BILL NUMBER: AB 2065 CHAPTERED
BILL TEXT
CHAPTER 488
FILED WITH SECRETARY OF STATE SEPTEMBER 12, 2002
APPROVED BY GOVERNOR SEPTEMBER 11, 2002
PASSED THE SENATE SEPTEMBER 1, 2002
PASSED THE ASSEMBLY SEPTEMBER 1, 2002
AMENDED IN SENATE AUGUST 31, 2002
AMENDED IN SENATE JUNE 28, 2002
AMENDED IN SENATE JUNE 24, 2002
AMENDED IN SENATE JUNE 11, 2002
INTRODUCED BY Assembly Member Oropeza
FEBRUARY 19, 2002
An act to amend Sections 17052.2, 17276, 17276.3, 18662, 18663,
18668, 19136.8, 19183, 23457, 24348, 24416, 24416.3, and 24449 of,
and to add and repeal Sections 7093.8 and 19444 of, the Revenue and
Taxation Code, and to amend Section 13043 of the Unemployment
Insurance Code, relating to taxation, and declaring the urgency
thereof, to take effect immediately.
LEGISLATIVE COUNSEL'S DIGEST
AB 2065, Oropeza. Sales and use taxes: income and bank and
corporation taxes.
The Sales and Use Tax Law imposes a tax on the gross receipts from
the sale in this state of, or the storage, use, or other consumption
in this state of, tangible personal property. Any unpaid taxes due
and payable under that law are subject to penalties, interest, and
any expenses and fees associated with the collection of the taxes
owed.
This bill, for the period beginning on October 1, 2002, and ending
on June 30, 2003, would authorize the State Board of Equalization to
forgive any penalties and interest on unpaid taxes owed by eligible
taxpayers, as defined, to the extent that the underlying tax
liability is reduced by an eligible amount, as defined.
The Personal Income Tax Law imposes a tax measured by the income
of residents and part-year residents. Any unpaid taxes due and
payable under that law are subject to penalties, interest, and any
expenses and fees associated with the collection of the taxes owed.
This bill, for the period beginning on October 1, 2002, and ending
on June 30, 2003, would authorize the Franchise Tax Board to forgive
any penalties, interest, and fees on unpaid taxes owed by eligible
taxpayers, as defined, to the extent that the underlying tax
liability is reduced by an eligible amount, as defined.
The Personal Income Tax Law authorizes various credits against the
tax imposed by that law, including a credit for credentialed
teachers in an amount equal to the lesser of (1) the applicable of
specified amounts based upon years of service as a teacher, or (2)
50% of the amount of tax imposed upon the taxpayer's income that is
attributable to service as a teacher at a qualifying educational
institution.
This bill would suspend the credit for taxable years beginning on
or after January 1, 2002, and before January 1, 2003.
Existing law allows individual and corporate taxpayers to utilize
net operating loss carryovers for purposes of offsetting their
individual and corporate tax liabilities.
This bill would disallow the deduction for specified net operating
loss carryovers in the 2002 and 2003 taxable years. The bill would
extend the carryover period for the net operating losses, thus
allowing the taxpayers to have the same number of years to utilize
the deduction as they would have if the change had not been enacted.
For net operating losses incurred in taxable years beginning on and
after January 1, 2004, this bill would allow a net operating loss
carryforward deduction in an amount equal to 90% of the net operating
loss incurred.
Existing law requires the transferee of real property to withhold
31/3% of the purchase price of the property if the property was
either acquired from a person, who is not a resident, or who after
the transfer of the real property, will no longer be a resident of
this state or from a corporation, if after the transfer that
corporation has no permanent place of business in this state.
This bill, for taxable years beginning on or after January 1,
2003, would extend this 31/3% withholding requirement to specified
transfers of real property acquired from an individual.
Existing law requires the Franchise Tax Board to prepare wage
withholding tables to be used by employers for purposes of
withholding taxes on wages paid, but allows withholding at a rate of
6% with respect to supplemental wages in lieu of the withholding
tables.
This bill would allow withholding at a rate of 9.3% with respect
to stock options and bonus payments, in lieu of the withholding
tables or the specified withholding rate with respect to supplemental
wages, and would also make related conforming changes.
Existing law, with respect to the administration of income and
corporate taxes, imposes penalties with respect to the underpayment
of taxes.
This bill would provide for the waiver of certain penalties
imposed for the underpayment of tax with respect to any law enacted
during the 2002 calendar year.
The Bank and Corporation Tax Law, in specified conformity to
federal income tax laws allows a deduction for bad debts, except
that, among other things, the deduction of a savings and loan
association, or bank or financial corporation is determined in
accordance with special rules that allow a deduction for a reasonable
addition to a reserve for bad debts.
This bill would, with respect to banks, modify that special rule
to provide additional conformity to federal income tax laws relating
to reserves for losses on loans of banks, except as otherwise
provided. This bill would also make related changes with respect to
the alternative minimum tax.
This bill would declare that it is to take effect immediately as an
urgency statute.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 7093.8 is added to the Revenue and Taxation
Code, to read:
7093.8. (a) (1) For the period beginning on October 1, 2002, and
ending on June 30, 2003, an eligible taxpayer's liability, with
respect to any unpaid taxes, may be satisfied by the payment of an
eligible amount. The authority granted by this section is limited to
an unpaid tax liability that has been determined by the State Board
of Equalization to be a high-risk collection account.
(2) The liability of an eligible taxpayer for any unpaid penalties
and interest included in the computation of the unpaid tax liability
shall be extinguished only upon receipt by the State Board of
Equalization of all payments equal to the eligible amount on or
before the final due date for payment established by the State Board
of Equalization.
(b) For purposes of this section, the following definitions apply:
(1) "Eligible taxpayer" means any person that receives
notification from the State Board of Equalization that the taxpayer's
unpaid tax liability may be satisfied by the payment of an eligible
amount.
(2) "Eligible amount" means an amount equal to any unpaid tax
liability, excluding penalties and interest, owed by the eligible
taxpayer that is paid in one or more installments, as determined by
the State Board of Equalization, on or before the due date
established by the State Board of Equalization, but in no event later
than June 30, 2004.
(3) "High-risk collection account" means any unpaid tax liability
of a taxpayer where satisfaction of that liability under this section
would be in the best interest of the state and shall include any
unpaid tax liability for which the State Board of Equalization has
made either of the following determinations:
(A) Under the State Board of Equalization's collection modeling
policies, practices, and procedures, efforts to collect the unpaid
tax liability would not be economical.
(B) The unpaid tax liability would not be paid in full within a
reasonable period of time.
(4) "Unpaid tax liability" means any final liability under Part 1
(commencing with Section 6001), including tax, penalties, and
interest, that are owed by a person and, as of October 1, 2002, are
unpaid.
(c) No refund or credit shall be granted with respect to any
penalty or interest paid or collected with respect to an unpaid tax
liability prior to October 1, 2002.
(d) The determinations made by the State Board of Equalization
pursuant to this section shall be final and conclusive and shall not
be subject to review by any other officer, employee, or agent of the
state, or by any court.
(e) Nothing in Section 7056, or in any other provision of law,
shall be construed to require the disclosure of standards used or to
be used in connection with any determinations made by the State Board
of Equalization for purposes of this section, or the data used or to
be used for determining those standards if the State Board of
Equalization determines that the disclosure will seriously impair
assessment, collection, or enforcement under this part.
(f) Nothing in this section shall authorize the State Board of
Equalization to compromise any final tax liability.
(g) The Legislature finds that it is essential for fiscal purposes
that the special collection efforts authorized by this section be
expeditiously implemented. Accordingly, Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code shall not apply to any standard, criterion, procedure,
determination, rule, notice, or guideline established or issued in
implementing and administering the program required by this section.
(h) This section shall be operative with respect to unpaid tax
liabilities of high-risk collection accounts that are the subject of
notifications made to eligible taxpayers on or after October 1, 2002,
and before July 1, 2003.
(i) Whenever a "high-risk collection account" is forgiven of any
penalties and interest pursuant to this section, the public record
shall include all of the following information:
(1) The name of the taxpayer.
(2) The amount of related penalties and interest relieved.
(3) A summary of the reason why the relief is in the best interest
of the state.
(j) This section shall remain in effect only until December 31,
2004, and as of that date is repealed.
SEC. 1.3. Section 17052.2 of the Revenue and Taxation Code is
amended to read:
17052.2. (a) For each taxable year beginning on or after January
1, 2000, and before January 1, 2002, and for each taxable year
beginning on or after January 1, 2003, there shall be allowed as a
credit against the "net tax" (as defined by Section 17039) to a
credentialed teacher an amount equal to the amount determined in
subdivision (b).
