BILL NUMBER: AB 3078 CHAPTERED
BILL TEXT
CHAPTER 305
FILED WITH SECRETARY OF STATE SEPTEMBER 25, 2008
APPROVED BY GOVERNOR SEPTEMBER 25, 2008
PASSED THE SENATE AUGUST 22, 2008
PASSED THE ASSEMBLY AUGUST 28, 2008
AMENDED IN SENATE AUGUST 11, 2008
AMENDED IN SENATE AUGUST 6, 2008
AMENDED IN SENATE AUGUST 4, 2008
AMENDED IN SENATE JULY 2, 2008
AMENDED IN SENATE JUNE 19, 2008
AMENDED IN ASSEMBLY APRIL 23, 2008
INTRODUCED BY Committee on Revenue and Taxation (Charles?Calderon
(Chair), DeVore (Vice Chair), Arambula, Eng, Hayashi, and Ma)
MARCH 13, 2008
An act to amend Sections 18535, 18536, 18662, 18668, 19136, 21006,
and 25106 of, to amend, repeal, and add Section 21004 of, and to add
Section 19311.5 to, the Revenue and Taxation Code, relating to
taxation.
LEGISLATIVE COUNSEL'S DIGEST
AB 3078, Committee on Revenue and Taxation. Taxation: tax
administration: group returns: real estate withholding requirements:
penalties: income apportionment.
(1) The Personal Income Tax Law provides various credits against
"net taxes" to taxpayers for income taxes paid to another state on
income that is taxable by that law. That law generally provides that
no credit or refund is allowed after a specified period of time
unless, before the expiration of that period, a claim for refund or
credit is filed by the taxpayer or the Franchise Tax Board allows a
credit, makes a refund, or mails a notice of proposed assessment.
This bill would permit a claim for credit or refund of an
overpayment of income tax attributable to a credit allowable under
the above provisions to be filed within one year from the date tax is
paid to the other state or within the period provided in the
franchise and income tax laws, whichever period expires later.
This bill would also declare that this act is not to be construed
to change the requirements of Section 18007 of the Revenue and
Taxation Code.
(2) The Katz-Harris Taxpayers' Bill of Rights Act establishes the
position of Taxpayers' Rights Advocate and provides specified
protections for taxpayers for purposes of, among other things,
determining their correct tax liability.
This bill would, until January 1, 2012, authorize the Taxpayers'
Rights Advocate to abate penalties, fees, additions to tax, or
interest attributable to error of the Franchise Tax Board, as
specified.
(3) The Katz-Harris Taxpayers' Bill of Rights Act requires the
Franchise Tax Board to annually identify areas of recurrent taxpayer
noncompliance and report its findings to the Legislature.
This bill would require the Franchise Tax Board to include in its
report a summary of cases where relief was granted and to keep a
public record regarding the relief granted.
(4) Existing income tax laws authorize the Franchise Tax Board to
provide for the filing of a group return for electing nonresident
partners, as specified. Existing law authorizes the board to provide
for the filing of a group return for electing nonresident directors
of a corporation, as specified, and to adjust the income of those
taxpayers to properly reflect income, as provided.
This bill would allow the board to include entities with less than
2 electing nonresident individuals, and electing individuals with
more than a specified amount of California taxable income, in a group
nonresident return, as provided.
(5) Existing law requires the transferee of California real
property, in specified circumstances, to withhold, for income tax
purposes, 31/3% of the sales price of the property when the property
is acquired from either an individual or a corporation without a
permanent place of business, as specified.
This bill would also impose those withholding requirements on a
sale of California real property, as defined, by a non-California
partnership, as provided, at a rate of either 31/3% of sales proceeds
or 9.3% of gain, as specified.
(6) Existing law provides that, in the case of a sale of
California real property by a non-California "S" corporation, the "S"
corporation may elect the alternative withholding rate of 1.5%,
based on the gain recognized by the "S" corporation on the sale,
instead of the default withholding rate of 31/3% based on the "S"
corporation's sales proceeds.
This bill would increase the alternative withholding rate for a
sale of California real property by a non-California "S" corporation
to 10.8% or 12.8%, as applicable, of the gain recognized by the "S"
corporation on the sale.
(7) Existing law provides that a nonresident seller of California
real property pursuant to an installment agreement is not subject to
withholding when payments are received by the seller in later years,
unless the buyer makes an election to withhold on a
payment-by-payment basis rather than on the entire sale in the year
of sale.
This bill would instead require the buyer to withhold on each
installment sale payment if the sale of California real property is
structured as an installment sale, as provided.
This bill would also delete redundant provisions and would make
clarifying changes relating to the assessment and collection of
unremitted withholding.
