Assembly Bill No. 1529 – Effect on California Non-Profits

Existing law requires every non- tax exempt corporation doing business within California to pay a minimum franchise tax for the privilege of exercising its corporate franchises within this state.   The non tax-exempt corporation is subject to the minimum franchise tax until the effective date of dissolution or withdrawal or, if later, the date the corporation ceases to do business within California.

Assembly Bill No. 1529 (AB 1529), which passed on the California Assembly Floor on May 27, 2014, has the goal of streamlining the process for nonprofit corporations.  The bill states that, “…in order to more effectively analyze and monitor the status, finances, and activities of a corporation, the office of the Secretary of State, the Franchise Tax Board, and the office of the Attorney General shall collectively review and develop a streamlined process to effectively dissolve a corporation.”

For instance, upon certification by the Secretary of State that a nonprofit public benefit corporation or a nonprofit mutual benefit corporation has failed to file the required Statement of Information, existing law requires the Franchise Tax Board to assess a specified penalty.  The bill would require the Franchise Tax Board to abate unpaid qualified taxes, interest and penalties for the taxable years in which the nonprofit corporation certifies, under penalty of jury, that it was not doing business.  The abatement would, however, be conditioned on the dissolution of the qualified corporation within twelve months from the date of filing the request for abatement.  Thus, for dissolving or dissolved companies, this bill assists them in avoiding these penalties.  Bear in mind, however, that if the nonprofit corporation restarts business operations at any time after requesting abatement, the abatement would be cancelled and the qualified taxes, interest and penalties subject to the abatement would be null.

The bill requires the Franchise Tax Board to prescribe rules and regulations to carry out these abatement provisions.  Non-profit entities must therefore ensure  that they conform to these rules and regulations prior to utilizing the benefits of this bill.

 

 

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