(b) The amount of the credit shall be the lesser of the amounts
computed under paragraph (1) or (2):
(1) In the case of any credentialed teacher who has, as of the
last day of the taxable year:
(A) Completed at least four but less than six years of service as
a credentialed teacher, the credit shall be two hundred fifty dollars
($250).
(B) Completed at least six but less than 11 years of service as a
credentialed teacher, the credit shall be five hundred dollars
($500).
(C) Completed at least 11 but less than 20 years of service as a
credentialed teacher, the credit shall be one thousand dollars
($1,000).
(D) Completed 20 or more years of service as a credentialed
teacher, the credit shall be one thousand five hundred dollars
($1,500).
(E) For purposes of determining years of service, years of service
performed as a teacher in a qualifying educational institution,
which otherwise meets the criteria specified in subdivision (d)
except that the qualifying educational institution is not located in
this state, in another state shall qualify for each year the teacher
was credentialed by the public education agency in that state.
(2) Fifty percent of the amount determined as follows:
(A) Divide the amount received by the taxpayer as wages and salary
for services as a credentialed teacher, as defined in paragraph (3)
of subdivision (c), by the taxpayer's total adjusted gross income
from all sources.
(B) Multiply the taxpayer's total tax, as defined in paragraph (4)
of subdivision (c), by a ratio, not to exceed 1.00, that is
otherwise equal to the ratio determined for the taxpayer under
subparagraph (A).
(c) For purposes of this section, all of the following definitions
apply:
(1) "Credentialed teacher" means a person who holds a preliminary
or professional clear credential as determined by the Commission on
Teacher Credentialing pursuant to Article 1 (commencing with Section
44200) of Chapter 2 of Part 25 of Division 2 of Title 2 of the
Education Code and who teaches at a qualifying educational
institution.
(2) "Qualifying educational institution" means any elementary,
secondary, or vocational-technical school located in this state
providing education for kindergarten, grades 1 to 12, inclusive, or
any part thereof. "Qualifying educational institution" includes an
agency or instrumentality of the federal government providing
education for grades kindergarten, grades 1 to 12, inclusive, or any
part thereof, at any location within this state, including an Indian
reservation or a military installation located within the
geographical borders of this state, where a credentialed teacher is
employed by the federal government or an agency or instrumentality
thereof. "Qualifying educational institution" includes any
elementary, secondary, or vocational technical school located in
California, that files an affidavit pursuant to Sections 33190 and
33191 of the Education Code, and provides education for kindergarten
and grades 1 to 12, inclusive, or any part thereof.
(3) "Wages and salaries for services as a credentialed teacher"
includes only those amounts received with respect to services
performed as a credentialed teacher, but does not include pensions or
other deferred compensation.
(4) "Total tax" means the tax imposed under this part for the
taxable year, before the application under Section 19007 of any
payment of estimated tax or any installment thereof, less all credits
allowed for the taxable year except for the following:
(A) The credit allowed under this section.
(B) The credit allowed under Section 17061 (relating to refunds
under the Unemployment Insurance Code).
(C) The credit allowed under Section 19002 (relating to tax
withholding).
(D) Any refundable credit that is allowed under this part.
SEC. 1.5. Section 17276 of the Revenue and Taxation Code is
amended to read:
17276. Except as provided in Sections 17276.1, 17276.2, 17276.4,
17276.5, 17276.6, and 17276.7, the deduction provided by Section 172
of the Internal Revenue Code, relating to a net operating loss
deduction, shall be modified as follows:
(a) (1) Net operating losses attributable to taxable years
beginning before January 1, 1987, shall not be allowed.
(2) A net operating loss shall not be carried forward to any
taxable year beginning before January 1, 1987.
(b) (1) Except as provided in paragraphs (2) and (3), the
provisions of Section 172(b)(2) of the Internal Revenue Code,
relating to the amount of carryovers, shall be modified so that the
applicable percentage of the entire amount of the net operating loss
for any taxable year shall be eligible for carryover to any
subsequent taxable year. For purposes of this subdivision, the
applicable percentage shall be:
(A) Fifty percent for any taxable year beginning before January 1,
2000.
(B) Fifty-five percent for any taxable year beginning on or after
January 1, 2000, and before January 1, 2002.
(C) Sixty percent for any taxable year beginning on or after
January 1, 2002, and before January 1, 2004.
(D) One hundred percent for any taxable year beginning on or after
January 1, 2004.
(2) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
a new business during that taxable year, each of the following shall
apply to each loss incurred during the first three taxable years of
operating the new business:
(A) If the net operating loss is equal to or less than the net
loss from the new business, 100 percent of the net operating loss
shall be carried forward as provided in subdivision (d).
(B) If the net operating loss is greater than the net loss from
the new business, the net operating loss shall be carried over as
follows:
(i) With respect to an amount equal to the net loss from the new
business, 100 percent of that amount shall be carried forward as
provided in subdivision (d).
(ii) With respect to the portion of the net operating loss that
exceeds the net loss from the new business, the applicable percentage
of that amount shall be carried forward as provided in subdivision
(d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(3) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
an eligible small business during that taxable year, each of the
following shall apply:
(A) If the net operating loss is equal to or less than the net
loss from the eligible small business, 100 percent of the net
operating loss shall be carried forward to the taxable years
specified in subdivision (d).
(B) If the net operating loss is greater than the net loss from
the eligible small business, the net operating loss shall be carried
over as follows:
(i) With respect to an amount equal to the net loss from the
eligible small business, 100 percent of that amount shall be carried
forward as provided in subdivision (d).
(ii) With respect to that portion of the net operating loss that
exceeds the net loss from the eligible small business, the applicable
percentage of that amount shall be carried forward as provided in
subdivision (d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(4) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
a business that qualifies as both a new business and an eligible
small business under this section, that business shall be treated as
a new business for the first three taxable years of the new business.
(5) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
more than one business, and more than one of those businesses
qualifies as either a new business or an eligible small business
under this section, paragraph (2) shall be applied first, except that
if there is any remaining portion of the net operating loss after
application of clause (i) of subparagraph (B) of that paragraph,
paragraph (3) shall be applied to the remaining portion of the net
operating loss as though that remaining portion of the net operating
loss constituted the entire net operating loss.
(6) For purposes of this section, the term "net loss" means the
amount of net loss after application of Sections 465 and 469 of the
Internal Revenue Code.
(c) Net operating loss carrybacks shall not be allowed.
(d) (1) (A) For a net operating loss for any taxable year
beginning on or after January 1, 1987, and before January 1, 2000,
Section 172(b)(1)(A)(ii) of the Internal Revenue Code, relating to
years to which net operating losses may be carried, is modified to
substitute "five taxable years" in lieu of "20 taxable years" except
as otherwise provided in paragraphs (2) and (3).
(B) For a net operating loss for any taxable year beginning on or
after January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal
Revenue Code, relating to years to which net operating losses may be
carried, is modified to substitute "10 taxable years" in lieu of "20
taxable years."
(2) For any taxable year beginning before January 1, 2000, in the
case of a "new business," the "five taxable years" in paragraph (1)
shall be modified to read as follows:
(A) "Eight taxable years" for a net operating loss attributable to
the first taxable year of that new business.
(B) "Seven taxable years" for a net operating loss attributable to
the second taxable year of that new business.
(C) "Six taxable years" for a net operating loss attributable to
the third taxable year of that new business.
(3) For any carryover of a net operating loss for which a
deduction is denied by Section 17276.3, the carryover period
specified in this subdivision shall be extended as follows:
(A) By one year for a net operating loss attributable to taxable
years beginning in 1991.
(B) By two years for a net operating loss attributable to taxable
years beginning prior to January 1, 1991.
(4) The net operating loss attributable to taxable years beginning
on or after January 1, 1987, and before January 1, 1994, shall be a
net operating loss carryover to each of the 10 taxable years
following the year of the loss if it is incurred by a taxpayer that
is under the jurisdiction of the court in a Title 11 or similar case
at any time during the income year. The loss carryover provided in
the preceding sentence shall not apply to any loss incurred after the
date the taxpayer is no longer under the jurisdiction of the court
in a Title 11 or similar case.
(e) For purposes of this section:
(1) "Eligible small business" means any trade or business that has
gross receipts, less returns and allowances, of less than one
million dollars ($1,000,000) during the taxable year.
(2) Except as provided in subdivision (f), "new business" means
any trade or business activity that is first commenced in this state
on or after January 1, 1994.
(3) "Title 11 or similar case" shall have the same meaning as in
Section 368(a)(3) of the Internal Revenue Code.