(8) Existing law allows a seller of California real estate to make
an election, pursuant to a certification made under penalty of
perjury, as specified, for an alternative withholding rate based on
the amount certified by the transferor, provided that the certified
amount is not less than the gain required to be recognized by the
seller under the Corporation Tax Law or the Personal Income Tax Law,
as applicable. By modifying existing withholding requirements to
include sellers that are non-California partnerships and by requiring
a certification under penalty of perjury for alternative withholding
from those partnerships, this bill would expand the scope of the
existing crime of perjury, and would thereby impose a state-mandated
local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
(9) The Personal Income Tax Law and the Corporation Tax Law impose
a penalty for underpayment of an estimated income tax. Those laws
also specify that a penalty shall not be imposed if, specified taxes
imposed for the preceding taxable year, minus the sum of any credits
against the tax, or, the tax computed under specified provisions upon
the estimated income for the taxable year, minus the sum of any
credits against the tax, is less than $200, and in the case of a
separate return filed by a married person, is less than $100.
This bill would increase the amounts excluded from that penalty
from $200 to $500, and in the case of a separate return filed by a
married person, from $100 to $250.
(10) The Corporation Tax Law imposes taxes measured by income and,
in the case of a corporation that conducts a unitary business
generally requires or, in some cases, permits the members of the
group to compute their tax by utilizing the "combined report"
approach. Existing law provides that dividends paid by one member of
a unitary group to another member of that group may be eliminated
from the recipient corporation's taxable income, provided that the
dividends are paid out of earnings and profits accumulated by the
payer when the payer and recipient were members of the same combined
unitary group, as specified.
This bill would clarify that the dividend elimination, as
provided, is allowed regardless of whether the payer and payee are
taxpayer members of the California combined unitary group return, or
whether the payer or payee had previously filed California tax
returns, as long as the payer and payee filed as members of a
comparable unitary business outside of this state when the earnings
and profits from which the dividends were paid arose. This bill would
declare that these changes are declaratory of existing law.
This bill would also specify that the dividend elimination
provisions apply to dividends paid out of the specified income by a
member of a combined unitary group to a newly formed member, as
defined.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 18535 of the Revenue and Taxation Code is
amended to read:
18535. (a) In lieu of electing nonresident partners filing a
return pursuant to Section 18501, the Franchise Tax Board may,
pursuant to requirements and conditions set forth in forms and
instructions, provide for the filing of a group return for one or
more electing nonresident partners by a partnership doing business
in, or deriving income from, sources in California. The tax rate or
rates applicable to each electing partner's distributive share shall
consist of the highest marginal rate or rates provided by Part 10
(commencing with Section 17001) plus, in the case of any electing
nonresident partner included on the group return who would be subject
to Section 17043 when filing individually, an additional tax rate of
1 percent. Except as provided in subdivision (b), no deductions
shall be allowed except those necessary to determine each partner's
distributive share, and no credits shall be allowed except those
directly attributable to the partnership. As required by the
Franchise Tax Board, the partnership as agent for the electing
partners shall make the payments of tax, additions to tax, interest,
and penalties otherwise required to be paid by the electing partners.
(b) Deductions provided by Chapter 5 (commencing with Section
17501) of Part 10, attributable to earned income of a partner derived
from a partnership filing a group return on behalf of electing
nonresident partners under subdivision (a), shall be allowed if the
partner certifies, in the form and manner as the Franchise Tax Board
may prescribe, that he or she has no earned income from any other
source.
(c) This section shall also be applicable to a nonresident
shareholder of a corporation which is treated as an "S" corporation
under Chapter 4.5 (commencing with Section 23800) of Part 11. In that
case, the provisions of subdivisions (a) and (b) are modified to
refer to"shareholder or shareholders" in lieu of "partners" and to "S"
corporation in lieu of "partnership."
(d) This section shall also be applicable to a nonresident
individual with a membership or economic interest in a limited
liability company, registered limited liability partnership, or
foreign limited liability partnership, which is classified as a
partnership for California tax purposes. In that case, the provisions
of subdivisions (a) and (b) are modified to refer to "holders of a
membership or economic interest" in lieu of "partners" and to
"limited liability companies" in lieu of "partnerships," and
"partnerships" shall include registered limited liability
partnerships and foreign limited liability partnerships.
(e) The Franchise Tax Board may adjust the income of an electing
nonresident taxpayer included in a group return filed under this
section to properly reflect income under Part 10 (commencing with
Section 17001), including Chapter 11 thereof (commencing with Section
17951), this part (commencing with Section 18401), and Part 11
(commencing with Section 23001), including Chapter 17 thereof
(commencing with Section 25101).
SEC. 2. Section 18536 of the Revenue and Taxation Code is amended
to read:
18536. (a) In lieu of electing nonresident directors filing a
return pursuant to Section 18501, the Franchise Tax Board may,
pursuant to requirements and conditions set forth in applicable forms
and instructions, provide for the filing of a group return by a
corporation for one or more electing nonresident individuals who
receive wages, salaries, fees, or other compensation from that
corporation for director services, including attendance of board of
directors' meetings that take place in this state. The tax rate or
rates applicable to each director's compensation for services
performed in this state shall consist of highest marginal rate or
rates provided for by Part 10 (commencing with Section 17001) of
Division 2 plus, in the case of any electing nonresident director
included on the group return who would be subject to Section 17043
when filing individually, an additional tax rate of 1 percent and no
deductions or credits shall be allowed. As required by the Franchise
Tax Board, the corporation, as the agent for the electing nonresident
directors, shall make the payments of tax, additions to tax,
interest, and penalties otherwise required to be paid by, or imposed
on, the electing directors.
