California Changin': Governor Signs Two Key Bills.

Author:Huda, Mo
Position:CA Tax
 
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Earlier this fall, Gov. Brown signed into law Senate Bill 813, expanding California's Voluntary Disclosure Program. The program gives the FTB the authority to enter into voluntary disclosure agreements (VDAs) with certain taxpayers. In doing so, the FTB waives its authority to assess taxes, additions to taxes and fees for any years prior to the six taxable years ending immediately before the VDA's signing date.

The FTB may also, at its discretion, waive penalties for the six taxable years preceding the signing date of the VDA.

What's Changing?

SB 813, which applies to VDAs entered into by taxpayers on or after Jan. 1, 2018, expands the VDP by enabling the FTB to enter into VDAs with:

* Out-of-state trusts that have beneficiaries in California; and

* Nonresident partners of out-of-state partnerships.

The new law also gives the FTB the ability to waive partnership and S corp late filing penalties for specified returns under the VDP

What Does it Mean?

Trust administrators may not be aware of California's income tax filing requirement for trusts, which arises when a beneficiary resides in the state, leaving them unaware of the filing requirement. And because nonresident partners in partnerships often own passive interests, they don't materially participate in the business of the partnership. In essence, they may not always be aware of the filing requirement either.

The expansion of the VDP makes it possible for nonresident partners and trust fiduciaries and administrators who discover too late that they have a tax filing obligation to mitigate their exposure to state taxes and late filing penalties and become compliant at a potentially significantly reduced cost.

California's Partial Manufacturing Sales and Use Tax Exemption

In September, the governor signed Assembly Bill 131, reaffirming AB 398, which expanded and modified California's partial sales and use tax exemptions for qualified manufacturing and R&D equipment.

AB 398 amends California Revenue and Taxation Code Sec. 6377.1 to include certain agricultural businesses and electric power generators within the scope of the tax exemption. It also extends its sunset date from June 30, 2022, to June 30, 2030.

Background

On July 1, 2014, California implemented a partial state sales tax exemption for qualified persons who purchase qualified tangible personal property used in manufacturing and R&D activities. The tax exemption was originally set at 4.1875 percent and reduced to 3.9375 percent on...

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