(4) In the case of any trade or business activity conducted by a
partnership or "S corporation," paragraphs (1) and (2) shall be
applied to the partnership or "S corporation."
(f) For purposes of this section, in determining whether a trade
or business activity qualifies as a new business under paragraph (2)
of subdivision (e), the following rules shall apply:
(1) In any case where a taxpayer purchases or otherwise acquires
all or any portion of the assets of an existing trade or business
(irrespective of the form of entity) that is doing business in this
state (within the meaning of Section 23101), the trade or business
thereafter conducted by the taxpayer (or any related person) shall
not be treated as a new business if the aggregate fair market value
of the acquired assets (including real, personal, tangible, and
intangible property) used by the taxpayer (or any related person) in
the conduct of its trade or business exceeds 20 percent of the
aggregate fair market value of the total assets of the trade or
business being conducted by the taxpayer (or any related person).
For purposes of this paragraph only, the following rules shall apply:
(A) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the first taxable year in which the taxpayer (or any related
person) first uses any of the acquired trade or business assets in
its business activity.
(B) Any acquired assets that constituted property described in
Section 1221(1) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(1) of the Internal Revenue Code in the
hands of the acquiring taxpayer (or related person).
(2) In any case where a taxpayer (or any related person) is
engaged in one or more trade or business activities in this state, or
has been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, than are
any of the taxpayer's (or any related person's) current or prior
trade or business activities.
(3) In any case where a taxpayer, including all related persons,
is engaged in trade or business activities wholly outside of this
state and the taxpayer first commences doing business in this state
(within the meaning of Section 23101) after December 31, 1993 (other
than by purchase or other acquisition described in paragraph (1)),
the trade or business activity shall be treated as a new business
under paragraph (2) of subdivision (e).
(4) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
taxpayer as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
paragraph (1) of this subdivision.
(5) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
(6) "Acquire" shall include any gift, inheritance, transfer
incident to divorce, or any other transfer, whether or not for
consideration.
(7) (A) For taxable years beginning on or after January 1, 1997,
the term "new business" shall include any taxpayer that is engaged in
biopharmaceutical activities or other biotechnology activities that
are described in Codes 2833 to 2836, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, and as further
amended, and that has not received regulatory approval for any
product from the United States Food and Drug Administration.
(B) For purposes of this paragraph:
(i) "Biopharmaceutical activities" means those activities that use
organisms or materials derived from organisms, and their cellular,
subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities that make use of chemical compounds to produce commercial
products.
(ii) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
(g) In computing the modifications under Section 172(d)(2) of the
Internal Revenue Code, relating to capital gains and losses of
taxpayers other than corporations, the exclusion provided by Section
18152.5 shall not be allowed.
(h) Notwithstanding any provisions of this section to the
contrary, a deduction shall be allowed to a "qualified taxpayer" as
provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and
17276.7.
(i) The Franchise Tax Board may prescribe appropriate regulations
to carry out the purposes of this section, including any regulations
necessary to prevent the avoidance of the purposes of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, or otherwise.
(j) The Franchise Tax Board may reclassify any net operating loss
carryover determined under either paragraph (2) or (3) of subdivision
(b) as a net operating loss carryover under paragraph (1) of
subdivision (b) upon a showing that the reclassification is necessary
to prevent evasion of the purposes of this section.
(k) Except as otherwise provided, the amendments made by Chapter
107 of the Statutes of 2000 shall apply to net operating losses for
taxable years beginning on or after January 1, 2000.
SEC. 2. Section 17276.3 of the Revenue and Taxation Code is
amended to read:
17276.3. (a) Notwithstanding Sections 17276, 17276.1, 17276.2,
17276.4, 17276.5, 17276.6, and 17276.7 of this code and Section 172
of the Internal Revenue Code, no net operating loss deduction shall
be allowed for any taxable year beginning on or after January 1,
2002, and before January 1, 2004.
(b) For any carryover of a net operating loss for which a
deduction is denied by subdivision (a), the carryover period under
Section 172 of the Internal Revenue Code shall be extended as
follows:
(1) By one year, for losses incurred in taxable years beginning on
or after January 1, 2002, and before January 1, 2003.
(2) By two years, for losses incurred in taxable years beginning
before January 1, 2002.
SEC. 3. Section 18662 of the Revenue and Taxation Code is amended
to read:
18662. (a) The Franchise Tax Board may, by regulation, require
any person, in whatever capacity acting (including lessees or
mortgagors of real or personal property, fiduciaries, employers, and
any officer or department of the state or any political subdivision
or agency of the state, or any city organized under a freeholder's
charter, or any political body not a subdivision or agency of the
state), having the control, receipt, custody, disposal, or payment of
items of income specified in subdivision (b), to withhold an amount,
determined by the Franchise Tax Board to reasonably represent the
amount of tax due when the items of income are included with other
income of the taxpayer, and to transmit the amount withheld to the
Franchise Tax Board at the time as it may designate.
(b) The items of income referred to in subdivision (a) are
interest, dividends, rents, prizes and winnings, premiums, annuities,
emoluments, compensation for services, including bonuses,
partnership income or gains, and other fixed or determinable annual
or periodical gains, profits, and income.
(c) The Franchise Tax Board may authorize the tax under
subdivision (a) to be deducted and withheld from the interest upon
any securities the owners of which are not known to the withholding
agent.
(d) Any person failing to withhold from any payments any amounts
required by subdivision (a) to be withheld is liable for the amount
withheld or the amount of taxes due from the person to whom the
payments are made to an extent not in excess of the amounts required
to be withheld, whichever is greater, unless it is shown that the
failure to withhold is due to reasonable cause.
(e) (1) In the case of any disposition of a California real
property interest by an individual, the transferee (including for
this purpose any intermediary or accommodator in a deferred exchange)
shall be required to withhold an amount equal to 31/3 percent of the
sales price of the California real property conveyed.
(2) Notwithstanding any other provision of this subdivision, all
of the following shall apply:
(A) No transferee shall be required to withhold any amount under
this subdivision unless the sales price of the California real
property conveyed exceeds one hundred thousand dollars ($100,000).
(B) No transferee (other than an intermediary or an accommodator
in a deferred exchange) shall be required to withhold any amount
under this subdivision unless written notification of the withholding
requirements of this subdivision has been provided by the real
estate escrow person.
(C) No transferee shall be required to withhold under this
subdivision when the transferee is a corporate beneficiary under a
mortgage or beneficiary under a deed of trust and the California real
property is acquired in judicial or nonjudicial foreclosure or by a
deed in lieu of foreclosure.
(D) No transferee shall be required to withhold any amount under
this subdivision if the transferee, in good faith and based upon all
the information of which he or she has knowledge, relies on a written
certificate executed by the transferor, certifying under penalty of
perjury, that the California real property being conveyed is the
principal residence of the transferor (within the meaning of
Section 121 of the Internal
Revenue Code).
(E) (i) No transferee (including for this purpose any intermediary
or accommodator in a deferred exchange) shall be required to
withhold any amount under this subdivision if the transferee, in good
faith and based on all the information of which he or she has
knowledge, relies on a written certificate executed by the
transferor, certifying under penalty of perjury, that the California
real property being conveyed is exchanged, or will be exchanged, for
property of like kind (within the meaning of Section 1031 of the
Internal Revenue Code), but only to the extent of the amount of the
gain not required to be recognized for California income tax purposes
under Section 1031 of the Internal Revenue Code.
(ii) Clause (i) shall not apply to the extent that any exchange
does not qualify for nonrecognition treatment for California income
tax purposes under Section 1031 of the Internal Revenue Code, in
whole or in part, due to the failure of the transaction to comply
with the provisions of Section 1031(a)(3) of the Internal Revenue
Code, relating to requirement that property be identified and that
exchange be completed not more than 180 days after transfer of the
exchanged property.
(iii) In any case where clause (ii) applies, the transferee
(including for this purpose any intermediary or accommodator in a
deferred exchange) shall be required to notify the Franchise Tax
Board in writing within 10 days of the expiration of the statutory
periods specified in Section 1031(a)(3) of the Internal Revenue Code
and shall thereafter remit the applicable withholding amounts
determined under this subdivision in accordance with paragraph (4).
(F) No transferee shall be required to withhold any amount under
this subdivision if the transferee, in good faith and based on all
the information of which he or she has knowledge, relies on a written
certificate executed by the transferor, certifying under penalty of
perjury, that the California real property has been compulsorily or
involuntarily converted (within the meaning of Section 1033 of the
Internal Revenue Code) and that the transferor intends to acquire
property similar or related in service or use so as to be eligible
for nonrecognition of gain for California income tax purposes under
Section 1033 of the Internal Revenue Code.