(b) The Franchise Tax Board may adjust the income of an electing
nonresident taxpayer included in a group return filed under this
section to properly reflect the income under Part 10 (commencing with
Section 17001) of Division 2.
SEC. 3. Section 18662 of the Revenue and Taxation Code is amended
to read:
18662. (a) The Franchise Tax Board may, by regulation, require
any person, in whatever capacity acting, including lessees or
mortgagors of real or personal property, fiduciaries, employers, and
any officer or department of the state, or any political subdivision
or agency of the state, or any city organized under a freeholder's
charter, or any political body not a subdivision or agency of the
state, having the control, receipt, custody, disposal, or payment of
items of income specified in subdivision (b), to withhold an amount,
determined by the Franchise Tax Board to reasonably represent the
amount of tax due when the items of income are included with other
income of the taxpayer, and to transmit the amount withheld to the
Franchise Tax Board at the time as it may designate.
(b) The items of income referred to in subdivision (a) are
interest, dividends, rents, prizes and winnings, premiums, annuities,
emoluments, compensation for services, including bonuses,
partnership income or gains, and other fixed or determinable annual
or periodical gains, profits, and income.
(c) The Franchise Tax Board may authorize the tax under
subdivision (a) to be deducted and withheld from the interest upon
any securities the owners of which are not known to the withholding
agent.
(d) Any person that fails to withhold from any payments any
amounts required to be withheld by this section or fails to remit the
taxes withheld is liable for the amount specified in Section 18668.
(e) (1) This subdivision applies to any disposition of a
California real property interest by:
(A) Any person, other than either of the following:
(i) Except as otherwise provided in this subdivision, a
corporation, including an entity classified for tax purposes as a
corporation under Part 11 (commencing with Section 23001).
(ii) Except as otherwise provided in this subdivision, a
partnership, as determined in accordance with Subchapter K of Chapter
1 of Subtitle A of the Internal Revenue Code, including an entity
classified as a partnership for tax purposes under Part 10
(commencing with Section 17001).
(B) A corporation or partnership, if that corporation or
partnership immediately after the transfer of the title to the
California real property has no permanent place of business in
California. For purposes of this subdivision, a corporation or
partnership has no permanent place of business in California if all
of the following apply:
(i) It is not organized and existing under the laws of California.
(ii) It does not qualify with the office of the Secretary of State
to transact business in California.
(iii) It does not maintain and staff a permanent office in
California.
(2) (A) Except as provided in subparagraph (B), in the case of any
disposition of a California real property interest by a transferor
described in paragraph (1), the transferee, including for this
purpose any intermediary or accommodator in a deferred exchange, is
required to withhold an amount equal to 31/3 percent of the sales
price of the California real property conveyed.
(B) If the transferor makes an election under this subparagraph,
the transferee, including any intermediary or accommodator in a
deferred exchange, is required to withhold an amount equal to an
amount certified by the transferor in writing under penalty of
perjury. The amount certified shall not be less than the gain
required to be recognized under Part 10 (commencing with Section
17001) and Part 11 (commencing with Section 23001) on the disposition
of the California real property multiplied by the rate specified in
either Section 23151 or Section 23186, as applicable, for transferors
that are corporations, or the highest rate specified in Section
17041 for transferors other than corporations. For purposes of
applying the previous sentence, the following shall apply:
(i) The highest rate specified in Section 17041 is determined
without regard to any other tax rate specified under Part 10
(commencing with Section 17001) irrespective of whether the
applicable statute provides that tax shall be treated as if imposed
under Section 17041.
(ii) For corporations that are "S" corporations subject to the
modified tax rate specified in Section 23802, the rate shall be the
sum of the rate specified in subdivision (b) of Section 23802 and the
highest rate specified in Section 17041, as described in clause (i).
(C) (i) The written certification required by subparagraph (B)
shall be in a form, as prescribed by the Franchise Tax Board. The
form shall provide as follows:
"Title and escrow persons and exchange accommodators are not
authorized to provide legal or accounting advice for purposes of
determining withholding amounts. Transferors are strongly encouraged
to consult with a competent tax professional for this purpose."
(ii) The Franchise Tax Board shall make this form available
electronically on its Web site in a format that allows a transferor
to complete and print the form. The Franchise Tax Board shall also
provide electronic means to enable the transferor to estimate the
amount of gain required to be recognized by the transferor in the
transaction. Any form or worksheet, electronic or otherwise,
developed for this purpose shall provide as follows:
"Title and escrow persons and exchange accommodators are not
authorized to provide legal or accounting advice for purposes of
determining withholding amounts. Transferors are strongly encouraged
to consult with a competent tax professional for this purpose."
