BILL NUMBER: AB 1398 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JANUARY 7, 2008
INTRODUCED BY Assembly Member Arambula
FEBRUARY 23, 2007
An act to amend Sections 17053.34, 17053.46, 17053.47, 17053.74,
23622.7, 23622.8, 23634, and 23646 of, and to add Sections 17053.76
and 23622.9 to, the Revenue and Taxation Code, relating to taxation,
to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 1398, as amended, Arambula. Targeted economic development
areas: tax credits.
The Personal Income Tax Law and the Corporation Tax Law authorize
various credits against the taxes imposed by those laws, including a
hiring credit for qualified taxpayers who hire qualified employees,
as defined, within enterprise zones, Manufacturing Enhancement Areas,
targeted tax areas, and LAMBRAs, subject to specified criteria. The
qualified taxpayer is required to obtain a certification from
specified entities regarding the eligibility of the qualified
employee.
This bill would, for taxable years beginning on or after January
1, 2008, suspend the operation of those separate provisions that
authorize these credits under both of those laws and would, instead,
authorize one hiring credit under those respective laws for qualified
taxpayers who hire qualified employees, as defined, within a
geographically targeted economic development area, as defined.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 17053.34 of the Revenue and Taxation Code is
amended to read:
17053.34. (a) For each taxable year beginning on or after January
1, 1998, there shall be allowed a credit against the "net tax" (as
defined in Section 17039) to a qualified taxpayer who employs a
qualified employee in a targeted tax area during the taxable year.
The credit shall be equal to the sum of each of the following:
(1) Fifty percent of qualified wages in the first year of
employment.
(2) Forty percent of qualified wages in the second year of
employment.
(3) Thirty percent of qualified wages in the third year of
employment.
(4) Twenty percent of qualified wages in the fourth year of
employment.
(5) Ten percent of qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) That portion of wages paid or incurred by the qualified
taxpayer during the taxable year to qualified employees that does not
exceed 150 percent of the minimum wage.
(B) Wages received during the 60-month period beginning with the
first day the employee commences employment with the qualified
taxpayer. Reemployment in connection with any increase, including a
regularly occurring seasonal increase, in the trade or business
operations of the qualified taxpayer does not constitute commencement
of employment for purposes of this section.
(C) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the targeted tax area expiration
date. However, wages paid or incurred with respect to qualified
employees who are employed by the qualified taxpayer within the
targeted tax area within the 60-month period prior to the targeted
tax area expiration date shall continue to qualify for the credit
under this section after the targeted tax area expiration date, in
accordance with all provisions of this section applied as if the
targeted tax area designation were still in existence and binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "Targeted tax area expiration date" means the date the
targeted tax area designation expires, is revoked, is no longer
binding, or becomes inoperative.
(4) (A) "Qualified employee" means an individual who meets all of
the following requirements:
(i) At least 90 percent of his or her services for the qualified
taxpayer during the taxable year are directly related to the conduct
of the qualified taxpayer's trade or business located in a targeted
tax area.
(ii) Performs at least 50 percent of his or her services for the
qualified taxpayer during the taxable year in a targeted tax area.
(iii) Is hired by the qualified taxpayer after the date of
original designation of the area in which services were performed as
a targeted tax area.
(iv) Is any of the following:
(I) Immediately preceding the qualified employee's commencement of
employment with the qualified taxpayer, was a person eligible for
services under the federal Job Training Partnership Act (29 U.S.C.
Sec. 1501 et seq.), or its successor, who is receiving, or is
eligible to receive, subsidized employment, training, or services
funded by the federal Job Training Partnership Act, or its successor.
(II) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a person eligible to
be a voluntary or mandatory registrant under the Greater Avenues for
Independence Act of 1985 (GAIN) provided for pursuant to Article 3.2
(commencing with Section 11320) of Chapter 2 of Part 3 of Division 9
of the Welfare and Institutions Code, or its successor.
(III) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was an economically
disadvantaged individual 14 years of age or older.
(IV) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a dislocated worker
who meets any of the following:
(aa) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(bb) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(cc) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(dd) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(ee) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(ff) Was an active member of the Armed Forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(gg) Is a seasonal or migrant worker who experiences chronic
seasonal unemployment and underemployment in the agriculture
industry, aggravated by continual advancements in technology and
mechanization.
(hh) Has been terminated or laid off, or has received a notice of
termination or layoff, as a consequence of compliance with the Clean
Air Act.
(V) Immediately preceding the qualified employee's commencement of
employment with the qualified taxpayer, was a disabled individual
who is eligible for or enrolled in, or has completed a state
rehabilitation plan or is a service-connected disabled veteran,
veteran of the Vietnam era, or veteran who is recently separated from
military service.
(VI) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was an ex-offender. An
individual shall be treated as convicted if he or she was placed on
probation by a state court without a finding of guilty.
(VII) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a person eligible for
or a recipient of any of the following:
(aa) Federal Supplemental Security Income benefits.
(bb) Aid to Families with Dependent Children.
(cc) Food stamps.
(dd) State and local general assistance.
(VIII) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a member of a
federally recognized Indian tribe, band, or other group of Native
American descent.
(IX) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a resident of a
targeted tax area.
(X) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a member of a targeted group as
defined in Section 51(d) of the Internal Revenue Code, or its
successor.
(B) Priority for employment shall be provided to an individual who
is enrolled in a qualified program under the federal Job Training
Partnership Act or the Greater Avenues for Independence Act of 1985
or who is eligible as a member of a targeted group under the Work
Opportunity Tax Credit (Section 51 of the Internal Revenue Code), or
its successor.
(5) (A) "Qualified taxpayer" means a person or entity that meets
both of the following:
(i) Is engaged in a trade or business within a targeted tax area
designated pursuant to Chapter 12.93 (commencing with Section 7097)
of Division 7 of Title 1 of the Government Code.
(ii) Is engaged in those lines of business described in Codes 2000
to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive, of
the Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition.
(B) In the case of any passthrough entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section or
Section 23634 shall be allowed to the passthrough entity and passed
through to the partners or shareholders in accordance with applicable
provisions of this part or Part 11 (commencing with Section 23001).
For purposes of this subdivision, the term "passthrough entity" means
any partnership or "S" corporation.
(6) "Seasonal employment" means employment by a qualified taxpayer
that has regular and predictable substantial reductions in trade or
business operations.
(c) If the qualified taxpayer is allowed a credit for qualified
wages pursuant to this section, only one credit shall be allowed to
the taxpayer under this part with respect to those qualified wages.
(d) The qualified taxpayer shall do both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
targeted tax area, a certification that provides that a qualified
employee meets the eligibility requirements specified in clause (iv)
of subparagraph (A) of paragraph (4) of subdivision (b). The
Employment Development Department may provide preliminary screening
and referral to a certifying agency. The Department of Housing and
Community Development shall develop regulations governing the
issuance of certificates pursuant to subdivision (g) of Section 7097
of the Government Code, and shall develop forms for this purpose.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(e) (1) For purposes of this section:
(A) All employees of trades or businesses, which are not
incorporated, that are under common control shall be treated as
employed by a single taxpayer.
(B) The credit, if any, allowable by this section with respect to
each trade or business shall be determined by reference to its
proportionate share of the expense of the qualified wages giving rise
to the credit, and shall be allocated in that manner.
(C) Principles that apply in the case of controlled groups of
corporations, as specified in subdivision (d) of Section 23634, shall
apply with respect to determining employment.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section (other than subdivision (f)) for any calendar year
ending after that acquisition, the employment relationship between a
qualified employee and an employer shall not be treated as terminated
if the employee continues to be employed in that trade or business.
(f) (1) (A) If the employment, other than seasonal employment, of
any qualified employee, with respect to whom qualified wages are
taken into account under subdivision (a) is terminated by the
qualified taxpayer at any time during the first 270 days of that
employment (whether or not consecutive) or before the close of the
270th calendar day after the day in which that employee completes 90
days of employment with the qualified taxpayer, the tax imposed by
this part for the taxable year in which that employment is terminated
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
employee.
(B) If the seasonal employment of any qualified employee, with
respect to whom qualified wages are taken into account under
subdivision (a) is not continued by the qualified taxpayer for a
period of 270 days of employment during the 60-month period beginning
with the day the qualified employee commences seasonal employment
with the qualified taxpayer, the tax imposed by this part, for the
taxable year that includes the 60th month following the month in
which the qualified employee commences seasonal employment with the
qualified taxpayer, shall be increased by an amount equal to the
credit allowed under subdivision (a) for that taxable year and all
prior taxable years attributable to qualified wages paid or incurred
with respect to that qualified employee.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of a qualified employee who
voluntarily leaves the employment of the qualified taxpayer.
(ii) A termination of employment of a qualified employee who,
before the close of the period referred to in subparagraph (A) of
paragraph (1), becomes disabled and unable to perform the services of
that employment, unless that disability is removed before the close
of that period and the qualified taxpayer fails to offer reemployment
to that employee.
(iii) A termination of employment of a qualified employee, if it
is determined that the termination was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that employee.
(iv) A termination of employment of a qualified employee due to a
substantial reduction in the trade or business operations of the
qualified taxpayer.
(v) A termination of employment of a qualified employee, if that
employee is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
employee who voluntarily fails to return to the seasonal employment
of the qualified taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
employee who, before the close of the period referred to in
subparagraph (B) of paragraph (1), becomes disabled and unable to
perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
qualified taxpayer fails to offer seasonal employment to that
qualified employee.