(G) No transferee shall be required to withhold any amount under
this subdivision if the transferee, in good faith and based on all
the information which he or she has knowledge, relies on a written
certificate executed by the transferor, certifying under penalty of
perjury, that the transaction will result in a loss for California
income tax purposes.
(3) (A) In the case of any transaction otherwise subject to this
subdivision that qualifies as an "installment sale" (within the
meaning of Section 453(b) of the Internal Revenue Code) for
California income tax purposes, the provisions of this subdivision
may, upon the irrevocable written election of the transferee, be
separately applied to each payment to be made under the terms of the
installment sale agreement between the parties.
(B) For purposes of subparagraph (A), subparagraph (A) of
paragraph (2) shall not apply to each individual payment to be
received under the terms of the installment sale agreement.
(C) The election under this paragraph shall be made at the time,
and in the form and manner, specified by the Franchise Tax Board in
forms and instructions, except that the form shall, at a minimum,
include the requirement specified in subparagraph (D) of this
paragraph.
(D) The election under this paragraph shall only be valid if the
transferee agrees to withhold and remit from each installment payment
the amount specified under this subdivision in the form and manner,
and at the time, specified in paragraph (4).
(4) Amounts withheld and payments made in accordance with this
subdivision shall be reported and remitted to the Franchise Tax Board
in the form and manner and at the time specified by the Franchise
Tax Board.
(5) For purposes of this subdivision, "California real property
interest" means an interest in real property located in California
and defined in Section 897(c)(1)(A)(i) of the Internal Revenue Code.
(6) For purposes of this subdivision, "real estate escrow person"
means any of the following persons involved in the real estate
transaction:
(A) The person (including any attorney, escrow company, or title
company) responsible for closing the transaction.
(B) If no other person described in subparagraph (A) is
responsible for closing the transaction, then any other person who
receives and disburses the consideration or value for the interest or
property conveyed.
(7) (A) Unless the real estate escrow person provides "assistance,"
it shall be unlawful for any real estate escrow person to charge any
customer for complying with the requirements of this subdivision.
(B) For purposes of this paragraph, "assistance" includes, but is
not limited to, helping the parties clarify with the Franchise Tax
Board the issue of whether withholding is required under this
subdivision or, upon request of the parties, withholding an amount
under this subdivision and remitting that amount to the Franchise Tax
Board.
(C) For purposes of this paragraph, "assistance" does not include
providing the written notification of the withholding requirements of
this subdivision.
(D) In a case where the real estate escrow person provides
"assistance" in complying with the withholding requirements of this
subdivision, it shall be unlawful for the real estate escrow person
to charge any customer a fee that exceeds forty-five dollars ($45).
(8) For purposes of this subdivision, "sales price" means the sum
of all of the following:
(A) The cash paid, or to be paid, but excluding for this purpose
any stated or unstated interest or original issue discount (as
determined under Sections 1271 through 1275, inclusive, of the
Internal Revenue Code).
(B) The fair market value of other property transferred, or to be
transferred.
(C) The outstanding amount of any liability assumed by the
transferee or to which the California real property interest is
subject immediately before and after the transfer.
(f) (1) In the case of any disposition of a California real
property interest by a person (but not a partnership as determined in
accordance with Subchapter K of Chapter 1 of Subtitle A of the
Internal Revenue Code, or a corporation, or an individual), when the
return required to be filed with the Secretary of the Treasury under
Section 6045(e) of the Internal Revenue Code indicates, or the
authorization for the disbursement of the transaction's funds
instructs, that the funds be disbursed either to a transferor with a
last known street address outside the boundaries of this state at the
time of the transfer of the title to the California real property or
to the financial intermediary of the transferor, the transferee
shall be required to withhold an amount equal to 31/3 percent of the
sales price of the California real property conveyed.
(2) In the case of any disposition of a California real property
interest by a corporation, the transferee shall be required to
withhold an amount equal to 31/3 percent of the sales price of the
California real property conveyed, if the corporation immediately
after the transfer of the title to the California real property has
no permanent place of business in California. For purposes of this
subdivision, a corporation has no permanent place of business in
California if all of the following apply:
(A) It is not organized and existing under the laws of California.
(B) It does not qualify with the office of the Secretary of State
to transact business in California.
(C) It does not maintain and staff a permanent office in
California.
(3) Notwithstanding any other provision of this subdivision, all
of the following shall apply:
(A) No transferee shall be required to withhold any amount under
this subdivision if the sales price of the California real property
conveyed does not exceed one hundred thousand dollars ($100,000).
(B) No transferee shall be required to withhold any amount under
this subdivision unless written notification of the withholding
requirements of this subdivision has been provided by the real estate
escrow person.
(C) No transferee shall be required to withhold under this
subdivision when the transferor is a bank acting as trustee other
than a trustee of a deed of trust.
(D) No transferee shall be required to withhold under this
subdivision when the transferee is a corporate beneficiary under a
mortgage or beneficiary under a deed of trust and the California real
property is acquired in judicial or nonjudicial foreclosure or by a
deed in lieu of foreclosure.
(E) No transferee shall be required to withhold any amount under
this subdivision if the transferee, in good faith and based on all
the information of which he or she has knowledge, relies on a written
certificate executed by the transferor, certifying under penalty of
perjury that the transferor is a corporation with a permanent place
of business in California.
(4) (A) At the request of the transferor, the Franchise Tax Board
may authorize that a reduced amount or no amount be withheld under
this subdivision if the Franchise Tax Board determines that to
substitute a reduced amount or no amount shall not jeopardize the
collection of tax imposed by Part 10 (commencing with Section 17001)
or Part 11 (commencing with Section 23001). If the transferor
provides documentation sufficient for the Franchise Tax Board to
determine the actual gain required to be recognized on the
transaction, the Franchise Tax Board may authorize a reduced amount
based on the amount of the gain, as determined, which will result in
a sum which is substantially equivalent to the amount of tax
reasonably estimated to be due under Part 10 (commencing with Section
17001) or Part 11 (commencing with Section 23001) from the inclusion
of the gain in the gross amount of the transferor.
(B) Within 45 days after receiving a request that a reduced amount
or no amount be withheld, the Franchise Tax Board shall either
authorize a reduced amount or no amount, or deny the request.
(C) In the case where the parties to the transaction are
requesting that a reduced amount or no amount be withheld and the
response by the Franchise Tax Board to the request has not been
received at the time title to the California real property is
transferred, the parties may direct the real estate escrow person to
hold in trust for 45 days the amount required to be withheld under
this subdivision. The parties shall instruct the real estate escrow
person that at the end of 45 days the real estate escrow person shall
remit the amount withheld to the Franchise Tax Board in accordance
with this section, unless the Franchise Tax Board has authorized that
a reduced amount or no amount be withheld.
(5) Amounts withheld and payments made in accordance with this
subdivision shall be reported and remitted to the Franchise Tax Board
in the form and at the time as the Franchise Tax Board shall
determine.
(6) "California real property interest" means an interest in real
property located in California and defined in Section 897(c)(1)(A)(i)
of the Internal Revenue Code.
(7) For purposes of this subdivision, "financial intermediary"
means an agent for the purpose of receiving and transferring funds to
a principal.
(8) For purposes of this subdivision, "real estate escrow person"
means any of the following persons involved in the real estate
transaction:
(A) The person (including any attorney, escrow company, or title
company) responsible for closing the transaction.
(B) If no other person described in subparagraph (A) is
responsible for closing the transaction, then any other person who
receives and disburses the consideration or value for the interest or
property conveyed.
(9) (A) Unless the real estate escrow person provides "assistance,"
it shall be unlawful for any real estate escrow person to charge any
customer for complying with the requirements of this subdivision.
(B) For purposes of this paragraph, "assistance" includes, but is
not limited to, helping the parties clarify with the Franchise Tax
Board the issue of whether withholding is required under this
subdivision, helping the parties request that the Franchise Tax Board
authorize a reduced amount or no amount be withheld under this
subdivision, or, upon request of the parties, withholding an amount
under this subdivision and remitting the amount to the Franchise Tax
Board.
(C) For purposes of this paragraph, "assistance" does not include
providing the written notification of the withholding requirements of
this subdivision, or providing the certification that the transferor
is a corporation with a permanent place of business in California.
(D) In a case where the real estate escrow person provides
"assistance" in complying with the withholding requirements of this
subdivision, it shall be unlawful for the real estate escrow person
to charge any customer a fee that exceeds forty-five dollars ($45).
(10) For purposes of this subdivision, "sales price" means the sum
of all of the following:
(A) The cash paid, or to be paid. The term "cash paid, or to be
paid" does not include stated or unstated interest or original issue
discount (as determined by Sections 1271 to 1275, inclusive, of the
Internal Revenue Code).
