The Bank and Corporation Program accounted for 12.5 percent of California's General Fund revenue. The program includes all banks and corporations incorporated or qualified to do business in California and those doing business in or deriving income from California but not incorporated or qualified to do business in California. All these entities file returns on a single, domestic/worldwide combined or water's-edge combined basis. For the 1993 income year, 418,108 banks and corporations (not including exempt organizations) filed returns and paid $3.9 billion in tax. This represents a 1.6 percent increase in tax from 1992.
Data appearing in the text and the Bank and Corporation Appendix are based on a stratified random sample of corporate tax returns. The sample includes all banks and corporations with state net income or loss greater than $5 million, all water's-edge corporations and two percent of all other corporations.
The 1993 sample included 1,629 large banks and corporations and 8,733 other banks and corporations. The tables in this section and in the statistical appendix provide summary statistics for all banks and corporations, except exempt organizations.
Taxation of Banks and Corporations
A corporation is a separate entity for tax purposes, even though it is owned and controlled by individuals or other entities. Corporations doing business or incorporated in California must pay a franchise tax equal to the higher of the minimum franchise tax of $800 or an amount measured by their net income multiplied by the current tax rate. Other corporations deriving income from California sources, but not sufficiently present to be classified as doing business in California, must pay income tax on California source income using the same rate as the franchise tax rate.
California banks and corporations, except S corporations and most exempt organizations, file Form 100, Corporation Franchise or Income Tax Return.
Of the 418,108 returns filed for 1993, 1.1 percent had state net incomes that exceeded $1 million. However, these corporations accounted for 77.6 percent of the total taxes paid by all corporations. Corporations with less than $25,000 in state net income comprised 81.3 percent of all returns filed, yet accounted for only 7.9 percent of taxes paid. Corporations with negative income accounted for 40.9 percent of the total returns filed, reporting more than $28 billion in losses, a decrease of 2.2 percent from 1992.
Data from corporations reporting net income for 1993 show service industries accounted for 39.8 percent of net income returns filed. The next largest groups were trade industries at 21.0 percent, and finance, insurance and real estate industries at 16.5 percent. The remaining industries accounted for 22.7 percent.
Certain corporations, defined in part as those with no more than 35 shareholders, may elect federal S corporation status. The benefits of such an election are the limited liability of a corporation and tax advantages similar to those enjoyed by a partnership. For California, S corporations must pay a corporate tax of 2.5 percent, which may not be less than the minimum franchise tax of $800. Corporate income is also “passed through“ to the individual shareholders and is taxable to them.
California corporations that elect federal S corporation status are deemed to have made a California S election on the same date as the federal S election, unless they elect C corporation (regular taxable corporation) status for California. The federal S election, as well as any California election to be treated as a C corporation or to return to S corporation status, must be reported to the Franchise Tax Board using form FTB 3560, S Corporation Election or Termination/Revocation.
S corporations must file Form 100S, California S Corporation Franchise or Income Tax Return. If the S corporation has any nonresident shareholders or fiduciaries, it must include with the return the consents of the nonresidents to be subject to the jurisdiction of the State of California to tax their pro rata share of S corporation income attributable to California sources. Failure to attach such consents may cause FTB to revoke the S corporation status. For the 1993 income year, 96,297 corporations filed as S corporations and paid a total tax of $221.6 million.
Certain organizations, both incorporated and unincorporated, are generally exempt from corporate tax. Exempt organizations must, however, pay tax on their unrelated business taxable income. These exempt organizations are organized and operated for nonprofit purposes and have been granted exempt status under the law. They include churches, charitable and educational organizations, civic leagues, social clubs, fraternal societies and others. By law, only some organizations are required to file returns. Those required to file must file one or more of the following: Form 199, Exempt Organization Annual Information Statement or Return; Form 100, California Franchise or Income Tax Return; and Form 109, Exempt Organization Business Income Tax Return. For 1993, there was a total of 116,624 active, exempt organizations, of which a total of 70,260 filed returns.
