AB 2625: Corporation taxes: minimum franchise tax: annual tax: microbusiness.
- Session Year: 2015-2016
- House: Assembly
- Latest Version Date: 2016-05-17
Existing law imposes an annual minimum franchise tax, except as provided, on every corporation incorporated in this state, qualified to transact intrastate business in this state or doing business in this state. Existing law exempts a corporation that incorporates or qualifies to do business in this state from the payment of the minimum franchise tax in its first taxable year.
Existing law imposes an annual tax in an amount equal to the minimum franchise tax on every limited partnership, limited liability company, and limited liability partnership that is doing business in this state or that has filed or registered with the Secretary of State.
The minimum franchise tax imposed on a corporation, and the annual tax imposed on a limited liability company, must be paid by the 15th day of the 4th month of the taxable year. The annual tax imposed on a limited partnership or on a limited liability partnership, partnership must be paid by the original due date of the partnership return.
This bill, for taxable years beginning on or after January 1, 2017, and on or before January 1, 2020, would reduce that minimum franchise tax of a new microbusiness, as defined, to specified amounts, in the 2nd, 3rd, 4th, and 5th taxable years, amounts for the taxable years immediately following its first taxable year that begin on or before January 1, 2020, for a corporation that is a new microbusiness, or that annual tax, for each of the first 5 initial taxable years of its existence, existence that begin on or before January 1, 2020, for a limited liability company, limited partnership, or limited liability partnership that is a new microbusiness, as defined. as specified.
This bill would take effect immediately as a tax levy.
Existing law imposes an annual minimum franchise tax, except as provided, on every corporation incorporated in this state, qualified to transact intrastate business in this state or doing business in this state. Existing law exempts a corporation that incorporates or qualifies to do business in this state from the payment of the minimum franchise tax in its first taxable year.
Existing law imposes an annual tax in an amount equal to the minimum franchise tax on every limited partnership, limited liability company, and limited liability partnership that is doing business in this state or that has filed or registered with the Secretary of State.
The minimum franchise tax imposed on a corporation, and the annual tax imposed on a limited liability company, must be paid by the 15th day of the 4th month of the taxable year. The annual tax imposed on a limited partnership or on a limited liability partnership, must be paid by the original due date of the partnership return.
This bill, for taxable years beginning on or after January 1, 2017, would reduce that minimum franchise tax to specified amounts, in the 2nd, 3rd, 4th, and 5th taxable years, for a corporation that is a new microbusiness, or that annual tax, for each of the first 5 taxable years of its existence, for a limited liability company, limited partnership, or limited liability partnership that is a new microbusiness, as defined.
This bill would take effect immediately as a tax levy.
Existing law imposes an annual minimum franchise tax, except as provided, on every corporation incorporated in this state, qualified to transact intrastate business in this state, or doing business in this state. Existing law exempts a corporation that incorporates or qualifies to do business in this state from the payment of the minimum franchise tax in its first taxable year.
Existing law imposes an annual tax in an amount equal to the minimum franchise tax on every limited partnership, limited liability company, and limited liability partnership that is doing business in this state or that has filed or registered with the Secretary of State.
The minimum franchise tax imposed on a corporation, and the annual tax imposed on a limited liability company, must be paid by the 15th day of the 4th month of the taxable year. The annual tax imposed on a limited partnership or on a limited liability partnership, must be paid by the original due date of the partnership return.
This bill, for taxable years beginning on or after January 1, 2016, 2017, would reduce that minimum franchise tax to specified amounts, in the 2nd, 3rd, 4th, and 5th taxable years, for a corporation that is a new microbusiness, or that annual tax, in the first 5 taxable years, for each of the first 5 taxable years of its existence, for a limited liability company, limited partnership, or limited liability partnership that is a new microbusiness, as defined.
This bill would take effect immediately as a tax levy.
Existing law imposes an annual minimum franchise tax, except as provided, on every corporation incorporated in this state, qualified to transact intrastate business in this state, or doing business in this state. Existing law exempts a corporation that incorporates or qualifies to do business in this state from the payment of the minimum franchise tax in its first taxable year.
Existing law imposes an annual tax in an amount equal to the minimum franchise tax on every limited partnership, limited liability company, and limited liability partnership that is doing business in this state or that has filed or registered with the Secretary of State.
The minimum franchise tax imposed on a corporation, and the annual tax imposed on a limited liability company, must be paid by the 15th day of the 4th month of the taxable year. The annual tax imposed on a limited partnership or on a limited liability partnership, must be paid by the original due date of the partnership return.
This bill, for taxable years beginning on or after January 1, 2016, would reduce that minimum franchise tax to specified amounts, in the 2nd, 3rd, 4th, and 5th taxable years, for a corporation that is a new microbusiness, or that annual tax, in the first 5 taxable years, for a limited liability company, limited partnership, or limited liability partnership that is a new microbusiness, as defined.
This bill would take effect immediately as a tax levy.
(a)For each taxable year beginning on or after January 1, 1997, every limited partnership doing business in this state, as defined by Section 23101, and required to file a return under Section 18633 shall pay annually to this state a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153.
(b)(1)In addition to any limited partnership that is doing business in this state and therefore is subject to the tax imposed by subdivision (a), for each taxable year beginning on or after January 1, 1997, every limited partnership that has executed, acknowledged, and filed a certificate of limited partnership with the Secretary of State pursuant to Section 15621 or 15902.01 of the Corporations Code, and every foreign limited partnership that has registered with the Secretary of State pursuant to Section 15692 or 15909.01 of the Corporations Code, shall pay annually the tax prescribed in subdivision (a). The tax shall be paid for each taxable year, or part thereof, until a certificate of cancellation is filed on behalf of the limited partnership with the office of the Secretary of State pursuant to Section 15902.03 or 15909.07 of the Corporations Code.
(2)If a taxpayer files a return with the Franchise Tax Board that is designated its final return, that board shall notify the taxpayer that the tax imposed by this chapter is due annually until a certificate of cancellation is filed with the Secretary of State pursuant to Section 15902.03 or 15909.07 of the Corporations Code.
(c)The tax imposed by this chapter shall be due and payable on the date the return is required to be filed under former Section 18432 or 18633.
(d)For purposes of this section, limited partnership means any partnership formed by two or more persons under the laws of this state or any other jurisdiction and having one or more general partners and one or more limited partners.
(e)Notwithstanding subdivision (b), any limited partnership that ceased doing business prior to January 1, 1997, filed a final return with the Franchise Tax Board for a taxable year ending before January 1, 1997, and filed a certificate of dissolution with the Secretary of State pursuant to Section 15623 of the Corporations Code prior to January 1, 1997, shall not be subject to the tax imposed by this chapter for any period following the date the certificate of dissolution was filed with the Secretary of State, but only if the limited partnership files a certificate of cancellation with the Secretary of State pursuant to Section 15623 of the Corporations Code. In the case where a notice of proposed deficiency assessment of tax or a notice of tax due (whichever is applicable) is mailed after January 1, 2001, the first sentence of this subdivision shall not apply unless the certificate of cancellation is filed with the Secretary of State not later than 60 days after the date of the mailing of the notice.
(f)(1)Notwithstanding subdivision (a) or (b), for taxable years beginning on or after January 1, 2017, and on or before January 1, 2020, every limited partnership that is a new microbusiness shall, for each of the first five initial taxable years of its existence that begin on or before January 1, 2020, not to exceed five taxable years, for which it qualifies as a new microbusiness, pay to the state an annual tax of:
(A)Two hundred dollars ($200) for a new microbusiness that has gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of fifty thousand dollars ($50,000) or less.
(B)Four hundred dollars ($400) for a new microbusiness that has gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred thousand dollars ($100,000) or less, but more than fifty thousand dollars ($50,000).
(C)Six hundred dollars ($600) for a new microbusiness that has gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred fifty thousand dollars ($150,000) or less, but more than one hundred thousand dollars ($100,000).
(2)For purposes of this subdivision, the following definitions shall apply:
(A)(i)Gross receipts, less returns and allowances, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(ii)Gross receipts, less returns and allowances, derived from or attributable to this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by the regulations under Section 25137, other than those provisions that exclude receipts from the sales factor.
(B)New microbusiness means a limited partnership that on or after January 1, 2017, is organized under the laws of this state or has qualified to transact intrastate business in this state and has first commenced doing business in this state on or after the time of its organization. In determining whether the taxpayer has first commenced doing business in this state during the taxable year, subdivision (f) of Section 17276, without application of paragraph (7) of that subdivision, shall apply, except that new microbusiness shall be substituted for new business.
(3)For purposes of this subdivision, the gross receipts derived from or attributable to the state of any other business, in whatever form conducted, that is owned, directly or indirectly, by persons, within the meaning of Section 17007, that are treated as related, within the meaning of Section 267, 318, or 707 of the Internal Revenue Code, to the new microbusiness, shall be aggregated with the gross receipts derived from or attributable to the state of the new microbusiness to determine whether the new microbusiness qualifies for the reduced annual tax under this subdivision.
SEC. 2.Section 17941 of the Revenue and Taxation Code is amended to read:17941.(a)For each taxable year beginning on or after January 1, 1997, a limited liability company doing business in this state, as defined in Section 23101, shall pay annually to this state a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153 for the taxable year.
(b)(1)In addition to any limited liability company that is doing business in this state and is therefore subject to the tax imposed by subdivision (a), for each taxable year beginning on or after January 1, 1997, a limited liability company shall pay annually the tax prescribed in subdivision (a) if articles of organization have been accepted, or a certificate of registration has been issued, by the office of the Secretary of State. The tax shall be paid for each taxable year, or part thereof, until a certificate of cancellation of registration or of articles of organization is filed on behalf of the limited liability company with the office of the Secretary of State.
(2)If a taxpayer files a return with the Franchise Tax Board that is designated as its final return, the Franchise Tax Board shall notify the taxpayer that the annual tax shall continue to be due annually until a certificate of dissolution is filed with the Secretary of State pursuant to Section 17707.08 of the Corporations Code or a certificate of cancellation is filed with the Secretary of State pursuant to Section 17708.06 of the Corporations Code.
(c)The tax assessed under this section shall be due and payable on or before the 15th day of the fourth month of the taxable year.
(d)For purposes of this section, limited liability company means an organization, other than a limited liability company that is exempt from the tax and fees imposed under this chapter pursuant to Section 23701h or 23701x, that is formed by one or more persons under the law of this state, any other country, or any other state, as a limited liability company and that is not taxable as a corporation for California tax purposes.
(e)Notwithstanding anything in this section to the contrary, if the office of the Secretary of State files a certificate of cancellation pursuant to Section 17707.02 of the Corporations Code for any limited liability company, then paragraph (1) of subdivision (f) of Section 23153 shall apply to that limited liability company as if the limited liability company were properly treated as a corporation for that limited purpose only, and paragraph (2) of subdivision (f) of Section 23153 shall not apply. Nothing in this subdivision entitles a limited liability company to receive a reimbursement for any annual taxes or fees already paid.
(f)(1)Notwithstanding any provision of this section to the contrary, a limited liability company that is a small business solely owned by a deployed member of the United States Armed Forces shall not be subject to the tax imposed under this section for any taxable year the owner is deployed and the limited liability company operates at a loss or ceases operation.
(2)The Franchise Tax Board may promulgate regulations as necessary or appropriate to carry out the purposes of this subdivision, including a definition for ceases operation.
(3)For the purposes of this subdivision, all of the following definitions apply:
(A)Deployed means being called to active duty or active service during a period when a Presidential Executive order specifies that the United States is engaged in combat or homeland defense. Deployed does not include either of the following:
(i)Temporary duty for the sole purpose of training or processing.
(ii)A permanent change of station.
(B)Operates at a loss means a limited liability companys expenses exceed its receipts.
(C)Small business means a limited liability company with total income from all sources derived from, or attributable, to the state of two hundred fifty thousand dollars ($250,000) or less.
(4)This subdivision shall become inoperative for taxable years beginning on or after January 1, 2018.
(g)(1)Notwithstanding subdivision (a), (b), or (f), for taxable years beginning on or after January 1, 2017, and on or before January 1, 2020, every limited liability company that is a new microbusiness shall, for each of the first five initial taxable years of its existence that begin on or before January 1, 2020, not to exceed five taxable years, for which it qualifies as a new microbusiness, pay to the state an annual tax of:
(A)Two hundred dollars ($200) for a new microbusiness that reasonably estimates it will have gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of fifty thousand dollars ($50,000) or less.
(B)Four hundred dollars ($400) for a new microbusiness that reasonably estimates it will have gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred thousand dollars ($100,000) or less, but more than fifty thousand dollars ($50,000).
(C)Six hundred dollars ($600) for a new microbusiness that reasonably estimates it will have gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred fifty thousand dollars ($150,000) or less, but more than one hundred thousand dollars ($100,000).
(2)For purposes of this subdivision, the following definitions shall apply:
(A)(i)Gross receipts, less returns and allowances means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(ii)Gross receipts, less returns and allowances, derived from or attributable to this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by the regulations under Section 25137, other than those provisions that exclude receipts from the sales factor.
(B)New microbusiness means a limited liability company that on or after January 1, 2017, is organized under the laws of this state or has qualified to transact intrastate business in this state and has first commenced doing business in this state on or after the time of its organization. In determining whether the taxpayer has first commenced doing business in this state during the taxable year, subdivision (f) of Section 17276, without application of paragraph (7) of that subdivision, shall apply, except that new microbusiness shall be substituted for new business.
(3)For purposes of this subdivision, the gross receipts derived from or attributable to the state of any other business, in whatever form conducted, that is owned, directly or indirectly, by persons, within the meaning of Section 17007, that are treated as related, within the meaning of Section 267, 318, or 707 of the Internal Revenue Code, to the new microbusiness, shall be aggregated with the gross receipts derived from or attributable to the state of the new microbusiness to determine whether the new microbusiness qualifies for the reduced annual tax under this subdivision.