(B) The fair market value of other property transferred, or to be
transferred.
(C) The outstanding amount of any liability assumed by the
transferee or to which the California real property interest is
subject immediately before and after the transfer.
(g) Whenever any person has withheld any amount pursuant to this
section, the amount so withheld shall be held in trust for the State
of California. The amount of the fund shall be assessed, collected,
and paid in the same manner and subject to the same provisions and
limitations (including penalties) as are applicable with respect to
the taxes imposed by Part 10 (commencing with Section 17001), Part 11
(commencing with Section 23001), or this part.
(h) Withholding shall not be required under this section with
respect to wages, salaries, fees, or other compensation paid by a
corporation for services performed in California for that corporation
to a nonresident corporate director for director services, including
attendance at a board of directors' meeting.
(i) In the case of any payment described in subdivision (h), the
person making the payment shall do each of the following:
(1) File a return with the Franchise Tax Board at the time and in
the form and manner specified by the Franchise Tax Board.
(2) Provide the payee with a statement at the time and in the form
and manner specified by the Franchise Tax Board.
(j) (1) The amendments to this section made by the act adding this
subdivision shall only apply to dispositions of California real
property interests that occur on or after January 1, 2003.
(2) In the case of any payments received on or after January 1,
2003, pursuant to an installment sale agreement relating to a
disposition occurring before January 1, 2003, the amendments to this
section made by the act adding this subdivision shall not apply to
those payments.
SEC. 4. Section 18663 of the Revenue and Taxation Code is amended
to read:
18663. (a) The Franchise Tax Board shall annually (or more often
if necessary) prepare and make available to the Employment
Development Department, wage withholding tables that shall be used by
every employer making payment of any wages to a resident employee
for services performed either within or without this state; or to a
nonresident employee for services performed in this state, to deduct
and withhold from those wages for each payroll period, a tax computed
in a manner as to produce, so far as practicable, with due regard to
the credits for personal exemptions allowable under Section 17054, a
sum that is substantially equivalent to the amount of tax reasonably
estimated to be due under Part 10 (commencing with Section 17001)
resulting from the inclusion in the gross income of the employee the
wages which were subject to withholding.
(b) (1) For supplemental wages paid on or after January 1, 1992,
the rate of withholding that may be applied to supplemental wages in
lieu of the wage withholding tables specified in subdivision (a)
shall be 6 percent.
(2) For purposes of this subdivision, "supplemental wages"
includes, but is not limited to, bonus payments, overtime payments,
commissions, sales awards, back pay including retroactive wage
increases, and reimbursements for nondeductible moving expenses that
are paid for the same or a different period, or without regard to a
particular period.
(c) For stock options and bonus payments that constitute wages
paid on or after January 1, 2002, the rate of withholding that may be
applied to those stock options and bonus payments in lieu of the
wage withholding tables specified in subdivision (a) shall,
notwithstanding subdivision (b), be 9.3 percent.
SEC. 5. Section 18668 of the Revenue and Taxation Code is amended
to read:
18668. (a) Every person required under this article to deduct and
withhold any tax is hereby made liable for that tax, to the extent
provided by this section and, insofar as they are not inconsistent
with this article, all the provisions of this part relating to
penalties, interest, assessment, and collections shall apply to
persons subject to this part, and for these purposes any amount
required to be deducted and paid to the Franchise Tax Board under
this article shall be considered the tax of the person. Any person
who fails to withhold from any payments any amount required to be
withheld under this article is liable for the amount withheld or the
amount of taxes due from the taxpayer to whom the payments are made
but not in excess of the amount required to be withheld, whichever is
more, unless it is shown that the failure to withhold is due to
reasonable cause.
(b) If any amount required to be withheld under this article is
not paid to the Franchise Tax Board on or before the due date
required by regulations, interest shall be assessed at the adjusted
annual rate established pursuant to Section 19521, computed from the
due date to the date paid.
(c) Whenever any person has withheld any amount pursuant to this
article, the amount so withheld shall be held to be a special fund in
trust for the State of California.
(d) In lieu of the amount provided for in subdivision (a), unless
it is shown that the failure to withhold is due to reasonable cause,
whenever any transferee is required to withhold any amount pursuant
to subdivision (e) or (f) of Section 18662, the transferee is liable
for the greater of the following amounts for failure to withhold only
after the transferee, as specified, is notified in writing of the
requirements under subdivision (e) or (f) of Section 18662:
(1) Five hundred dollars ($500).
(2) Ten percent of the amount required to be withheld under
subdivision (e) or (f) of Section 18662.
(e) (1) Unless it is shown that the failure to notify is due to
reasonable cause, the real estate escrow person shall be liable for
the amount specified in subdivision (d), when written notification of
the withholding requirements of subdivision (e) or (f) of Section
18662 is not provided to the transferee (other than a transferee that
is an intermediary or accommodator in a deferred exchange) and the
California real property disposition is subject to withholding under
subdivision (e) or (f) of Section 18662.
(2) The real estate escrow person shall provide written
notification to the transferee (other than a transferee that is an
intermediary or accommodator in a deferred exchange) in substantially
the same form as follows:
"In accordance with Section 18662 of the Revenue and Taxation
Code, a buyer may be required to withhold an amount equal to 31/3
percent of the sales price in the case of a disposition of California
real property interest by either:
1. A seller who is an individual or when the disbursement
instructions authorize the proceeds to be sent to a financial
intermediary of the seller, OR
2. A corporate seller that has no permanent place of business in
California.
The buyer may become subject to penalty for failure to withhold an
amount equal to the greater of 10 percent of the amount required to
be withheld or five hundred dollars ($500).
However, notwithstanding any other provision included in the
California statutes referenced above, no buyer will be required to
withhold any amount or be subject to penalty for failure to withhold
if:
1. The sales price of the California real property conveyed does
not exceed one hundred thousand dollars ($100,000), OR
2. The seller executes a written certificate, under the penalty of
perjury, certifying that the seller is a corporation with a
permanent place of business in California, OR
3. The seller, who is an individual, executes a written
certificate, under the penalty of perjury, of any of the following:
A. That the California real property being conveyed is the seller'
s principal residence (within the meaning of Section 121 of the
Internal Revenue Code).
B. That the California real property being conveyed is or will be
exchanged for property of like kind (within the meaning of Section
1031 of the Internal Revenue Code), but only to the extent of the
amount of gain not required to be recognized for California income
tax purposes under Section 1031 of the Internal Revenue Code.
C. That the California real property has been compulsorily or
involuntarily converted (within the meaning of Section 1033 of the
Internal Revenue Code) and that the seller intends to acquire
property similar or related in service or use so as to be eligible
for nonrecognition of gain for California income tax purposes under
Section 1033 of the Internal Revenue Code.
D. That the California real property transaction will result in a
loss for California income tax purposes.
The seller is subject to penalty for knowingly filing a fraudulent
certificate for the purpose of avoiding the withholding requirement.
The California statutes referenced above include provisions which
authorize the Franchise Tax Board to grant reduced withholding and
waivers from withholding on a case-by-case basis for corporations or
other entities."
(3) The real estate escrow person shall not be liable under this
subdivision, if the tax due as a result of the disposition of
California real property is paid by the original or extended due date
of the transferor's return for the taxable year in which the
disposition occurred.
(4) The real estate escrow person and the transferee shall not be
liable under paragraph (1) or subdivision (d), if the failure to
withhold is the result of the real estate escrow person's reliance,
based on good faith and on all the information of which he or she has
knowledge, upon a written certificate executed by the transferor
under penalty of perjury certifying to any of the following:
(A) Where the transferor is an individual:
(i) That the California real property being conveyed is the
principal residence of the transferor within the meaning of Section
121 of the Internal Revenue Code.
(ii) That the California real property being conveyed is or will
be exchanged for property of like kind within the meaning of Section
1031 of the Internal Revenue Code, but only to the extent of the
amount of gain not required to be recognized for California income
tax purposes under Section 1031 of the Internal Revenue Code.
(iii) That the California real property has been compulsorily or
involuntarily converted, within the meaning of Section 1033 of the
Internal Revenue Code, and that the seller intends to acquire
property similar or related in service or use so as to be eligible
for nonrecognition of gain for California income tax purposes under
Section 1033 of the Internal Revenue Code.
(iv) That the California real property transaction will result in
a loss for California income tax purposes.
(B) Where the transferor is a corporation, that the transferor is
a corporation with a permanent place of business in California.
(5) Any transferor who for the purpose of avoiding the withholding
requirements of subdivision (e) or (f) of Section 18662 knowingly
executes a false certificate pursuant to this subdivision shall be
liable for twice the amount specified in subdivision (d).
