BILL NUMBER: SB 103	CHAPTERED  10/02/03

	CHAPTER  655
	FILED WITH SECRETARY OF STATE  OCTOBER 2, 2003
	APPROVED BY GOVERNOR  OCTOBER 2, 2003
	PASSED THE SENATE  SEPTEMBER 13, 2003
	PASSED THE ASSEMBLY  SEPTEMBER 12, 2003
	AMENDED IN ASSEMBLY  SEPTEMBER 8, 2003
	AMENDED IN SENATE  APRIL 2, 2003
	AMENDED IN SENATE  MARCH 18, 2003

INTRODUCED BY   Senator Alpert

                        JANUARY 29, 2003

   An act to amend Section 24871 of the Revenue and Taxation Code,
relating to taxation.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 103, Alpert.  Sales and use taxes.
   The Corporation Tax Law imposes taxes measured by income and, in
the case of a business with income derived from or attributable to
sources both within and without this state, the business income is
apportioned between this state and other jurisdictions for tax
purposes in accordance with a specified formula based on the
property, payroll, and sales of the business within and without this
state.  The existing Corporation Tax Law generally conforms with the
federal income tax treatment of regulated investment companies (RIC)
that allow a RIC to pass ordinary income on to the shareholders
without incurring any tax liability to the RIC.
   This bill would clarify that dividends received by a California
corporate shareholder from a RIC are generally not excludable from
the income of that corporate shareholder.  This bill would declare
that this clarification is operative for taxable years beginning on
or after January 1, 2003.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 24871 of the Revenue and Taxation Code is
amended to read:
   24871.  (a) (1) Section 852(b)(1) of the Internal Revenue Code,
relating to imposition of tax on regulated investment companies, does
not apply.
   (2) Every regulated investment company shall be subject to the
taxes imposed under Chapter 2 (commencing with Section 23101) and
Chapter 3 (commencing with Section 23501), except that its "net
income" shall be equal to its "investment company income," as defined
in subdivision (b).
   (b) "Investment company income" means investment company taxable
income, as defined in Section 852(b)(2) of the Internal Revenue Code,
modified as follows:
   (1) Section 852(b)(2)(A) of the Internal Revenue Code, relating to
an exclusion for net capital gain, does not apply.
   (2) Section 852(b)(2)(B) of the Internal Revenue Code, relating to
net operating losses, is modified to deny the deduction allowed
under Sections 24416 and 24416.1, in lieu of denying the deduction
allowed by Section 172 of the Internal Revenue Code.
   (3) In lieu of the provision of Section 852(b)(2)(C) of the
Internal Revenue Code, relating to special deductions for
corporations, no deduction shall be allowed under Sections 24402,
24406, 24410, and 25106.
   (4) The deduction for dividends paid, under Section 852(b)(2)(D)
of the Internal Revenue Code, is modified to allow capital gain
dividends and exempt interest dividends (to the extent that interest
is included in gross income under this part) to be included in the
computation of the deduction.
   (c) Section 852(b)(3)(A) of the Internal Revenue Code, relating to
capital gains, does not apply.
   (d) Section 852(b)(5)(B) of the Internal Revenue Code, relating to
treatment of exempt interest dividends by shareholders, does not
apply.
   (e) Section 854 of the Internal Revenue Code, relating to
limitations applicable to dividends received from regulated
investment companies, is modified to refer to Sections 24402, 24406,
24410, and 25106, in lieu of Section 243 of the Internal Revenue
Code.
  SEC. 2.  (a) The amendments made to Section 24871 of the Revenue
and Taxation Code by this act shall be applied to taxable years
beginning on or after January 1, 2003.
   (b) It is the intent of the Legislature that no inference be drawn
in connection with any matter governed by Section 24871 of the
Revenue and Taxation Code, from the period to which the amendments
made to that section by this act apply, for any taxable year
beginning before January 1, 2003.