(3) Notwithstanding any other provision of this subdivision, all
of the following shall apply:
(A) No transferee is required to withhold any amount under this
subdivision unless the sales price of the California real property
conveyed exceeds one hundred thousand dollars ($100,000).
(B) No transferee, other than an intermediary or an accommodator
in a deferred exchange, is required to withhold any amount under this
subdivision unless written notification of the withholding
requirements of this subdivision has been provided by the real estate
escrow person.
(C) (i) No transferee, trustee under a deed of trust, or mortgagee
under a mortgage with a power of sale is required to withhold under
this subdivision when the transferee has acquired California real
property at a sale pursuant to a power of sale under a mortgage or
deed of trust or a sale pursuant to a decree of foreclosure or has
acquired the property by a deed in lieu of foreclosure.
(ii) No transferee is required to withhold under this subdivision
when the transferor is a bank acting as trustee other than a trustee
of a deed of trust.
(D) No transferee, including for this purpose any intermediary or
accommodator in a deferred exchange, is required to withhold any
amount under this subdivision if the transferee, in good faith and
based on all the information of which he or she has knowledge, relies
on a written certificate executed by the transferor, certifying,
under penalty of perjury, one of the following:
(i) (I) The California real property being conveyed is the seller'
s or decedent's principal residence, within the meaning of Section
121 of the Internal Revenue Code.
(II) The last use of the property being conveyed was use by the
transferor as the transferor's principal residence within the meaning
of Section 121 of the Internal Revenue Code.
(ii) (I) The California real property being conveyed is being
exchanged, or will be exchanged, for property of like kind, within
the meaning of Section 1031 of the Internal Revenue Code, but only to
the extent of the amount of the gain not required to be recognized
for California income or franchise tax purposes under Section 1031 of
the Internal Revenue Code.
(II) Subclause (I) may not apply if an exchange does not qualify
for nonrecognition treatment for California income or franchise tax
purposes under Section 1031 of the Internal Revenue Code, in whole or
in part, due to the failure of the transaction to comply with the
provisions of Section 1031(a)(3) of the Internal Revenue Code,
relating to the requirement that property be identified and that the
exchange be completed not more than 180 days after the transfer of
the exchanged property.
(III) In any case where clause (ii) applies, the transferee,
including for this purpose any intermediary or accommodator in a
deferred exchange, is required to notify the Franchise Tax Board in
writing within 10 days of the expiration of the statutory periods
specified in Section 1031(a)(3) of the Internal Revenue Code and
thereafter remit the applicable withholding amounts determined under
this subdivision in accordance with paragraph (4).
(iii) The California real property has been compulsorily or
involuntarily converted, within the meaning of Section 1033 of the
Internal Revenue Code, and the transferor intends to acquire property
similar or related in service or use so as to be eligible for
nonrecognition of gain for California income tax purposes under
Section 1033 of the Internal Revenue Code.
(iv) The transaction will result in either a net loss or a net
gain not required to be recognized for California income or franchise
tax purposes.
(v) The transferor is a corporation with a permanent place of
business in California.
(E) (i) In the case of any transaction otherwise subject to this
subdivision that qualifies as an "installment sale," within the
meaning of Section 453(b) of the Internal Revenue Code, for
California income tax purposes, the provisions of this subdivision
shall be separately applied to each principal payment to be made
under the terms of the installment sale agreement between the
parties.
(ii) For purposes of clause (i), subparagraph (A) of paragraph (3)
does not apply to each individual payment to be received under the
terms of the installment sale agreement.
(4) (A) Amounts withheld and payments made in accordance with this
subdivision shall be reported and remitted to the Franchise Tax
Board in the form and manner and at the time specified by the
Franchise Tax Board. Notwithstanding the foregoing, funds withheld on
individual transactions by real estate escrow persons may, at the
option of the real estate escrow person, be remitted by the 20th day
of the month following the close of escrow for the individual
transaction, or may be remitted on a monthly basis in combination
with other transactions closed during that month.
(B) The transferor shall submit a copy of the written certificate
and supporting documentation for the reduced withholding specified in
subparagraph (B) of paragraph (2) or subparagraph (D) of paragraph
(3), executed by the transferor, to the Franchise Tax Board upon
request.
(5) For purposes of this subdivision, "California real property
interest" means an interest in real property located in California
and defined in Section 897(c)(1)(A)(i) of the Internal Revenue Code.
(6) For purposes of this subdivision, "real estate escrow person"
means any of the following persons involved in the real estate
transaction:
(A) The person, including any attorney, escrow company, or title
company, responsible for closing the transaction.
(B) If no person described in subparagraph (A) is responsible for
closing the transaction, then any other person who receives and
disburses the consideration or value for the interest or property
conveyed.
(7) (A) Unless the real estate escrow person provides "assistance,"
it shall be unlawful for any real estate escrow person to charge any
customer for complying with the requirements of this subdivision.
