AB 2503: All You Need to Know About the Bill.

• Author: Klasing, David W.
• Position: CATax

California is home to some of the world's largest and most successful companies. From the tech sector in the Silicon Valley to the booming entertainment industry in Los Angeles and Orange County, the operation of thriving businesses in our state is alive and well. It, too, is no surprise that those looking to make it big by building up their own companies often begin their journey in California.

But as we primarily focus on the companies that are flourishing, what about those that aren't? What about those businesses that begin operation but subsequently close their doors and disappear?

Responsible for administering business taxes in the state, the FIB is responsible for working with or leaving their business entity sitting dormant. What those business owners routinely do not know is that taxes like California's minimum tax or the franchise tax continue to accrue until the business is properly dissolved. One can only imagine the enormous administrative burden this places on the FTB chasing down the downtrodden owners of failed California or never utilized "shelf" business entities.

The Old Way

Before 2019. a business that failed in California and quite often entities that were formed, but not utilized, while not generating income tax liability on a yearly basis, continue to generate "minimum" taxes levied on all California businesses, regardless of operational status.

Unpaid taxes for dormant companies would build up at the FIB, prompting the expenditure of time and money to collect on them. But in all reality, such taxes likely never would be paid. By the time the owners of the abandoned businesses realize they did not properly dissolve the entity, they might have financial difficulty doing so due to the accumulation ol minimum or franchise taxes.

Enlightened business owners occasionally considered the consequences of walking away from a California business after the Ralite decision, which set out certain factors that could prevent the FTB from using equitable principles to pierce the corporate veil and hold individual .shareholders responsible for the tax delinquency of the corporation or LLC.

Understanding AB 2503's Provisions Assembly Bill 2503 attempts to facilitate the FTB to efficiently clear many of the dormant or failed companies from its records, freeing up resources to focus on the taxation of active businesses.

To achieve that end, the law allows the FIB to work with the Secretary of State to administratively dissolve domestic...