(4)For any taxable year beginning on or after January 1, 2017, if a limited liability company has qualified to pay a reduced annual tax under this subdivision for any taxable year, but in that taxable year, the limited liability companys gross receipts, less returns and allowances, derived from or attributable to this state, exceed the amount specified for that reduced amount, an additional tax in an amount equal to six hundred dollars ($600), four hundred dollars ($400), or two hundred dollars ($200), as applicable, for that taxable year shall be due and payable by the limited liability company on the due date of its return, without regard to extension, for that taxable year.
SEC. 3.Section 17948 of the Revenue and Taxation Code is amended to read:17948.(a)For each taxable year beginning on or after January 1, 1997, every limited liability partnership doing business in this state, as defined in Section 23101, and required to file a return under Section 18633 shall pay annually to the Franchise Tax Board a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153 for the taxable year.
(b)In addition to any limited liability partnership that is doing business in this state and therefore is subject to the tax imposed by subdivision (a), for each taxable year beginning on or after January 1, 1997, every registered limited liability partnership that has registered with the Secretary of State pursuant to Section 16953 of the Corporations Code and every foreign limited liability partnership that has registered with the Secretary of State pursuant to Section 16959 of the Corporations Code shall pay annually the tax prescribed in subdivision (a). The tax shall be paid for each taxable year, or part thereof, until any of the following occurs:
(1)A notice of cessation is filed with the Secretary of State pursuant to subdivision (b) of Section 16954 or 16960 of the Corporations Code.
(2)A foreign limited liability partnership withdraws its registration pursuant to subdivision (a) of Section 16960 of the Corporations Code.
(3)The registered limited liability partnership or foreign limited liability partnership has been dissolved and finally wound up.
(c)The tax assessed under this section shall be due and payable on the date the return is required to be filed under Section 18633.
(d)If a taxpayer files a return with the Franchise Tax Board that is designated as its final return, the Franchise Tax Board shall notify the taxpayer that the annual tax shall continue to be due annually until a certificate of cancellation is filed with the Secretary of State pursuant to Section 16954 or 16960 of the Corporations Code.
(e)(1)Notwithstanding subdivision (a) or (b), for taxable years beginning on or after January 1, 2017, and on or before January 1, 2020, every limited liability partnership that is a new microbusiness shall, for each year of the first five initial taxable years of its existence that begin on or before January 1, 2020, not to exceed five taxable years, for which it qualifies as a new microbusiness, pay annually to the state an annual tax of:
(A)Two hundred dollars ($200) for a new microbusiness that has gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of fifty thousand dollars ($50,000) or less.
(B)Four hundred dollars ($400) for a new microbusiness that has gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred thousand dollars ($100,000) or less, but more than fifty thousand dollars ($50,000).
(C)Six hundred dollars ($600) for a new microbusiness that has gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred fifty thousand dollars ($150,000) or less, but more than one hundred thousand dollars ($100,000).
(2)For purposes of this subdivision, the following definitions shall apply:
(A)(i)Gross receipts, less returns and allowances, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(ii)Gross receipts, less returns and allowances, derived from or attributable to this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by the regulations under Section 25137, other than those provisions that exclude receipts from the sales factor.
(B)New microbusiness means a limited liability partnership that on or after January 1, 2017, is organized under the laws of this state or has qualified to transact intrastate business in this state and has first commenced doing business in this state on or after the time of its organization. In determining whether the taxpayer has first commenced doing business in this state during the taxable year, subdivision (f) of Section 17276, without application of paragraph (7) of that subdivision, shall apply, except that new microbusiness shall be substituted for new business.
(3)For purposes of this subdivision, the gross receipts derived from or attributable to the state of any other business, in whatever form conducted, that is owned, directly or indirectly, by persons, within the meaning of Section 17007, that are treated as related, within the meaning of Section 267, 318, or 707 of the Internal Revenue Code, to the new microbusiness, shall be aggregated with the gross receipts derived from or attributable to the state of the new microbusiness to determine whether the new microbusiness qualifies for the reduced annual tax under this subdivision.
SEC. 4.Section 23153 of the Revenue and Taxation Code is amended to read:23153.(a)Every corporation described in subdivision (b) shall be subject to the minimum franchise tax specified in subdivision (d) from the earlier of the date of incorporation, qualification, or commencing to do business within this state, until the effective date of dissolution or withdrawal as provided in Section 23331 or, if later, the date the corporation ceases to do business within the limits of this state.
(b)Unless expressly exempted by this part or the California Constitution, subdivision (a) shall apply to each of the following:
(1)Every corporation that is incorporated under the laws of this state.
(2)Every corporation that is qualified to transact intrastate business in this state pursuant to Chapter 21 (commencing with Section 2100) of Division 1 of Title 1 of the Corporations Code.
(3)Every corporation that is doing business in this state.
(c)The following entities are not subject to the minimum franchise tax specified in this section:
(1)Credit unions.
(2)Nonprofit cooperative associations organized pursuant to Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code that have been issued the certificate of the board of supervisors prepared pursuant to Section 54042 of the Food and Agricultural Code. The association shall be exempt from the minimum franchise tax for five consecutive taxable years, commencing with the first taxable year for which the certificate is issued pursuant to subdivision (b) of Section 54042 of the Food and Agricultural Code. This paragraph only applies to nonprofit cooperative associations organized on or after January 1, 1994.
(d)(1)Except as provided in paragraph (2), paragraph (1) of subdivision (f) of Section 23151, paragraph (1) of subdivision (f) of Section 23181, and paragraph (1) of subdivision (c) of Section 23183, corporations subject to the minimum franchise tax shall pay annually to the state a minimum franchise tax of eight hundred dollars ($800).
(2)The minimum franchise tax shall be twenty-five dollars ($25) for each of the following:
(A)A corporation formed under the laws of this state whose principal business when formed was gold mining, which is inactive and has not done business within the limits of the state since 1950.
(B)A corporation formed under the laws of this state whose principal business when formed was quicksilver mining, which is inactive and has not done business within the limits of the state since 1971, or has been inactive for a period of 24 consecutive months or more.
(3)For purposes of paragraph (2), a corporation shall not be considered to have done business if it engages in business other than mining.
(e)Notwithstanding subdivision (a), for taxable years beginning on or after January 1, 1999, and before January 1, 2000, every qualified new corporation shall pay annually to the state a minimum franchise tax of five hundred dollars ($500) for the second taxable year. This subdivision shall apply to any corporation that is a qualified new corporation and is incorporated on or after January 1, 1999, and before January 1, 2000.
(1)The determination of the gross receipts of a corporation, for purposes of this subdivision, shall be made by including the gross receipts of each member of the commonly controlled group, as defined in Section 25105, of which the corporation is a member.
(2)Gross receipts, less returns and allowances reportable to this state, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(3)Qualified new corporation means a corporation that is incorporated under the laws of this state or has qualified to transact intrastate business in this state, that begins business operations at or after the time of its incorporation and that reasonably estimates that it will have gross receipts, less returns and allowances, reportable to this state for the taxable year of one million dollars ($1,000,000) or less. Qualified new corporation does not include any corporation that began business operations as a sole proprietorship, a partnership, or any other form of business entity prior to its incorporation. This subdivision shall not apply to any corporation that reorganizes solely for the purpose of reducing its minimum franchise tax.
(4)This subdivision shall not apply to limited partnerships, as defined in Section 17935, limited liability companies, as defined in Section 17941, limited liability partnerships, as described in Section 17948, charitable corporations, as described in Section 23703, regulated investment companies, as defined in Section 851 of the Internal Revenue Code, real estate investment trusts, as defined in Section 856 of the Internal Revenue Code, real estate mortgage investment conduits, as defined in Section 860D of the Internal Revenue Code, qualified Subchapter S subsidiaries, as defined in Section 1361(b)(3)(B) of the Internal Revenue Code, or to the formation of any subsidiary corporation, to the extent applicable.
(5)For any taxable year beginning on or after January 1, 1999, and before January 1, 2000, if a corporation has qualified to pay five hundred dollars ($500) for the second taxable year under this subdivision, but in its second taxable year, the corporations gross receipts, as determined under paragraphs (1) and (2), exceed one million dollars ($1,000,000), an additional tax in the amount equal to three hundred dollars ($300) for the second taxable year shall be due and payable by the corporation on the due date of its return, without regard to extension, for that year.
(f)(1)(A)Notwithstanding subdivision (a), every corporation that incorporates or qualifies to do business in this state on or after January 1, 2000, shall not be subject to the minimum franchise tax for its first taxable year.
(B)Notwithstanding subdivision (a), for taxable years beginning on or after January 1, 2017, and on or before January 1, 2020, every corporation that is a new microbusiness up to its first five taxable years shall annually shall, for each taxable year immediately following its first taxable year that begins on or before January 1, 2020, not to exceed four taxable years, for which it qualifies as a new microbusiness, pay to the state a an annual minimum franchise tax in an amount specified in clause (i) for its second, third, fourth, and fifth taxable years of its existence for which it qualifies as a new microbusiness. (i).
(i)(I)Two hundred dollars ($200) for a new microbusiness that reasonably estimates that it will have gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of fifty thousand dollars ($50,000) or less.
(II)Four hundred dollars ($400) for a new microbusiness that reasonably estimates that it will have gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred thousand dollars ($100,000) or less, but more than fifty thousand dollars ($50,000).
(III)Six hundred dollars ($600) for a new microbusiness that reasonably estimates that it will have gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred fifty thousand dollars ($150,000) or less, but more than one hundred thousand dollars ($100,000).
(ii)For purposes of this subparagraph, the following definitions shall apply:
(I)(ia)Gross receipts, less returns and allowances, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(ib)Gross receipts, less returns and allowances, derived from or attributable to this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by the regulations under Section 25137, other than those provisions that exclude receipts from the sales factor.
(II)New microbusiness means a limited liability company that on or after January 1, 2017, is organized under the laws of this state or has qualified to transact intrastate business in this state and has first commenced doing business in this state on or after the time of its organization. In determining whether the taxpayer has first commenced doing business in this state during the taxable year, subdivision (f) of Section 17276, without application of paragraph (7) of that subdivision, shall apply, except that new microbusiness shall be substituted for new business.
(iii)For purposes of this subparagraph, the gross receipts derived from or attributable to the state of any other business, in whatever form conducted, that is owned, directly or indirectly, by persons, within the meaning of Section 17007, that are treated as related, within the meaning of Section 267, 318, or 707 of the Internal Revenue Code, to the new microbusiness, shall be aggregated with the gross receipts derived from or attributable to the state of the new microbusiness to determine whether the new microbusiness qualifies for the reduced minimum franchise tax under this subparagraph.
(iv)For any taxable year beginning on or after January 1, 2017, if a corporation has qualified to pay a reduced minimum franchise tax under this subparagraph for any taxable year, but in that taxable year, the corporations gross receipts, less returns and allowances, derived from or attributable to this state, exceed the amount specified for that reduced amount, an additional tax in an amount equal to six hundred dollars ($600), four hundred dollars ($400), or two hundred dollars ($200), as applicable, for that taxable year shall be due and payable by the corporation on the due date of its return, without regard to extension, for that taxable year.
(2)Subparagraph (A) of paragraph (1) shall not apply to limited partnerships, as defined in Section 17935, limited liability companies, as defined in Section 17941, limited liability partnerships, as described in Section 17948, charitable corporations, as described in Section 23703, regulated investment companies, as defined in Section 851 of the Internal Revenue Code, real estate investment trusts, as defined in Section 856 of the Internal Revenue Code, real estate mortgage investment conduits, as defined in Section 860D of the Internal Revenue Code, and qualified Subchapter S subsidiaries, as defined in Section 1361(b)(3)(B) of the Internal Revenue Code, to the extent applicable.
(3)Subparagraph (A) of paragraph (1) shall not apply to any corporation that reorganizes solely for the purpose of avoiding payment of its minimum franchise tax.
(g)Notwithstanding subdivision (a), a domestic corporation, as defined in Section 167 of the Corporations Code, that files a certificate of dissolution in the office of the Secretary of State pursuant to subdivision (b) of Section 1905 of the Corporations Code, prior to its amendment by the act amending this subdivision, and that does not thereafter do business shall not be subject to the minimum franchise tax for taxable years beginning on or after the date of that filing.
(h)The minimum franchise tax imposed by paragraph (1) of subdivision (d) shall not be increased by the Legislature by more than 10 percent during any calendar year.
(i)(1)Notwithstanding subdivision (a) or (f), a corporation that is a small business solely owned by a deployed member of the United States Armed Forces shall not be subject to the minimum franchise tax for any taxable year the owner is deployed and the corporation operates at a loss or ceases operation.
(2)The Franchise Tax Board may promulgate regulations as necessary or appropriate to carry out the purposes of this subdivision, including a definition for ceases operation.
(3)For the purposes of this subdivision, all of the following definitions apply:
(A)Deployed means being called to active duty or active service during a period when a Presidential Executive order specifies that the United States is engaged in combat or homeland defense. Deployed does not include either of the following:
(i)Temporary duty for the sole purpose of training or processing.
(ii)A permanent change of station.
(B)Operates at a loss means negative net income as defined in Section 24341.
(C)Small business means a corporation with total income from all sources derived from, or attributable to, the state of two hundred fifty thousand dollars ($250,000) or less.
(4)This subdivision shall become inoperative for taxable years beginning on or after January 1, 2018.
SEC. 5.This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.
(a)For each taxable year beginning on or after January 1, 1997, every limited partnership doing business in this state, as defined by Section 23101, and required to file a return under Section 18633 shall pay annually to this state a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153.
(b)(1)In addition to any limited partnership that is doing business in this state and therefore is subject to the tax imposed by subdivision (a), for each taxable year beginning on or after January 1, 1997, every limited partnership that has executed, acknowledged, and filed a certificate of limited partnership with the Secretary of State pursuant to Section 15621 or 15902.01 of the Corporations Code, and every foreign limited partnership that has registered with the Secretary of State pursuant to Section 15692 or 15909.01 of the Corporations Code, shall pay annually the tax prescribed in subdivision (a). The tax shall be paid for each taxable year, or part thereof, until a certificate of cancellation is filed on behalf of the limited partnership with the office of the Secretary of State pursuant to Section 15902.03 or 15909.07 of the Corporations Code.