(iii) A failure to continue the seasonal employment of a qualified
employee, if it is determined that the failure to continue the
seasonal employment was due to the misconduct (as defined in Sections
1256-30 to 1256-43, inclusive, of Title 22 of the California Code of
Regulations) of that qualified employee.
(iv) A failure to continue seasonal employment of a qualified
employee due to a substantial reduction in the regular seasonal trade
or business operations of the qualified taxpayer.
(v) A failure to continue the seasonal employment of a qualified
employee, if that qualified employee is replaced by other qualified
employees so as to create a net increase in both the number of
seasonal employees and the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the qualified taxpayer and a qualified employee shall not be
treated as terminated by reason of a mere change in the form of
conducting the trade or business of the qualified taxpayer, if the
qualified employee continues to be employed in that trade or business
and the qualified taxpayer retains a substantial interest in that
trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(g) In the case of an estate or trust, both of the following
apply:
(1) The qualified wages for any taxable year shall be apportioned
between the estate or trust and the beneficiaries on the basis of the
income of the estate or trust allocable to each.
(2) Any beneficiary to whom any qualified wages have been
apportioned under paragraph (1) shall be treated, for purposes of
this part, as the employer with respect to those wages.
(h) For purposes of this section, "targeted tax area" means an
area designated pursuant to Chapter 12.93 (commencing with Section
7097) of Division 7 of Title 1 of the Government Code.
(i) In the case where the credit otherwise allowed under this
section exceeds the "net tax" for the taxable year, that portion of
the credit that exceeds the "net tax" may be carried over and added
to the credit, if any, in succeeding taxable years, until the credit
is exhausted. The credit shall be applied first to the earliest
taxable years possible.
(j) (1) The amount of the credit otherwise allowed under this
section and Section 17053.33, including any credit carryover from
prior years, that may reduce the "net tax" for the taxable year shall
not exceed the amount of tax that would be imposed on the qualified
taxpayer's business income attributable to the targeted tax area
determined as if that attributable income represented all of the
income of the qualified taxpayer subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the targeted
tax area. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101) of Part
11. That business income shall be further apportioned to the targeted
tax area in accordance with Article 2 (commencing with Section
25120) of Chapter 17 of Part 11, modified for purposes of this
section in accordance with paragraph (3).
(3) Business income shall be apportioned to the targeted tax area
by multiplying the total California business income of the taxpayer
by a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the targeted tax area during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the targeted tax area during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, as if it were an amount exceeding the "net tax" for the
taxable year, as provided in subdivision (h).
(5) In the event that a credit carryover is allowable under
subdivision (h) for any taxable year after the targeted tax area
expiration date, the targeted tax area shall be deemed to remain in
existence for purposes of computing the limitation specified in this
subdivision.
(k) (1) The credit authorized by this section shall not be allowed
for taxable years beginning on or after January 1, 2008.
(2) On or after January 1, 2008, taxpayers that would otherwise be
eligible to claim a credit authorized by this section may claim a
credit for these expenses under Section 17053.76.
(3) Notwithstanding this subdivision, the provisions of
subdivision (d) of Section 17039 shall apply with respect to any
remaining carryover of the credit previously authorized by this
section.
SEC. 2. Section 17053.46 of the Revenue and Taxation Code is
amended to read:
17053.46. (a) For each taxable year beginning on or after January
1, 1995, there shall be allowed as a credit against the "net tax"
(as defined in Section 17039) to a qualified taxpayer for hiring a
qualified disadvantaged individual or a qualified displaced employee
during the taxable year for employment in the LAMBRA. The credit
shall be equal to the sum of each of the following:
(1) Fifty percent of the qualified wages in the first year of
employment.
(2) Forty percent of the qualified wages in the second year of
employment.
(3) Thirty percent of the qualified wages in the third year of
employment.
(4) Twenty percent of the qualified wages in the fourth year of
employment.
(5) Ten percent of the qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) That portion of wages paid or incurred by the employer during
the taxable year to qualified disadvantaged individuals or qualified
displaced employees that does not exceed 150 percent of the minimum
wage.
(B) The total amount of qualified wages which may be taken into
account for purposes of claiming the credit allowed under this
section shall not exceed two million dollars ($2,000,000) per taxable
year.
(C) Wages received during the 60-month period beginning with the
first day the individual commences employment with the taxpayer.
Reemployment in connection with any increase, including a regularly
occurring seasonal increase, in the trade or business operations of
the qualified taxpayer does not constitute commencement of employment
for purposes of this section.
(D) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the LAMBRA expiration date.
However, wages paid or incurred with respect to qualified
disadvantaged individuals or qualified displaced employees who are
employed by the qualified taxpayer within the LAMBRA within the
60-month period prior to the LAMBRA expiration date shall continue to
qualify for the credit under this section after the LAMBRA
expiration date, in accordance with all provisions of this section
applied as if the LAMBRA designation were still in existence and
binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
(4) "Qualified disadvantaged individual" means an individual who
satisfies all of the following requirements:
(A) (i) At least 90 percent of whose services for the taxpayer
during the taxable year are directly related to the conduct of the
taxpayer's trade or business located in a LAMBRA.
(ii) Who performs at least 50 percent of his or her services for
the taxpayer during the taxable year in the LAMBRA.
(B) Who is hired by the employer after the designation of the area
as a LAMBRA in which the individual's services were primarily
performed.
(C) Who is any of the following immediately preceding the
individual's commencement of employment with the taxpayer:
(i) An individual who has been determined eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.).
(ii) Any voluntary or mandatory registrant under the Greater
Avenues for Independence Act of 1985 as provided pursuant to Article
3.2 (commencing with Section 11320) of Chapter 2 of Part 3 of
Division 9 of the Welfare and Institutions Code.
(iii) An economically disadvantaged individual age 16 years or
older.
(iv) A dislocated worker who meets any of the following
conditions:
(I) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(II) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(III) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(IV) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(V) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(VI) Was an active member of the Armed Forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(VII) Experiences chronic seasonal unemployment and
underemployment in the agriculture industry, aggravated by continual
advancements in technology and mechanization.
(VIII) Has been terminated or laid off or has received a notice of
termination or layoff as a consequence of compliance with the Clean
Air Act.
(v) An individual who is enrolled in or has completed a state
rehabilitation plan or is a service-connected disabled veteran,
veteran of the Vietnam era, or veteran who is recently separated from
military service.
(vi) An ex-offender. An individual shall be treated as convicted
if he or she was placed on probation by a state court without a
finding of guilty.
(vii) A recipient of:
(I) Federal Supplemental Security Income benefits.
(II) Aid to Families with Dependent Children.
(III) Food stamps.
(IV) State and local general assistance.
(viii) Is a member of a federally recognized Indian tribe, band,
or other group of Native American descent.
(5) "Qualified taxpayer" means a taxpayer or partnership that
conducts a trade or business within a LAMBRA and, for the first two
taxable years, has a net increase in jobs (defined as 2,000 paid
hours per employee per year) of one or more employees in the LAMBRA.
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year
prior to commencing business operations in the LAMBRA from the total
number of full-time employees the taxpayer employed in this state
during the second taxable year after commencing business operations
in the LAMBRA. For taxpayers who commence doing business in this
state with their LAMBRA business operation, the number of employees
for the taxable year prior to commencing business operations in the
LAMBRA shall be zero. If the taxpayer has a net increase in jobs in
the state, the credit shall be allowed only if one or more full-time
employees is employed within the LAMBRA.
(B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
(i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
(ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
(C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B), the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is
the number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
(6) "Qualified displaced employee" means an individual who
satisfies all of the following requirements:
(A) Any civilian or military employee of a base or former base who
has been displaced as a result of a federal base closure act.
(B) (i) At least 90 percent of whose services for the taxpayer
during the taxable year are directly related to the conduct of the
taxpayer's trade or business located in a LAMBRA.
(ii) Who performs at least 50 percent of his or her services for
the taxpayer during the taxable year in a LAMBRA.
(C) Who is hired by the employer after the designation of the area
in which services were performed as a LAMBRA.
(7) "Seasonal employment" means employment by a qualified taxpayer
that has regular and predictable substantial reductions in trade or
business operations.
(8) "LAMBRA expiration date" means the date the LAMBRA designation
expires, is no longer binding, or becomes inoperative.
(c) For qualified disadvantaged individuals or qualified displaced
employees hired on or after January 1, 2001, the taxpayer shall do
both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
LAMBRA, a certification that provides that a qualified disadvantaged
individual or qualified displaced employee meets the eligibility
requirements specified in subparagraph (C) of paragraph (4) of
subdivision (b) or subparagraph (A) of paragraph (6) of subdivision
(b). The Employment Development Department may provide preliminary
screening and referral to a certifying agency. The Department of
Housing and Community Development shall develop regulations governing
the issuance of certificates pursuant to Section 7114.2 of the
Government Code and shall develop forms for this purpose.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(d) (1) For purposes of this section, both of the following apply:
(A) All employees of trades or businesses that are under common
control shall be treated as employed by a single employer.
(B) The credit (if any) allowable by this section with respect to
each trade or business shall be determined by reference to its
proportionate share of the qualified wages giving rise to the credit.
The regulations prescribed under this paragraph shall be based on
principles similar to the principles that apply in the case of
controlled groups of corporations as specified in subdivision (e) of
Section 23622.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section (other than subdivision (d)) for any calendar year
ending after that acquisition, the employment relationship between an
employee and an employer shall not be treated as terminated if the
employee continues to be employed in that trade or business.
