Governor Signs AB 2503
Governor Brown has signed AB 2503, which makes a domestic corporation and a limited liability company subject to voluntary or involuntary administrative dissolution or administrative cancellation if:
- The entity either never did business or filed returns/paid tax when it was operating and has no remaining business assets; or
- The entity’s powers are, and have been, suspended by the Franchise Tax Board (FTB) for a specified period of time.
This means that a taxpayer doesn’t need to wait for years for the FTB to try to come after them, and the shareholders/members won’t have to go through the Ralite process.
AB 2503 gives FTB the ability to formally dissolve domestic corporations and limited liability companies (LLCs) that have ceased operating in the state for at least 60 continuous months. The process would also abate “the corporation’s liabilities for qualified taxes, interest and penalties accrued while it was not doing business,” according to a legislative analysis of the bill.
The legislation is intended to allow the FTB to more easily eliminate entities that weren’t formally dissolved after ceasing to operate in the state. Those companies remain on the FTB’s books, and thus continue to accumulate liability for the state’s minimum franchise tax, as well as penalties and interest for nonpayment of that tax liability, even though they have no actual activity or assets in the state.
“Years may pass before its owners become aware that tax, interest, and penalties have been accruing,” according to the analysis. “At that point, dissolution may be financially disadvantageous, and the taxpayers may simply opt to let the entity remain moribund,” making A.B. 2503 a means by which the tax board can clear away its backlogs of inactive domestic corporations and LLCs.
Under the bill, company owners who want to challenge the FTB’s dissolution of an inactive company can file an objection; pay any accrued taxes, penalties, and interest; and move to revive the company. Alternatively, owners of an inactive company can request the FTB to abate all taxes the company accrued during the inactive period, as well as the related penalties and interest, on condition that the inactive company then be dissolved.
AB 2503 doesn’t forgive companies any delinquent taxes and penalties they owe from before they ceased operating in the state. It also imposes a penalty on a company that was dissolved and had its taxes abated, but continued to operate in California, specifically by restoring the companies’ previously abated taxes, interest, and penalties, and imposing an additional penalty worth 50 percent of that liability, plus interest.
To view the full text of AB 2503, go to:
http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180AB2503
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