2017-2018 CA Legislative Session: CSEA-Supported Bills Move Forward
Two important bills, resulting from the coordinated efforts of the CSEA Legislative Affairs Committee and the CSEA Legislative Advocate, are progressing through the CA Legislature:
SB 1508, Corporate taxation: voluntary disclosure agreements: qualified entities
AB 2503, Corporations: limited liability companies: dissolution: cancellation: abatement of taxes
SB 1508 (Committee on Governance and Finance - McGuire, Beall, Hernandez, Hertzberg, Lara, Moorlach, and Nguyen) is a Senate Committee bill which seeks to corrects an issue with the Voluntary Disclosure Program (VDP) administered by the FTB. The current procedure unintentionally requires a foreign entity to remain non-compliant with the Secretary of State (SOS) in order to participate in the VDP. Understandably, some entities aren’t aware of this glitch and file with the SOS either before or at the same time they apply for the VDP. Unfortunately, registering with the SOS first actually disqualifies the foreign entity from participating in the VDP. As more out of state entities begin to recognize they are “doing business in California” under the new single sales factor, market-assignment apportionment rules, VDP applications should increase, so a remedy is a high priority.
The Senate Governance and Finance Committee has included CSEA’s recommended solution in this Committee bill. SB 1508 will allow a foreign corporation or foreign LLC that has qualified or registered with the California Secretary of State within six months of the signing date of the voluntary disclosure agreement to be eligible to participate in the VDP, subject to specified limitations.
The CSEA Legislative Affairs Committee discovered this glitch in August 2017, and worked with the FTB Legal Division, the FTB Legislative Services Bureau, and the Senate Governance and Finance Committee staff under the guidance of CSEA’s Legislative Advocate Jennifer Tannehill, for the resolution now included in this bill. The bill was heard on Wednesday, 4/25/18, and passed unanimously.
AB 2503 (Irwin) would make a domestic corporation and a limited liability company subject to administrative dissolution or administrative cancellation if its corporate powers have been suspended by the FTB for a specified period of time.
When a business ceases operations and fails to dissolve the entity, state law continues to impose the minimum franchise or annual tax for each tax year until the entity completes the dissolution process. Because FTB currently lacks the ability to dissolve entities that have ceased operation, tax debts remain on FTB's accounting system for up to 20 years. Providing a mechanism by which liabilities can be abated, along with an involuntary method of dissolution, would allow the FTB to eliminate accounts receivables that will very likely never be collected by the state.
For over ten years and in multiple venues (State Tax Agency Liaison Meeting, Taxpayers' Bill of Rights Hearings, and Jim Stern Legislative Day), CSEA has advocated for this much-needed solution, which required legislative action in order to remedy the issue. Thanks to the coordinated efforts of CSEA’s Legislative Affairs Committee and CSEA Legislative Advocate Jennifer Tannehill, this bill passed unanimously from the Assembly Committee on Revenue and Taxation on Monday, 4/23/18, and has moved to the Appropriations Committee.
Please watch for reports of future progress on these two bills.
CSEA thanks Vicki Mulak, EA, CFP® for her assistance with this article.