(e) (1) (A) If the employment, other than seasonal employment, of
any employee, with respect to whom qualified wages are taken into
account under subdivision (a) is terminated by the taxpayer at any
time during the first 270 days of that employment (whether or not
consecutive) or before the close of the 270th calendar day after the
day in which that employee completes 90 days of employment with the
taxpayer, the tax imposed by this part for the taxable year in which
that employment is terminated shall be increased by an amount
(determined under those regulations) equal to the credit allowed
under subdivision (a) for that taxable year and all prior taxable
years attributable to qualified wages paid or incurred with respect
to that employee.
(B) If the seasonal employment of any qualified disadvantaged
individual, with respect to whom qualified wages are taken into
account under subdivision (a) is not continued by the qualified
taxpayer for a period of 270 days of employment during the 60-month
period beginning with the day the qualified disadvantaged individual
commences seasonal employment with the qualified taxpayer, the tax
imposed by this part, for the taxable year that includes the 60th
month following the month in which the qualified disadvantaged
individual commences seasonal employment with the qualified taxpayer,
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
qualified disadvantaged individual.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of an employee who voluntarily
leaves the employment of the taxpayer.
(ii) A termination of employment of an individual who, before the
close of the period referred to in subparagraph (A) of paragraph (1),
becomes disabled to perform the services of that employment, unless
that disability is removed before the close of that period and the
taxpayer fails to offer reemployment to that individual.
(iii) A termination of employment of an individual, if it is
determined that the termination was due to the misconduct (as defined
in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that individual.
(iv) A termination of employment of an individual due to a
substantial reduction in the trade or business operations of the
taxpayer.
(v) A termination of employment of an individual, if that
individual is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
disadvantaged individual who voluntarily fails to return to the
seasonal employment of the qualified taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
disadvantaged individual who, before the close of the period referred
to in subparagraph (B) of paragraph (1), becomes disabled and unable
to perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
qualified taxpayer fails to offer seasonal employment to that
individual.
(iii) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if it is determined that the failure to
continue the seasonal employment was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that qualified disadvantaged
individual.
(iv) A failure to continue seasonal employment of a qualified
disadvantaged individual due to a substantial reduction in the
regular seasonal trade or business operations of the qualified
taxpayer.
(v) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if that individual is replaced by other
qualified displaced employees so as to create a net increase in both
the number of seasonal employees and the hours of seasonal
employment.
(C) For purposes of paragraph (1), the employment relationship
between the taxpayer and an employee shall not be treated as
terminated by reason of a mere change in the form of conducting the
trade or business of the taxpayer, if the employee continues to be
employed in that trade or business and the taxpayer retains a
substantial interest in that trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(4) At the close of the second taxable year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(5) of subdivision (b), then the amount of the credit previously
claimed shall be added to the taxpayer's net tax for the taxpayer's
second taxable year.
(f) In the case of an estate or trust, both of the following
apply:
(1) The qualified wages for any taxable year shall be apportioned
between the estate or trust and the beneficiaries on the basis of the
income of the estate or trust allocable to each.
(2) Any beneficiary to whom any qualified wages have been
apportioned under paragraph (1) shall be treated (for purposes of
this part) as the employer with respect to those wages.
(g) The credit shall be reduced by the credit allowed under
Section 17053.7. The credit shall also be reduced by the federal
credit allowed under Section 51 of the Internal Revenue Code.
In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the taxpayer upon which the
credit is based shall be reduced by the amount of the credit, prior
to any reduction required by subdivision (h) or (i).
(h) In the case where the credit otherwise allowed under this
section exceeds the "net tax" for the taxable year, that portion of
the credit that exceeds the "net tax" may be carried over and added
to the credit, if any, in succeeding years, until the credit is
exhausted. The credit shall be applied first to the earliest taxable
years possible.
(i) (1) The amount of credit otherwise allowed under this section
and Section 17053.45, including prior year credit carryovers, that
may reduce the "net tax" for the taxable year shall not exceed the
amount of tax that would be imposed on the taxpayer's business income
attributed to a LAMBRA determined as if that attributed income
represented all of the net income of the taxpayer subject to tax
under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income that is attributable
to sources in this state first shall be determined in accordance
with Chapter 17 (commencing with Section 25101) of Part 11. That
business income shall be further apportioned to the LAMBRA in
accordance with Article 2 (commencing with Section 25120) of Chapter
17 of Part 11, modified for purposes of this section in accordance
with paragraph (3).
(3) Income shall be apportioned to a LAMBRA by multiplying the
total California business income of the taxpayer by a fraction, the
numerator of which is the property factor plus the payroll factor,
and the denominator of which is two. For purposes of this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the LAMBRA during the taxable
year, and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA during the
taxable year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, as if it were an amount exceeding the "net tax" for the
taxable year, as provided in subdivision (h).
(j) If the taxpayer is allowed a credit pursuant to this section
for qualified wages paid or incurred, only one credit shall be
allowed to the taxpayer under this part with respect to any wage
consisting in whole or in part of those qualified wages.
(k) (1) The credit authorized by this section shall not be allowed
for taxable years beginning on or after January 1, 2008.
(2) On or after January 1, 2008, taxpayers that would otherwise be
eligible to claim a credit authorized by this section may claim a
credit for these expenses under Section 17053.76.
(3) Notwithstanding this subdivision, the provisions of
subdivision (d) of Section 17039 shall apply with respect to any
remaining carryover of the credit previously authorized by this
section.
SEC. 3. Section 17053.47 of the Revenue and Taxation Code is
amended to read:
17053.47. (a) For each taxable year beginning on or after January
1, 1998, there shall be allowed a credit against the "net tax" (as
defined in Section 17039) to a qualified taxpayer for hiring a
qualified disadvantaged individual during the taxable year for
employment in the manufacturing enhancement area. The credit shall be
equal to the sum of each of the following:
(1) Fifty percent of the qualified wages in the first year of
employment.
(2) Forty percent of the qualified wages in the second year of
employment.
(3) Thirty percent of the qualified wages in the third year of
employment.
(4) Twenty percent of the qualified wages in the fourth year of
employment.
(5) Ten percent of the qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) That portion of wages paid or incurred by the qualified
taxpayer during the taxable year to qualified disadvantaged
individuals that does not exceed 150 percent of the minimum wage.
(B) The total amount of qualified wages which may be taken into
account for purposes of claiming the credit allowed under this
section shall not exceed two million dollars ($2,000,000) per taxable
year.
(C) Wages received during the 60-month period beginning with the
first day the qualified disadvantaged individual commences employment
with the qualified taxpayer. Reemployment in connection with any
increase, including a regularly occurring seasonal increase, in the
trade or business operations of the taxpayer does not constitute
commencement of employment for purposes of this section.
(D) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the manufacturing enhancement area
expiration date. However, wages paid or incurred with respect to
qualified employees who are employed by the qualified taxpayer within
the manufacturing enhancement area within the 60-month period prior
to the manufacturing enhancement area expiration date shall continue
to qualify for the credit under this section after the manufacturing
enhancement area expiration date, in accordance with all provisions
of this section applied as if the manufacturing enhancement area
designation were still in existence and binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "Manufacturing enhancement area" means an area designated
pursuant to Section 7073.8 of the Government Code according to the
procedures of Chapter 12.8 (commencing with Section 7070) of Division
7 of Title 1 of the Government Code.
(4) "Manufacturing enhancement area expiration date" means the
date the manufacturing enhancement area designation expires, is no
longer binding, or becomes inoperative.
(5) "Qualified disadvantaged individual" means an individual who
satisfies all of the following requirements:
(A) (i) At least 90 percent of whose services for the qualified
taxpayer during the taxable year are directly related to the conduct
of the qualified taxpayer's trade or business located in a
manufacturing enhancement area.
(ii) Who performs at least 50 percent of his or her services for
the qualified taxpayer during the taxable year in the manufacturing
enhancement area.
(B) Who is hired by the qualified taxpayer after the designation
of the area as a manufacturing enhancement area in which the
individual's services were primarily performed.
(C) Who is any of the following immediately preceding the
individual's commencement of employment with the qualified taxpayer:
(i) An individual who has been determined eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.), or its successor.
(ii) Any voluntary or mandatory registrant under the Greater
Avenues for Independence Act of 1985, or its successor, as provided
pursuant to Article 3.2 (commencing with Section 11320) of Chapter 2
of Part 3 of Division 9 of the Welfare and Institutions Code.
(iii) Any individual who has been certified eligible by the
Employment Development Department under the federal Targeted Jobs Tax
Credit Program, or its successor, whether or not this program is in
effect.
(6) "Qualified taxpayer" means any taxpayer engaged in a trade or
business within a manufacturing enhancement area designated pursuant
to Section 7073.8 of the Government Code and who meets all of the
following requirements:
(A) Is engaged in those lines of business described in Codes 0211
to 0291, inclusive, Code 0723, or in Codes 2011 to 3999, inclusive,
of the Standard Industrial Classification (SIC) Manual published by
the United States Office of Management and Budget, 1987 edition.
(B) At least 50 percent of the qualified taxpayer's workforce
hired after the designation of the manufacturing enhancement area is
composed of individuals who, at the time of hire, are residents of
the county in which the manufacturing enhancement area is located.
(C) Of this percentage of local hires, at least 30 percent shall
be qualified disadvantaged individuals.
(7) "Seasonal employment" means employment by a qualified taxpayer
that has regular and predictable substantial reductions in trade or
business operations.
(c) (1) For purposes of this section, all of the following apply:
(A) All employees of trades or businesses that are under common
control shall be treated as employed by a single qualified taxpayer.
