Real Estate Investment Trusts: management duties., the official text

An act to amend Section 24872.4 of the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL'S DIGEST

The Corporation Tax Law, in modified conformity with federal income tax law, allows a corporation, trust, or association that would otherwise be taxable as a domestic corporation to elect to be treated as a real estate investment trust (REIT) if specified requirements are met in relation to the character of income received by the entity, including a requirement that 95% of the entity’s income fits into several categories, including rents from real property. Existing law specifically excludes from the term “rents from real property” impermissible tenant service income, defined to include amounts received directly or indirectly for managing or operating real property.
This bill would allow affected employees of a lodging facility, as defined, or their representative to provide evidence to the Labor Commissioner of activities performed by a REIT that constitute direct or indirect operation or management of a lodging facility. The bill would require the Labor Commissioner to confirm receipt of that evidence and, within 45 days of receipt, would require the Labor Commissioner to provide the affected employee or representative a written response to the submission, and would require the Labor Commissioner to forward that response to the Franchise Tax Board.

The people of the State of California do enact as follows:

SECTION 1.
Section 24872.4 of the Revenue and Taxation Code is amended to read:
24872.4.
(a) Section 856(d)(7)(C)(ii) of the Internal Revenue Code is modified by substituting the phrase “if received by an organization described in subdivision (b) of Section 17651 of Part 10 or Section 23731” for the phrase “if received by an organization described in section 511(a)(2).”
(b) (1) An election under Section 856(e)(5) of the Internal Revenue Code for federal income tax purposes is treated for purposes of this part as an election made by the real estate investment trust under Section 856(e)(5) of the Internal Revenue Code for state purposes and a separate election under paragraph (3) of subdivision (e) of Section 23051.5 is not allowed.
(2) Any revocation of an election under Section 856(e)(5) of the Internal Revenue Code for federal income tax purposes is treated for purposes of this part as a revocation of the election made by the real estate investment trust under Section 856(e)(5) of the Internal Revenue Code for state purposes and a separate election under paragraph (3) of subdivision (e) of Section 23051.5 is not allowed with respect to the property for any subsequent taxable year.
(3) If the real estate investment trust fails to make an election under Section 856(e)(5) of the Internal Revenue Code for federal income tax purposes with respect to any property, that property may not be treated for purposes of this part as foreclosure property, an election under Section 856(e)(5) of the Internal Revenue Code for state purposes with respect to that property is not allowed, and a separate election under paragraph (3) of subdivision (e) of Section 23051.5 is not allowed with respect to that property.
(c) (1) Affected employees at a lodging facility, as that term is defined in Section 856(d)(9)(D) of the Internal Revenue Code, or their representative may provide evidence to the Labor Commissioner or their designee that a real estate investment trust or a taxable REIT subsidiary is directly or indirectly operating or managing a lodging facility by doing any of the following:
(A) Exercising, or reserving the right to exercise, control over any aspect of the wages, hours, or working conditions of employees at the lodging facility.
(B) Exercising control over the discretion of another entity, including an eligible independent contractor, as defined in Section 856(d)(9)(A) of the Internal Revenue Code, to establish any aspect of the wages, hours, or working conditions of employees at the lodging facility through establishing or maintaining an operating budget or operating allowances for the lodging facility, provided that nothing in this clause shall preclude a taxable REIT subsidiary from bearing the expenses for the operation of a qualified lodging facility by an eligible independent contractor pursuant to a management agreement or similar service contract.
(C) Exercising, or reserving the right to exercise, control over the negotiation, approval, or application of any collective bargaining agreement, or any part of a collective bargaining agreement, covering employees at the lodging facility.
(2) At the election of the affected employee or representative, the Labor Commissioner shall treat such communication and any related evidence as confidential. The Labor Commissioner shall confirm receipt of that evidence and shall, within 45 days of receipt, provide the affected employee or representative a written response to the submission, and shall forward a copy of that response to the Franchise Tax Board.