(6) Unless the failure to notify is due to willful disregard of
the withholding requirements of subdivision (e) or (f) of Section
18662, the real estate escrow person shall not be liable under this
subdivision if the disposition of California real property occurs
prior to July 1, 1991.
(f) The amount of tax required to be deducted and withheld under
this article shall be assessed, collected, and paid in the same
manner and subject to the same provisions and limitations (including
penalties) as are applicable with respect to the taxes imposed by
Part 10 (commencing with Section 17001) or Part 11 (commencing with
Section 23001).
SEC. 6. Section 19136.8 of the Revenue and Taxation Code is
amended to read:
19136.8. (a) No addition to tax shall be made under Section 19136
for any period before April 15, 2003, with respect to any
underpayment of an installment for the 2002 taxable year, to the
extent that the underpayment was created or increased by any
provision of law enacted or amended by an act chaptered during the
2002 calendar year.
(b) No addition of tax shall be made under Section 19142 for any
period before April 15, 2003, with respect to any underpayment of an
installment for the 2002 taxable year, to the extent that the
underpayment was created or increased by any provision of law enacted
or amended by an act chaptered during the 2002 calendar year.
(c) The Franchise Tax Board shall implement this section in a
reasonable manner.
SEC. 7. Section 19183 of the Revenue and Taxation Code is amended
to read:
19183. (a) (1) A penalty shall be imposed for failure to file
correct information returns, as required by this part, and that
penalty shall be determined in accordance with Section 6721 of the
Internal Revenue Code.
(2) Section 6721(e) of the Internal Revenue Code is modified to
the extent that the reference to Section 6041A(b) of the Internal
Revenue Code shall not apply.
(b) (1) A penalty shall be imposed for failure to
furnish correct payee statements as required by this part, and that
penalty shall be determined in accordance with Section 6722 of the
Internal Revenue Code.
(2) Section 6722(c) of the Internal Revenue Code is modified to
the extent that the references to Sections 6041A(b) and 6041A(e) of
the Internal Revenue Code shall not apply.
(c) A penalty shall be imposed for failure to comply with other
information reporting requirements under this part, and that penalty
shall be determined in accordance with Section 6723 of the Internal
Revenue Code.
(d) (1) The provisions of Section 6724 of the Internal Revenue
Code relating to waiver, definitions, and special rules, shall apply,
except as otherwise provided.
(2) Section 6724(d)(1) is modified as follows:
(A) The following references are substituted:
(i) Subdivision (a) of Section 18640, in lieu of Section 6044(a)
(1) of the Internal Revenue Code.
(ii) Subdivision (a) of Section 18644, in lieu of Section 6050A(a)
of the Internal Revenue Code.
(B) References to Sections 4093(c)(4), 4093(e), 4101(d), 6041(b),
6041A(b), 6045(d), 6051(d), and 6053(c)(1) of the Internal Revenue
Code shall not apply.
(C) The term "information return" shall also include the return
required by paragraph (1) of subdivision (i) of Section 18662.
(3) Section 6724(d)(2) is modified as follows:
(A) The following references are substituted:
(i) Subdivision (b) of Section 18640, in lieu of Section 6044(e)
of the Internal Revenue Code.
(ii) Subdivision (b) of Section 18644, in lieu of Section 6050A(b)
of the Internal Revenue Code.
(B) References to Sections 4093(c)(4)(B), 6031(b), 6037(b), 6041A
(e), 6045(d), 6051(d), 6053(b), and 6053(c) of the Internal Revenue
Code shall not apply.
(C) The term "payee statement" shall also include the statement
required by paragraph (2) of subdivision (i) of Section 18662.
(e) In the case of each failure to provide a written explanation
as required by Section 402(f) of the Internal Revenue Code, at the
time prescribed therefor, unless it is shown that the failure is due
to reasonable cause and not to willful neglect, there shall be paid,
on notice and demand of the Franchise Tax Board and in the same
manner as tax, by the person failing to provide that written
explanation, an amount equal to ten dollars ($10) for each failure,
but the total amount imposed on that person for all those failures
during any calendar year shall not exceed five thousand dollars
($5,000).
(f) Any penalty imposed by this part shall be paid on notice and
demand by the Franchise Tax Board and in the same manner as tax.
SEC. 8. Section 19444 is added to the Revenue and Taxation Code,
to read:
19444. (a) (1) For the period beginning on October 1, 2002, and
ending on June 30, 2003, an eligible taxpayer's liability, with
respect to any unpaid taxes, may be satisfied by the payment of an
eligible amount. The authority granted by this section is limited to
an unpaid tax liability that has been determined by the Franchise
Tax Board to be a high-risk collection account.
(2) The liability of an eligible taxpayer for any unpaid
penalties, interest, and fees included in the computation of the
unpaid tax liability shall be extinguished only upon receipt by the
Franchise Tax Board of all payments equal to the eligible amount on
or before the final due date for payment established by the Franchise
Tax Board.
(b) For purposes of this section, the following definitions shall
apply:
(1) "Eligible taxpayer" means any individual that receives
notification from the Franchise Tax Board that the taxpayer's unpaid
tax liability may be satisfied by the payment of an eligible amount.
(2) "Eligible amount" means an amount equal to any unpaid tax
liability, excluding penalties, interest, and fees, owed by the
eligible taxpayer that is paid in one or more installments, as
determined by the Franchise Tax Board, on or before the due date
established by the Franchise Tax Board, but in no event later than
June 30, 2004.
(3) "High-risk collection account" means any unpaid tax liability
of a taxpayer where satisfaction of that liability under this section
would be in the best interest of the state, and shall include any
unpaid tax liability for which the Franchise Tax Board has made
either of the following determinations:
(A) Under the Franchise Tax Board's collection modeling policies,
practices, and procedures, efforts to collect the unpaid tax
liability would not be economical.
(B) The unpaid tax liability would not be paid in full within a
reasonable period of time.
(4) "Unpaid tax liability" means any liability under Part 10
(commencing with Section 17001), including tax, penalties, interest,
and fees that are owed by an individual and are unpaid.
(c) No refund or credit shall be granted with respect to any
penalty or interest paid or collected with respect to an unpaid tax
liability prior to October 1, 2002.
(d) The determinations made by the Franchise Tax Board pursuant to
this section shall be final and conclusive and shall not be subject
to review by any other officer, employee, or agent of the state, or
by any court.
(e) Nothing in Section 19542, or in any other provision of law,
shall be construed to require the disclosure of standards used or to
be used in connection with any determinations made by the Franchise
Tax Board for purposes of this section, or the data used or to be
used for determining those standards if the Franchise Tax Board
determines that the disclosure will seriously impair assessment,
collection, or enforcement under this part.
(f) Nothing in this section shall authorize the Franchise Tax
Board to compromise any final tax liability.
(g) The Legislature finds that it is essential for fiscal purposes
that the special collection efforts authorized by this section be
expeditiously implemented. Accordingly, Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code shall not apply to any standard, criterion, procedure,
determination, rule, notice, or guideline established or issued in
implementing and administering the program required by this section.
(h) This section shall be operative with respect to unpaid tax
liabilities of high-risk collection accounts that are the subject of
notifications made to eligible taxpayers on or after October 1, 2002,
and before July 1, 2003.
(i) Whenever a "high-risk collection account" is forgiven of any
penalties, interest, or fees pursuant to this section, the public
record shall include all of the following information:
(1) The name of the taxpayer.
(2) The amount of related fees, penalties, and interest relieved.
(3) A summary of the reason why the relief is in the best interest
of the state.
(j) This section shall remain in effect only until December 31,
2004, and as of that date is repealed.
SEC. 8.5. Section 23457 of the Revenue and Taxation Code, as
amended by Section 37 of Chapter 35 of the Statutes of 2002, is
amended to read:
23457. For purposes of this part, Section 57 of the Internal
Revenue Code is modified as follows:
(a) Section 57(a)(5) of the Internal Revenue Code, relating to
tax-exempt interest, shall not be applicable.
(b) Section 57(a)(6) of the Internal Revenue Code, relating to
accelerated depreciation or amortization on certain property placed
in service before January 1, 1987, is modified to read: With respect
to each property as described in Section 1250(c) of the Internal
Revenue Code as that provision read on April 1, 1970, the amount by
which the deduction allowable for the taxable year for exhaustion,
wear, tear, obsolescence, or amortization exceeds the depreciation
deduction that would have been allowable for the taxable year, had
the taxpayer depreciated the property under the straight line method
for each taxable year of its useful life (determined without regard
to Section 24354.2 or 24381) for which the taxpayer has held the
property.
