Personal Income Tax and Bank and Corporation Tax Law Changes
The following significant legislation was enacted in 1999. This section describes each bill as it affects various portions of the Revenue and Taxation Code administered by the Franchise Tax Board.
Unless otherwise stated, all legislation was effective for taxable or income years beginning on or after January 1, 1999.
Minimum Tax/Exempted 2nd Taxable Year and Reduces Prepaid Tax to Zero after January 1, 2000
AB 10 (Chapter 64)
This act exempted every corporation that incorporated or qualified to do business on or after January 1, 2000, from the minimum franchise tax (prepaid to the Secretary of State) for its first taxable year, and the minimum franchise tax for its second year.
This act did not apply to any corporation that reorganized solely for the purpose of avoiding payment of its minimum franchise tax.
This act did not apply to limited partnerships, limited liability partnerships, charitable organizations, regulated investment companies, real estate investment trusts, real estate mortgage investment conduits, financial asset securitization trusts, and qualified Subchapter S subsidiaries.
This act was effective upon enactment and operative for corporations that incorporate on or after January 1, 2000.
Cash Bond Payments/Claim for Refund
AB 41 (Chapter 463)
This act allowed a taxpayer to make a deposit in the nature of a "cash bond" to stop the accrual of interest, and provided that such payments must not be considered a "payment of tax" for purposes of filing a claim for refund or bringing a lawsuit for refund of taxes.
This act was effective January 1, 2000, and applied to payments made on or after that date.
Low-income Housing Credit/Extended Effective Date
AB 97 (Chapter 893)
This act deleted the repeal date for the expiration of the chapter authorizing the Tax Credit Allocation Committee (the Committee) to allocate the low-income housing tax credit. This act also extended the Committee’s authorization for as long as the federal low-income housing credit remains in effect.
This act was effective January 1, 2000.
Exclusion/Compensation Received by Kevin Lee Green from the State to Recompense Him for a Miscarriage of Justice
AB 110 (Chapter 619)
This act appropriated $620,000 from the General Fund to Kevin Lee Green for a legislatively declared miscarriage of justice by which Mr. Green was unjustly convicted and incarcerated. This act also provided that the amount received by the taxpayer under this act is excluded from gross income.
Disaster Loss Deduction/1998-99 Winter Freeze
AB 114 (Chapter 165)
Under the Personal Income Tax Law and the Bank and Corporation Tax Law, this act allowed special disaster treatment of losses sustained as a result of a freeze or any related casualty that occurred during the winter of 1998-99 in any county of California that was declared a disaster. Specifically, this act allowed 100 percent of these losses to be carried forward for up to 5 years. If any loss remains after the 5 year period, 50 percent of the remaining loss may be carried forward for up to 10 additional years. The $100 and 10 percent of adjusted gross income limitations in existing law apply to disaster losses on nonbusiness property.
This act allowed the amended return claiming the disaster loss to be filed by the extended due date of the return for the taxable or income year in which the disaster occurred.
In addition, this act added a provision inadvertently dropped in a prior amendment to these sections which reinstates favorable disaster loss treatment to disasters declared by the Governor which are added to the lists of disasters in these code sections.
This special disaster treatment of losses applied to the taxable or income year of the loss, which may be 1998 or 1999 depending on whether the taxpayer is a fiscal or calendar year filer.
California Child Support Automation System/FTB Agent for Department Responsible for Operating Child Support Enforcement Program
AB 150 (Chapter 479)
This act designated FTB, as agent for California’s Title IV-D agency, to be responsible for the procurement, development, implementation, and maintenance of the California Child Support Automation System (CCSAS) in accordance with the state’s child support plan. CCSAS would be a single statewide automated system that would include the State Case Registry, the State Disbursement Unit and all other necessary data bases and interfaces. Under this act, FTB is required to develop a procurement plan that would employ techniques proven successful in FTB’s previous technology efforts, incorporate where possible best practices from other government jurisdictions, and take into consideration the events and circumstances that contributed to the failure of the former statewide automated child support system known as SACSS.
As an urgency measure, this act took effect immediately upon its enactment date of September 27, 1999.
California Alzheimer’s Disease & Research Fund/Extends Repeal Date to January 1, 2005.
