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 clarify that exercising control over, or reserving the right to exercise control over, specified activities of a lodging facility, as defined, are actions that constitute managing or operating real property. The bill would state that this provision does not constitute a change in, but is declaratory of, existing law. The bill would also allow affected employees of a lodging facility or their representative to provide evidence to the Franchise Tax Board of activities performed by a REIT that constitute direct or indirect operation or management of a lodging facility. The bill would require the Franchise Tax Board to confirm receipt of that evidence and, within ____ days of receipt, would require the Franchise Tax Board to provide the affected employee or representative a written response to the submission.