(2)If a taxpayer files a return with the Franchise Tax Board that is designated its final return, that board shall notify the taxpayer that the tax imposed by this chapter is due annually until a certificate of cancellation is filed with the Secretary of State pursuant to Section 15902.03 or 15909.07 of the Corporations Code.
(c)The tax imposed by this chapter shall be due and payable on the date the return is required to be filed under former Section 18432 or 18633.
(d)For purposes of this section, limited partnership means any partnership formed by two or more persons under the laws of this state or any other jurisdiction and having one or more general partners and one or more limited partners.
(e)Notwithstanding subdivision (b), any limited partnership that ceased doing business prior to January 1, 1997, filed a final return with the Franchise Tax Board for a taxable year ending before January 1, 1997, and filed a certificate of dissolution with the Secretary of State pursuant to Section 15623 of the Corporations Code prior to January 1, 1997, shall not be subject to the tax imposed by this chapter for any period following the date the certificate of dissolution was filed with the Secretary of State, but only if the limited partnership files a certificate of cancellation with the Secretary of State pursuant to Section 15623 of the Corporations Code. In the case where a notice of proposed deficiency assessment of tax or a notice of tax due (whichever is applicable) is mailed after January 1, 2001, the first sentence of this subdivision shall not apply unless the certificate of cancellation is filed with the Secretary of State not later than 60 days after the date of the mailing of the notice.
(f)(1)Notwithstanding subdivision (a) or (b), for taxable years beginning on or after January 1, 2017, every limited partnership that is a new microbusiness shall, for each of the first five taxable years of its existence for which it qualifies as a new microbusiness, pay to the state an annual tax of:
(A)Two hundred dollars ($200) for a new microbusiness that has gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of fifty thousand dollars ($50,000) or less.
(B)Four hundred dollars ($400) for a new microbusiness that has gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred thousand dollars ($100,000) or less, but more than fifty thousand dollars ($50,000).
(C)Six hundred dollars ($600) for a new microbusiness that has gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred fifty thousand dollars ($150,000) or less, but more than one hundred thousand dollars ($100,000).
(2)For purposes of this subdivision, the following definitions shall apply:
(A)(i)Gross receipts, less returns and allowances, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(ii)Gross receipts, less returns and allowances, derived from or attributable to this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by the regulations under Section 25137, other than those provisions that exclude receipts from the sales factor.
(B)New microbusiness means a limited partnership that on or after January 1, 2017, is organized under the laws of this state or has qualified to transact intrastate business in this state and has first commenced doing business in this state on or after the time of its organization. In determining whether the taxpayer has first commenced doing business in this state during the taxable year, subdivision (f) of Section 17276, without application of paragraph (7) of that subdivision, shall apply, except that new microbusiness shall be substituted for new business.
(3)For purposes of this subdivision, the gross receipts derived from or attributable to the state of any other business, in whatever form conducted, that is owned, directly or indirectly, by persons, within the meaning of Section 17007, that are treated as related, within the meaning of Section 267, 318, or 707 of the Internal Revenue Code, to the new microbusiness, shall be aggregated with the gross receipts derived from or attributable to the state of the new microbusiness to determine whether the new microbusiness qualifies for the reduced annual tax under this subdivision.
SEC. 2.Section 17941 of the Revenue and Taxation Code is amended to read:17941.(a)For each taxable year beginning on or after January 1, 1997, a limited liability company doing business in this state, as defined in Section 23101, shall pay annually to this state a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153 for the taxable year.
(b)(1)In addition to any limited liability company that is doing business in this state and is therefore subject to the tax imposed by subdivision (a), for each taxable year beginning on or after January 1, 1997, a limited liability company shall pay annually the tax prescribed in subdivision (a) if articles of organization have been accepted, or a certificate of registration has been issued, by the office of the Secretary of State. The tax shall be paid for each taxable year, or part thereof, until a certificate of cancellation of registration or of articles of organization is filed on behalf of the limited liability company with the office of the Secretary of State.
(2)If a taxpayer files a return with the Franchise Tax Board that is designated as its final return, the Franchise Tax Board shall notify the taxpayer that the annual tax shall continue to be due annually until a certificate of dissolution is filed with the Secretary of State pursuant to Section 17707.08 of the Corporations Code or a certificate of cancellation is filed with the Secretary of State pursuant to Section 17708.06 of the Corporations Code.
(c)The tax assessed under this section shall be due and payable on or before the 15th day of the fourth month of the taxable year.
(d)For purposes of this section, limited liability company means an organization, other than a limited liability company that is exempt from the tax and fees imposed under this chapter pursuant to Section 23701h or 23701x, that is formed by one or more persons under the law of this state, any other country, or any other state, as a limited liability company and that is not taxable as a corporation for California tax purposes.
(e)Notwithstanding anything in this section to the contrary, if the office of the Secretary of State files a certificate of cancellation pursuant to Section 17707.02 of the Corporations Code for any limited liability company, then paragraph (1) of subdivision (f) of Section 23153 shall apply to that limited liability company as if the limited liability company were properly treated as a corporation for that limited purpose only, and paragraph (2) of subdivision (f) of Section 23153 shall not apply. Nothing in this subdivision entitles a limited liability company to receive a reimbursement for any annual taxes or fees already paid.
(f)(1)Notwithstanding any provision of this section to the contrary, a limited liability company that is a small business solely owned by a deployed member of the United States Armed Forces shall not be subject to the tax imposed under this section for any taxable year the owner is deployed and the limited liability company operates at a loss or ceases operation.
(2)The Franchise Tax Board may promulgate regulations as necessary or appropriate to carry out the purposes of this subdivision, including a definition for ceases operation.
(3)For the purposes of this subdivision, all of the following definitions apply:
(A)Deployed means being called to active duty or active service during a period when a Presidential Executive order specifies that the United States is engaged in combat or homeland defense. Deployed does not include either of the following:
(i)Temporary duty for the sole purpose of training or processing.
(ii)A permanent change of station.
(B)Operates at a loss means a limited liability companys expenses exceed its receipts.
(C)Small business means a limited liability company with total income from all sources derived from, or attributable, to the state of two hundred fifty thousand dollars ($250,000) or less.
(4)This subdivision shall become inoperative for taxable years beginning on or after January 1, 2018.
(g)(1)Notwithstanding subdivision (a) or (b), (a), (b), or (f), for taxable years beginning on or after January 1, 2017, every limited liability company that is a new microbusiness shall, for each of the first five taxable years of its existence for which it qualifies as a new microbusiness, pay to the state an annual tax of:
(A)Two hundred dollars ($200) for a new microbusiness that reasonably estimates it will have gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of fifty thousand dollars ($50,000) or less.
(B)Four hundred dollars ($400) for a new microbusiness that reasonably estimates it will have gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred thousand dollars ($100,000) or less, but more than fifty thousand dollars ($50,000).
(C)Six hundred dollars ($600) for a new microbusiness that reasonably estimates it will have gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred fifty thousand dollars ($150,000) or less, but more than one hundred thousand dollars ($100,000).
(2)For purposes of this subdivision, the following definitions shall apply:
(A)(i)Gross receipts, less returns and allowances means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(ii)Gross receipts, less returns and allowances, derived from or attributable to this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by the regulations under Section 25137, other than those provisions that exclude receipts from the sales factor.
(B)New microbusiness means a limited liability company that on or after January 1, 2017, is organized under the laws of this state or has qualified to transact intrastate business in this state and has first commenced doing business in this state on or after the time of its organization. In determining whether the taxpayer has first commenced doing business in this state during the taxable year, subdivision (f) of Section 17276, without application of paragraph (7) of that subdivision, shall apply, except that new microbusiness shall be substituted for new business.
(3)For purposes of this subdivision, the gross receipts derived from or attributable to the state of any other business, in whatever form conducted, that is owned, directly or indirectly, by persons, within the meaning of Section 17007, that are treated as related, within the meaning of Section 267, 318, or 707 of the Internal Revenue Code, to the new microbusiness, shall be aggregated with the gross receipts derived from or attributable to the state of the new microbusiness to determine whether the new microbusiness qualifies for the reduced annual tax under this subdivision.
(4)For any taxable year beginning on or after January 1, 2017, if a limited liability company has qualified to pay a reduced annual tax under this subdivision for any taxable year, but in that taxable year, the limited liability companys gross receipts, less returns and allowances, derived from or attributable to this state, exceed the amount specified for that reduced amount, an additional tax in an amount equal to six hundred dollars ($600), four hundred dollars ($400), or two hundred dollars ($200), as applicable, for that taxable year shall be due and payable by the limited liability company on the due date of its return, without regard to extension, for that taxable year.
SEC. 3.Section 17948 of the Revenue and Taxation Code is amended to read:17948.(a)For each taxable year beginning on or after January 1, 1997, every limited liability partnership doing business in this state, as defined in Section 23101, and required to file a return under Section 18633 shall pay annually to the Franchise Tax Board a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153 for the taxable year.
(b)In addition to any limited liability partnership that is doing business in this state and therefore is subject to the tax imposed by subdivision (a), for each taxable year beginning on or after January 1, 1997, every registered limited liability partnership that has registered with the Secretary of State pursuant to Section 16953 of the Corporations Code and every foreign limited liability partnership that has registered with the Secretary of State pursuant to Section 16959 of the Corporations Code shall pay annually the tax prescribed in subdivision (a). The tax shall be paid for each taxable year, or part thereof, until any of the following occurs:
(1)A notice of cessation is filed with the Secretary of State pursuant to subdivision (b) of Section 16954 or 16960 of the Corporations Code.
(2)A foreign limited liability partnership withdraws its registration pursuant to subdivision (a) of Section 16960 of the Corporations Code.
(3)The registered limited liability partnership or foreign limited liability partnership has been dissolved and finally wound up.
(c)The tax assessed under this section shall be due and payable on the date the return is required to be filed under Section 18633.
(d)If a taxpayer files a return with the Franchise Tax Board that is designated as its final return, the Franchise Tax Board shall notify the taxpayer that the annual tax shall continue to be due annually until a certificate of cancellation is filed with the Secretary of State pursuant to Section 16954 or 16960 of the Corporations Code.
(e)(1)Notwithstanding subdivision (a) or (b), for taxable years beginning on or after January 1, 2017, every limited liability partnership that is a new microbusiness shall, for each year of the first five taxable years of its existence for which it qualifies as a new microbusiness, pay annually to the state an annual tax of:
(A)Two hundred dollars ($200) for a new microbusiness that has gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of fifty thousand dollars ($50,000) or less.
(B)Four hundred dollars ($400) for a new microbusiness that has gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred thousand dollars ($100,000) or less, but more than fifty thousand dollars ($50,000).
(C)Six hundred dollars ($600) for a new microbusiness that has gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred fifty thousand dollars ($150,000) or less, but more than one hundred thousand dollars ($100,000).
(2)For purposes of this subdivision, the following definitions shall apply:
(A)(i)Gross receipts, less returns and allowances, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(ii)Gross receipts, less returns and allowances, derived from or attributable to this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by the regulations under Section 25137, other than those provisions that exclude receipts from the sales factor.
(B)New microbusiness means a limited liability partnership that on or after January 1, 2017, is organized under the laws of this state or has qualified to transact intrastate business in this state and has first commenced doing business in this state on or after the time of its organization. In determining whether the taxpayer has first commenced doing business in this state during the taxable year, subdivision (f) of Section 17276, without application of paragraph (7) of that subdivision, shall apply, except that new microbusiness shall be substituted for new business.
(3)For purposes of this subdivision, the gross receipts derived from or attributable to the state of any other business, in whatever form conducted, that is owned, directly or indirectly, by persons, within the meaning of Section 17007, that are treated as related, within the meaning of Section 267, 318, or 707 of the Internal Revenue Code, to the new microbusiness, shall be aggregated with the gross receipts derived from or attributable to the state of the new microbusiness to determine whether the new microbusiness qualifies for the reduced annual tax under this subdivision.
SEC. 4.Section 23153 of the Revenue and Taxation Code is amended to read:23153.(a)Every corporation described in subdivision (b) shall be subject to the minimum franchise tax specified in subdivision (d) from the earlier of the date of incorporation, qualification, or commencing to do business within this state, until the effective date of dissolution or withdrawal as provided in Section 23331 or, if later, the date the corporation ceases to do business within the limits of this state.
(b)Unless expressly exempted by this part or the California Constitution, subdivision (a) shall apply to each of the following:
(1)Every corporation that is incorporated under the laws of this state.
(2)Every corporation that is qualified to transact intrastate business in this state pursuant to Chapter 21 (commencing with Section 2100) of Division 1 of Title 1 of the Corporations Code.
(3)Every corporation that is doing business in this state.
(c)The following entities are not subject to the minimum franchise tax specified in this section:
(1)Credit unions.
(2)Nonprofit cooperative associations organized pursuant to Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code that have been issued the certificate of the board of supervisors prepared pursuant to Section 54042 of the Food and Agricultural Code. The association shall be exempt from the minimum franchise tax for five consecutive taxable years, commencing with the first taxable year for which the certificate is issued pursuant to subdivision (b) of Section 54042 of the Food and Agricultural Code. This paragraph only applies to nonprofit cooperative associations organized on or after January 1, 1994.
(d)(1)Except as provided in paragraph (2), paragraph (1) of subdivision (f) of Section 23151, paragraph (1) of subdivision (f) of Section 23181, and paragraph (1) of subdivision (c) of Section 23183, corporations subject to the minimum franchise tax shall pay annually to the state a minimum franchise tax of eight hundred dollars ($800).
(2)The minimum franchise tax shall be twenty-five dollars ($25) for each of the following:
(A)A corporation formed under the laws of this state whose principal business when formed was gold mining, which is inactive and has not done business within the limits of the state since 1950.
(B)A corporation formed under the laws of this state whose principal business when formed was quicksilver mining, which is inactive and has not done business within the limits of the state since 1971, or has been inactive for a period of 24 consecutive months or more.
(3)For purposes of paragraph (2), a corporation shall not be considered to have done business if it engages in business other than mining.
(e)Notwithstanding subdivision (a), for taxable years beginning on or after January 1, 1999, and before January 1, 2000, every qualified new corporation shall pay annually to the state a minimum franchise tax of five hundred dollars ($500) for the second taxable year. This subdivision shall apply to any corporation that is a qualified new corporation and is incorporated on or after January 1, 1999, and before January 1, 2000.
