INTRODUCED BY   Assembly Members Mullin and Lieber

                        FEBRUARY 23, 2007

   An act to add Section 24416.9 to the Revenue and Taxation Code,
relating to taxation, to take effect immediately, tax levy.


   AB 1147, as introduced, Mullin. Corporation taxes: net operating
   The Corporation Tax Law allows a deduction for specified portions
of net operating losses that, in general, are allowed to be carried
forward for specified periods.
   This bill would, for taxable years beginning on and after January
1, 2008, allow unused net operating losses incurred by a qualified
seller, as defined, to be sold to, and be used by, a qualified buyer,
as defined.
   This bill would take effect immediately as a tax levy.
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


  SECTION 1.  Section 24416.9 is added to the Revenue and Taxation
Code, to read:
   24416.9.  (a) Notwithstanding Sections 24416, 24416.1, 24416.2,
24416.3, 24416.4, 24416.5, 24416.6, and 24416.7, and any other
provision of this part to the contrary, and except as otherwise
provided in this section, any unused net operating losses incurred by
a qualified seller may be sold to, and used by, a qualified buyer.
   (b) The tax value of all unused net operating losses that may be
sold by all qualified sellers under this section shall not exceed one
hundred million dollars ($100,000,000) for each taxable year. No
qualified seller under this section may sell unused net operating
losses for more than 10 percent of the tax value allowed for each
taxable year.
   (c) For purposes of this section:
   (1) "Qualified seller" means a bioscience company that satisfies
the following:
   (A) Is based in this state.
   (B) At least 50 percent of its annual expenditures are for
purposes of research and development relating to bioscience products.

   (C) Able to substantiate the following in a form and manner as
requested by the Franchise Tax Board:
   (i) Has not had a positive net income from product sales for any
year in the last five years at the time of the submission of the
application to sell.
   (ii) Is headquartered or incorporated within the state.
   (iii) Has raised 400 percent of the tax value of the proposed net
operating loss sale from public or private funding sources in the
prior 24 months.
   (2) "Qualified buyer" means any company that employs 500 or more
employees in this state.
   (d) Unused net operating losses may be sold by a qualified seller
during any taxable year beginning on or after January 1, 2008, but
may be used by a qualified buyer only for taxable years beginning on
or after January 1, 2010.
   (e) Any unused net operating losses purchased by a qualified buyer
may be used only as deduction from gross income derived from
bioscience products, and the qualified buyer shall commence using the
unused net operating losses within five years of purchase.
   (f) A qualified seller may not sell unused net operating losses
for less than 75 percent of their tax value amount.
   (g) Any revenues received by a qualified seller from the sale of
unused net operating losses shall be excluded from the gross income
of the qualified seller.
   (h) A qualified seller and qualified buyer shall apply to the
Franchise Tax Board, in the form and manner determined by the board,
for the purchase and sale of unused net operating losses under this
  SEC. 2.  This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.