Banks and corporations file returns on either a calendar or fiscal year basis; however S corporations generally file on a calendar year basis. These returns must be filed no later than two and a half months after the accounting period ends. FTB automatically grants filing date extensions for seven months. For the 1993 income year, 51.8 percent of corporations reporting state net income filed returns with an accounting period ending December 31 and 9.8 percent filed with an accounting period ending June 30.
Most corporations doing business in California report income and deductions on a domestic basis or, if they operate internationally and have not elected to file on a water's-edge basis, on a worldwide basis. Reported income is then apportioned to California.
Corporations reported nearly $3.1 trillion in gross income for 1993. This amount is a combination of gross receipts ($12.2 trillion) less the cost of goods sold ($10.2 trillion) plus other income. Other income, which totaled $1.1 trillion, includes dividends, interest, rents, royalties, capital gains and other miscellaneous sources.
Total deductible expenses were $2.8 trillion for 1993. The largest single expense was for the category other deductions, followed by salaries and wages, and interest. The large other deductions category includes deductions for administrative expenses, sales discounts, travel and entertainment expenses, and some losses resulting from theft, fire, storm, etc. Deductions for pension and profit sharing plans were $34.8 billion, while employee benefit plans accounted for $90.0 billion.
California corporations report federal income and deductions on their California return. However, certain adjustments must be made to reflect differences between federal and California tax laws. Typical California adjustments include the disallowance of the federal deduction for taxes on or measured by income, the inclusion of interest received on government obligations (except for corporations subject to only the income tax), the exclusion of intercompany dividends to the extent they were paid from unitary companies that were included in a combined report, and the exclusion of dividends paid out of income previously subject to California corporate franchise or income tax.
Bank and Corporation Tax: Net Income, Adjustments, and Taxes
| Item | 1992 |
1993 | % Change in Amount 1992-93 |
| Gross Income | $2,592,784,008 |
$3,075,726,008 | 18.6 |
| Deductions | 2,341,494,900 | 2,765,471,748 |
18.1 |
| Unclassified | 669,030 |
1,015,391 | 51.8 |
| Net Income (Before State Adjustments) | $248,326,298 |
$308,599,878 | 24.3 |
| State Adjustments | |
| |
| Additions | 79,899,090 | 101,286,145 |
26.8 |
| Deductions | 152,001,912 |
144,572,297 | -4.9 |
| Net Income (After State Adjustments) | $176,223,476 |
$265,313,727 | 50.6 |
| State Net Income | | |
|
| Nonapportioning Corporations |
$-142,807 | $-808,202 |
465.9 |
| Apportioning Corporations |
16,255,778 | 20,926,189 |
28.7 |
| Total State Net Income |
$16,113,691 | $20,117,987 |
24.9 |
| |
| | |
| Tax | $3,988,647 | 4,086,525 |
2.5 |
| Tax Credits | 192,938 |
220,070 | 14.1 |
| Alternative Minimum Tax | 69,290 |
61,310 | -11.5 |