(B) The credit (if any) allowable by this section with respect to
each trade or business shall be determined by reference to its
proportionate share of the expense of the qualified wages giving rise
to the credit and shall be allocated in that manner.
(C) Principles that apply in the case of controlled groups of
corporations, as specified in subdivision (d) of Section 23622.7,
shall apply with respect to determining employment.
(2) If a qualified taxpayer acquires the major portion of a trade
or business of another employer (hereinafter in this paragraph
referred to as the "predecessor") or the major portion of a separate
unit of a trade or business of a predecessor, then, for purposes of
applying this section (other than subdivision (d)) for any calendar
year ending after that acquisition, the employment relationship
between a qualified disadvantaged individual and a qualified taxpayer
shall not be treated as terminated if the qualified disadvantaged
individual continues to be employed in that trade or business.
(d) (1) (A) If the employment, other than seasonal employment, of
any qualified disadvantaged individual, with respect to whom
qualified wages are taken into account under subdivision (b) is
terminated by the qualified taxpayer at any time during the first 270
days of that employment (whether or not consecutive) or before the
close of the 270th calendar day after the day in which that qualified
disadvantaged individual completes 90 days of employment with the
qualified taxpayer, the tax imposed by this part for the taxable year
in which that employment is terminated shall be increased by an
amount equal to the credit allowed under subdivision (a) for that
taxable year and all prior taxable years attributable to qualified
wages paid or incurred with respect to that qualified disadvantaged
individual.
(B) If the seasonal employment of any qualified disadvantaged
individual, with respect to whom qualified wages are taken into
account under subdivision (a) is not continued by the qualified
taxpayer for a period of 270 days of employment during the 60-month
period beginning with the day the qualified disadvantaged individual
commences seasonal employment with the qualified taxpayer, the tax
imposed by this part, for the taxable year that includes the 60th
month following the month in which the qualified disadvantaged
individual commences seasonal employment with the qualified taxpayer,
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
qualified disadvantaged individual.
(2) (A) Subparagraph (A) of paragraph (1) does not apply to any of
the following:
(i) A termination of employment of a qualified disadvantaged
individual who voluntarily leaves the employment of the qualified
taxpayer.
(ii) A termination of employment of a qualified disadvantaged
individual who, before the close of the period referred to in
subparagraph (A) of paragraph (1), becomes disabled to perform the
services of that employment, unless that disability is removed before
the close of that period and the taxpayer fails to offer
reemployment to that individual.
(iii) A termination of employment of a qualified disadvantaged
individual, if it is determined that the termination was due to the
misconduct (as defined in Sections 1256-30 to 1256-43, inclusive, of
Title 22 of the California Code of Regulations) of that individual.
(iv) A termination of employment of a qualified disadvantaged
individual due to a substantial reduction in the trade or business
operations of the qualified taxpayer.
(v) A termination of employment of a qualified disadvantaged
individual, if that individual is replaced by other qualified
disadvantaged individuals so as to create a net increase in both the
number of employees and the hours of employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
disadvantaged individual who voluntarily fails to return to the
seasonal employment of the qualified taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
disadvantaged individual who, before the close of the period referred
to in subparagraph (B) of paragraph (1), becomes disabled and unable
to perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
qualified taxpayer fails to offer seasonal employment to that
qualified disadvantaged individual.
(iii) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if it is determined that the failure to
continue the seasonal employment was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that qualified disadvantaged
individual.
(iv) A failure to continue seasonal employment of a qualified
disadvantaged individual due to a substantial reduction in the
regular seasonal trade or business operations of the qualified
taxpayer.
(v) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if that qualified disadvantaged individual
is replaced by other qualified disadvantaged individuals so as to
create a net increase in both the number of seasonal employees and
the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the qualified taxpayer and a qualified disadvantaged
individual shall not be treated as terminated by reason of a mere
change in the form of conducting the trade or business of the
qualified taxpayer, if the qualified disadvantaged individual
continues to be employed in that trade or business and the qualified
taxpayer retains a substantial interest in that trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(e) In the case of an estate or trust, both of the following
apply:
(1) The qualified wages for any taxable year shall be apportioned
between the estate or trust and the beneficiaries on the basis of the
income of the estate or trust allocable to each.
(2) Any beneficiary to whom any qualified wages have been
apportioned under paragraph (1) shall be treated (for purposes of
this part) as the employer with respect to those wages.
(f) The credit shall be reduced by the credit allowed under
Section 17053.7. The credit shall also be reduced by the federal
credit allowed under Section 51 of the Internal Revenue Code.
In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the qualified taxpayer upon
which the credit is based shall be reduced by the amount of the
credit, prior to any reduction required by subdivision (g) or (h).
(g) In the case where the credit otherwise allowed under this
section exceeds the "net tax" for the taxable year, that portion of
the credit that exceeds the "net tax" may be carried over and added
to the credit, if any, in succeeding years, until the credit is
exhausted. The credit shall be applied first to the earliest taxable
years possible.
(h) (1) The amount of credit otherwise allowed under this section,
including prior year credit carryovers, that may reduce the "net tax"
for the taxable year shall not exceed the amount of tax that would
be imposed on the qualified taxpayer's business income attributed to
a manufacturing enhancement area determined as if that attributed
income represented all of the net income of the qualified taxpayer
subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the
manufacturing enhancement area. For that purpose, the taxpayer's
business income that is attributable to sources in this state first
shall be determined in accordance with Chapter 17 (commencing with
Section 25101) of Part 11. That business income shall be further
apportioned to the manufacturing enhancement area in accordance with
Article 2 (commencing with Section 25120) of Chapter 17 of Part 11,
modified for purposes of this section in accordance with paragraph
(3).
(3) Income shall be apportioned to a manufacturing enhancement
area by multiplying the total California business income of the
taxpayer by a fraction, the numerator of which is the property factor
plus the payroll factor, and the denominator of which is two. For
purposes of this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the manufacturing enhancement
area during the taxable year, and the denominator of which is the
average value of all the taxpayer's real and tangible personal
property owned or rented and used in this state during the taxable
year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the manufacturing
enhancement area during the taxable year for compensation, and the
denominator of which is the total compensation paid by the taxpayer
in this state during the taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, as if it were an amount exceeding the "net tax" for the
taxable year, as provided in subdivision (g).
(i) If the taxpayer is allowed a credit pursuant to this section
for qualified wages paid or incurred, only one credit shall be
allowed to the taxpayer under this part with respect to any wage
consisting in whole or in part of those qualified wages.
(j) The qualified taxpayer shall do both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
manufacturing enhancement area, a certification that provides that a
qualified disadvantaged individual meets the eligibility requirements
specified in paragraph (5) of subdivision (b). The Employment
Development Department may provide preliminary screening and referral
to a certifying agency. The Department of Housing and Community
Development shall develop regulations governing the issuance of
certificates pursuant to subdivision (d) of Section 7086 of the
Government Code and shall develop forms for this purpose.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(k) (1) The credit authorized by this section shall not be allowed
for taxable years beginning on or after January 1, 2008.
(2) On or after January 1, 2008, taxpayers that would otherwise be
eligible to claim a credit authorized by this section may claim a
credit for these expenses under Section 17053.76.
(3) Notwithstanding this subdivision, the provisions of
subdivision (d) of Section 17039 shall apply with respect to any
remaining carryover of the credit previously authorized by this
section.
SEC. 4. Section 17053.74 of the Revenue and Taxation Code is
amended to read:
17053.74. (a) There shall be allowed a credit against the "net
tax" (as defined in Section 17039) to a taxpayer who employs a
qualified employee in an enterprise zone during the taxable year. The
credit shall be equal to the sum of each of the following:
(1) Fifty percent of qualified wages in the first year of
employment.
(2) Forty percent of qualified wages in the second year of
employment.
(3) Thirty percent of qualified wages in the third year of
employment.
(4) Twenty percent of qualified wages in the fourth year of
employment.
(5) Ten percent of qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) (i) Except as provided in clause (ii), that portion of wages
paid or incurred by the taxpayer during the taxable year to qualified
employees that does not exceed 150 percent of the minimum wage.
(ii) For up to 1,350 qualified employees who are employed by the
taxpayer in the Long Beach Enterprise Zone in aircraft manufacturing
activities described in Codes 3721 to 3728, inclusive, and Code 3812
of the Standard Industrial Classification (SIC) Manual published by
the United States Office of Management and Budget, 1987 edition,
"qualified wages" means that portion of hourly wages that does not
exceed 202 percent of the minimum wage.
(B) Wages received during the 60-month period beginning with the
first day the employee commences employment with the taxpayer.
Reemployment in connection with any increase, including a regularly
occurring seasonal increase, in the trade or business operations of
the taxpayer does not constitute commencement of employment for
purposes of this section.
(C) Qualified wages do not include any wages paid or incurred by
the taxpayer on or after the zone expiration date. However, wages
paid or incurred with respect to qualified employees who are employed
by the taxpayer within the enterprise zone within the 60-month
period prior to the zone expiration date shall continue to qualify
for the credit under this section after the zone expiration date, in
accordance with all provisions of this section applied as if the
enterprise zone designation were still in existence and binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "Zone expiration date" means the date the enterprise zone
designation expires, is no longer binding, or becomes inoperative.
(4) (A) "Qualified employee" means an individual who meets all of
the following requirements:
(i) At least 90 percent of whose services for the taxpayer during
the taxable year are directly related to the conduct of the taxpayer'
s trade or business located in an enterprise zone.
