or before June 15, as specified, would allow a credit for the taxpayer equal to 10% of the amount of the above-described credit, in a reduced amount, as specified.
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) (A) “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).
(B) For taxable years beginning on or after January 1, 2024, for purposes and before January 1, 2026:
(i) In the case of a qualified taxpayer who is a partner, shareholder, or member of an electing qualifying qualified entity that does not make the payment required by subparagraph (A) of paragraph (2) of subdivision (a) of Section 19904, “qualified amount” means an amount equal to the amount described in subparagraph (A) reduced by 10 percent.
(ii) In the case of a qualified taxpayer who is a partner, shareholder, or member of an electing qualified entity that makes a payment that is less than the amount due pursuant to subparagraph (A) of paragraph (2) of subdivision (a) of Section 19904, “qualified amount” means an amount equal to the amount described in subparagraph (A), reduced by an amount equal to 10 percent of the amount due but not paid under subparagraph (A) of paragraph (2) of subdivision (a) of Section 19904.
(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 19101 of the Revenue and Taxation Code is amended to read:

19101.
 (a) If any amount of tax imposed by Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001), is not paid on or before the last date prescribed for payment, interest on that amount at the adjusted annual rate established under Section 19521 shall be paid for the period from that last date to the date paid.
(b) For purposes of this article, the last date prescribed for payment of the tax shall be determined under Chapter 4 (commencing with Section 19001), with the application of the following rules:
(1) The last date prescribed for payment shall be determined without regard to any extension of time for payment or any installment agreement entered into under Section 19008.
(2) The last date prescribed for payment shall be determined without regard to any notice and demand for payment issued, by reason of jeopardy as provided in Article 5 (commencing with Section 19081), prior to the last date otherwise prescribed for that payment.
(3) In all other cases in which the last date for payment is not otherwise prescribed, the last date for payment shall be deemed to be the date the liability for tax arises (and in no event shall be later than the date notice and demand for the tax is made by the Franchise Tax Board).
(c) Except as provided in this article:
(1) Interest prescribed under this article on any tax shall be paid upon notice and demand, and shall be assessed, collected, and paid in the same manner as taxes. Any reference in Part 10 (commencing with Section 17001), Part 11 (commencing with Section 23001), or this part (except Article 3 (commencing with Section 19031), relating to deficiency assessments) to any tax imposed by Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001) shall be deemed also to refer to interest imposed by this article on that tax.
(2) (A) Interest shall be imposed under subdivision (a) in respect to any assessable penalty, additional amount, or addition to the tax (other than an addition to tax imposed under Section 19131, 19132, or 19164) only if that assessable penalty, additional amount, or addition to the tax is not paid within 15 calendar days from the date of notice and demand therefor, and in that case interest shall be imposed only for the period from the date of the notice and demand to the date of payment.
(B) Interest shall be imposed under this article with respect to any addition to tax imposed by Section 19131 (relating to failure to file a return on or before the due date), Section 19132 (relating to underpayment of tax), or Section 19164 (relating to imposition of the accuracy-related penalty), for the period that:
(i) Begins on the date on which the return of the tax with respect to which that addition to tax is imposed is required to be filed (including any extensions), and
(ii) Ends on the date of payment of that addition to tax.
(C) Interest shall be imposed under this article with respect to any amount unpaid or underpaid of the payment required by subparagraph (A) of paragraph (2) of subdivision (a) of Section 19904 (relating to June 15 payment requirement), 19904 for the period that begins on the June 15 that payment is due and ends on the date of payment.
(3) If notice and demand is made for payment of any amount and if that amount is paid within 15 calendar days after the date of the notice and demand, interest under this article on the amount so paid shall not be imposed for the period after the date of the notice and demand.
(d) This article shall not apply to any failure to pay estimated tax required by Section 19025 or 19136.
(e) The amendments made to this section by the act adding this subdivision shall apply for taxable years beginning on or after January 1, 2024, and before January 1, 2026.

SEC. 3.

 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 15 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 taxable years beginning on or after January 1, 2022, and before January 1, 2024, 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) (1) Notwithstanding subdivision (a), for taxable years beginning on or after January 1, 2024, and before January 1, 2026, if no payment is made as required in subparagraph (A) of paragraph (2) of subdivision (a), or if a payment is made that is less than the amount required by subparagraph (A) of paragraph (2) of subdivision (a), a qualified entity that pays the full amount of the elective tax authorized by this part may make the election under Section 19900 for that taxable year.
(2) The full amount of the elective tax shall be paid 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.
(3) The amount paid pursuant to this subdivision shall be included with a qualified entity’s return required under Chapter 2 (commencing with Section 18501) of Part 10.2 for the taxable year.
(d) 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).
(e) (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.
(f) The amendments made to this section by the act adding this subdivision shall apply for taxable years beginning on or after January 1, 2024, and before January 1, 2026.