AB 160 (Chapter 315)
This act extended the repeal date for the California Alzheimer’s Disease & Related Research Fund to January 1, 2005. This act also required the Fund to meet the minimum contribution amount of $250,000 (and the amount adjusted for inflation for subsequent tax years) beginning in taxable year 2000 to remain on the tax return.
This act was effective for taxable years beginning on or after January 1, 2000.
Clarify Authority to Suspend Disregarded Limited Liability Companies
AB 189 (Chapter 249)
This FTB sponsored act removed the erroneous reference to a limited liability company (LLC) classified as a partnership in the definition of "tax" for purposes of suspending an LLC. Thus, this act clarified that an LLC which is disregarded for tax purposes, but still owes the tax and fee, is subject to suspension.
This act applied retroactively to taxable years beginning on or after January 1, 1997. The retroactive application corresponds to the effective date of prior legislation amending this section: SB 1234 (Ch. 608, Stats. 1997) and AB 1694 (Ch 80, Stats. 1998).
Child Support Collection and Enforcement
AB 196 (Chapter 478)
This act created, within the California Health and Human Services Agency, the Department of Child Support Services (DCSS) to replace the Department of Social Services (DSS) as California’s Title IV-D agency. In addition, this act transferred from the county district attorneys (DAs) or new local child support agencies to the FTB the responsibility and authority to enforce collection of delinquent child support. This transfer created and established within the FTB a statewide child support delinquency enforcement program in support of the counties through the DCSS.
Under this program, counties are required to transfer to FTB all child support accounts greater than $100 and more than 60 days in arrears, or as otherwise defined by guidelines prescribed by the DCSS, in consultation with the FTB. However, the FTB can transfer back to a county or allow a county to retain a child support delinquency if the FTB determines that transfer or retention of the delinquency would enhance the collectibility of the delinquency. Upon transfer of the delinquency, FTB will have the authority to enforce collection of the delinquency as though it was a delinquent personal income tax liability.
Additionally, this act repealed and renumbered (recasted) various existing laws, some of which pertain to FTB’s child support delinquency enforcement program.
Further, under this act, certain persons currently required under federal law to file an information return reporting nonemployee personal services (independent contractor registry (ICR)) for which $600 or more was paid, are required to accelerate the reporting of those services and payments to Employment Development Department (EDD), operative July 1, 2000. The reporting is required by the earlier of 20 days after entering into the personal service contract with aggregate payments in excess of $600 or when payments made exceed $600. The information can be used for child support enforcement, tax enforcement and EDD purposes.
This act was effective January 1, 2000; however, the various provisions specified different operative dates.
Limited Partnerships and Limited Liability Company Conversion
AB 197 (Chapter 250)
This act authorized California general partnerships to convert to California limited liability companies (LLCs) or California limited partnerships (LPs). It also authorized California LLCs and LPs to convert to general partnerships and foreign and other business entities.
This act was effective January 1, 2000.
Child Support Enforcement/Date Amount Due Calculated
AB 370 (Chapter 654)
Under this act, whenever a notice is issued by a state or local governmental agency to a support obligor, the notice is required to:
• state the date upon which the amount of the delinquency was calculated;
• notify the obligor that the amount calculated may or may not include interest; and
• notify the obligor of his or her right to request that the local child support agency (county) review the arrears and make an administrative determination of arrears. A request for an administrative determination will not suspend the enforcement of the arrearage, unless so instructed by the county.
This act was effective on January 1, 2000; however, the notice requirement is not to be imposed until the county has instituted one of several specified systems.
Statute Of Limitations For Refunds
AB 414 (Chapter 614)
This act modified the statute of limitation (SOL) applicable to credits and claims for refund. This act modified the four-year SOL so that it begins on the date the return was actually filed, if the return was timely filed by the extended due date, rather than starting the SOL on the original due date.
This act specified that it applies to all claims for refund and credits for which the SOL has not expired as of its effective date.
Limited Liability Companies Permitted to Have One Member
AB 831 (Chapter 490)
This act authorized the organization of single-member limited liability companies in California.
This act was effective January 1, 2000.
Repeal Information Reporting Requirements of Cities Regarding Businesses
AB 1105 (Chapter 67)
This act removed the requirement that cities that maintain a computerized record-keeping system or that have access to such a system annually furnish the FTB with information regarding taxpayers who pay city business license taxes.