(ii) Performs at least 50 percent of his or her services for the
taxpayer during the taxable year in an enterprise zone.
(iii) Is hired by the taxpayer after the date of original
designation of the area in which services were performed as an
enterprise zone.
(iv) Is any of the following:
(I) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a person eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.), or its successor, who is receiving, or is eligible to
receive, subsidized employment, training, or services funded by the
federal Job Training Partnership Act, or its successor.
(II) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a person eligible to be a
voluntary or mandatory registrant under the Greater Avenues for
Independence Act of 1985 (GAIN) provided for pursuant to Article 3.2
(commencing with Section 11320) of Chapter 2 of Part 3 of Division 9
of the Welfare and Institutions Code, or its successor.
(III) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was an economically disadvantaged
individual 14 years of age or older.
(IV) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a dislocated worker who meets
any of the following:
(aa) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(bb) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(cc) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(dd) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(ee) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(ff) Was an active member of the armed forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(gg) Is a seasonal or migrant worker who experiences chronic
seasonal unemployment and underemployment in the agriculture
industry, aggravated by continual advancements in technology and
mechanization.
(hh) Has been terminated or laid off, or has received a notice of
termination or layoff, as a consequence of compliance with the Clean
Air Act.
(V) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a disabled individual who is
eligible for or enrolled in, or has completed a state rehabilitation
plan or is a service-connected disabled veteran, veteran of the
Vietnam era, or veteran who is recently separated from military
service.
(VI) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was an ex-offender. An individual
shall be treated as convicted if he or she was placed on probation by
a state court without a finding of guilt.
(VII) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a person eligible for or a
recipient of any of the following:
(aa) Federal Supplemental Security Income benefits.
(bb) Aid to Families with Dependent Children.
(cc) Food stamps.
(dd) State and local general assistance.
(VIII) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a member of a federally
recognized Indian tribe, band, or other group of Native American
descent.
(IX) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a resident of a targeted
employment area, as defined in Section 7072 of the Government Code.
(X) An employee who qualified the taxpayer for the enterprise zone
hiring credit under former Section 17053.8 or the program area
hiring credit under former Section 17053.11.
(XI) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a member of a targeted group, as
defined in Section 51(d) of the Internal Revenue Code, or its
successor.
(B) Priority for employment shall be provided to an individual who
is enrolled in a qualified program under the federal Job Training
Partnership Act or the Greater Avenues for Independence Act of 1985
or who is eligible as a member of a targeted group under the Work
Opportunity Tax Credit (Section 51 of the Internal Revenue Code), or
its successor.
(5) "Taxpayer" means a person or entity engaged in a trade or
business within an enterprise zone designated pursuant to Chapter
12.8 (commencing with Section 7070) of the Government Code.
(6) "Seasonal employment" means employment by a taxpayer that has
regular and predictable substantial reductions in trade or business
operations.
(c) The taxpayer shall do both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
enterprise zone, a certification which provides that a qualified
employee meets the eligibility requirements specified in clause (iv)
of subparagraph (A) of paragraph (4) of subdivision (b). The
Employment Development Department may provide preliminary screening
and referral to a certifying agency. The Employment Development
Department shall develop a form for this purpose. The Department of
Housing and Community Development shall develop regulations governing
the issuance of certificates by local governments pursuant to
subdivision (a) of Section 7086 of the Government Code.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(d) (1) For purposes of this section:
(A) All employees of trades or businesses, which are not
incorporated, that are under common control shall be treated as
employed by a single taxpayer.
(B) The credit, if any, allowable by this section with respect to
each trade or business shall be determined by reference to its
proportionate share of the expense of the qualified wages giving rise
to the credit, and shall be allocated in that manner.
(C) Principles that apply in the case of controlled groups of
corporations, as specified in subdivision (d) of Section 23622.7,
shall apply with respect to determining employment.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section (other than subdivision (e)) for any calendar year
ending after that acquisition, the employment relationship between a
qualified employee and an employer shall not be treated as terminated
if the employee continues to be employed in that trade or business.
(e) (1) (A) If the employment, other than seasonal employment, of
any qualified employee, with respect to whom qualified wages are
taken into account under subdivision (a) is terminated by the
taxpayer at any time during the first 270 days of that employment
(whether or not consecutive) or before the close of the 270th
calendar day after the day in which that employee completes 90 days
of employment with the taxpayer, the tax imposed by this part for the
taxable year in which that employment is terminated shall be
increased by an amount equal to the credit allowed under subdivision
(a) for that taxable year and all prior taxable years attributable to
qualified wages paid or incurred with respect to that employee.
(B) If the seasonal employment of any qualified employee, with
respect to whom qualified wages are taken into account under
subdivision (a) is not continued by the taxpayer for a period of 270
days of employment during the 60-month period beginning with the day
the qualified employee commences seasonal employment with the
taxpayer, the tax imposed by this part, for the taxable year that
includes the 60th month following the month in which the qualified
employee commences seasonal employment with the taxpayer, shall be
increased by an amount equal to the credit allowed under subdivision
(a) for that taxable year and all prior taxable years attributable to
qualified wages paid or incurred with respect to that qualified
employee.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of a qualified employee who
voluntarily leaves the employment of the taxpayer.
(ii) A termination of employment of a qualified employee who,
before the close of the period referred to in paragraph (1), becomes
disabled and unable to perform the services of that employment,
unless that disability is removed before the close of that period and
the taxpayer fails to offer reemployment to that employee.
(iii) A termination of employment of a qualified employee, if it
is determined that the termination was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that employee.
(iv) A termination of employment of a qualified employee due to a
substantial reduction in the trade or business operations of the
taxpayer.
(v) A termination of employment of a qualified employee, if that
employee is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
employee who voluntarily fails to return to the seasonal employment
of the taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
employee who, before the close of the period referred to in
subparagraph (B) of paragraph (1), becomes disabled and unable to
perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
taxpayer fails to offer seasonal employment to that qualified
employee.
(iii) A failure to continue the seasonal employment of a qualified
employee, if it is determined that the failure to continue the
seasonal employment was due to the misconduct (as defined in Sections
1256-30 to 1256-43, inclusive, of Title 22 of the California Code of
Regulations) of that qualified employee.
(iv) A failure to continue seasonal employment of a qualified
employee due to a substantial reduction in the regular seasonal trade
or business operations of the taxpayer.
(v) A failure to continue the seasonal employment of a qualified
employee, if that qualified employee is replaced by other qualified
employees so as to create a net increase in both the number of
seasonal employees and the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the taxpayer and a qualified employee shall not be treated as
terminated by reason of a mere change in the form of conducting the
trade or business of the taxpayer, if the qualified employee
continues to be employed in that trade or business and the taxpayer
retains a substantial interest in that trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(f) In the case of an estate or trust, both of the following
apply:
(1) The qualified wages for any taxable year shall be apportioned
between the estate or trust and the beneficiaries on the basis of the
income of the estate or trust allocable to each.
(2) Any beneficiary to whom any qualified wages have been
apportioned under paragraph (1) shall be treated, for purposes of
this part, as the employer with respect to those wages.
(g) For purposes of this section, "enterprise zone" means an area
designated as an enterprise zone pursuant to Chapter 12.8 (commencing
with Section 7070) of Division 7 of Title 1 of the Government Code.
(h) The credit allowable under this section shall be reduced by
the credit allowed under Sections 17053.10, 17053.17 and 17053.46
claimed for the same employee. The credit shall also be reduced by
the federal credit allowed under Section 51 of the Internal Revenue
Code.
In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the taxpayer upon which the
credit is based shall be reduced by the amount of the credit, prior
to any reduction required by subdivision (i) or (j).
(i) In the case where the credit otherwise allowed under this
section exceeds the "net tax" for the taxable year, that portion of
the credit that exceeds the "net tax" may be carried over and added
to the credit, if any, in succeeding taxable years, until the credit
is exhausted. The credit shall be applied first to the earliest
taxable years possible.
(j) (1) The amount of the credit otherwise allowed under this
section and Section 17053.70, including any credit carryover from
prior years, that may reduce the "net tax" for the taxable year shall
not exceed the amount of tax which would be imposed on the taxpayer'
s business income attributable to the enterprise zone determined as
if that attributable income represented all of the income of the
taxpayer subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101) of Part
11. That business income shall be further apportioned to the
enterprise zone in accordance with Article 2 (commencing with Section
25120) of Chapter 17 of Part 11, modified for purposes of this
section in accordance with paragraph (3).
(3) Business income shall be apportioned to the enterprise zone by
multiplying the total California business income of the taxpayer by
a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the enterprise zone during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the enterprise zone during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, as if it were an amount exceeding the "net tax" for the
taxable year, as provided in subdivision (i).
(k) The changes made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 1997.
(l) (1) The credit authorized by this section shall not be allowed
for taxable years beginning on or after January 1, 2008.
(2) On or after January 1, 2008, taxpayers that would otherwise be
eligible to claim a credit authorized by this section may claim a
credit for these expenses under Section 17053.76.
(3) Notwithstanding this subdivision, the provisions of
subdivision (d) of Section 17039 shall apply with respect to any
remaining carryover of the credit previously authorized by this
section.
SEC. 5. Section 17053.76 is added to the Revenue and Taxation
Code, to read:
17053.76. (a) For each taxable year beginning on or after January
1, 2008, there shall be allowed a credit against the "net tax," as
defined in Section 17039, to a taxpayer
qualified taxpayer who employs a qualified employee in a
geographically targeted economic development area during the taxable
year. The amount of credit shall be equal to 30 percent of
the amount of all qualified wages paid to a qualified employee during
each year of his or her employment with the taxpayer, not to exceed
five full calendar years of employment per each qualified employee.