(1)The determination of the gross receipts of a corporation, for purposes of this subdivision, shall be made by including the gross receipts of each member of the commonly controlled group, as defined in Section 25105, of which the corporation is a member.
(2)Gross receipts, less returns and allowances reportable to this state, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(3)Qualified new corporation means a corporation that is incorporated under the laws of this state or has qualified to transact intrastate business in this state, that begins business operations at or after the time of its incorporation and that reasonably estimates that it will have gross receipts, less returns and allowances, reportable to this state for the taxable year of one million dollars ($1,000,000) or less. Qualified new corporation does not include any corporation that began business operations as a sole proprietorship, a partnership, or any other form of business entity prior to its incorporation. This subdivision shall not apply to any corporation that reorganizes solely for the purpose of reducing its minimum franchise tax.
(4)This subdivision shall not apply to limited partnerships, as defined in Section 17935, limited liability companies, as defined in Section 17941, limited liability partnerships, as described in Section 17948, charitable corporations, as described in Section 23703, regulated investment companies, as defined in Section 851 of the Internal Revenue Code, real estate investment trusts, as defined in Section 856 of the Internal Revenue Code, real estate mortgage investment conduits, as defined in Section 860D of the Internal Revenue Code, qualified Subchapter S subsidiaries, as defined in Section 1361(b)(3)(B) of the Internal Revenue Code, or to the formation of any subsidiary corporation, to the extent applicable.
(5)For any taxable year beginning on or after January 1, 1999, and before January 1, 2000, if a corporation has qualified to pay five hundred dollars ($500) for the second taxable year under this subdivision, but in its second taxable year, the corporations gross receipts, as determined under paragraphs (1) and (2), exceed one million dollars ($1,000,000), an additional tax in the amount equal to three hundred dollars ($300) for the second taxable year shall be due and payable by the corporation on the due date of its return, without regard to extension, for that year.
(f)(1)(A)Notwithstanding subdivision (a), every corporation that incorporates or qualifies to do business in this state on or after January 1, 2000, shall not be subject to the minimum franchise tax for its first taxable year.
(B)Notwithstanding subdivision (a), for taxable years beginning on or after January 1, 2017, every corporation that is a new microbusiness up to its first five taxable years shall annually pay to the state a minimum franchise tax in an amount specified in clause (i) for its second, third, fourth, and fifth taxable years, as long as it is a microbusiness in each year. years of its existence for which it qualifies as a new microbusiness.
(i)(I)Two hundred dollars ($200) for a new microbusiness that reasonably estimates that it will have gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of fifty thousand dollars ($50,000) or less.
(II)Four hundred dollars ($400) for a new microbusiness that reasonably estimates that it will have gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred thousand dollars ($100,000) or less, but more than fifty thousand dollars ($50,000).
(III)Six hundred dollars ($600) for a new microbusiness that reasonably estimates that it will have gross receipts, less returns and allowances, derived from or attributable to this state for the taxable year of one hundred fifty thousand dollars ($150,000) or less, but more than one hundred thousand dollars ($100,000).
(ii)For purposes of this subparagraph, the following definitions shall apply:
(I)(ia)Gross receipts, less returns and allowances, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(ib)Gross receipts, less returns and allowances, derived from or attributable to this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by the regulations under Section 25137, other than those provisions that exclude receipts from the sales factor.
(II)New microbusiness means a limited liability company that on or after January 1, 2017, is organized under the laws of this state or has qualified to transact intrastate business in this state and has first commenced doing business in this state on or after the time of its organization. In determining whether the taxpayer has first commenced doing business in this state during the taxable year, subdivision (f) of Section 17276, without application of paragraph (7) of that subdivision, shall apply, except that new microbusiness shall be substituted for new business.
(iii)For purposes of this subdivision, subparagraph, the gross receipts derived from or attributable to the state of any other business, in whatever form conducted, that is owned, directly or indirectly, by persons, within the meaning of Section 17007, that are treated as related, within the meaning of Section 267, 318, or 707 of the Internal Revenue Code, to the new microbusiness, shall be aggregated with the gross receipts derived from or attributable to the state of the new microbusiness to determine whether the new microbusiness qualifies for the reduced annual tax under this subdivision. minimum franchise tax under this subparagraph.
(iv)For any taxable year beginning on or after January 1, 2017, if a corporation has qualified to pay a reduced minimum franchise tax under this subparagraph for any taxable year, but in that taxable year, the corporations gross receipts, less returns and allowances, derived from or attributable to this state, exceed the amount specified for that reduced amount, an additional tax in an amount equal to six hundred dollars ($600), four hundred dollars ($400), or two hundred dollars ($200), as applicable, for that taxable year shall be due and payable by the corporation on the due date of its return, without regard to extension, for that taxable year.
(2)Subparagraph (A) of paragraph (1) shall not apply to limited partnerships, as defined in Section 17935, limited liability companies, as defined in Section 17941, limited liability partnerships, as described in Section 17948, charitable corporations, as described in Section 23703, regulated investment companies, as defined in Section 851 of the Internal Revenue Code, real estate investment trusts, as defined in Section 856 of the Internal Revenue Code, real estate mortgage investment conduits, as defined in Section 860D of the Internal Revenue Code, and qualified Subchapter S subsidiaries, as defined in Section 1361(b)(3)(B) of the Internal Revenue Code, to the extent applicable.
(3)Subparagraph (A) of paragraph (1) shall not apply to any corporation that reorganizes solely for the purpose of avoiding payment of its minimum franchise tax.
(g)Notwithstanding subdivision (a), a domestic corporation, as defined in Section 167 of the Corporations Code, that files a certificate of dissolution in the office of the Secretary of State pursuant to subdivision (b) of Section 1905 of the Corporations Code, prior to its amendment by the act amending this subdivision, and that does not thereafter do business shall not be subject to the minimum franchise tax for taxable years beginning on or after the date of that filing.
(h)The minimum franchise tax imposed by paragraph (1) of subdivision (d) shall not be increased by the Legislature by more than 10 percent during any calendar year.
(i)(1)Notwithstanding subdivision (a), (a) or (f), a corporation that is a small business solely owned by a deployed member of the United States Armed Forces shall not be subject to the minimum franchise tax for any taxable year the owner is deployed and the corporation operates at a loss or ceases operation.
(2)The Franchise Tax Board may promulgate regulations as necessary or appropriate to carry out the purposes of this subdivision, including a definition for ceases operation.
(3)For the purposes of this subdivision, all of the following definitions apply:
(A)Deployed means being called to active duty or active service during a period when a Presidential Executive order specifies that the United States is engaged in combat or homeland defense. Deployed does not include either of the following:
(i)Temporary duty for the sole purpose of training or processing.
(ii)A permanent change of station.
(B)Operates at a loss means negative net income as defined in Section 24341.
(C)Small business means a corporation with total income from all sources derived from, or attributable to, the state of two hundred fifty thousand dollars ($250,000) or less.
(4)This subdivision shall become inoperative for taxable years beginning on or after January 1, 2018.
SEC. 5.This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.
(a)For each taxable year beginning on or after January 1, 1997, every limited partnership doing business in this state, as defined by Section 23101, and required to file a return under Section 18633 shall pay annually to this state a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153.
(b)(1)In addition to any limited partnership that is doing business in this state and therefore is subject to the tax imposed by subdivision (a), for each taxable year beginning on or after January 1, 1997, every limited partnership that has executed, acknowledged, and filed a certificate of limited partnership with the Secretary of State pursuant to Section 15621 or 15902.01 of the Corporations Code, and every foreign limited partnership that has registered with the Secretary of State pursuant to Section 15692 or 15909.01 of the Corporations Code, shall pay annually the tax prescribed in subdivision (a). The tax shall be paid for each taxable year, or part thereof, until a certificate of cancellation is filed on behalf of the limited partnership with the office of the Secretary of State pursuant to Section 15902.03 or 15909.07 of the Corporations Code.
(2)If a taxpayer files a return with the Franchise Tax Board that is designated its final return, that board shall notify the taxpayer that the tax imposed by this chapter is due annually until a certificate of cancellation is filed with the Secretary of State pursuant to Section 15902.03 or 15909.07 of the Corporations Code.
(c)The tax imposed by this chapter shall be due and payable on the date the return is required to be filed under former Section 18432 or 18633.
(d)For purposes of this section, limited partnership means any partnership formed by two or more persons under the laws of this state or any other jurisdiction and having one or more general partners and one or more limited partners.
(e)Notwithstanding subdivision (b), any limited partnership that ceased doing business prior to January 1, 1997, filed a final return with the Franchise Tax Board for a taxable year ending before January 1, 1997, and filed a certificate of dissolution with the Secretary of State pursuant to Section 15623 of the Corporations Code prior to January 1, 1997, shall not be subject to the tax imposed by this chapter for any period following the date the certificate of dissolution was filed with the Secretary of State, but only if the limited partnership files a certificate of cancellation with the Secretary of State pursuant to Section 15623 of the Corporations Code. In the case where a notice of proposed deficiency assessment of tax or a notice of tax due (whichever is applicable) is mailed after January 1, 2001, the first sentence of this subdivision shall not apply unless the certificate of cancellation is filed with the Secretary of State not later than 60 days after the date of the mailing of the notice.
(f)(1)Notwithstanding subdivision (a) or (b), for taxable years beginning on or after January 1, 2016, 2017, every limited partnership that is a new microbusiness shall, for its first five taxable years, each of the first five taxable years of its existence for which it qualifies as a new microbusiness, pay to the state an annual tax of:
(A)Two hundred dollars ($200) for a new microbusiness that has gross receipts, less returns and allowances, reportable derived from or attributable to this state for the taxable year of one hundred thousand dollars ($100,000) fifty thousand dollars ($50,000) or less.
(B)Four hundred dollars ($400) for a new microbusiness that has gross receipts, less returns and allowances, reportable derived from or attributable to this state for the taxable year of two hundred thousand dollars ($200,000) one hundred thousand dollars ($100,000) or less, but more than one hundred thousand dollars ($100,000). fifty thousand dollars ($50,000).
(C)Six hundred dollars ($600) for a new microbusiness that has gross receipts, less returns and allowances, reportable derived from or attributable to this state for the taxable year of three hundred thousand dollars ($300,000) one hundred fifty thousand dollars ($150,000) or less, but more than two hundred thousand dollars ($200,000). one hundred thousand dollars ($100,000).
(2)For purposes of this subdivision, the following definitions shall apply:
(A)(i)Gross receipts, less returns and allowances reportable to this state, allowances, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(B)New microbusiness means a limited partnership that on or after January 1, 2016, is organized under the laws of this state or has qualified to transact intrastate business in this state that begins business operations at or after the time of its organization. New microbusiness does not include any limited partnership that began business operations as, or acquired its business operations from, a sole proprietorship, a limited liability company, a general partnership, a corporation, or any other form of business entity prior to its organization or that acquired its business operations from a partnership.
(3)This subdivision shall not apply to a new microbusiness that is owned directly or indirectly by a limited partnership, limited liability company, limited liability partnership, or corporation subject to this part or Part 11 (commencing with Section 23101).
(4)This subdivision shall not apply to any limited partnership that reorganizes solely for the purpose of reducing its annual tax.
(ii)Gross receipts, less returns and allowances, derived from or attributable to this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by the regulations under Section 25137, other than those provisions that exclude receipts from the sales factor.
(B)New microbusiness means a limited partnership that on or after January 1, 2017, is organized under the laws of this state or has qualified to transact intrastate business in this state and has first commenced doing business in this state on or after the time of its organization. In determining whether the taxpayer has first commenced doing business in this state during the taxable year, subdivision (f) of Section 17276, without application of paragraph (7) of that subdivision, shall apply, except that new microbusiness shall be substituted for new business.
(3)For purposes of this subdivision, the gross receipts derived from or attributable to the state of any other business, in whatever form conducted, that is owned, directly or indirectly, by persons, within the meaning of Section 17007, that are treated as related, within the meaning of Section 267, 318, or 707 of the Internal Revenue Code, to the new microbusiness, shall be aggregated with the gross receipts derived from or attributable to the state of the new microbusiness to determine whether the new microbusiness qualifies for the reduced annual tax under this subdivision.
SEC. 2.Section 17941 of the Revenue and Taxation Code is amended to read:17941.(a)For each taxable year beginning on or after January 1, 1997, a limited liability company doing business in this state, as defined in Section 23101, shall pay annually to this state a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153 for the taxable year.
(b)(1)In addition to any limited liability company that is doing business in this state and is therefore subject to the tax imposed by subdivision (a), for each taxable year beginning on or after January 1, 1997, a limited liability company shall pay annually the tax prescribed in subdivision (a) if articles of organization have been accepted, or a certificate of registration has been issued, by the office of the Secretary of State. The tax shall be paid for each taxable year, or part thereof, until a certificate of cancellation of registration or of articles of organization is filed on behalf of the limited liability company with the office of the Secretary of State.
(2)If a taxpayer files a return with the Franchise Tax Board that is designated as its final return, the Franchise Tax Board shall notify the taxpayer that the annual tax shall continue to be due annually until a certificate of dissolution is filed with the Secretary of State pursuant to Section 17707.08 of the Corporations Code or a certificate of cancellation is filed with the Secretary of State pursuant to Section 17708.06 of the Corporations Code.
(c)The tax assessed under this section shall be due and payable on or before the 15th day of the fourth month of the taxable year.
(d)For purposes of this section, limited liability company means an organization, other than a limited liability company that is exempt from the tax and fees imposed under this chapter pursuant to Section 23701h or 23701x, that is formed by one or more persons under the law of this state, any other country, or any other state, as a limited liability company and that is not taxable as a corporation for California tax purposes.
(e)Notwithstanding anything in this section to the contrary, if the office of the Secretary of State files a certificate of cancellation pursuant to Section 17707.02 of the Corporations Code for any limited liability company, then paragraph (1) of subdivision (f) of Section 23153 shall apply to that limited liability company as if the limited liability company were properly treated as a corporation for that limited purpose only, and paragraph (2) of subdivision (f) of Section 23153 shall not apply. Nothing in this subdivision entitles a limited liability company to receive a reimbursement for any annual taxes or fees already paid.