As an urgency measure, this act took effect immediately upon its enactment date of July 6, 1999.
Self-Employed Health Deduction Conformity/Phase-in of 100 Percent
AB 1107 (Chapter 146)
Under the Personal Income Tax Law, this act conformed California law to federal law with regard to the incremental phase-in of a 100 percent deduction for self-employed health insurance costs.
This act superseded AB 1289 (Ch. 117, Stats. 1999). AB 1289 contained the identical provision.
Eliminate Repeal/Exclusion/50% of Gain From Sale Of Qualified Small Business Stock Held For More Than 5 Years
AB 1120 (Chapter 69)
This act removed the January 1, 1999 repeal date on the issuance of qualified small business stock, thereby making the exclusion permanent.
Include Effect of Senior Exemption and Dependent Credits in Filing Requirement Income Threshold Amounts
AB 1140 (Chapter 196)
Under the Personal Income Tax Law, this FTB sponsored act raises the income threshold below which taxpayers are not required to file an income tax return by taking into account both the senior exemption credit and the recent increases in the dependent exemption credit.
State Bodies/Open Meetings Notices/Make Available on Internet and Provide Internet Site Address in Written Notices
AB 1234 (Chapter 393)
This act amended the Bagley-Keene Open Meetings Act (the Act) to require that a state body provide notice of its meetings, certain findings of special meetings, and the minutes from emergency meetings on the Internet. In addition, this act amended the authority of the Attorney General and others to commence an action for the purpose of determining the applicability of the Act to past actions by members of the state body. This act provided that an interested person would have 90 days instead of 30 days to commence an action for the purpose of obtaining a judicial determination that the action by a state body was in violation of specific sections of the Act.
This act was effective on January 1, 2000; however, the sections of this act relating to the Internet are not to be implemented until July 1, 2001, unless otherwise authorized by the Department of Information Technology.
Self-Employed Health Deduction Conformity/Phase-in of 100 Percent
AB 1289 (Chapter 117)
Under the Personal Income Tax Law, this act conformed California law to federal law with regard to the incremental phase-in of a 100 percent deduction for self-employed health insurance costs.
This act was superseded by AB 1107 (Ch. 146, Stats. 1999). AB 1107 contains the identical provision contained in this act.
Funeral Trusts
AB 1379 (Chapter 241)
Under the Business and Professions Code, this act allowed a trustee of a funeral trust to pay taxes on earnings of the trust, provided the taxes are not paid from the corpus of the trust.
This act was effective January 1, 2000.
AB 3086 Clean-Up/Definition of Wages
AB 1634 (Chapter 144)
Under the Unemployment Insurance Code, this act, sponsored by the Franchise Tax Board, specified that the definition of wages for the purposes of the quarterly report included all remuneration includable in gross income for services paid by an employer engaged in a trade or business to all employees, while maintaining the current definition of wages for withholding purposes to preserve current exceptions to withholding.
This act also clarified which amounts must be included in the Report of Wages by specifically including in the definition of wages amounts withheld from pension, annuities, and other forms of deferred compensation.
This act was effective January 1, 2000, and applied to reports required to be filed after that date.
Filing Status of individuals/Time for Filing Action
AB 1635 (Chapter 605)
This Franchise Tax Board (FTB) sponsored act:
• allowed the FTB to revise the California return to reflect the proper filing status (making the filing status different from the status on the federal return) when the filing status used on the California return is determined to be incorrect;
• allowed taxpayers who are not required to file a federal return to select any filing status for the California return that could have been claimed on the federal return had one been required;
• allowed taxpayers who file a joint return for federal purposes and are allowed to file either married filing separate returns or a joint return for California purposes to change their California filing status after the due date for filing the return has passed; and
• provided that the 90-day period for filing an action regarding income taxes or interest begins on the date the Board of Equalization (BOE) determination becomes final.
This act was effective January 1, 2000, and specified different operatives dates for its provisions.
Personal Exemption Credit and Land and Water Credit/Allows Credits to Reduce Specified Taxes Below the Tentative Minimum Tax
AB 1637 (Chapter 930)
This act:
• eliminated the tentative minimum tax limitation on personal exemption credits to reduce regular tax below tentative minimum tax (TMT).
• deleted an obsolete refund provision relating to the renter’s credit that is no longer necessary because the reinstated renter’s credit, enacted by AB 2797 (Ch. 322, Stats. 1998), is not refundable.