The credit shall be equal to the sum of each of the
following:
(1) Fifty percent of the qualified wages in the first year of
employment.
(2) Forty percent of the qualified wages in the second year of
employment.
(3) Thirty percent of the qualified wages in the third year of
employment.
(4) Twenty percent of the qualified wages in the fourth year of
employment.
(5) Ten percent of the qualified wages in the fifth year of
employment.
(b) For purposes of this section, all of the following definitions
apply:
(1) "Geographically targeted economic development area" means any
of the following:
(A) An enterprise zone designated as an enterprise zone pursuant
to Chapter 12.8 (commencing with Section 7070) of Division 7 of Title
1 of the Government Code.
(B) A local agency military base recovery area designated as a
local agency military base recovery area pursuant to Chapter 12.97
(commencing with Section 7105).
(C) A targeted tax area designated as a targeted tax area pursuant
to Chapter 12.93 (commencing with Section 7097).
(D) A manufacturing enhancement area designated as a manufacturing
enhancement area pursuant to Chapter 12.8 (commencing with Section
7073.8).
(2) "Geographically targeted economic development area expiration
date" means the date the geographically targeted economic development
area designation expires, is no longer binding, or becomes
inoperative.
(3) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(4) (A) "Qualified employee" means an individual who meets all of
the following requirements:
(i) At least 90 percent of whose services for the
taxpayer qualified taxpayer during the taxable
year are directly related to the conduct of the taxpayer's
qualified taxpayer's trade or business located
in a geographically targeted economic development area.
(ii) Performs at least 50 percent of his or her services for the
taxpayer qualified taxpayer during the
taxable year in a geographically targeted economic development area.
(iii) Is initially hired by the taxpayer
qualified taxpayer after the date of original designation of
the area in which services were performed as a geographically
targeted economic development area.
(iv) Is any of the
following, as documented by the geographically targeted economic
development area coordinator:
(I) Immediately preceding the qualified employee's
commencement of employment with the taxpayer, was a person enrolled
and documented in the California Job Training Automation System by an
authorized WIA representative under the federal Workforce Investment
Act (29 U.S.C. Sec. 720 et seq.), or its successor.
(II) Immediately
preceding the qualified employee's commencement of employment with
the taxpayer, was a person receiving benefits under the California
Work Opportunity and Responsibility to Kids program pursuant to
Article 3.2 (commencing with Section 11200) of Chapter 2 of Part 3 of
Division 9 of the Welfare and Institutions Code, or its successor.
commencement of employment with the qualified
taxpayer, was a person eligible for services under the federal Job
Training Partnership Act (29 U.S.C. Sec. 1501 et seq.), or its
successor, who is receiving, or is eligible to receive, subsidized
employment, training, or services funded by the federal Job Training
Partnership Act, or its successor.
(II) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a person eligible to
be a voluntary or mandatory registrant under the Greater Avenues for
Independence Act of 1985 (GAIN) program provided for pursuant to
Article 3.2 (commencing with Section 11320) of Chapter 2 of Part 3 of
Division 9 of the Welfare and Institutions Code, or its successor.
(III) Immediately preceding the qualified employee's commencement
of employment with the taxpayer qualified
taxpayer , was an economically disadvantaged individual
14 16 years of age or older. For
purposes of this section, "economically disadvantaged individual"
means an individual who meets the definition of that term under the
Workforce Investment Act, or its successor.
(IV) Immediately preceding the qualified employee's commencement
of employment with the taxpayer qualified
taxpayer , was a dislocated worker. For purposes of
this section, a "dislocated worker" means an individual who meets the
definition of that term under the Workforce Investment Act, or its
successor. worker who meets any of the following
requirements:
(aa) Has been terminated or laid off or who has received a notice
of termination of layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(bb) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(cc) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(dd) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(ee) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(ff) Was an active member of the Armed Forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(gg) Is a seasonal or migrant worker who experiences chronic
seasonal unemployment and underemployment in the agriculture
industry, aggravated by continual advancements in technology and
mechanization.
(hh) Has been terminated or laid off, or has received a notice of
termination or layoff, as a consequence of compliance with the Clean
Air Act.
(V) Immediately preceding the qualified employee's commencement of
employment with the taxpayer qualified
taxpayer , was a disabled individual who is eligible for or
enrolled in, or has completed a state rehabilitation plan.
(VI) Is an individual who was discharged or released from service
under conditions other than dishonorable, and is either
any of the following:
(aa) A service-connected disabled veteran.
(bb) An individual who was discharged or released in the last 48
months from active military, naval, or an air service.
(cc) An individual who served in the active military, naval, or
air service of the United States between February 28, 1961, and May
8, 1975.
(dd) An individual who was discharged or released in the last 48
months from active service in the National Guard if the individual
served on foreign soil prior to discharge.
(VII) Has a prior felony conviction. An individual shall be
treated as convicted if he or she was placed on probation by a state
court without a finding of guilt.
(VII) Is an individual who has been convicted of a felony or a
misdemeanor offense punishable by incarceration, or a person charged
with a felony offense or a misdemeanor offense punishable by
incarceration but placed on probation by a state court without a
finding of guilt.
(VIII) Is an individual who is a former member of a criminal
street gang, certified as such by a federal, state, or local law
enforcement agency.
(VIII)
(IX) Immediately preceding the qualified employee's
commencement of employment with the taxpayer
qualified taxpayer , was a person receiving
eligible for, or a recipient of, any of the following:
(aa) Federal Supplemental Security Income benefits.
(bb)Temporary Assistance for Needy Families.
(cc) Food stamps.
(dd) State and local general assistance.
(IX)
(X) Immediately preceding the qualified employee's
commencement of employment with the taxpayer
qualified taxpayer , was a member of a federally recognized
Indian tribe, band, or other group of Native American descent.
(X)
(XI) Immediately preceding the qualified employee's
commencement of employment with the taxpayer
qualified taxpayer , was a resident of a targeted employment
area, as defined in Section 7072 of the Government Code.
(XII) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer located in a targeted tax
area, was a resident of that targeted tax area.
(XI)
(XIII) Immediately preceding the qualified employee's
commencement of employment with the taxpayer
qualified taxpayer , was a member of a targeted group, as
defined in Section 51(d) of the Internal Revenue Code, or its
successor.
(XII) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a "qualified former foster care
recipient," which means an individual who is certified by the local
designated agency to have met both the following:
(aa) Having attained age 17 but not age 25 on the hiring date.
(bb) Having, before attaining the age of 18, been either a
recipient of foster care maintenance payments under a state plan
approved under Part E of Title IV of the Social Security Act (42
U.S.C. Sec. 301), or in foster care under the responsibility of a
state.
(B) (i) Priority for employment shall be provided to any of the
following individuals:
(I) An individual who is enrolled in a qualified program under the
federal Workforce Investment Act, or its successor.
(II) An individual who is enrolled in the California Work
Opportunity and Responsibility to Kids program, or its successor.
(III) An individual who is eligible as a member of a targeted
group under the Work Opportunity Tax Credit (Section 51 of the
Internal Revenue Code), or its successor.
(ii) On or before December 15 of each calendar year, the
Employment Development Department shall report to the Legislature
regarding the following information:
(I) Types of training and services that the department provided,
in the previous fiscal year, to the individuals enrolled and
documented in the California Job Training Automation System and in
the California Work Opportunity and Responsibility to Kids Program.
(II) Number of individuals enrolled in the California Job Training
Automation System and in the California Work Opportunity and
Responsibility to Kids Program who, in the previous fiscal year, were
referred by the Employment Development Department to the
geographically targeted economic development area programs for
employment.
(5) "Qualified wages" means the following:
(A) (i) Except as provided in clause (ii), that portion of wages
paid or incurred by the taxpayer qualified
taxpayer during the taxable year to qualified employees that
does not exceed 150 percent of the minimum wage.
(ii) For up to 1,350 qualified employees who are employed by the
taxpayer qualified taxpayer in the Long
Beach Enterprise Zone in aircraft manufacturing activities
described in Codes 3721 to 3728, inclusive, and Code 3812 of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition,
"qualified wages" means manufacturing activities
described as industrial activities in the North American
Industry Classification System Manual, published by the United States
Office of Management and Budget, "qualified wages" means that
portion of hourly wages that does not exceed 202 percent of the
minimum wage. The Employment Development Department
shall determine which classifications apply and annually publish
those classifications on the Employment Development Department's Web
site.
(B) Wages received during the 60-month period beginning with the
first day the employee commences employment with the
taxpayer qualified taxpayer . Reemployment in
connection with any increase, including a regularly occurring
seasonal increase, in the trade or business operations of the
taxpayer qualified taxpayer does not
constitute commencement of employment for purposes of this section.
(C) Qualified wages do not include any wages paid or incurred by
the taxpayer qualified taxpayer on or
after the expiration date of the geographically targeted economic
development area. However, wages paid or incurred with respect to
qualified employees who are employed by the taxpayer
qualified taxpayer within the geographically
targeted economic development area within the 60-month period prior
to the zone expiration date shall continue to qualify for the credit
under this section after the expiration date of the geographically
targeted economic development area, in accordance with all provisions
of this section applied as if the geographically targeted economic
development area designation were still in existence and binding.
(6) "Seasonal employment" means employment by a taxpayer
qualified taxpayer that has regular and
predictable substantial reductions in trade or business operations.
