California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 4 - Exempt Corporations › Article 2 - Taxation of Business Income of Most Exempt Organizations › Section 23731 - * Imposition of Rates of Tax

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a)
					 Section
					 23731
					 of the Revenue and Taxation Code imposes a tax upon the unrelated business
					 taxable income of all organizations (including some trusts) otherwise exempt
					 from tax under Section
					 23701
					 of the Revenue and Taxation Code. The tax is also applicable to some nonexempt
					 trusts. However, quasi-governmental organizations that are formed to carry out
					 a function of the state and which are under the control of the state are
					 considered state agencies to which the tax is not applicable. Under subdivision
					 (a) corporations, associations and business trusts are subject to the
					 corporation rates imposed by Section
					 23151 or Section
					 23501
					 of the Revenue and Taxation Code. Under subdivision (b) trusts are subject to
					 individual rates imposed by Section
					 17041
					 of the Revenue and Taxation Code. No deduction for personal exemption or
					 exemption credit is allowed a trust in computing unrelated business taxable
					 income.
(b) Applicability of
					 Unrelated Business Income Tax.
(1) Subdivision
					 (a) is applicable for income years beginning after December 31, 1970.
(2) For income years beginning before January
					 1, 1971 the tax set out in Subdivision (a) is applicable only at the
					 corporation rate and only applicable to organizations exempt under Section
					 23701
					 of the Revenue and Taxation Code and described in Sections
					 23701a,
					 23701d,
					 23701e
					 or
					 23701n
					 of the Revenue and Taxation Code and to organizations described in Section
					 23701h
					 of the Revenue and Taxation Code if income is payable to an organization which
					 itself is subject to the tax imposed under Section
					 23731
					 of the Revenue and Taxation Code or to a church or convention of
					 churches.
(3)
(A) For income years beginning before January
					 1, 1970, the tax was not applicable to churches or associations of churches
					 which are exempt under Section
					 23701d
					 of the Revenue and Taxation Code.
(B) The term "church" includes a religious
					 order or a religious organization if such order or organization (a) is an
					 integral part of a church, and (b) is engaged in carrying out the functions of
					 a church, whether as a civil law corporation or otherwise. In determining
					 whether a religious order or organization is an integral part of a church,
					 consideration will be given to the degree to which it is connected with, and
					 controlled by, such church. A religious order or organization shall be
					 considered to be engaged in carrying out the functions of a church if its
					 duties include the ministration of sacerdotal functions and the conduct of
					 religious worship.
If a religious order or organization is not an integral
						part of a church, or if such an order or organization is not authorized to
						carry out the functions of a church (ministration of sacerdotal functions and
						conduct of religious worship) then it is subject to the tax imposed by Section
						23731
						of the Revenue and Taxation Code whether or not it engages in religious,
						educational, or charitable activities approved by a church. What constitutes
						the conduct of religious worship or the ministration of sacerdotal functions
						depends on the tenets and practices of a particular religious body constituting
						a church. If a religious order or organization can fully meet the requirements
						stated in this subparagraph, exemption from the tax imposed by Section
						23731
						of the Revenue and Taxation Code will apply to all its activities (prior to
						1970), including those which it conducts through a separate corporation (other
						than a corporation described in Section
						23701h
						of the Revenue and Taxation Code) or other separate entity which it wholly owns
						and which is not operated for the primary purpose of carrying on a trade or
						business for profit. Such exemption from tax will also apply to activities
						conducted through a separate corporation (other than a corporation described in
						Section
						23701h
						of the Revenue and Taxation Code) or other separate entity which is wholly
						owned by more than one religious order or organization, if all such orders or
						organizations fully meet the requirements stated in this subparagraph and if
						such corporation or other entity is not operated for the primary purpose of
						carrying on a trade or business for profit.
(C) Churches and conventions or associations
					 of churches are not entitled to most of the transitional rules provided for
					 under federal law.
(4)
					 Trusts.
(A) The taxes imposed by Section
					 23731
					 of the Revenue and Taxation Code apply in case of a trust which is exempt under
					 Section
					 23701
					 of the Revenue and Taxation Code. The tax also applies to nonexempt trusts
					 treated as exempt organizations because of Section
					 4947(a)(1) of the
					 Internal Revenue Code. The tax is also imposed on many types of trusts under
					 the Personal Income Tax Law by Section
					 17651
					 of the Revenue and Taxation Code. These trusts include exempt deferred
					 compensation trusts (as defined in Section
					 17501
					 of the Revenue and Taxation Code, with any tax imposed by Section
					 17651
					 of the Revenue and Taxation Code).
(B) However, if any of the above trusts
					 conduct a business which is a separate taxable entity on the basis of all of
					 the facts and circumstances, for example, an association taxable as a
					 corporation, the business will be taxable as a feeder organization described in
					 Section
					 23702
					 of the Revenue and Taxation Code.