(B) For purposes of this paragraph, "assistance" includes, but is
not limited to, helping the parties clarify with the Franchise Tax
Board the issue of whether withholding is required under this
subdivision or, upon request of the parties, withholding an amount
under this subdivision and remitting that amount to the Franchise Tax
Board.
(C) For purposes of this paragraph, "assistance" does not include
providing the written notification of the withholding requirements of
this subdivision.
(D) In a case where the real estate escrow person provides
"assistance" in complying with the withholding requirements of this
subdivision, it shall be unlawful for the real estate escrow person
to charge any customer a fee that exceeds forty-five dollars ($45).
(8) For purposes of this subdivision, "sales price" means the sum
of all of the following:
(A) The cash paid, or to be paid, but excluding for this purpose
any stated or unstated interest or original issue discount, as
determined under Sections 1271 through 1275, inclusive, of the
Internal Revenue Code.
(B) The fair market value of other property transferred, or to be
transferred.
(C) The outstanding amount of any liability assumed by the
transferee or to which the California real property interest is
subject immediately before and after the transfer.
(9) The Franchise Tax Board may prescribe, by forms, instructions,
published notices, or regulations, any requirements necessary for
the efficient administration of this subdivision relating to the
treatment of "de minimis" amounts otherwise required under this
section.
(f) Withholding is not required under this section with respect to
wages, salaries, fees, or other compensation paid by a corporation
for services performed in California for that corporation to a
nonresident corporate director for director services, including
attendance at a board of directors' meeting.
(g) In the case of any payment described in subdivision (f), the
person making the payment shall do each of the following:
(1) File a return with the Franchise Tax Board at the time and in
the form and manner specified by the Franchise Tax Board.
(2) Provide the payee with a statement at the time and in the form
and manner specified by the Franchise Tax Board.
(h) (1) The amendments to this section made by Chapter 488 of the
Statutes of 2002 apply to dispositions of California real property
interests that occur on or after January 1, 2003.
(2) In the case of any payments received on or after January 1,
2003, pursuant to an installment sale agreement relating to a
disposition occurring before January 1, 2003, the amendments to this
section made by Chapter 488 of the Statutes of 2002 do not apply to
those payments.
(i) (1) The amendments made to this section by the act adding this
subdivision shall apply to dispositions of California real property
interests that occur on or after January 1, 2009.
(2) In the case of any payments received on or after January 1,
2009, pursuant to an installment sale agreement relating to a
disposition occurring before January 1, 2009, the amendments made to
this section by the act adding this subdivision do not apply to those
payments.
SEC. 4. Section 18668 of the Revenue and Taxation Code is amended
to read:
18668. (a) Every person required under this article to deduct and
withhold any tax is hereby made liable for that tax, to the extent
provided by this section. Any amount required to be deducted and paid
to the Franchise Tax Board under this article shall be considered
the tax of that person. Unless it is shown that the failure is due to
reasonable cause, any person who fails to withhold from any payments
any amount required to be withheld under this article or who fails
to transmit the withheld amounts to the Franchise Tax Board on or
before the due date required by regulations is liable for the amount
actually withheld, or the amount of taxes due from the taxpayer to
whom the payments are made, whichever is greater, but not in excess
of the amount required to be withheld.
(b) If any amount required to be withheld under this article is
not paid to the Franchise Tax Board on or before the due date
required by regulations, interest shall be assessed at the adjusted
annual rate established pursuant to Section 19521, computed from the
due date to the date paid.
(c) Whenever any person has withheld any amount pursuant to this
article, the amount so withheld shall be held to be a special fund in
trust for the State of California.
(d) In lieu of the amount provided for in subdivision (a), unless
it is shown that the failure to withhold is due to reasonable cause,
whenever any transferee is required to withhold any amount pursuant
to subdivision (e) of Section 18662, the transferee is liable for the
greater of the following amounts for failure to withhold only after
the transferee, as specified, is notified in writing of the
requirements under subdivision (e) of Section 18662:
(1) Five hundred dollars ($500).
(2) Ten percent of the amount required to be withheld under
subdivision (e) of Section 18662.
(e) (1) Unless it is shown that the failure to notify is due to
reasonable cause, the real estate escrow person is liable for the
amount specified in subdivision (d), when written notification of the
withholding requirements of subdivision (e) of Section 18662 is not
provided to the transferee, other than a transferee that is an
intermediary or accommodator in a deferred exchange, and the
California real property disposition is subject to withholding under
subdivision (e) of Section 18662.
(2) The real estate escrow person shall provide written
notification to the transferee (other than a transferee that is an
intermediary or accommodator in a deferred exchange) in substantially
the same form as follows:
"In accordance with Section 18662 of the Revenue and Taxation
Code, a buyer may be required to withhold an amount equal to 31/3
percent of the sales price or the amount that is specified in a
written certificate executed by the transferor in the case of a
disposition of California real property interest by either:
1. A seller who is an individual, trust, or estate or when the
disbursement instructions authorize the proceeds to be sent to a
financial intermediary of the seller, OR
2. A corporate or partnership seller that has no permanent place
of business in California immediately after the transfer of title to
the California real property.