(f)(1)Notwithstanding any provision of this section to the contrary, a limited liability company that is a small business solely owned by a deployed member of the United States Armed Forces shall not be subject to the tax imposed under this section for any taxable year the owner is deployed and the limited liability company operates at a loss or ceases operation.
(2)The Franchise Tax Board may promulgate regulations as necessary or appropriate to carry out the purposes of this subdivision, including a definition for ceases operation.
(3)For the purposes of this subdivision, all of the following definitions apply:
(A)Deployed means being called to active duty or active service during a period when a Presidential Executive order specifies that the United States is engaged in combat or homeland defense. Deployed does not include either of the following:
(i)Temporary duty for the sole purpose of training or processing.
(ii)A permanent change of station.
(B)Operates at a loss means a limited liability companys expenses exceed its receipts.
(C)Small business means a limited liability company with total income from all sources derived from, or attributable, to the state of two hundred fifty thousand dollars ($250,000) or less.
(4)This subdivision shall become inoperative for taxable years beginning on or after January 1, 2018.
(g)(1)Notwithstanding any provision of this section to the contrary, subdivision (a) or (b), for taxable years beginning on or after January 1, 2016, 2017, every limited liability company that is a new microbusiness shall, for its first five taxable years, each of the first five taxable years of its existence for which it qualifies as a new microbusiness, pay to the state an annual tax of:
(A)Two hundred dollars ($200) for a new microbusiness that reasonably estimates it will have gross receipts, less returns and allowances, reportable derived from or attributable to this state for the taxable year of one hundred thousand dollars ($100,000) fifty thousand dollars ($50,000) or less.
(B)Four hundred dollars ($400) for a new microbusiness that reasonably estimates it will have gross receipts, less returns and allowances, reportable derived from or attributable to this state for the taxable year of two hundred thousand dollars ($200,000) one hundred thousand dollars ($100,000) or less, but more than one hundred thousand dollars ($100,000). fifty thousand dollars ($50,000).
(C)Six hundred dollars ($600) for a new microbusiness that reasonably estimates it will have gross receipts, less returns and allowances, reportable derived from or attributable to this state for the taxable year of three hundred thousand dollars ($300,000) one hundred fifty thousand dollars ($150,000) or less, but more than two hundred thousand dollars ($200,000). one hundred thousand dollars ($100,000).
(2)For purposes of this subdivision, the following definitions shall apply:
(A)(i)Gross receipts, less returns and allowances reportable to this state, allowances means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(B)New microbusiness means a limited liability company that on or after January 1, 2016, is organized under the laws of this state or has qualified to transact intrastate business in this state that begins business operations at or after the time of its organization. New microbusiness does not include any limited liability company that began business operations as, or acquired its business operations from, a sole proprietorship, a partnership, a limited liability company, a corporation, or any other form of business entity prior to its organization or that acquired its business operations from a limited liability corporation.
(3)This subdivision shall not apply to a new microbusiness that is owned directly or indirectly by a limited liability company, limited partnership, limited liability partnership, or corporation subject to this part or Part 11 (commencing with Section 23101).
(4)This subdivision shall not apply to any limited liability company that reorganizes solely for the purpose of reducing its annual tax.
(ii)Gross receipts, less returns and allowances, derived from or attributable to this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by the regulations under Section 25137, other than those provisions that exclude receipts from the sales factor.
(B)New microbusiness means a limited liability company that on or after January 1, 2017, is organized under the laws of this state or has qualified to transact intrastate business in this state and has first commenced doing business in this state on or after the time of its organization. In determining whether the taxpayer has first commenced doing business in this state during the taxable year, subdivision (f) of Section 17276, without application of paragraph (7) of that subdivision, shall apply, except that new microbusiness shall be substituted for new business.
(3)For purposes of this subdivision, the gross receipts derived from or attributable to the state of any other business, in whatever form conducted, that is owned, directly or indirectly, by persons, within the meaning of Section 17007, that are treated as related, within the meaning of Section 267, 318, or 707 of the Internal Revenue Code, to the new microbusiness, shall be aggregated with the gross receipts derived from or attributable to the state of the new microbusiness to determine whether the new microbusiness qualifies for the reduced annual tax under this subdivision.
(4)For any taxable year beginning on or after January 1, 2017, if a limited liability company has qualified to pay a reduced annual tax under this subdivision for any taxable year, but in that taxable year, the limited liability companys gross receipts, less returns and allowances, derived from or attributable to this state, exceed the amount specified for that reduced amount, an additional tax in an amount equal to six hundred dollars ($600), four hundred dollars ($400), or two hundred dollars ($200), as applicable, for that taxable year shall be due and payable by the limited liability company on the due date of its return, without regard to extension, for that taxable year.
SEC. 3.Section 17948 of the Revenue and Taxation Code is amended to read:17948.(a)For each taxable year beginning on or after January 1, 1997, every limited liability partnership doing business in this state, as defined in Section 23101, and required to file a return under Section 18633 shall pay annually to the Franchise Tax Board a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153 for the taxable year.
(b)In addition to any limited liability partnership that is doing business in this state and therefore is subject to the tax imposed by subdivision (a), for each taxable year beginning on or after January 1, 1997, every registered limited liability partnership that has registered with the Secretary of State pursuant to Section 16953 of the Corporations Code and every foreign limited liability partnership that has registered with the Secretary of State pursuant to Section 16959 of the Corporations Code shall pay annually the tax prescribed in subdivision (a). The tax shall be paid for each taxable year, or part thereof, until any of the following occurs:
(1)A notice of cessation is filed with the Secretary of State pursuant to subdivision (b) of Section 16954 or 16960 of the Corporations Code.
(2)A foreign limited liability partnership withdraws its registration pursuant to subdivision (a) of Section 16960 of the Corporations Code.
(3)The registered limited liability partnership or foreign limited liability partnership has been dissolved and finally wound up.
(c)The tax assessed under this section shall be due and payable on the date the return is required to be filed under Section 18633.
(d)If a taxpayer files a return with the Franchise Tax Board that is designated as its final return, the Franchise Tax Board shall notify the taxpayer that the annual tax shall continue to be due annually until a certificate of cancellation is filed with the Secretary of State pursuant to Section 16954 or 16960 of the Corporations Code.
(e)(1)Notwithstanding subdivision (a) or (b), for taxable years beginning on or after January 1, 2016, 2017, every limited liability partnership that is a new microbusiness shall, for its first five taxable years, each year of the first five taxable years of its existence for which it qualifies as a new microbusiness, pay annually to the state an annual tax of:
(A)Two hundred dollars ($200) for a new microbusiness that has gross receipts, less returns and allowances, reportable derived from or attributable to this state for the taxable year of one hundred thousand dollars ($100,000) fifty thousand dollars ($50,000) or less.
(B)Four hundred dollars ($400) for a new microbusiness that has gross receipts, less returns and allowances, reportable derived from or attributable to this state for the taxable year of two hundred thousand dollars ($200,000) one hundred thousand dollars ($100,000) or less, but more than one hundred thousand dollars ($100,000). fifty thousand dollars ($50,000).
(C)Six hundred dollars ($600) for a new microbusiness that has gross receipts, less returns and allowances, reportable derived from or attributable to this state for the taxable year of three hundred thousand dollars ($300,000) one hundred fifty thousand dollars ($150,000) or less, but more than two hundred thousand dollars ($200,000). one hundred thousand dollars ($100,000).
(2)For purposes of this subdivision, the following definitions shall apply:
(A)(i)Gross receipts, less returns and allowances reportable to this state, allowances, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(B)New microbusiness means a limited liability partnership that on or after January 1, 2016, is organized under the laws of this state or has qualified to transact intrastate business in this state that begins business operations at or after the time of its organization. New microbusiness does not include any limited liability partnership that began business operations as, or acquired its business operations from, a sole proprietorship, a limited liability company, a partnership, a corporation, or any other form of business entity prior to its organization or that acquired its business operations from a limited partnership.
(3)This subdivision shall not apply to a new microbusiness that is owned directly or indirectly by a corporation subject to Part 11 (commencing with Section 23101).
(4)This subdivision shall not apply to any limited liability partnership that reorganizes solely for the purpose of reducing its annual tax.
(ii)Gross receipts, less returns and allowances, derived from or attributable to this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by the regulations under Section 25137, other than those provisions that exclude receipts from the sales factor.
(B)New microbusiness means a limited liability partnership that on or after January 1, 2017, is organized under the laws of this state or has qualified to transact intrastate business in this state and has first commenced doing business in this state on or after the time of its organization. In determining whether the taxpayer has first commenced doing business in this state during the taxable year, subdivision (f) of Section 17276, without application of paragraph (7) of that subdivision, shall apply, except that new microbusiness shall be substituted for new business.
(3)For purposes of this subdivision, the gross receipts derived from or attributable to the state of any other business, in whatever form conducted, that is owned, directly or indirectly, by persons, within the meaning of Section 17007, that are treated as related, within the meaning of Section 267, 318, or 707 of the Internal Revenue Code, to the new microbusiness, shall be aggregated with the gross receipts derived from or attributable to the state of the new microbusiness to determine whether the new microbusiness qualifies for the reduced annual tax under this subdivision.
SEC. 4.Section 23153 of the Revenue and Taxation Code is amended to read:23153.(a)Every corporation described in subdivision (b) shall be subject to the minimum franchise tax specified in subdivision (d) from the earlier of the date of incorporation, qualification, or commencing to do business within this state, until the effective date of dissolution or withdrawal as provided in Section 23331 or, if later, the date the corporation ceases to do business within the limits of this state.
(b)Unless expressly exempted by this part or the California Constitution, subdivision (a) shall apply to each of the following:
(1)Every corporation that is incorporated under the laws of this state.
(2)Every corporation that is qualified to transact intrastate business in this state pursuant to Chapter 21 (commencing with Section 2100) of Division 1 of Title 1 of the Corporations Code.
(3)Every corporation that is doing business in this state.
(c)The following entities are not subject to the minimum franchise tax specified in this section:
(1)Credit unions.
(2)Nonprofit cooperative associations organized pursuant to Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code that have been issued the certificate of the board of supervisors prepared pursuant to Section 54042 of the Food and Agricultural Code. The association shall be exempt from the minimum franchise tax for five consecutive taxable years, commencing with the first taxable year for which the certificate is issued pursuant to subdivision (b) of Section 54042 of the Food and Agricultural Code. This paragraph only applies to nonprofit cooperative associations organized on or after January 1, 1994.
(d)(1)Except as provided in paragraph (2), paragraph (1) of subdivision (f) of Section 23151, paragraph (1) of subdivision (f) of Section 23181, and paragraph (1) of subdivision (c) of Section 23183, corporations subject to the minimum franchise tax shall pay annually to the state a minimum franchise tax of eight hundred dollars ($800).
(2)The minimum franchise tax shall be twenty-five dollars ($25) for each of the following:
(A)A corporation formed under the laws of this state whose principal business when formed was gold mining, which is inactive and has not done business within the limits of the state since 1950.
(B)A corporation formed under the laws of this state whose principal business when formed was quicksilver mining, which is inactive and has not done business within the limits of the state since 1971, or has been inactive for a period of 24 consecutive months or more.
(3)For purposes of paragraph (2), a corporation shall not be considered to have done business if it engages in business other than mining.
(e)Notwithstanding subdivision (a), for taxable years beginning on or after January 1, 1999, and before January 1, 2000, every qualified new corporation shall pay annually to the state a minimum franchise tax of five hundred dollars ($500) for the second taxable year. This subdivision shall apply to any corporation that is a qualified new corporation and is incorporated on or after January 1, 1999, and before January 1, 2000.
(1)The determination of the gross receipts of a corporation, for purposes of this subdivision, shall be made by including the gross receipts of each member of the commonly controlled group, as defined in Section 25105, of which the corporation is a member.
(2)Gross receipts, less returns and allowances reportable to this state, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(3)Qualified new corporation means a corporation that is incorporated under the laws of this state or has qualified to transact intrastate business in this state, that begins business operations at or after the time of its incorporation and that reasonably estimates that it will have gross receipts, less returns and allowances, reportable to this state for the taxable year of one million dollars ($1,000,000) or less. Qualified new corporation does not include any corporation that began business operations as a sole proprietorship, a partnership, or any other form of business entity prior to its incorporation. This subdivision shall not apply to any corporation that reorganizes solely for the purpose of reducing its minimum franchise tax.
(4)This subdivision shall not apply to limited partnerships, as defined in Section 17935, limited liability companies, as defined in Section 17941, limited liability partnerships, as described in Section 17948, charitable corporations, as described in Section 23703, regulated investment companies, as defined in Section 851 of the Internal Revenue Code, real estate investment trusts, as defined in Section 856 of the Internal Revenue Code, real estate mortgage investment conduits, as defined in Section 860D of the Internal Revenue Code, qualified Subchapter S subsidiaries, as defined in Section 1361(b)(3)(B) of the Internal Revenue Code, or to the formation of any subsidiary corporation, to the extent applicable.
(5)For any taxable year beginning on or after January 1, 1999, and before January 1, 2000, if a corporation has qualified to pay five hundred dollars ($500) for the second taxable year under this subdivision, but in its second taxable year, the corporations gross receipts, as determined under paragraphs (1) and (2), exceed one million dollars ($1,000,000), an additional tax in the amount equal to three hundred dollars ($300) for the second taxable year shall be due and payable by the corporation on the due date of its return, without regard to extension, for that year.
(f)(1)(A)Notwithstanding subdivision (a), every corporation that incorporates or qualifies to do business in this state on or after January 1, 2000, shall not be subject to the minimum franchise tax for its first taxable year.
(B)Notwithstanding subdivision (a), for taxable years beginning on or after January 1, 2016, 2017, every corporation that is a new microbusiness in up to its first five taxable years shall annually pay to the state a minimum franchise tax in an amount specified in clause (i) for its second, third, fourth, and fifth taxable years. years, as long as it is a microbusiness in each year.
(i)(I)Two hundred dollars ($200) for a new microbusiness that reasonably estimates that it will have gross receipts, less returns and allowances, reportable derived from or attributable to this state for the taxable year of one hundred thousand dollars ($100,000) fifty thousand dollars ($50,000) or less.