• included a reference in Revenue and Taxation Code Section 17039 to Section 17053.30. This reference would have provided that a land and water conservation credit could reduce regular tax below TMT. However, SB 680, in which the land and water conservation was contained, was not passed by the Legislature. Thus, this provision has no impact.
Child Support Enforcement
AB 1671 (Chapter 980)
This act:
• required that out-of-state child support delinquencies be processed through the financial institutions data match (FIDM) and levies be made thereon, as mandated by federal law.
• created a lien by operation of law (statutory lien) on an obligor’s personal property for all amounts of overdue support regardless of whether the amounts have been adjudicated or otherwise determined. However, the child support statutory lien has priority over any competing state tax lien only if the child support lien is filed with the Secretary of State (SOS) or the levy is made on the property before the state tax lien is filed with the SOS.
• made technical corrections to child support collection laws administered by FTB under the Revenue and Taxation Code by replacing a repealed section number of the Welfare and Institutions Code (WIC) with the number of the WIC section under which counties receive incentive payments for child support collections and replacing the formal name of Statewide Automated Child Support System (SACSS) with a generic reference to California’s automated child support system.
This act was effective January 1, 2000, and specified different operative dates for its provisions.
California Fund for Senior Citizens/Extended Repeal Date to January 1, 2005
AB 1697 (Chapter 228)
This act extended the repeal date for the California Fund for Senior Citizens to January 1, 2005, and required the Fund to meet the minimum contribution amount of $250,000 for taxable years beginning in 2001. The minimum amount will be adjusted for inflation beginning in calendar year 2002.
Enterprise Zone/Expansion Area
SB 84 (Chapter 137)
This act modified the rules regarding expansion of enterprise zones as follows:
• allowed expansion into noncommercial or nonindustrial land if that land is needed as right-of-way and is needed for contiguous expansion.
• specified that expansion into an adjacent unincorporated area must be into an area contiguous to the existing enterprise zone.
This act allowed the enterprise zones located in Fresno or Kern Counties to expand into adjacent unincorporated areas.
Conformity/Roth IRA
SB 93 (Chapter 8)
This act conformed California tax law to federal technical changes relating to Roth Individual Retirement Accounts included in the Internal Revenue Service Restructuring and Reform Act of 1998 (IRS Reform Act).
The act specified that it was operative for taxable years beginning on or after January 1, 1998.
Taxpayers’ Bill of Rights of 1999
SB 94 (Chapter 931)
This act conformed, with some modifications, to 22 selected provisions of the Taxpayer Protections and Rights contained in the IRS Reform Act. For further information regarding these provisions, refer to the SB 94 bill analysis on the "Law and Legislation" page on the FTB website at .
In addition, this act:
• deleted obsolete refund provisions relating to the renter’s credit;
• provided relief to an employee whose employer withheld delinquent taxes from the employee’s pay, but failed to remit the amounts to the FTB; and
• provided FTB administrative authority to compromise a tax debt similar to the IRS’s current offers in compromise authority.
This act specified different operative dates for its provisions.
Manufacturing Enhancement Area Employers Hiring Credit
SB 113 (Chapter 58)
This act made a technical correction to the definition of qualified disadvantaged individual by specifying that the references to expired federal programs include any successor programs.
Exclusion/Reparation Payments Received by Persons of Japanese Ancestry from Canadian Government
SB 164 (Chapter 471)
This act provided an exclusion from gross income for amounts received as reparation payments paid by the Canadian government to redress the injustice done to persons of Japanese ancestry who were interned in Canada during World War II.
California Firefighter’s Memorial Fund/Extended Repeal Date
SB 246 (Chapter 988)
Under the Administration of Franchise and Income Tax Law, this act allowed the California Firefighter’s Memorial Fund to be used for the maintenance, as well as the creation of a memorial and extended the fund’s operation to January 1, 2006.
This act was effective January 1, 2000.
Secretary of State
SB 284 (Chapter 1000)
This act provided that, upon a corporate merger, the surviving domestic corporation assumes the liability of the disappearing corporation and files the required tax and information returns. In addition, this act required, under certain circumstances, that the Secretary of State (SOS) file the merger without a certificate of satisfaction from the FTB.