(7) "Taxpayer" means a person or entity engaged in a trade or
business within a geographically targeted economic development area.
(7) "Qualified taxpayer" means a taxpayer that meets any of the
following requirements:
(A) Is a person or entity engaged in a trade or business within an
enterprise zone designated pursuant to Chapter 12.8 (commencing with
Section 7070) of Division 7 of Title 1 of the Government Code.
(B) Is a person or entity engaged in a trade or business within a
local agency military base recovery area designated pursuant to
Chapter 12.97 (commencing with Section 7105) of the Government Code.
(C) Is a person or entity that meets both of the following:
(i) Is engaged in a trade or business within a targeted tax area
designated pursuant to Chapter 12.93 (commencing with Section 7097)
of the Government Code, or is engaged in a trade or business within a
manufacturing enhancement area designated pursuant to Chapter 12.8
(commencing with Section 7073.8) of the Government Code.
(ii) Is engaged in those lines of business described as industrial
in the North American Industry Classification System Manual,
published by the United States Office of Management and Budget. The
Employment Development Department shall determine which
classifications apply and annually publish those classifications on
the Employment Development Department's Web site.
(c) The taxpayer qualified taxpayer
shall do both of the following:
(1) Obtain a certificate from the geographically targeted economic
development area coordinator designated by the local jurisdiction in
which the employee is employed. The Department of Housing and
Community Development shall develop regulations governing the
issuance of certificates by local governments pursuant to subdivision
(a) of Section 7086 of the Government Code. Applications
for this certification shall be submitted to the certifying agency
within 24 months of the commencement date of employment with the
taxpayer. The certifying agency shall not Code. The
certifying agency shall not issue a certification when the
employer or the employer's agent is the second signatory on the
applicant's statement for establishing eligibility.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(d) (1) For purposes of this section:
(A) All employees of trades or businesses, which are not
incorporated, that are under common control shall be treated as
employed by a single taxpayer qualified
taxpayer .
(B) The credit, if any, allowable by this section with respect to
each trade or business shall be determined by reference to its
proportionate share of the expense of the qualified wages giving rise
to the credit, and shall be allocated in that manner.
(C) Principles that apply in the case of controlled groups of
corporations, as specified in subdivision (d) of Section 23622.9,
shall apply with respect to determining employment.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section, other than subdivision (e), for any calendar year
ending after that acquisition, the employment relationship between a
qualified employee and an employer shall not be treated as terminated
if the employee continues to be employed in that trade or business.
(e) (1) (A) If the employment, other than seasonal employment, of
any qualified employee, with respect to whom qualified wages are
taken into account under subdivision (a) is terminated by the
taxpayer qualified taxpayer at any time
during the first 270 days of that employment, whether or not
consecutive, or before the close of the 270th calendar day after the
day in which that employee completes 90 days of employment with the
taxpayer qualified taxpayer , the tax
imposed by this part for the taxable year in which that employment is
terminated shall be increased by an amount equal to the credit
allowed under subdivision (a) for that taxable year and all prior
taxable years attributable to qualified wages paid or incurred with
respect to that employee.
(B) If the seasonal employment of any qualified employee, with
respect to whom qualified wages are taken into account under
subdivision (a) is not continued by the taxpayer
qualified taxpayer for a period of 270 days of employment
during the 60-month period beginning with the day the qualified
employee commences seasonal employment with the taxpayer
qualified taxpayer , the tax imposed by this
part, for the taxable year that includes the 60th month following the
month in which the qualified employee commences seasonal employment
with the taxpayer qualified taxpayer ,
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
qualified employee. If the employer is located in an area where a
state of disaster has been declared, a qualified employee has 360
additional days of nonemployment for purposes of determining his or
her status as a "qualified employee," as defined in this section.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of a qualified employee who
voluntarily leaves the employment of the taxpayer
qualified taxpayer .
(ii) A termination of employment of a qualified employee who,
before the close of the period referred to in paragraph (1), becomes
disabled and unable to perform the services of that employment,
unless that disability is removed before the close of that period and
the taxpayer qualified taxpayer fails
to offer reemployment to that employee.
(iii) A termination of employment of a qualified employee, if it
is determined that the termination was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that employee.
(iv) A termination of employment of a qualified employee due to a
substantial reduction in the trade or business operations of the
taxpayer qualified taxpayer .
(v) A termination of employment of a qualified employee, if that
employee is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
employee who voluntarily fails to return to the seasonal employment
of the taxpayer qualified taxpayer .
(ii) A failure to continue the seasonal employment of a qualified
employee who, before the close of the period referred to in
subparagraph (B) of paragraph (1), becomes disabled and unable to
perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
taxpayer qualified taxpayer fails to
offer seasonal employment to that qualified employee.
(iii) A failure to continue the seasonal employment of a qualified
employee, if it is determined that the failure to continue the
seasonal employment was due to the misconduct (as defined in Sections
1256-30 to 1256-43, inclusive, of Title 22 of the California Code of
Regulations) of that qualified employee.
(iv) A failure to continue seasonal employment of a qualified
employee due to a substantial reduction in the regular seasonal trade
or business operations of the taxpayer
qualified taxpayer .
(v) A failure to continue the seasonal employment of a qualified
employee, if that qualified employee is replaced by other qualified
employees so as to create a net increase in both the number of
seasonal employees and the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the taxpayer qualified taxpayer
and a qualified employee shall not be treated as terminated by
reason of a mere change in the form of conducting the trade or
business of the taxpayer qualified taxpayer
, if the qualified employee continues to be employed in that
trade or business and the taxpayer qualified
taxpayer retains a substantial interest in that trade or
business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(f) In the case of an estate or trust, both of the following
apply:
(1) The qualified wages for any taxable year shall be apportioned
between the estate or trust and the beneficiaries on the basis of the
income of the estate or trust allocable to each.
(2) Any beneficiary to whom any qualified wages have been
apportioned under paragraph (1) shall be treated, for purposes of
this part, as the employer with respect to those wages.
(g) (1) The credit allowable under this section shall be reduced
by the credit allowed under Sections 17053.10 and 17053.17
claimed for the same employee. The credit shall also be reduced
by the federal credit allowed under Section 51 of the
Internal Revenue Code.
(2) Any deduction otherwise allowed under this part for the wages
or salaries paid or incurred by the taxpayer
qualified taxpayer upon which the credit is based shall be
reduced by the amount of the credit, prior to any reduction required
by subdivision (h) or (i).
(h) In the case where the credit otherwise allowed under this
section exceeds the "net tax" for the taxable year, that portion of
the credit that exceeds the "net tax" may be carried over and added
to the credit, if any, in succeeding taxable years, until the credit
is exhausted. The credit shall be applied first to the earliest
taxable years possible.
(i) (1) The amount of the credit otherwise allowed under this
section and Section 17053.70 Sections
17053.33, 17053.45, and 17053.70 , including any credit
carryover from prior years, that may reduce the "net tax" for the
taxable year shall not exceed the amount of tax which would be
imposed on the taxpayer's qualified taxpayer's
business income attributable to the geographically targeted
economic development area determined as if that attributable income
represented all of the income of the taxpayer
qualified taxpayer subject to tax under this part.
(2) Attributable income shall be that portion of the
taxpayer's qualified taxpayer's California
source business income that is apportioned to the geographically
targeted economic development area. For that purpose, the
taxpayer's qualified taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101) of Part
11. That business income shall be further apportioned to the
geographically targeted economic development area in accordance with
Article 2 (commencing with Section 25120) of Chapter 17 of Part 11,
modified for purposes of this section in accordance with paragraph
(3).
(3) Business income shall be apportioned to the geographically
targeted economic development area by multiplying the total
California business income of the taxpayer
qualified taxpayer by a fraction, the numerator of which is the
property factor plus the payroll factor, and the denominator of
which is two. For purposes of this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's qualified
taxpayer's real and tangible personal property owned or rented
and used in the geographically targeted economic development area
during the taxable year, and the denominator of which is the average
value of all the taxpayer's qualified
taxpayer's real and tangible personal property owned or rented
and used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer
qualified taxpayer in the geographically targeted economic
development area during the taxable year for compensation, and the
denominator of which is the total compensation paid by the
taxpayer qualified taxpayer in this state during
the taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, as if it were an amount exceeding the "net tax" for the
taxable year, as provided in subdivision (h).
(j) The credit allowed to a qualified taxpayer pursuant to this
section shall be known and may be cited as the Enterprise Zone
Credit.
SEC. 6. Section 23622.7 of the Revenue and Taxation Code is
amended to read:
23622.7. (a) There shall be allowed a credit against the "tax"
(as defined by Section 23036) to a taxpayer who employs a qualified
employee in an enterprise zone during the taxable year. The credit
shall be equal to the sum of each of the following:
(1) Fifty percent of qualified wages in the first year of
employment.
(2) Forty percent of qualified wages in the second year of
employment.
(3) Thirty percent of qualified wages in the third year of
employment.
(4) Twenty percent of qualified wages in the fourth year of
employment.
(5) Ten percent of qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) (i) Except as provided in clause (ii), that portion of wages
paid or incurred by the taxpayer during the taxable year to qualified
employees that does not exceed 150 percent of the minimum wage.
(ii) For up to 1,350 qualified employees who are employed by the
taxpayer in the Long Beach Enterprise Zone in aircraft manufacturing
activities described in Codes 3721 to 3728, inclusive, and Code 3812
of the Standard Industrial Classification (SIC) Manual published by
the United States Office of Management and Budget, 1987 edition,
"qualified wages" means that portion of hourly wages that does not
exceed 202 percent of the minimum wage.