(II)Four hundred dollars ($400) for a new microbusiness that reasonably estimates that it will have gross receipts, less returns and allowances, reportable derived from or attributable to this state for the taxable year of two hundred thousand dollars ($200,000) one hundred thousand dollars ($100,000) or less, but more than one hundred thousand dollars ($100,000). fifty thousand dollars ($50,000).
(III)Six hundred dollars ($600) for a new microbusiness that reasonably estimates that it will have gross receipts, less returns and allowances, reportable derived from or attributable to this state for the taxable year of three hundred thousand dollars ($300,000) one hundred fifty thousand dollars ($150,000) or less, but more than two hundred thousand dollars ($200,000). one hundred thousand dollars ($100,000).
(ii)For purposes of this subdivision, subparagraph, the following definitions shall apply:
(I)(ia)Gross receipts, less returns and allowances reportable to this state, allowances, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(II)New microbusiness means a corporation that on or after January 1, 2016, is organized under the laws of this state or has qualified to transact intrastate business in this state that begins business operations at or after the time of its organization. New microbusiness does not include any corporation that began business operations as, or acquired its business operations from, a sole proprietorship, a limited liability company, a partnership, or any other form of business entity prior to its organization or that acquired its business operations from a corporation.
(iii)This subdivision shall not apply to a corporation that is owned directly or indirectly by another corporation.
(ib)Gross receipts, less returns and allowances, derived from or attributable to this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by the regulations under Section 25137, other than those provisions that exclude receipts from the sales factor.
(II)New microbusiness means a limited liability company that on or after January 1, 2017, is organized under the laws of this state or has qualified to transact intrastate business in this state and has first commenced doing business in this state on or after the time of its organization. In determining whether the taxpayer has first commenced doing business in this state during the taxable year, subdivision (f) of Section 17276, without application of paragraph (7) of that subdivision, shall apply, except that new microbusiness shall be substituted for new business.
(iii)For purposes of this subdivision, the gross receipts derived from or attributable to the state of any other business, in whatever form conducted, that is owned, directly or indirectly, by persons, within the meaning of Section 17007, that are treated as related, within the meaning of Section 267, 318, or 707 of the Internal Revenue Code, to the new microbusiness, shall be aggregated with the gross receipts derived from or attributable to the state of the new microbusiness to determine whether the new microbusiness qualifies for the reduced annual tax under this subdivision.
(2)Subparagraph (1) of paragraph (A) (A) of paragraph (1) shall not apply to limited partnerships, as defined in Section 17935, limited liability companies, as defined in Section 17941, limited liability partnerships, as described in Section 17948, charitable corporations, as described in Section 23703, regulated investment companies, as defined in Section 851 of the Internal Revenue Code, real estate investment trusts, as defined in Section 856 of the Internal Revenue Code, real estate mortgage investment conduits, as defined in Section 860D of the Internal Revenue Code, and qualified Subchapter S subsidiaries, as defined in Section 1361(b)(3)(B) of the Internal Revenue Code, to the extent applicable.
(3)This subdivision Subparagraph (A) of paragraph (1) shall not apply to any corporation that reorganizes solely for the purpose of avoiding payment of its minimum franchise tax.
(g)Notwithstanding subdivision (a), a domestic corporation, as defined in Section 167 of the Corporations Code, that files a certificate of dissolution in the office of the Secretary of State pursuant to subdivision (b) of Section 1905 of the Corporations Code, prior to its amendment by the act amending this subdivision, and that does not thereafter do business shall not be subject to the minimum franchise tax for taxable years beginning on or after the date of that filing.
(h)The minimum franchise tax imposed by paragraph (1) of subdivision (d) shall not be increased by the Legislature by more than 10 percent during any calendar year.
(i)(1)Notwithstanding subdivision (a), a corporation that is a small business solely owned by a deployed member of the United States Armed Forces shall not be subject to the minimum franchise tax for any taxable year the owner is deployed and the corporation operates at a loss or ceases operation.
(2)The Franchise Tax Board may promulgate regulations as necessary or appropriate to carry out the purposes of this subdivision, including a definition for ceases operation.
(3)For the purposes of this subdivision, all of the following definitions apply:
(A)Deployed means being called to active duty or active service during a period when a Presidential Executive order specifies that the United States is engaged in combat or homeland defense. Deployed does not include either of the following:
(i)Temporary duty for the sole purpose of training or processing.
(ii)A permanent change of station.
(B)Operates at a loss means negative net income as defined in Section 24341.
(C)Small business means a corporation with total income from all sources derived from, or attributable to, the state of two hundred fifty thousand dollars ($250,000) or less.
(4)This subdivision shall become inoperative for taxable years beginning on or after January 1, 2018.
SEC. 5.This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.
(a)For each taxable year beginning on or after January 1, 1997, every limited partnership doing business in this state (as state, as defined by Section 23101) 23101, and required to file a return under Section 18633 shall pay annually to this state a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153.
(b)(1)In addition to any limited partnership that is doing business in this state and therefore is subject to the tax imposed by subdivision (a), for each taxable year beginning on or after January 1, 1997, every limited partnership that has executed, acknowledged, and filed a certificate of limited partnership with the Secretary of State pursuant to Section 15621 or 15902.01 of the Corporations Code, and every foreign limited partnership that has registered with the Secretary of State pursuant to Section 15692 or 15909.01 of the Corporations Code, shall pay annually the tax prescribed in subdivision (a). The tax shall be paid for each taxable year, or part thereof, until a certificate of cancellation is filed on behalf of the limited partnership with the office of the Secretary of State pursuant to Section 15623, 15696, 15902.03, 15902.03 or 15909.07 of the Corporations Code.
(2)If a taxpayer files a return with the Franchise Tax Board that is designated its final return, that board shall notify the taxpayer that the tax imposed by this chapter is due annually until a certificate of cancellation is filed with the Secretary of State pursuant to Section 15623, 15696, 15902.03, 15902.03 or 15909.07 of the Corporations Code.
(c)The tax imposed by this chapter shall be due and payable on the date the return is required to be filed under former Section 18432 or 18633.
(d)For purposes of this section, limited partnership means any partnership formed by two or more persons under the laws of this state or any other jurisdiction and having one or more general partners and one or more limited partners.
(e)Notwithstanding subdivision (b), any limited partnership that ceased doing business prior to January 1, 1997, filed a final return with the Franchise Tax Board for a taxable year ending before January 1, 1997, and filed a certificate of dissolution with the Secretary of State pursuant to Section 15623 of the Corporations Code prior to January 1, 1997, shall not be subject to the tax imposed by this chapter for any period following the date the certificate of dissolution was filed with the Secretary of State, but only if the limited partnership files a certificate of cancellation with the Secretary of State pursuant to Section 15623 of the Corporations Code. In the case where a notice of proposed deficiency assessment of tax or a notice of tax due (whichever is applicable) is mailed after January 1, 2001, the first sentence of this subdivision shall not apply unless the certificate of cancellation is filed with the Secretary of State not later than 60 days after the date of the mailing of the notice.
(f)(1)Notwithstanding subdivision (a) or (b), for taxable years beginning on or after January 1, 2016, every limited partnership that is a new microbusiness shall, for its first five taxable years, pay to the state an annual tax of:
(A)Two hundred dollars ($200) for a new microbusiness that has gross receipts, less returns and allowances, reportable to this state for the taxable year of one hundred thousand dollars ($100,000) or less.
(B)Four hundred dollars ($400) for a new microbusiness that has gross receipts, less returns and allowances, reportable to this state for the taxable year of two hundred thousand dollars ($200,000) or less, but more than one hundred thousand dollars ($100,000).
(C)Six hundred dollars ($600) for a new microbusiness that has gross receipts, less returns and allowances, reportable to this state for the taxable year of three hundred thousand dollars ($300,000) or less, but more than two hundred thousand dollars ($200,000).
(2)For purposes of this subdivision, the following definitions shall apply:
(A)Gross receipts, less returns and allowances reportable to this state, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(B)New microbusiness means a limited partnership that on or after January 1, 2016, is organized under the laws of this state or has qualified to transact intrastate business in this state that begins business operations at or after the time of its organization. New microbusiness does not include any limited partnership that began business operations as, or acquired its business operations from, a sole proprietorship, a limited liability company, a general partnership, a corporation, or any other form of business entity prior to its organization or that acquired its business operations from a partnership.
(3)This subdivision shall not apply to a new microbusiness that is owned directly or indirectly by a limited partnership, limited liability company, limited liability partnership, or corporation subject to this part or Part 11 (commencing with Section 23101).
(4)This subdivision shall not apply to any limited partnership that reorganizes solely for the purpose of reducing its annual tax.
SEC. 2.Section 17941 of the Revenue and Taxation Code is amended to read:17941.(a)For each taxable year beginning on or after January 1, 1997, a limited liability company doing business in this state (as state, as defined in Section 23101) 23101, shall pay annually to this state a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153 for the taxable year.
(b)(1)In addition to any limited liability company that is doing business in this state and is therefore subject to the tax imposed by subdivision (a), for each taxable year beginning on or after January 1, 1997, a limited liability company shall pay annually the tax prescribed in subdivision (a) if articles of organization have been accepted, or a certificate of registration has been issued, by the office of the Secretary of State. The tax shall be paid for each taxable year, or part thereof, until a certificate of cancellation of registration or of articles of organization is filed on behalf of the limited liability company with the office of the Secretary of State.
(2)If a taxpayer files a return with the Franchise Tax Board that is designated as its final return, the Franchise Tax Board shall notify the taxpayer that the annual tax shall continue to be due annually until a certificate of dissolution is filed with the Secretary of State pursuant to Section 17707.08 of the Corporations Code or a certificate of cancellation is filed with the Secretary of State pursuant to Section 17708.06 of the Corporations Code.
(c)The tax assessed under this section shall be due and payable on or before the 15th day of the fourth month of the taxable year.
(d)For purposes of this section, limited liability company means an organization, other than a limited liability company that is exempt from the tax and fees imposed under this chapter pursuant to Section 23701h or Section 23701x, that is formed by one or more persons under the law of this state, any other country, or any other state, as a limited liability company and that is not taxable as a corporation for California tax purposes.
(e)Notwithstanding anything in this section to the contrary, if the office of the Secretary of State files a certificate of cancellation pursuant to Section 17707.02 of the Corporations Code for any limited liability company, then paragraph (1) of subdivision (f) of Section 23153 shall apply to that limited liability company as if the limited liability company were properly treated as a corporation for that limited purpose only, and paragraph (2) of subdivision (f) of Section 23153 shall not apply. Nothing in this subdivision entitles a limited liability company to receive a reimbursement for any annual taxes or fees already paid.
(f)(1)Notwithstanding any provision of this section to the contrary, a limited liability company that is a small business solely owned by a deployed member of the United States Armed Forces shall not be subject to the tax imposed under this section for any taxable year the owner is deployed and the limited liability company operates at a loss or ceases operation.
(2)The Franchise Tax Board may promulgate regulations as necessary or appropriate to carry out the purposes of this subdivision, including a definition for ceases operation.
(3)For the purposes of this subdivision, all of the following definitions apply:
(A)Deployed means being called to active duty or active service during a period when a Presidential Executive order specifies that the United States is engaged in combat or homeland defense. Deployed does not include either of the following:
(i)Temporary duty for the sole purpose of training or processing.
(ii)A permanent change of station.
(B)Operates at a loss means a limited liability companys expenses exceed its receipts.
(C)Small business means a limited liability company with total income from all sources derived from, or attributable, to the state of two hundred fifty thousand dollars ($250,000) or less.
(4)This subdivision shall become inoperative for taxable years beginning on or after January 1, 2018.
(g)(1)Notwithstanding any provision of this section to the contrary, for taxable years beginning on or after January 1, 2016, every limited liability company that is a new microbusiness shall, for its first five taxable years, pay to the state an annual tax of:
(A)Two hundred dollars ($200) for a new microbusiness that will have gross receipts, less returns and allowances, reportable to this state for the taxable year of one hundred thousand dollars ($100,000) or less.
(B)Four hundred dollars ($400) for a new microbusiness that will have gross receipts, less returns and allowances, reportable to this state for the taxable year of two hundred thousand dollars ($200,000) or less, but more than one hundred thousand dollars ($100,000).
(C)Six hundred dollars ($600) for a new microbusiness that will have gross receipts, less returns and allowances, reportable to this state for the taxable year of three hundred thousand dollars ($300,000) or less, but more than two hundred thousand dollars ($200,000).
(2)For purposes of this subdivision, the following definitions shall apply:
(A)Gross receipts, less returns and allowances reportable to this state, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(B)New microbusiness means a limited liability company that on or after January 1, 2016, is organized under the laws of this state or has qualified to transact intrastate business in this state that begins business operations at or after the time of its organization. New microbusiness does not include any limited liability company that began business operations as, or acquired its business operations from, a sole proprietorship, a partnership, a limited liability company, a corporation, or any other form of business entity prior to its organization or that acquired its business operations from a limited liability corporation.
(3)This subdivision shall not apply to a new microbusiness that is owned directly or indirectly by a limited liability company, limited partnership, limited liability partnership, or corporation subject to this part or Part 11 (commencing with Section 23101).
(4)This subdivision shall not apply to any limited liability company that reorganizes solely for the purpose of reducing its annual tax.
SEC. 3.Section 17948 of the Revenue and Taxation Code is amended to read:17948.(a)For each taxable year beginning on or after January 1, 1997, every limited liability partnership doing business in this state (as state, as defined in Section 23101) 23101, and required to file a return under Section 18633 shall pay annually to the Franchise Tax Board a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153 for the taxable year.
(b)In addition to any limited liability partnership that is doing business in this state and therefore is subject to the tax imposed by subdivision (a), for each taxable year beginning on or after January 1, 1997, every registered limited liability partnership that has registered with the Secretary of State pursuant to Section 16953 of the Corporations Code and every foreign limited liability partnership that has registered with the Secretary of State pursuant to Section 16959 of the Corporations Code shall pay annually the tax prescribed in subdivision (a). The tax shall be paid for each taxable year, or part thereof, until any of the following occurs:
(1)A notice of cessation is filed with the Secretary of State pursuant to subdivision (b) of Section 16954 or 16960 of the Corporations Code.