| Built-In Gains Tax/Excess Net Passive Income Tax and Other Adjustments |
1,081 | 830 |
-23.2 |
| Total Tax Liability |
$3,866,080 | $3,928,594 |
1.6 |
Bank and Corporation Tax: Sources of Income
| Item | 1992
Income Year | 1993 Income Year |
% Change in Amount 1992-92 | ||
|
Number of Returns | Amount
(000) | Number of Returns |
Amount (000) | ||
| Gross Receipts |
328,016 | $10,165,384,278 |
332,249 | $12,200,614,064 |
20.0 |
| Less Cost of Good Sold |
200,608 | 8,470,159,275 |
207,983 | 10,183,941,966 |
20.2 |
| Gross Profit | 327,452 |
$1,695,225,003 | 330,679 |
2,016,672,098 | 19.0 |
| Dividends | 23,039 | 115,186,049 |
24,760 | 111,230,623 |
-3.4 |
| Interest on Obligation |
46,486 | 28,976,876 |
53,579 | 46,754,446 |
61.4 |
| Other Interest | 183,275 |
382,188,432 | 178,809 |
486,962,584 | 27.4 |
| Gross Rents | 28,125 | 68,631,670 |
26,974 | 71,171,577 |
3.7 |
| Gross Royalties | 4,053 |
35,877,527 | 6,175 |
37,236,530 | 3.8 |
| Capital Gain | 18,487 | 19,113,101 |
18,007 | 22,023,284 |
15.2 |
| Ordinary Gain (Loss) |
53,395 | 8,346,064 |
58,837 | 7,691,051 |
-7.8 |
| Net Gain (Loss) | 14,435 |
853,596 | 16,410 |
583,696 | -31.6 |
| Other Income | 153,978 | 201,851,456 |
160,930 | 246,670,900 |
22.2 |
| Net Income from Rental Real Estate |
6,069 | -66,552 |
5,964 | 74,533 |
-212.0 |
| Net Income from Other Rental Activity | 1,568 | 38,545 |
1,242 | 21,310 |
-44.7 |
| Other Portfolio Income |
953 | 1,355 |
617 | 17,026 |
1,156.5 |
| Miscellaneous | 2,512 |
36,560,886 | 2,405 |
28,616,440 | -21.7 |
| Total Gross Income | 374,819 |
$2,592,784,008 | 380,983 |
$3,075,726,098 | 18.6 |
Bank and Corporation Tax: Deductions by Type
| Item | 1992
Income Year | 1993 Income Year |
% Change in Amount 1992-93 | ||
|
Number of Returns | Amount
(000) | Number of Returns | Amount
(000) | ||
| Compensations of Officers | 224,443 |
$67,935,943 | 233,602 |
$73,527,022 | 8.2 |
| Salaries and Wages | 221,116 |
508,167,604 | 231,545 |
595,510,407 | 17.2 |
| Repairs | 219,148 | 43,602,112 |
224,906 | 56,808,193 |
30.3 |
| Bad Debts | 79,858 |
54,333,128 | 85,368 |
46,857,919 | -13.8 |
| Rents | 256,636 | 96,165,104 |
260,022 | 105,680,481 |
9.9 |
| Taxes | 369,975 |
120,158,925 | 371,603 |
131,713,074 | 9.6 |
| Interest | 225,449 | 412,348,840 |
228,704 | 553,552,037 |
34.2 |
| Contributions | 77,448 |
11,735,736 | 78,041 |
3,982,859 | -66.1 |
| Depreciation/Amortization | 288,955 |
156,136,190 | 289,953 |
185,936,118 | 19.1 |
| Depletion | 1,157 | 5,491,666 |
2,110 | 4,822,622 |
-12.2 |
| Advertising | 203,097 |
80,847,736 | 209,298 |
89,238,546 | 10.4 |
| Pension/Profit Sharing Plans | 64,631 |
33,085,496 | 66,535 |
34,752,885 | 5.0 |
| Employee Benefit Plans | 101,809 |
64,683,323 | 106,792 |
89,916,685 | 39.0 |
| Other Deductions | 388,626 | 681,177,313 |
390,506 | 783,854,242 |
15.1 |
| Recovery Property | 13,705 |
86,279 | 16,709 |
128,627 | 49.1 |
| Portfolio Income | 1,510 | 29,434 |
917 | 13,398 |
-54.5 |
| Interest on Investment Debts |
1,386 | 73,311 |
1,350 | 70,164 |
-4.3 |
| Miscellaneous Deductions |
7,286 | 5,436,760 |
5,120 | 9,106,469 |
67.5 |
| Total Returns with Deductions |
393,608 | $2,341,494,900 |
396,134 | $2,765,471,748 |
18.1 |