The buyer may become subject to penalty for failure to withhold an
amount equal to the greater of 10 percent of the amount required to
be withheld or five hundred dollars ($500).
However, notwithstanding any other provision included in the
California statutes referenced above, no buyer will be required to
withhold any amount or be subject to penalty for failure to withhold
if:
1. The sales price of the California real property conveyed does
not exceed one hundred thousand dollars ($100,000), OR
2. The seller executes a written certificate, under the penalty of
perjury, certifying that the seller is a corporation or a
partnership with a permanent place of business in California, OR
3. The seller, who is an individual, trust, estate, partnership,
or a corporation without a permanent place of business in California
executes a written certificate, under the penalty of perjury, of any
of the following:
A. The California real property being conveyed is the seller's or
decedent's principal residence, within the meaning of Section 121 of
the Internal Revenue Code.
B. The last use of the property being conveyed was use by the
transferor as the transferor's principal residence within the meaning
of Section 121 of the Internal Revenue Code.
C. The California real property being conveyed is or will be
exchanged for property of like kind, within the meaning of Section
1031 of the Internal Revenue Code, but only to the extent of the
amount of gain not required to be recognized for California income
tax purposes under Section 1031 of the Internal Revenue Code.
D. The California real property has been compulsorily or
involuntarily converted, within the meaning of Section 1033 of the
Internal Revenue Code, and that the seller intends to acquire
property similar or related in service or use so as to be eligible
for nonrecognition of gain for California income tax purposes under
Section 1033 of the Internal Revenue Code.
E. The California real property transaction will result in a loss
or a net gain not required to be recognized for California income tax
purposes.
The seller is subject to penalty for knowingly filing a fraudulent
certificate for the purpose of avoiding the withholding requirement."
(3) The real estate escrow person is not liable under this
subdivision if the tax due as a result of the disposition of
California real property is paid by the original or extended due date
of the transferor's return for the taxable year in which the
disposition occurred.
(4) The real estate escrow person or transferee is not liable
under paragraph (1) or subdivision (d), if the failure to withhold is
the result of his or her reliance, based on good faith and on all
the information of which he or she has knowledge, upon a written
certificate executed by the transferor under penalty of perjury
pursuant to subparagraph (D) of paragraph (3) of subdivision (e) of
Section 18662.
(5) Any transferor who for the purpose of avoiding the withholding
requirements of subdivision (e) of Section 18662 knowingly executes
a false certificate pursuant to that section is liable for twice the
amount specified in subdivision (d).
(f) The amount of tax required to be deducted, withheld, and
remitted under this article shall be assessed, collected, and paid
upon notice and demand. Article 3 (commencing with Section 19031),
relating to deficiency assessments, shall not apply with respect to
the assessment or collection of any amount due under this article.
SEC. 5. Section 19136 of the Revenue and Taxation Code is amended
to read:
19136. (a) Section 6654 of the Internal Revenue Code, relating to
failure by an individual to pay estimated income tax, shall apply,
except as otherwise provided.
(b) Section 6654(a)(1) of the Internal Revenue Code is modified to
refer to the rate determined under Section 19521 in lieu of Section
6621 of the Internal Revenue Code.
(c) (1) Section 6654(e)(1) of the
Internal Revenue Code, relating to exceptions where the tax is a
small amount, does not apply.
(2) No addition to the tax shall be imposed under this section if
the tax imposed under Section 17041 or 17048 and the tax imposed
under Section 17062 for the preceding taxable year, minus the sum of
any credits against the tax provided by Part 10 (commencing with
Section 17001) or this part, or the tax computed under Section 17041
or 17048 upon the estimated income for the taxable year, minus the
sum of any credits against the tax provided by Part 10 (commencing
with Section 17001) or this part, is less than five hundred dollars
($500), except in the case of a separate return filed by a married
person the amount shall be less than two hundred fifty dollars
($250).
(d) Section 6654(f) of the Internal Revenue Code does not apply
and for purposes of this section the term "tax" means the tax imposed
under Section 17041 or 17048 and the tax imposed under Section 17062
less any credits against the tax provided by Part 10 (commencing
with Section 17001) or this part, other than the credit provided by
subdivision (a) of Section 19002.
(e) The credit for tax withheld on wages, as specified in Section
6654(g) of the Internal Revenue Code, shall be the credit allowed
under subdivision (a) of Section 19002.
(f) This section shall apply to a nonresident individual.
(g) (1) No addition to tax shall be imposed under this section to
the extent that the underpayment was created or increased by any
provision of law that is chaptered during and operative for the
taxable year of the underpayment.
(2) Notwithstanding Section 18415, this section applies to
penalties imposed under this section on and after January 1, 2005.
(h) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 2009.