(2)A foreign limited liability partnership withdraws its registration pursuant to subdivision (a) of Section 16960 of the Corporations Code.
(3)The registered limited liability partnership or foreign limited liability partnership has been dissolved and finally wound up.
(c)The tax assessed under this section shall be due and payable on the date the return is required to be filed under Section 18633.
(d)If a taxpayer files a return with the Franchise Tax Board that is designated as its final return, the Franchise Tax Board shall notify the taxpayer that the annual tax shall continue to be due annually until a certificate of cancellation is filed with the Secretary of State pursuant to Section 16954 or 16960 of the Corporations Code.
(e)(1)Notwithstanding subdivision (a) or (b), for taxable years beginning on or after January 1, 2016, every limited liability partnership that is a new microbusiness shall, for its first five taxable years, pay annually to the state an annual tax of:
(A)Two hundred dollars ($200) for a new microbusiness that has gross receipts, less returns and allowances, reportable to this state for the taxable year of one hundred thousand dollars ($100,000) or less.
(B)Four hundred dollars ($400) for a new microbusiness that has gross receipts, less returns and allowances, reportable to this state for the taxable year of two hundred thousand dollars ($200,000) or less, but more than one hundred thousand dollars ($100,000).
(C)Six hundred dollars ($600) for a new microbusiness that has gross receipts, less returns and allowances, reportable to this state for the taxable year of three hundred thousand dollars ($300,000) or less, but more than two hundred thousand dollars ($200,000).
(2)For purposes of this subdivision, the following definitions shall apply:
(A)Gross receipts, less returns and allowances reportable to this state, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(B)New microbusiness means a limited liability partnership that on or after January 1, 2016, is organized under the laws of this state or has qualified to transact intrastate business in this state that begins business operations at or after the time of its organization. New microbusiness does not include any limited liability partnership that began business operations as, or acquired its business operations from, a sole proprietorship, a limited liability company, a partnership, a corporation, or any other form of business entity prior to its organization or that acquired its business operations from a limited partnership.
(3)This subdivision shall not apply to a new microbusiness that is owned directly or indirectly by a corporation subject to Part 11 (commencing with Section 23101).
(4)This subdivision shall not apply to any limited liability partnership that reorganizes solely for the purpose of reducing its annual tax.
SEC. 4.Section 23153 of the Revenue and Taxation Code is amended to read:23153.(a)Every corporation described in subdivision (b) shall be subject to the minimum franchise tax specified in subdivision (d) from the earlier of the date of incorporation, qualification, or commencing to do business within this state, until the effective date of dissolution or withdrawal as provided in Section 23331 or, if later, the date the corporation ceases to do business within the limits of this state.
(b)Unless expressly exempted by this part or the California Constitution, subdivision (a) shall apply to each of the following:
(1)Every corporation that is incorporated under the laws of this state.
(2)Every corporation that is qualified to transact intrastate business in this state pursuant to Chapter 21 (commencing with Section 2100) of Division 1 of Title 1 of the Corporations Code.
(3)Every corporation that is doing business in this state.
(c)The following entities are not subject to the minimum franchise tax specified in this section:
(1)Credit unions.
(2)Nonprofit cooperative associations organized pursuant to Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code that have been issued the certificate of the board of supervisors prepared pursuant to Section 54042 of the Food and Agricultural Code. The association shall be exempt from the minimum franchise tax for five consecutive taxable years, commencing with the first taxable year for which the certificate is issued pursuant to subdivision (b) of Section 54042 of the Food and Agricultural Code. This paragraph only applies to nonprofit cooperative associations organized on or after January 1, 1994.
(d)(1)Except as provided in paragraph (2), paragraph (1) of subdivision (f) of Section 23151, paragraph (1) of subdivision (f) of Section 23181, and paragraph (1) of subdivision (c) of Section 23183, corporations subject to the minimum franchise tax shall pay annually to the state a minimum franchise tax of eight hundred dollars ($800).
(2)The minimum franchise tax shall be twenty-five dollars ($25) for each of the following:
(A)A corporation formed under the laws of this state whose principal business when formed was gold mining, which is inactive and has not done business within the limits of the state since 1950.
(B)A corporation formed under the laws of this state whose principal business when formed was quicksilver mining, which is inactive and has not done business within the limits of the state since 1971, or has been inactive for a period of 24 consecutive months or more.
(3)For purposes of paragraph (2), a corporation shall not be considered to have done business if it engages in business other than mining.
(e)Notwithstanding subdivision (a), for taxable years beginning on or after January 1, 1999, and before January 1, 2000, every qualified new corporation shall pay annually to the state a minimum franchise tax of five hundred dollars ($500) for the second taxable year. This subdivision shall apply to any corporation that is a qualified new corporation and is incorporated on or after January 1, 1999, and before January 1, 2000.
(1)The determination of the gross receipts of a corporation, for purposes of this subdivision, shall be made by including the gross receipts of each member of the commonly controlled group, as defined in Section 25105, of which the corporation is a member.
(2)Gross receipts, less returns and allowances reportable to this state, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(3)Qualified new corporation means a corporation that is incorporated under the laws of this state or has qualified to transact intrastate business in this state, that begins business operations at or after the time of its incorporation and that reasonably estimates that it will have gross receipts, less returns and allowances, reportable to this state for the taxable year of one million dollars ($1,000,000) or less. Qualified new corporation does not include any corporation that began business operations as a sole proprietorship, a partnership, or any other form of business entity prior to its incorporation. This subdivision shall not apply to any corporation that reorganizes solely for the purpose of reducing its minimum franchise tax.
(4)This subdivision shall not apply to limited partnerships, as defined in Section 17935, limited liability companies, as defined in Section 17941, limited liability partnerships, as described in Section 17948, charitable organizations, corporations, as described in Section 23703, regulated investment companies, as defined in Section 851 of the Internal Revenue Code, real estate investment trusts, as defined in Section 856 of the Internal Revenue Code, real estate mortgage investment conduits, as defined in Section 860D of the Internal Revenue Code, qualified Subchapter S subsidiaries, as defined in Section 1361(b)(3) 1361(b)(3)(B) of the Internal Revenue Code, or to the formation of any subsidiary corporation, to the extent applicable.
(5)For any taxable year beginning on or after January 1, 1999, and before January 1, 2000, if a corporation has qualified to pay five hundred dollars ($500) for the second taxable year under this subdivision, but in its second taxable year, the corporations gross receipts, as determined under paragraphs (1) and (2), exceed one million dollars ($1,000,000), an additional tax in the amount equal to three hundred dollars ($300) for the second taxable year shall be due and payable by the corporation on the due date of its return, without regard to extension, for that year.
(f)(1)(A)Notwithstanding subdivision (a), every corporation that incorporates or qualifies to do business in this state on or after January 1, 2000, shall not be subject to the minimum franchise tax for its first taxable year.
(B)Notwithstanding subdivision (a), for taxable years beginning on or after January 1, 2016, every corporation that is a new microbusiness in its first five taxable years shall annually pay to the state a minimum franchise tax in an amount specified in clause (i) for its second, third, fourth, and fifth taxable years.
(i)(I)Two hundred dollars ($200) for a new microbusiness that reasonably estimates that it will have gross receipts, less returns and allowances, reportable to this state for the taxable year of one hundred thousand dollars ($100,000) or less.
(II)Four hundred dollars ($400) for a new microbusiness that reasonably estimates that it will have gross receipts, less returns and allowances, reportable to this state for the taxable year of two hundred thousand dollars ($200,000) or less, but more than one hundred thousand dollars ($100,000).
(III)Six hundred dollars ($600) for a new microbusiness that reasonably estimates that it will have gross receipts, less returns and allowances, reportable to this state for the taxable year of three hundred thousand dollars ($300,000) or less, but more than two hundred thousand dollars ($200,000).
(ii)For purposes of this subdivision, the following definitions shall apply:
(I)Gross receipts, less returns and allowances reportable to this state, means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(II)New microbusiness means a corporation that on or after January 1, 2016, is organized under the laws of this state or has qualified to transact intrastate business in this state that begins business operations at or after the time of its organization. New microbusiness does not include any corporation that began business operations as, or acquired its business operations from, a sole proprietorship, a limited liability company, a partnership, or any other form of business entity prior to its organization or that acquired its business operations from a corporation.
(iii)This subdivision shall not apply to a corporation that is owned directly or indirectly by another corporation.
(2)This subdivision Subparagraph (1) of paragraph (A) shall not apply to limited partnerships, as defined in Section 17935, limited liability companies, as defined in Section 17941, limited liability partnerships, as described in Section 17948, charitable organizations, corporations, as described in Section 23703, regulated investment companies, as defined in Section 851 of the Internal Revenue Code, real estate investment trusts, as defined in Section 856 of the Internal Revenue Code, real estate mortgage investment conduits, as defined in Section 860D of the Internal Revenue Code, and qualified Subchapter S subsidiaries, as defined in Section 1361(b)(3) 1361(b)(3)(B) of the Internal Revenue Code, to the extent applicable.
(3)This subdivision shall not apply to any corporation that reorganizes solely for the purpose of avoiding payment of its minimum franchise tax.
(g)Notwithstanding subdivision (a), a domestic corporation, as defined in Section 167 of the Corporations Code, that files a certificate of dissolution in the office of the Secretary of State pursuant to subdivision (b) of Section 1905 of the Corporations Code, prior to its amendment by the act amending this subdivision, and that does not thereafter do business shall not be subject to the minimum franchise tax for taxable years beginning on or after the date of that filing.
(h)The minimum franchise tax imposed by paragraph (1) of subdivision (d) shall not be increased by the Legislature by more than 10 percent during any calendar year.
(i)(1)Notwithstanding subdivision (a), a corporation that is a small business solely owned by a deployed member of the United States Armed Forces shall not be subject to the minimum franchise tax for any taxable year the owner is deployed and the corporation operates at a loss or ceases operation.
(2)The Franchise Tax Board may promulgate regulations as necessary or appropriate to carry out the purposes of this subdivision, including a definition for ceases operation.
(3)For the purposes of this subdivision, all of the following definitions apply:
(A)Deployed means being called to active duty or active service during a period when a Presidential Executive order specifies that the United States is engaged in combat or homeland defense. Deployed does not include either of the following:
(i)Temporary duty for the sole purpose of training or processing.
(ii)A permanent change of station.
(B)Operates at a loss means negative net income as defined in Section 24341.
(C)Small business means a corporation with total income from all sources derived from, or attributable, to attributable to, the state of two hundred fifty thousand dollars ($250,000) or less.
(4)This subdivision shall become inoperative for taxable years beginning on or after January 1, 2018.
SEC. 5.This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.
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Date
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Status
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|---|---|
| Feb 19, 2016 | Introduced. To print. |
| Feb 21, 2016 | From printer. May be heard in committee March 22. |
| Feb 22, 2016 | Read first time. |
| Mar 10, 2016 | Referred to Com. on REV. & TAX. |
| Apr 6, 2016 | From committee chair, with author's amendments: Amend, and re-refer to Com. on REV. & TAX. Read second time and amended. |
| Apr 7, 2016 | Re-referred to Com. on REV. & TAX. |
| May 2, 2016 | From committee chair, with author's amendments: Amend, and re-refer to Com. on REV. & TAX. Read second time and amended. |
| May 3, 2016 | Re-referred to Com. on REV. & TAX. |
| May 9, 2016 | In committee: Set, first hearing. Referred to REV. & TAX. suspense file. |
| May 16, 2016 | From committee: Amend, and do pass as amended and re-refer to Com. on APPR. (Ayes 9. Noes 0.) (May 9). |
| May 17, 2016 | Read second time and amended. |
| May 18, 2016 | Re-referred to Com. on APPR. |
| May 25, 2016 | In committee: Set, first hearing. Referred to APPR. suspense file. |
| May 27, 2016 | In committee: Held under submission. |
| May 27, 2016 | Joint Rule 62(a), file notice suspended. |
| May 27, 2016 | Joint Rule 62(a), file notice suspended. (Page 4943.) |
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Date
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Description
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Location
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Votes
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| May 9, 2016 | Do pass as amended and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Revenue and Taxation |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
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Organization
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Position
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Date
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|---|---|---|
| California Tax Reform Association | * Against | May 9, 2016 |
| CalSmallBiz | ** Support | May 9, 2016 |
Date of Hearing: May 25, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
ABPCA Bill Id:AB 2625
Author:(Lopez) – As Amended Ver:May 17, 2016
Policy Committee: | Revenue and Taxation | Vote: | 9 - 0 |
Urgency: Yes State Mandated Local Program: No Reimbursable: No
SUMMARY:
This bill, for taxable years starting on January 1, 2017, and ending before January 1, 2020, reduces the minimum franchise tax (MFT), or the annual tax equal to the MFT, that new microbusinesses must pay. Specifically, this bill:
- Reduces the annual tax equal to the MFT for qualified new microbusinesses as follows:
- $200 for a new microbusiness with gross receipts, less returns and allowances, derived from or attributable to this state of $50,000 or less;
- $400 for a new microbusiness with gross receipts, less returns and allowances, derived from or attributable to this state of $50,000 to $100,000; or,
- $600 for a new microbusiness with gross receipts, less returns and allowances, derived from or attributable to this state of $100,000 to $150,000.
- Specifies that a corporation that is a new microbusiness can pay the reduced annual tax on the second through fourth year of existence if any of those years are between January 1, 2017 and January 1, 2020.
- Specifies that a LP, LLP, and LLC that is a new microbusiness can pay the reduced annual tax for the first five years of its existence if any of those years are between January 1, 2017 and January 2, 2020. .
- Provides that if a corporation or LLC's reasonably estimated gross receipts exceed the amount that qualifies it for a reduction in MFT or annual tax, an additional tax in the amount of the reduction for that taxable year must be paid on the due date of its return.
FISCAL EFFECT:
Annual GF revenue loss of $13 million, $55 million, and $110 million in FY 2016-17, FY 2017-18, and FY 2018-19, respectively.