SEC. 9. Section 24348 of the Revenue and Taxation Code is amended
to read:
24348. (a) There shall be allowed as a deduction either of the
following:
(1) Debts which become worthless within the taxable year in an
amount not in excess of the part charged off within that taxable
year.
(2) In the case of a bank (as defined in Section 581 of the
Internal Revenue Code), in lieu of any deduction under paragraph (1),
in the discretion of the Franchise Tax Board, a reasonable addition
to a reserve for bad debts determined in accordance with Section 585
of the Internal Revenue Code, relating to reserves for losses on
loans of banks, except as otherwise provided.
(b) When satisfied that a debt is recoverable in part only, the
Franchise Tax Board may allow that debt, in an amount not in excess
of the part charged off within the taxable year, as a deduction;
provided, however, that if a portion of a debt is claimed and allowed
as a deduction in any year, no deduction shall be allowed in any
subsequent year for any portion of the debt which in any prior year
was charged off, regardless of whether claimed as a deduction in that
prior year.
(c) (1) The amendments to this section made by the act adding this
subdivision shall apply only to taxable years beginning on or after
January 1, 2002.
(2) In the case of any bank, savings and loan association, or
financial corporation (whether a taxpayer or a member of a combined
reporting group) that maintained a reserve for bad debts for the last
taxable year beginning before January 1, 2002, and that is required
by the amendments to this section made by the act adding this
subdivision to change its method of computing reserves for bad debts,
all of the following shall apply:
(A) That change shall be treated as a change in a method of
accounting.
(B) That change shall be treated as initiated by the bank, savings
and loan association, or financial corporation (whether a taxpayer
or a member of a combined reporting group).
(C) That change shall be treated as made with the consent of the
Franchise Tax Board.
(D) The net amount of adjustments required by Article 6
(commencing with Section 24721) of Chapter 13 to be taken into
account by the bank, savings and loan association, or financial
corporation (whether a taxpayer or a member of a combined reporting
group):
(i) Shall be determined by taking into account only 50 percent of
the "applicable excess reserves" (as defined in subdivision (d)), and
(ii) As so determined, shall be taken into account on the last day
of the first taxable year beginning on or after January 1, 2002.
(iii) The amount of "applicable excess reserves" in excess of the
amount taken into account under clause (i) of this subparagraph shall
be reduced to zero and shall not be taken into account for purposes
of this part.
(d) (1) In the case of a large bank (as defined in Section 585(c)
(2) of the Internal Revenue Code), or a financial corporation that is
not allowed to use the reserve for bad debts under Section 585 of
the Internal Revenue Code, the term "applicable excess reserves"
means the balance of the reserves described in former subparagraph
(B) of paragraph (1) of subdivision (a) (prior to the amendments made
by the act adding this subdivision) as of the close of the last
taxable year beginning before January 1, 2002.
(2) In all other cases, the term "applicable excess reserves"
shall be zero and shall not be taken into account for purposes of
this part.
(e) The amount of "applicable excess reserves" not taken into
account pursuant to clause (iii) of subparagraph (D) of paragraph (2)
of subdivision (c) or paragraph (2) of subdivision (d) shall not
affect the amount of the allowable deduction under paragraph (1) of
subdivision (a).
SEC. 10. Section 24416 of the Revenue and Taxation Code is amended
to read:
24416. Except as provided in Sections 24416.1, 24416.2, 24416.4,
24416.5, 24416.6, and 24416.7, a net operating loss deduction shall
be allowed in computing net income under Section 24341 and shall be
determined in accordance with Section 172 of the Internal Revenue
Code, except as otherwise provided.
(a) (1) Net operating losses attributable to taxable years
beginning before January 1, 1987, shall not be allowed.
(2) A net operating loss shall not be carried forward to any
taxable year beginning before January 1, 1987.
(b) (1) Except as provided in paragraphs (2) and (3), the
provisions of Section 172(b)(2) of the Internal Revenue Code,
relating to the amount of carryovers, shall be modified so that the
applicable percentage of the entire amount of the net operating loss
for any taxable year shall be eligible for carryover to any
subsequent taxable year. For purposes of this subdivision, the
applicable percentage shall be:
(A) Fifty percent for any taxable year beginning before January 1,
2000.
(B) Fifty-five percent for any taxable year beginning on or after
January 1, 2000, and before January 1, 2002.
(C) Sixty percent for any taxable year beginning on or after
January 1, 2002, and before January 1, 2004.
(D) One hundred percent for any taxable year beginning on or after
January 1, 2004.
(2) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
a new business during that taxable year, each of the following shall
apply to each loss incurred during the first three taxable years of
operating the new business:
(A) If the net operating loss is equal to or less than the net
loss from the new business, 100 percent of the net operating loss
shall be carried forward as provided in subdivision (e).
(B) If the net operating loss is greater than the net loss from
the new business, the net operating loss shall be carried over as
follows:
(i) With respect to an amount equal to the net loss from the new
business, 100 percent of that amount shall be carried forward as
provided in subdivision (e).
(ii) With respect to the portion of the net operating loss that
exceeds the net loss from the new business, the applicable percentage
of that amount shall be carried forward as provided in subdivision
(d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(3) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
an eligible small business during that taxable year, each of the
following shall apply:
(A) If the net operating loss is equal to or less than the net
loss from the eligible small business, 100 percent of the net
operating loss shall be carried forward to the taxable years
specified in paragraph (1) of subdivision (e).
(B) If the net operating loss is greater than the net loss from
the eligible small business, the net operating loss shall be carried
over as follows:
(i) With respect to an amount equal to the net loss from the
eligible small business, 100 percent of that amount shall be carried
forward as provided in subdivision (e).
(ii) With respect to that portion of the net operating loss that
exceeds the net loss from the eligible small business, the applicable
percentage of that amount shall be carried forward as provided in
subdivision (e).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(4) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
a business that qualifies as both a new business and an eligible
small business under this section, that business shall be treated as
a new business for the first three taxable years of the new business.
(5) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
more than one business, and more than one of those businesses
qualifies as either a new business or an eligible small business
under this section, paragraph (2) shall be applied first, except that
if there is any remaining portion of the net operating loss after
application of clause (i) of subparagraph (B) of paragraph (2),
paragraph (3) shall be applied to the remaining portion of the net
operating loss as though that remaining portion of the net operating
loss constituted the entire net operating loss.
(6) For purposes of this section, "net loss" means the amount of
net loss after application of Sections 465 and 469 of the Internal
Revenue Code.
(c) For any taxable year in which the taxpayer has in effect a
water's-edge election under Section 25110, the deduction of a net
operating loss carryover shall be denied to the extent that the net
operating loss carryover was determined by taking into account the
income and factors of an affiliated corporation in a combined report
whose income and apportionment factors would not have been taken into
account if a water's-edge election under Section 25110 had been in
effect for the taxable year in which the loss was incurred.
(d) Net operating loss carrybacks shall not be allowed.
(e) (1) (A) For a net operating loss for any taxable year
beginning on or after January 1, 1987, and before January 1, 2000,
Section 172(b)(1)(A)(ii) of the Internal Revenue Code, relating to
years to which net operating losses may be carried, is modified to
substitute "five taxable years" in lieu of "20 years" except as
otherwise provided in paragraphs (2), (3), and (4).
(B) For a net operating loss for any income year beginning on or
after January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal
Revenue Code, relating to years to which net operating losses may be
carried, is modified to substitute "10 taxable years" in lieu of "20
taxable years."
(2) For any income year beginning before January 1, 2000, in the
case of a "new business," the "five taxable years" referred to in
paragraph (1) shall be modified to read as follows:
(A) "Eight taxable years" for a net operating loss attributable to
the first taxable year of that new business.
(B) "Seven taxable years" for a net operating loss attributable to
the second taxable year of that new business.
(C) "Six taxable years" for a net operating loss attributable to
the third taxable year of that new business.
(3) For any carryover of a net operating loss for which a
deduction is denied by Section 24416.3, the carryover period
specified in this subdivision shall be extended as follows:
(A) By one year for a net operating loss attributable to taxable
years beginning in 1991.
(B) By two years for a net operating loss attributable to taxable
years beginning prior to January 1, 1991.
(4) The net operating loss attributable to taxable years beginning
on or after January 1, 1987, and before January 1, 1994, shall be a
net operating loss carryover to each of the 10 taxable years
following the year of the loss if it is incurred by a corporation
that was either of the following:
(A) Under the jurisdiction of the court in a Title 11 or similar
case at any time prior to January 1, 1994. The loss carryover
provided in the preceding sentence shall not apply to any loss
incurred in an income year after the taxable year during which the
corporation is no longer under the jurisdiction of the court in a
Title 11 or similar case.