SEC. 6. Section 19311.5 is added to the Revenue and Taxation
Code, to read:
19311.5. (a) If any taxes paid to another state result in an
allowable credit under Section 18001, 18002, 18003, 18004, 18005, or
18006, a claim for credit or refund of an overpayment of income tax
attributable to a credit allowable under any of these sections may be
filed within one year from the date tax is paid to the other state
or within the period provided in Section 19306, whichever period
expires later.
(b) This section shall apply to taxes paid to another state on or
after January 1, 2009.
SEC. 7. Section 21004 of the Revenue and Taxation Code is amended
to read:
21004. (a) The board shall establish the position of the
Taxpayers' Rights Advocate. The advocate or his or her designee shall
be responsible for coordinating resolution of taxpayer complaints
and problems, including any taxpayer complaints regarding
unsatisfactory treatment of taxpayers by board employees or problems
identified by board employees. The advocate shall report directly to
the executive officer of the board.
(b) The advocate or his or her designee shall give highest
priority to reviewing and taking prompt and appropriate action,
including staying actions where taxpayers have suffered or will
suffer irreparable loss as the result of board action. Applicable
statutes of limitation shall be tolled during the pendency of a stay.
Any penalties and interest which would otherwise accrue shall not be
affected by the granting of a stay.
(c) (1) The advocate may review any application for relief
pursuant to this subdivision and abate any penalties, fees, additions
to tax, or interest assessed on a taxpayer, if it is determined by
the advocate that the penalties, fees, additions to tax, or interest
that have been assessed, or any part thereof, is attributable to any
of the following:
(A) Erroneous action or erroneous inaction by the board in
processing documents filed or payments made by taxpayers.
(B) Unreasonable delay caused by the board.
(C) Erroneous written advice that does not qualify for relief
under Section 21012.
(2) Relief may be granted pursuant to this subdivision only if no
significant aspect of that error or delay can be attributed to the
taxpayer involved and relief is not available under any other
provision of this part, Part 10 (commencing with Section 17001), or
Part 11 (commencing with Section 23001), including any relief granted
under any regulation or other administrative pronouncement of the
board.
(3) (A) (i) Any relief granted pursuant to this subdivision in
which the total reduction in penalties, fees, additions to tax, or
interest exceeds five hundred dollars ($500) shall be submitted to
the chief counsel, for concurrence.
(ii) If the total relief granted pursuant to this subdivision,
including penalties, fees, additions to tax, and interest, exceeds
seven thousand five hundred dollars ($7,500), the chief counsel shall
notify the board.
(B) Whenever relief is granted under this subdivision, there shall
be placed on file in the office of the executive officer of the
board a public record with respect to that relief. The public record
shall include the following:
(i) The taxpayer's name.
(ii) The total amount involved.
(iii) The amount payable or refundable due to the error or delay.
(iv) A summary of why the relief is warranted.
(4) A refund may be paid as a result of relief granted under this
subdivision only if the applicable statute of limitations, with
respect to filing a claim for refund, remains open as of the date
that the basis for providing relief, as authorized in subparagraphs
(A) to (C), inclusive, of paragraph (1), as reflected in a written
communication received by the advocate.
(d) No other entity may participate in the grant or denial of
relief pursuant to this section.
(e) On January 1 of each calendar year beginning on or after
January 1, 2009, the board shall increase the amount specified in
subparagraph (A) of paragraph (3) of subdivision (c) to the amount
computed under this subdivision. That adjustment shall be made as
follows:
(1) The Department of Industrial Relations shall transmit annually
to the board the percentage change in the California Consumer Price
Index, as modified for rental equivalent home ownership for all
items, from June of the prior calendar year to June of the current
calendar year, no later than August 1 of the current calendar year.
(2) The board shall then:
(A) Compute the percentage change in the California Consumer Price
Index from the later of June 2008 or June of the calendar year prior
to the last increase in the amount specified in paragraph (1).
(B) Compute the inflation adjustment factor by adding 100 percent
to the percentage change so computed, and converting the resulting
percentage to the decimal equivalent.
(C) Multiply the amount specified in paragraph (1) for the
immediately preceding calendar year, as adjusted under this
subparagraph, by the inflation adjustment factor determined in
subparagraph (B), and round off the resulting product to the nearest
one hundred dollars ($100).
(f) Notwithstanding any other law or rule of law, all
determinations made under subdivision (c) shall not be subject to
review in any administrative or judicial proceeding.
(g) This section shall remain in effect only until January 1,
2012, and as of that date is repealed, unless a later enacted statute
that us enacted before January 1, 2012, deletes or extends that
date.
SEC. 8. Section 21004 is added to the Revenue and Taxation Code,
to read:
21004. (a) The board shall establish the position of the
Taxpayers' Rights Advocate. The advocate or his or her designee shall
be responsible for coordinating resolution of taxpayer complaints
and problems, including any taxpayer complaints regarding
unsatisfactory treatment of taxpayers by board employees. The
advocate shall report directly to the executive officer of the board.