COMMENTS:
- Purpose. According to the author, AB 2625, this bill will encourage small business and micro-businesses to incorporate in California, and the sponsor of the bill, CalSmallBiz, argues this bill will help level the playing field for smaller businesses who are harmed by California’s corporate filing fee.
- Background. Existing law imposes a franchise tax on all corporations doing business in California equal to 8.84% of its taxable income. The minimum franchise tax (MFT) is $800, no matter what the taxable income is. Existing law also requires a limited partnership (LP), a limited liability partnership (LLP), or a LLC to pay an annual tax equal to the MFT for the privilege of doing business in California. These entities (known as “pass-through entities”) are not subject to any tax based on taxable income because income is passed through to the owners.
The MFT was enacted to ensure that all corporations, LPs, LLPs, and LLs pay at least a minimum amount of tax for the privilege of conducting business in California, regardless of the business’s income or losses. Thus, the tax is not an income tax but rather it is a tax on the right to exercise the powers granted to a corporation conducting business in California. Even when a business earns no income, it still receives the benefits of its corporate status, including the limited liability protection under this state.
LLCs also pay an annual fee based on the total income. This fee ranges from $900 for an LLC with a total income between $250,000 and $499,999 to $11,790 for an LLC with a total income in excess of $5 million.
- The MFT is not necessarily a bad deal. New microbusinesses that believe the $800 MFT or annual tax is too costly have the option of doing business as a sole proprietor or general partnership, which do not pay the tax. However, under such arrangements, business owners could be held personally liable by aggrieved customers and for the actions of other partners.
Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081
Date of Hearing: May 9, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
ABPCA Bill Id:AB 2625 (
Author:Lopez) – As Amended Ver:May 2, 2016
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Corporation taxes: minimum franchise tax: annual tax: microbusiness
SUMMARY: Reduces the minimum franchise tax (MFT) for a corporation that is a new microbusiness, or the annual tax for a limited partnership (LP), limited liability partnership (LLP), or limited liability company (LLC) that is a new microbusiness. Specifically, this bill:
- Provides that for taxable years beginning on or after January 1, 2017, every corporation that is a new microbusiness will pay a reduced MFT in the second through fifth taxable years of its existance. Every LP, LLP, or LLC that is a new microbusiness will pay a reduced annual tax for the first five taxable years of its existence. The reduced tax shall be equal to:
- $200 for a new microbusiness with gross receipts, less returns and allowances, derived from or attributable to this state of $50,000 or less;
- $400 for a new microbusiness with gross receipts, less returns and allowances, derived from or attributable to this state of $100,000 or less; or,
- $600 for a new microbusiness with gross receipts, less returns and allowances, derived from or attributable to this state of $150,000 or less.
- Defines "gross receipts, less returns and allowances, derived from or attributable to this state" as the sum of the gross receipts from the production of business income and nonbusiness income, determined pursuant to Revenue and Taxation Code (R&TC) Sections 25135, 25136, and 25137, except for provisions that exclude receipts from the sales factor.
- Defines a "new microbusiness" as a corporation, LP, LLP, or LLC, that on or after January 1, 2017 is organized under the laws of this state or has qualified to transact intrastate business in this state, and first begins doing new business in this state, pursuant to R&TC Section 17276, on or after the time of its organization.
- Specifies that the gross receipts derived from or attributable to any other business that is owned by persons either directly or indirectly related, pursuant to Internal Revenue Code (IRC) Section 267, 318, or 707, to the new microbusiness will be aggregated with the new microbusiness's gross receipts for purposes of determining whether the reduced MFT or annual tax applies.
- Provides that if a corporation or LLC's reasonably estimated gross receipts exceed the amount that qualifies it for a reduction in MFT or annual tax, an additional tax in the amount of the reduction for that taxable year must be paid on the due date of its return, without regard to extension.
- Takes effect immediately as a tax levy.
EXISTING LAW:
- Imposes franchise tax on all corporations doing business in California equal to 8.84% of the taxable income attributable to California.
- Requires a corporation incorporated in California, doing business in California, or qualified to transact intrastate business in California to pay a MFT of $800 if that amount exceeds its regular franchise tax liability. However, credit unions and nonprofit cooperative organizations are exempt from MFT, as is a corporation in its first taxable year (although it will be subject to franchise tax in its first taxable year based on its taxable income).
- Requires a LP, LLP, or LLC doing business in California, registered or qualified to do business in California, or formed in California to pay an annual tax equal to the MFT for the privilege of doing business in this state. The tax is due until a certificate of cancellation is filed with the Secretary of State. These entities (known as 'pass-through entities') are not subject to any tax based on taxable income. Rather, the items of income, gain, loss, deduction and credit are passed-through to the owners and reported on their respective income or franchise tax returns.
- Exempts a corporation or LLC from MFT or annual tax, respectively, until January 1, 2018 in taxable years when the corporation or LLC is a small business solely owned by a deployed member of the United States Armed Forces and operates at a loss or ceases operation.
- Requires a real estate mortgage investment conduit (REMIC), financial asset securitization investment trust (FASIT), and if organized as a corporation, a regulated investment company (RIC) and real estate investment trust (REIT), to pay the MFT.
FISCAL EFFECT: The Franchise Tax Board (FTB) analysis of this bill is still pending. However, analyses of similar prior bills estimated annual General Fund revenue losses in the millions.
COMMENTS:
- Author's Statement: The author has provided the following statement in support of this bill:
Small businesses and micro-businesses are critically important to our state's economy. But the number of California small businesses still has not recovered to pre-2008 numbers while other states are in fact seeing larger increases in the number of small businesses.
More and more, a trend is emerging where start-up California small businesses are incorporating out of the state to avoid the annual minimum corporate filing fee of $800. For those small businesses which do not incorporate they find that their income for the first 3-5 years fluctuates, and are more adversely affected by the corporate filing fees at a disproportionate rate to larger well-funded corporations.
By creating a tiered system for the new small businesses and micro-businesses, this legislation will both encourage incorporation and tax compliance for these businesses within California, and provide these small businesses with the same corporate protections as larger businesses.
- Arguments in Support: The sponsor of this bill, CalSmallBiz, states that "this important legislation directly addresses a cumbersome challenge for many people by seeking to reduce the minimum $800 annual corporate filing fee for startup micro-businesses and small businesses" because "hefty startup fees negatively affect [them] disproportionately to their larger corporate counter parts." The sponsor believes that "this legislation will further level the playing field and encourage micro-businesses and small businesses to incorporate in California."
- Arguments in Opposition: Opponents of this bill state that "many companies subject to the MFT are held for a variety of purposes and may show zero in gross receipts or income. It is not clear from the language of this bill that such companies, owned by other companies, would be excluded from the bill." Additionally, "there have been many bills on this subject over the years, and no evidence has ever been presented that the MFT is a barrier to business formation."
- What is a "Tax Expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, United States Treasury officials began arguing that these features of the tax law should be referred to as "expenditures," since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each (in the form of forgone revenues). This bill would enact a new tax expenditure program by reducing the MFT or annual tax required to be paid by new microbusinesses.
- Tax Expenditure vs. Direct Expenditure: As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are reviewed less frequently than direct expenditures once they are put in place. This can offer taxpayers greater certainty, but it can also result in tax expenditures remaining part of the tax code without demonstrating any public benefit. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, it should also be noted that, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date.
This bill does not include a sunset date. The Committee may wish to consider adding a five-year sunset date to this bill to provide an opportunity to evaluate whether reducing the MFT or annual tax for new microbusinesses stimulates greater proliferation of these businesses in California.
- Purpose of the MFT: The MFT and annual tax were enacted to ensure that all corporations, LPs, LLPs, and LLCs pay at least a minimum amount of tax for the privilege of conducting business in California, regardless of the business's income or losses. Thus, the tax is not an "income tax," but rather it is a tax on the right to exercise the powers granted to a corporation conducting business in California. Even when a business earns no income, it still receives the benefits of its corporate status, including the limited liability protection under the laws of this state.
- Purpose of This Bill: According to the author's office, small businesses contribute at a greater rate to local economies by returning more revenues to the surrounding community – they donate to nonprofits, sponsor local youth sports and community events, hire local youth, add culture to their communities, and serve on local boards and commissions. However, there are fewer small businesses in California today than prior to the recession, while many states other than California have enjoyed a per capita increase in the number of incorporated businesses over the last 20 years. Since small businesses with uncertain income cannot always afford the $800 MFT or annual tax, this bill seeks to create a five-year reduction in taxes based upon actual income.
- What is a Microbusiness? There is no clear definition of a "microbusiness" in California. To qualify as a microbusiness for state procurement purposes, a small business must have average annual gross receipts of $3.5 million or less, or be a manufacturer with 25 or fewer employees. The US Small Business Association (SBA) characterizes microbusinesses as firms with one to nine employees. Other entities that serve microbusinesses provide even more limited definitions. For example, the Aspen Institute's FIELD program describes a microbusiness as a firm with five or fewer employees that requires $35,000 or less in start-up capital and does not have access to the traditional commercial banking sector. This bill does not define "microbusiness" except for providing that in order to qualify for a reduction in tax, the microbusiness must be within its first five years of formation and have gross receipts under $150,000.
According to the Aspen Institute's 2015 Annual Client Outcomes Survey, the average revenue for a microbusiness was $85,000. However, it is unclear how many business entities in California have gross receipts under $150,000 and are organized as a corporation, LP, LLP, or LLC instead of as a sole proprietorship common for very small businesses, thereby meeting the thresholds in this bill to qualify for a reduction in their MFT or annual tax. It is also difficult to distinguish which business entities exist as true microbusinesses struggling to expand and which exist simply to serve as holding companies. In order to provide more targeted assistance, the Committee may wish to further limit which microbusinesses are eligible for the tax expenditure proposed in this bill.
Furthermore, early access to capital is one of the chief obstacles cited to small business and microbusiness development. According to a report prepared for the SBA, the major constraint limiting the growth, expansion, and wealth creation of small firms – especially women- and minority-owned businesses – is inadequate capital. These small firms have little or no collateral and, as relatively young firms, lack an extensive history from which future performance can be surmised.[1] If the purpose of this bill is to encourage new microbusiness incorporation in California, the Committee may to consider alternatives such as improving access to capital and new markets or developing business training and management skills.
- Doing Business in California: Neighboring states impose a lower minimum tax than California. For example, Oregon assesses a minimum corporate income tax of $150 and Nevada does not assess a tax on corporate income, but requires a state business license fee of $500 for corporations and $200 for all other business entity types. However, these states also possess a much smaller business market share than California. California's current population is about 39.1 million residents, compared to Oregon's 4.0 million residents and Nevada's 2.8 million residents. A microbusiness in California has access to tens of millions of additional customers than a business in neighboring states, allowing businesses the opportunity to attain greater profits from a potentially larger customer base. Companies choose to do business in California, despite other states' tax policies, because of this and other competitive advantages, including the state's environment, transportation infrastructure, access to ports, highways, and railroads, as well as its highly skilled workforce and world-class higher education system. It is unclear whether reducing the MFT or annual tax by $200 to $600 will spur increased incorporation of new microbusinesses in California.
- Costs of Limited Liability: Business entities that would see their MFT or annual tax reduced under this bill all benefit from having organizational structures that limit personal liability for one or more of the entity's owners. By providing limited liability to these entities, California is essentially allowing a business owner to transfer part of the cost of doing business onto creditors and tort victims[2]. As an example, if an owner of a construction company, having limited liability, injures an individual during the course of business, the victim's redress is limited to the assets of the company. If the company is insolvent, part of the cost of the injury is borne by the victim. Before the advent of LLCs and LLPs, that small business owner would have likely started the company as a sole proprietor or general partnership, allowing the victim to go after the personal assets of the owner.
As a public policy, California has decided that the risk borne by creditors and potential tort victims is outweighed by the need to encourage investment. Providing limited liability to small businesses, presumably with limited or no assets, may cause business owners to consider only those marginal costs and benefits associated with their enterprise that they will internalize. The idea that people will take on greater risk because someone else will pay for the costs is known as "moral hazard" and tends to occur when businesses are shielded from liability or lack financial resources to provide adequate compensation to creditors[3]. Business structures subject to the MFT or annual tax allow business owners the benefit of taking greater investment risks without necessarily shouldering the burden of the costs if the enterprise proves unsuccessful.
New microbusinesses that believe the $800 MFT or annual tax is too costly have the option of doing business as a sole proprietor or general partnership, which is not subject to the tax. In these alternate scenarios, however, business owners could be held personally liable by aggrieved customers and for the actions of other partners. In exchange for the benefits that organization as a corporation, LP, LLP, or LLC provides, the state requires payment of the MFT or annual tax.
- Technical Amendment: On Page 15, Line 33, strike "limited liability company" and insert "corporation".
- Related Legislation:
- AB 2544 (Travis Allen and Quirk) would exempt a LLC classified as a qualified investment partnership from the annual tax and associated fee. AB 2544 is scheduled to be heard by this Committee today.
- AB 799 (Travis Allen and Quirk) was substantially similar to AB 2544. AB 799 was held under submission in this Committee.
- AB 612 (Patterson) would have reduced the MFT or annual tax to $400 if the corporation or LP, LLP, or LLC, respectively, qualified as a new small business. AB 612 was held under submission in this Committee.
- AB 328 (Grove) would have eliminated the MFT or annual tax if the corporation or LLC, respectively, qualified as a new veteran-owned small businesses. AB 328 was held under submission in this Committee.
REGISTERED SUPPORT / OPPOSITION:
Support
CalSmallBiz (Sponsor)
Opposition
California Tax Reform Association
Analysis Prepared by: Irene Ho / REV. & TAX. / (916) 319-2098
Alicia Robb, Marin Consulting, LLC, Access to Capital among Young Firms, Minority-owned Firms, Women-owned Firms, and High-tech Firm, US Small Business Administration. April 2013. ↑
Jonathan Macey, The Limited Liability Company: Lessons for Corporate Law, Washington University Law Review, Vol. 73, Issue 2, 1995. ↑
Id. ↑
Discussed in Hearing
4MIN
Assembly Standing Committee on Revenue and Taxation
Bill Author
Bill Co-Author(s):