Also, this act provided that a registered foreign limited liability partnership that ceases to be such an entity must file a tax clearance certificate received from the FTB as part of the notice filed with the SOS that the entity is no longer a limited liability partnership.
This act was effective January 1, 2000.
FTB Participation in the Joint Enforcement Strike Force on the Underground Economy
SB 319 (Chapter 306)
This act extended the authority of the Joint Enforcement Strike Force on the Underground Economy until January 1, 2006. This act also extended the authority of the Labor Commissioner to designate, authorize and train an employee of any agency participating in the strike force to issue citations and to issue and serve a penalty assessment order.
This act was effective on January 1, 2000.
Birth Defects Research Fund
SB 493 (Chapter 398)
Under the Administration of Franchise and Income Tax Law, this act allowed taxpayers to make a voluntary contribution on their personal income tax returns to the Birth Defects Research Fund.
This act was effective upon enactment and will apply to the first taxable year another voluntary contribution fund is removed from the tax return or taxable years beginning on or after January 1, 2002, whichever occurs first.
Child Support Enforcement/Accounts Receivable Management
SB 542 (Chapter 480)
This act amended AB 196 (Ch. 478, Stats. 1999) to clarify that the transfer of the responsibilities and authorities to enforce collection of delinquent child support from the local agencies to the FTB is for purposes of account receivable management and not case management, as defined, and for purposes of enhancing the promptness, efficiency and effectiveness of wage withholding. Furthermore, under this act:
• The definition of delinquency is certain (i.e., accounts greater than $100 and more than 60 days in arrears) and cannot be superseded by Department of Child Support Services (DCSS) guidelines.
• Any levies on wages for delinquent child support issued by FTB will be through the issuance of notice of assignment (which is currently issued only by district of attorneys) and will be issued on behalf of and in the name of the county transferring the delinquency.
• The amount of an employee’s wages subject to levy for delinquent child support under a notice of assignment increases (from the greater of 3 percent of the arrearage or $50) to that amount currently subject to levy through FTB’s earnings withholding orders (up to 50 percent of the employee’s disposable earnings).
• When FTB identifies an employer to enforce payment of a child support delinquency and the obligor also owes an amount for current support, FTB is required to include in the notice of assignment the current support amount.
• FTB is required to direct obligors or third parties to make any payments directly to the local child support agency that transferred the delinquency to FTB, pending implementation of a state disbursement unit. Directing the payments to the local child support agency is subject to phase-in, upon approval by DCSS, to the extent necessary to ensure that the local child support agency is capable of accepting payment.
• Additionally, this act delayed from July 1, 2000, to January 1, 2001, the operative date for the Employment Development Department’s independent contractor registry.
This act was effective January 1, 2000; however, the various provisions specified different operative dates.
Credit Card Payments/Abatement of Interest/Allow FTB to Abate Interest for Same Period as IRS
SB 603 (Chapter 203)
This FTB sponsored act required any state agency accepting payment by credit card to provide, on its billing statement, or on a document with the statement, to an individual permitted to pay by credit card, either:
• a designated space on the payment form for the individual’s credit card number, expiration date and signature, or
• complete procedural instructions for the individual to pay by credit card via telephone or other means.
This act deleted all references to the FTB’s prior credit card pilot program, clarifying the Government Code provisions are controlling with respect to the new FTB credit card program.
This act allowed the FTB to abate interest for the same period interest is abated by the Internal Revenue Service (IRS) where the FTB deficiency is based upon a final federal determination, thereby giving relief to taxpayers for whom the IRS has already abated interest due to a delay or error by the IRS.
This act applied to credit card payments made on or after January 1, 2000.
With respect to the abatement of interest on a deficiency, this act applied to any ministerial act for which the interest accrued after September 25, 1987, or for any managerial act applicable to taxable or income years beginning on or after January 1, 1998.
Collection Action/Notice Before Levy & After Lien
SB 685 (Chapter 348)
This act conformed, with some modifications, to two provisions of the Taxpayer Protections and Rights contained in the IRS Reform Act. This act required FTB to notify tax debtors:
• within five business days of filing or recording a notice of a state tax lien that such notice of lien has been filed or recorded.During the 15-day period following the filing of the notice of state tax lien, tax debtors may request an independent departmental administrative review.