(b) The advocate or his or her designee shall give highest
priority to reviewing and taking prompt and appropriate action,
including staying actions where taxpayers have suffered or will
suffer irreparable loss as the result of board action. Applicable
statutes of limitation shall be tolled during the pendency of a stay.
Any penalties and interest which would otherwise accrue shall not be
affected by the granting of a stay.
(c) This section shall become operative on January 1, 2012.
SEC. 9. Section 21006 of the Revenue and Taxation Code is amended
to read:
21006. (a) The board shall perform annually a systematic
identification of areas of recurrent taxpayer noncompliance and shall
report its findings to the Legislature on December 1 of each year.
(b) As part of the identification process described in subdivision
(a), the board shall do both of the following:
(1) Compile and analyze sample data from its audit process,
including, but not limited to, all of the following:
(A) The statute or regulation violated by the taxpayer.
(B) The amount of tax involved.
(C) The industry or business engaged in by the taxpayer.
(D) The number of years covered in the audit period.
(E) Whether professional tax preparation assistance was utilized
by the taxpayer.
(F) Whether income tax or bank and corporation tax returns were
filed by the taxpayer.
(2) Conduct an annual hearing before the board itself where
industry representatives and individual taxpayers are allowed to
present their proposals on changes to the Personal Income Tax Law or
the Corporation Tax Law which may further facilitate achievement of
the legislative findings.
(c) The board shall include in its report recommendations for
improving taxpayer compliance and uniform administration, including,
but not limited to, all of the following:
(1) Changes in statute or board regulations.
(2) Improvement of training of board personnel.
(3) Improvement of taxpayer communication and education.
(4) Increased enforcement capabilities.
(d) The board shall include in its report a summary of cases where
relief was granted pursuant to subdivision (c) of Section 21004,
including the nature of the error or delay, and the steps taken by
the board to remedy systemic issues that caused the error or delay.
SEC. 10. Section 25106 of the Revenue and Taxation Code is amended
to read:
25106. (a) (1) In any case in which the income of a corporation
is or has been determined under this chapter with reference to the
income and apportionment factors of one or more other corporations
with which it is doing or has done a unitary business, all dividends
paid by one to another of any of those corporations shall, to the
extent those dividends are paid out of the income previously
described of the unitary business, be eliminated from the income of
the recipient and, except for purposes of applying Section 24345,
shall not be taken into account under Section 24344 or in any other
manner in determining the tax of any member of the unitary group.
(2) (A) For purposes of this section, the dividends described in
paragraph (1) include dividends paid out of the income previously
described of the unitary business by a member of the unitary group to
a corporation formed subsequent to the accrual of the income, if the
recipient corporation was part of the unitary group during the
period from its formation to its receipt of those dividends.
(B) The Franchise Tax Board may deny any dividend elimination for
the dividends described in this paragraph if the board determines
that a transaction is entered into or structured with a principal
purpose of evading the tax imposed by this part.
(3) For purposes of this section, "income previously described of
the unitary business" shall include income earned by members of the
unitary group during taxable years when no member of the unitary
group was taxable in this state to the extent that the income of the
unitary group would have been determined under this chapter had any
member of the corporation's unitary group been subject to tax in this
state at the time that income was earned.
(b) The Franchise Tax Board may prescribe any regulations that may
be necessary or appropriate to carry out the purpose of this
section, which is to prevent taxation of dividends received by a
member of a unitary group where those dividends were paid from the
income previously described of the unitary business by another member
of the same unitary group.
SEC. 11. The amendments made by Sections 1 and 2 of this act shall
apply to returns filed on or after January 1, 2010, for taxable
years beginning on or after January 1, 2009.
SEC. 12. Section 19311.5 of the Revenue and Taxation Code, as
added by Section 6 of this act, shall not be construed to change the
requirements of Section 18007 of the Revenue and Taxation Code.
SEC. 13. The amendments made by Section 7, which amended Section
21004 of the Revenue and Taxation Code, of this act shall apply to
requests for advocate consideration that are received by the advocate
on or after January 1, 2009, irrespective of the tax year involved.
SEC. 14. (a) The Legislature finds and declares that the
amendments made to Section 25106 of the Revenue and Taxation Code by
Section 9 of this act that added and amended paragraph (1) of
subdivision (a) of, and added paragraph (3) of subdivision (a) to,
Section 25106 of the Revenue and Taxation Code do not constitute a
change in, but are declaratory of, existing law.
(b) (1) Both subdivision (b) and paragraph (2) of subdivision (a)
of Section 25106 of the Revenue and Taxation Code, added to that
section by this act, shall apply to taxable years beginning on or
after January 1, 2008.
(2) It is the intent of the Legislature that no inference be drawn
from the addition by this act of paragraph (2) of subdivision (a) to
Section 25106 of the Revenue and Taxation Code as to whether, for
any taxable year beginning before January 1, 2008, dividends received
by a corporation are eligible for elimination under Section 25106 of
the Revenue and Taxation Code.
SEC. 15. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.