(B) In receipt of assets acquired in a transaction that qualifies
as a tax-free reorganization under Section 368(a)(1)(G) of the
Internal Revenue Code.
(f) For purposes of this section:
(1) "Eligible small business" means any trade or business that has
gross receipts, less returns and allowances, of less than one
million dollars ($1,000,000) during the income year.
(2) Except as provided in subdivision (g), "new business" means
any trade or business activity that is first commenced in this state
on or after January 1, 1994.
(3) "Title 11 or similar case" shall have the same meaning as in
Section 368(a)(3) of the Internal Revenue Code.
(4) In the case of any trade or business activity conducted by a
partnership or an "S corporation," paragraphs (1) and (2) shall be
applied to the partnership or "S corporation."
(g) For purposes of this section, in determining whether a trade
or business activity qualifies as a new business under paragraph (2)
of subdivision (e), the following rules shall apply:
(1) In any case where a taxpayer purchases or otherwise acquires
all or any portion of the assets of an existing trade or business
(irrespective of the form of entity) that is doing business in this
state (within the meaning of Section 23101), the trade or business
thereafter conducted by the taxpayer (or any related person) shall
not be treated as a new business if the aggregate fair market value
of the acquired assets (including real, personal, tangible, and
intangible property) used by the taxpayer (or any related person) in
the conduct of its trade or business exceeds 20 percent of the
aggregate fair market value of the total assets of the trade or
business being conducted by the taxpayer (or any related person).
For purposes of this paragraph only, the following rules shall apply:
(A) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the first taxable year in which the taxpayer (or any related
person) first uses any of the acquired trade or business assets in
its business activity.
(B) Any acquired assets that constituted property described in
Section 1221(1) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(1) of the Internal Revenue Code in the
hands of the acquiring taxpayer (or related person).
(2) In any case where a taxpayer (or any related person) is
engaged in one or more trade or business activities in this state, or
has been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, than are
any of the taxpayer's (or any related person's) current or prior
trade or business activities.
(3) In any case where a taxpayer, including all related persons,
is engaged in trade or business activities wholly outside of this
state and the taxpayer first commences doing business in this state
(within the meaning of Section 23101) after December 31, 1993 (other
than by purchase or other acquisition described in paragraph (1)),
the trade or business activity shall be treated as a new business
under paragraph (2) of subdivision (e).
(4) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
taxpayer as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
paragraph (1) of this subdivision.
(5) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
(6) "Acquire" shall include any transfer, whether or not for
consideration.
(7) (A) For taxable years beginning on or after January 1, 1997,
the term "new business" shall include any taxpayer that is engaged in
biopharmaceutical activities or other biotechnology activities that
are described in Codes 2833 to 2836, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, and as further
amended, and that has not received regulatory approval for any
product from the United States Food and Drug Administration.
(B) For purposes of this paragraph:
(i) "Biopharmaceutical activities" means those activities that use
organisms or materials derived from organisms, and their cellular,
subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities that make use of chemical compounds to produce commercial
products.
(ii) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
(h) For purposes of corporations whose net income is determined
under Chapter 17 (commencing with Section 25101), Section 25108 shall
apply to each of the following:
(1) The amount of net operating loss incurred in any taxable year
that may be carried forward to another taxable year.
(2) The amount of any loss carry forward that may be deducted in
any taxable year.
(i) The provisions of Section 172(b)(1)(D) of the Internal Revenue
Code, relating to bad debt losses of commercial banks, shall not be
applicable.
(j) The Franchise Tax Board may prescribe appropriate regulations
to carry out the purposes of this section, including any regulations
necessary to prevent the avoidance of the purposes of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, or otherwise.
(k) The Franchise Tax Board may reclassify any net operating loss
carryover determined under either paragraph (2) or (3) of subdivision
(b) as a net operating loss carryover under paragraph (1) of
subdivision (b) upon a showing that the reclassification is necessary
to prevent evasion of the purposes of this section.
(l) Except as otherwise provided, the amendments made by Chapter
107 of the Statutes of 2000 shall apply to net operating losses for
taxable years beginning on or after January 1, 2000.
SEC. 11. Section
24416.3 of the Revenue and Taxation Code is amended to read:
24416.3. (a) Notwithstanding Sections 24416, 24416.1, 24416.2,
24416.4, 24416.5, 24416.6, and 24416.7 of this code and Section 172
of the Internal Revenue Code, no net operating loss deduction shall
be allowed for any taxable year beginning on or after January 1,
2002, and before January 1, 2004.
(b) For any carryover of a net operating loss for which a
deduction is denied by subdivision (a), the carryover period under
Section 172 of the Internal Revenue Code shall be extended as
follows:
(1) By one year, for losses incurred in taxable years beginning on
or after January 1, 2002, and before January 1, 2003.
(2) By two years, for losses incurred in taxable years beginning
before January 1, 2002.
SEC. 12. Section 24449 of the Revenue and Taxation Code is amended
to read:
24449. (a) Section 291 of the Internal Revenue Code, relating to
special rules relating to corporate preference items, shall apply,
except as otherwise provided.
(b) The reference in Section 291(b)(1) of the Internal Revenue
Code to "Section 263(c)" shall be modified to mean the deduction
under Section 24423 of this part.
SEC. 13. Section 13043 of the Unemployment Insurance Code is
amended to read:
13043. (a) The amount to be deducted and withheld under this
division shall be prescribed pursuant to Section 18663 of the Revenue
and Taxation Code when a payment of wages is made to an employee by
an employer in any of the following cases:
(1) With respect to a payroll period or other period, any part of
which is included in a payroll period or other period with respect to
which wages are also paid to the employee by the employer.
(2) Without regard to any payroll period or other period, but on
or prior to the expiration of a payroll period or other period with
respect to which wages are also paid to the employee by the employer.
(3) With respect to a period beginning in one and ending in
another calendar year.
(4) Through an agent, fiduciary, or other person who also has the
control, receipt, custody, or disposal of, or pays, the wages payable
by another employer to the employee.
(b) For purposes of this section, an employee's remuneration may
consist of wages paid for a payroll period and supplemental wages.
Supplemental wages include, but are not limited to, bonus
payments, overtime payments, commissions, sales awards, back pay
including retroactive wage increases, and reimbursements for
nondeductible moving expenses that are paid for the same or different
period, or without regard to a particular period.
(c) When any supplemental wages are paid subsequent to the payment
of regular wages, the employer may determine the personal income tax
to be withheld from supplemental wages paid by (1) using a flat
percentage rate pursuant to subdivision (b) of Section 18663 of the
Revenue and Taxation Code without allowance for exemptions and
credits and without reference to any regular payment of wages, or (2)
adding the supplemental wages to the regular wages paid the employee
and computing the personal income tax to be withheld on the whole
amount (the computed tax minus the tax withheld from the regular
wages shall be withheld from the supplemental wages). Where
supplemental wages are paid at the same time as regular wages, the
personal income tax to be withheld shall be computed on the total of
the supplemental and regular wages and shall be determined as if the
total of the supplemental wages and the regular wages constituted a
single wage payment for the regular payroll period.
(d) For stock options and bonus payments that constitute wages
paid on or after January 1, 2002, the employer may determine the
personal income tax to be withheld from the stock options and bonus
payments paid by either (1) using a flat percentage rate pursuant to
subdivision (c) of Section 18663 of the Revenue and Taxation Code,
without allowance for exemptions and credits and without reference to
any regular payment of wages, or (2) adding the stock options and
bonus payments to the regular wages paid the employee and computing
the personal income tax to be withheld on the whole amount (the
computed tax minus the tax withheld from the regular wages shall be
withheld from the stock options and bonus payments). Where the stock
options and bonus payments are paid at the same time as regular
wages, the personal income tax to be withheld shall be computed on
the total of the stock options and bonus payments and regular wages,
and shall be determined as if the total of the stock options and
bonus payments and the regular wages constituted a single wage
payment for the regular payroll period.
SEC. 14. It is the intent of the Legislature that, in order to
improve compliance with state tax laws and to accelerate the
collection of accounts determined to be at high risk for collection,
the staff of the Board of Equalization and the Franchise Tax Board
shall, pursuant to Sections 7093.8 and 19444 of the Revenue and
Taxation Code as added by this act, expeditiously institute special
collection efforts to commence on October 1, 2002, and end on June
30, 2003.
SEC. 16. This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:
In view of the fact that the State of California is experiencing a
fiscal crisis, in order to improve compliance with state tax laws
and to accelerate the collection of accounts that might not otherwise
be collected, and in order to provide for sufficient revenues for
the funding of the critical needs of the state, it is necessary that
this act take effect immediately.