• at least 30 days before it intends to levy. The notice must include the proposed actions that may be taken (but does not require itemizing the property) and the laws and procedures relating to the release of levy. The notice must be given by first class mail to the address of record, unless mail to the same address was returned undelivered with no forwarding address, in which case notice is not required. No levies may be made during the 30-day period. If the tax debtor does request a departmental independent administrative review, collection action must be suspended during the review period plus 15 days. The provisions do not apply to jeopardy assessments, but FTB is required to give these tax debtors an opportunity for hearing within a reasonable time.
Issues subject to departmental independent administrative review for liens and levies include spousal defenses or collection alternatives. In the review, consideration must be given to whether the collection action balances the need for collection of the debt with the legitimate concern that any collection action be no more intrusive than necessary. An independent departmental administrative review is not subject to the formal Administrative Procedures Act requirements.
Additionally, if FTB holds the collection of an account in abeyance for more than six months, FTB is required to mail a new notice to the taxpayer before issuing a levy or filing or recording a notice of state tax lien.
This act was operative for collection actions after July 1, 2000.
Research Expenses Credit/12 Percent of Qualified Expenses
SB 705 (Chapter 77)
This act increased the state credit for "qualified research expenses" from 11 percent to 12 percent.
Exempt Corporations/Added Credit Unions
SB 934 (Chapter 675)
This act allowed state-chartered credit unions to qualify for exemption from franchise or income tax under the Bank and Corporation Tax Law and also exempted all credit unions from other state, county and municipal taxes and license fees, except certain specified taxes.
California Mexican American Veterans’ Memorial Beautification and Enhancement Account/Delayed Meeting Minimum Contribution Amount to 2001
SB 1064 (Chapter 989)
This act specified that the $250,000 minimum contribution limitation to the California Mexican American Veterans’ Memorial Beautification and Enhancement Account will not take effect until 2001.
This act was effective January 1, 1999.
Miscellaneous Income Tax Provisions
SB 1229 (Chapter 987)
This FTB sponsored bill made the following changes:
• retained the program to refund excess state disability insurance through the tax return while ensuring that taxpayers who fail to claim the credit on their return still will be identified as quickly as possible to receive a refund of their excess contributions.
• made several changes relating to federal adjustments regarding defining the final federal determination date and requirements for taxpayers to notify the department of any federal changes to their tax return.
• clarified inconsistencies regarding voluntary contribution funds and deleted redundant and unnecessary language.
• specified that, for purposes of determining the correct amount of tax for water’s-edge electors, the presumption of correctness attaches to all federal audit determinations, including determinations made at the audit, appeals, and/or competent authority levels.
• clarified that substandard housing could be housing that is either:
(1) occupied, or
(2) unoccupied or abandoned.
• eliminated obsolete language regarding pending litigation related to the provision allowing elimination from income of certain unitary corporation intercompany dividends.
• eliminated ambiguity with respect to the due date for filing a tax return by requiring corporate taxpayers to file their income tax return "on or before the 15th day of the third month following the close of its income year."
• specified that a taxpayer that uses the head of household filing status or surviving spouse filing status cannot claim the dependent parent credit.
• cleaned up technical issues made necessary by the enactment of various bills affecting the Revenue and Taxation Code in the 1998 legislative session.
• performed general maintenance of the Revenue and Taxation Code, including repealing obsolete provisions, updating cross-references, and making consistent references to federal law.
• clarified that payment of estimated tax by corporations and exempt organizations is not a prerequisite for receiving an extension of time to file a return.
• clarified that exempt organizations that are subject to tax on unrelated business taxable income are required to make estimated tax payments.
• eliminated the requirement for the revivor fee for exempt organizations and required all exempt organizations seeking revivor to submit a new exemption application when requested by the department.
• specified that an organization’s exempt status may be revoked for failure to file any return required or failure to pay any tax due and exempt status may be reestablished only upon the filing of all returns or the payment of all taxes due.
As a tax levy, this act was effective immediately upon enactment and applied to taxable or income years beginning on or after January 1, 1999. However, certain provisions specified different operative dates.
California Peace Officer Memorial Foundation Fund
SB 1230 (Chapter 215)
Under the Administration of Franchise and Income Tax Law, this act allowed taxpayers to make a voluntary contribution on their personal income tax returns to the California Peace Officer Memorial Foundation Fund.