(B) Wages received during the 60-month period beginning
with the first day the employee commences employment with the
taxpayer. Reemployment in connection with any increase, including a
regularly occurring seasonal increase, in the trade or business
operations of the taxpayer does not constitute commencement of
employment for purposes of this section.
(C) Qualified wages do not include any wages paid or incurred by
the taxpayer on or after the zone expiration date. However, wages
paid or incurred with respect to qualified employees who are employed
by the taxpayer within the enterprise zone within the 60-month
period prior to the zone expiration date shall continue to qualify
for the credit under this section after the zone expiration date, in
accordance with all provisions of this section applied as if the
enterprise zone designation were still in existence and binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "Zone expiration date" means the date the enterprise zone
designation expires, is no longer binding, or becomes inoperative.
(4) (A) "Qualified employee" means an individual who meets all of
the following requirements:
(i) At least 90 percent of whose services for the taxpayer during
the taxable year are directly related to the conduct of the taxpayer'
s trade or business located in an enterprise zone.
(ii) Performs at least 50 percent of his or her services for the
taxpayer during the taxable year in an enterprise zone.
(iii) Is hired by the taxpayer after the date of original
designation of the area in which services were performed as an
enterprise zone.
(iv) Is any of the following:
(I) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a person eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.), or its successor, who is receiving, or is eligible to
receive, subsidized employment, training, or services funded by the
federal Job Training Partnership Act, or its successor.
(II) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a person eligible to be a
voluntary or mandatory registrant under the Greater Avenues for
Independence Act of 1985 (GAIN) provided for pursuant to Article 3.2
(commencing with Section 11320) of Chapter 2 of Part 3 of Division 9
of the Welfare and Institutions Code, or its successor.
(III) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was an economically disadvantaged
individual 14 years of age or older.
(IV) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a dislocated worker who meets
any of the following:
(aa) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(bb) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(cc) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(dd) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(ee) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(ff) Was an active member of the armed forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(gg) Is a seasonal or migrant worker who experiences chronic
seasonal unemployment and underemployment in the agriculture
industry, aggravated by continual advancements in technology and
mechanization.
(hh) Has been terminated or laid off, or has received a notice of
termination or layoff, as a consequence of compliance with the Clean
Air Act.
(V) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a disabled individual who is
eligible for or enrolled in, or has completed a state rehabilitation
plan or is a service-connected disabled veteran, veteran of the
Vietnam era, or veteran who is recently separated from military
service.
(VI) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was an ex-offender. An individual
shall be treated as convicted if he or she was placed on probation by
a state court without a finding of guilt.
(VII) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a person eligible for or a
recipient of any of the following:
(aa) Federal Supplemental Security Income benefits.
(bb) Aid to Families with Dependent Children.
(cc) Food stamps.
(dd) State and local general assistance.
(VIII) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a member of a federally
recognized Indian tribe, band, or other group of Native American
descent.
(IX) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a resident of a targeted
employment area (as defined in Section 7072 of the Government Code).
(X) An employee who qualified the taxpayer for the enterprise zone
hiring credit under former Section 23622 or the program area hiring
credit under former Section 23623.
(XI) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a member of a targeted group, as
defined in Section 51(d) of the Internal Revenue Code, or its
successor.
(B) Priority for employment shall be provided to an individual who
is enrolled in a qualified program under the federal Job Training
Partnership Act or the Greater Avenues for Independence Act of 1985
or who is eligible as a member of a targeted group under the Work
Opportunity Tax Credit (Section 51 of the Internal Revenue Code), or
its successor.
(5) "Taxpayer" means a corporation engaged in a trade or business
within an enterprise zone designated pursuant to Chapter 12.8
(commencing with Section 7070) of Division 7 of Title 1 of the
Government Code.
(6) "Seasonal employment" means employment by a taxpayer that has
regular and predictable substantial reductions in trade or business
operations.
(c) The taxpayer shall do both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
enterprise zone, a certification that provides that a qualified
employee meets the eligibility requirements specified in clause (iv)
of subparagraph (A) of paragraph (4) of subdivision (b). The
Employment Development Department may provide preliminary screening
and referral to a certifying agency. The Employment Development
Department shall develop a form for this purpose. The Department of
Housing and Community Development shall develop regulations governing
the issuance of certificates by local governments pursuant to
subdivision (a) of Section 7086 of the Government Code.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(d) (1) For purposes of this section:
(A) All employees of all corporations which are members of the
same controlled group of corporations shall be treated as employed by
a single taxpayer.
(B) The credit, if any, allowable by this section to each member
shall be determined by reference to its proportionate share of the
expense of the qualified wages giving rise to the credit, and shall
be allocated in that manner.
(C) For purposes of this subdivision, "controlled group of
corporations" means "controlled group of corporations" as defined in
Section 1563(a) of the Internal Revenue Code, except that:
(i) "More than 50 percent" shall be substituted for "at least 80
percent" each place it appears in Section 1563(a)(1) of the Internal
Revenue Code.
(ii) The determination shall be made without regard to subsections
(a)(4) and (e)(3)(C) of Section 1563 of the Internal Revenue Code.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section (other than subdivision (e)) for any calendar year
ending after that acquisition, the employment relationship between a
qualified employee and an employer shall not be treated as terminated
if the employee continues to be employed in that trade or business.
(e) (1) (A) If the employment, other than seasonal employment, of
any qualified employee with respect to whom qualified wages are taken
into account under subdivision (a) is terminated by the taxpayer at
any time during the first 270 days of that employment, whether or not
consecutive, or before the close of the 270th calendar day after the
day in which that employee completes 90 days of employment with the
taxpayer, the tax imposed by this part for the taxable year in which
that employment is terminated shall be increased by an amount equal
to the credit allowed under subdivision (a) for that taxable year and
all prior taxable years attributable to qualified wages paid or
incurred with respect to that employee.
(B) If the seasonal employment of any qualified employee, with
respect to whom qualified wages are taken into account under
subdivision (a) is not continued by the taxpayer for a period of 270
days of employment during the 60-month period beginning with the day
the qualified employee commences seasonal employment with the
taxpayer, the tax imposed by this part, for the taxable year that
includes the 60th month following the month in which the qualified
employee commences seasonal employment with the taxpayer, shall be
increased by an amount equal to the credit allowed under subdivision
(a) for that taxable year and all prior taxable years attributable to
qualified wages paid or incurred with respect to that qualified
employee.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of a qualified employee who
voluntarily leaves the employment of the taxpayer.
(ii) A termination of employment of a qualified employee who,
before the close of the period referred to in subparagraph (A) of
paragraph (1), becomes disabled and unable to perform the services of
that employment, unless that disability is removed before the close
of that period and the taxpayer fails to offer reemployment to that
employee.
(iii) A termination of employment of a qualified employee, if it
is determined that the termination was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that employee.
(iv) A termination of employment of a qualified employee due to a
substantial reduction in the trade or business operations of the
taxpayer.
(v) A termination of employment of a qualified employee, if that
employee is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
employee who voluntarily fails to return to the seasonal employment
of the taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
employee who, before the close of the period referred to in
subparagraph (B) of paragraph (1), becomes disabled and unable to
perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
taxpayer fails to offer seasonal employment to that qualified
employee.
(iii) A failure to continue the seasonal employment of a qualified
employee, if it is determined that the failure to continue the
seasonal employment was due to the misconduct (as defined in Sections
1256-30 to 1256-43, inclusive, of Title 22 of the California Code of
Regulations) of that qualified employee.
(iv) A failure to continue seasonal employment of a qualified
employee due to a substantial reduction in the regular seasonal trade
or business operations of the taxpayer.
(v) A failure to continue the seasonal employment of a qualified
employee, if that qualified employee is replaced by other qualified
employees so as to create a net increase in both the number of
seasonal employees and the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the taxpayer and a qualified employee shall not be treated as
terminated by either of the following:
(i) By a transaction to which Section 381(a) of the Internal
Revenue Code applies, if the qualified employee continues to be
employed by the acquiring corporation.
(ii) By reason of a mere change in the form of conducting the
trade or business of the taxpayer, if the qualified employee
continues to be employed in that trade or business and the taxpayer
retains a substantial interest in that trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(f) Rules similar to the rules provided in Section 46(e) and (h)
of the Internal Revenue Code shall apply to both of the following:
(1) An organization to which Section 593 of the Internal Revenue
Code applies.
(2) A regulated investment company or a real estate investment
trust subject to taxation under this part.
(g) For purposes of this section, "enterprise zone" means an area
designated as an enterprise zone pursuant to Chapter 12.8 (commencing
with Section 7070) of Division 7 of Title 1 of the Government Code.
(h) The credit allowable under this section shall be reduced by
the credit allowed under Sections 23623.5, 23625, and 23646 claimed
for the same employee. The credit shall also be reduced by the
federal credit allowed under Section 51 of the Internal Revenue Code.
In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the taxpayer upon which the
credit is based shall be reduced by the amount of the credit, prior
to any reduction required by subdivision (i) or (j).
(i) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the taxable year, that portion of the
credit that exceeds the "tax" may be carried over and added to the
credit, if any, in succeeding taxable years, until the credit is
exhausted. The credit shall be applied first to the earliest taxable
years possible.
(j) (1) The amount of the credit otherwise allowed under this
section and Section 23612.2, including any credit carryover from
prior years, that may reduce the "tax" for the taxable year shall not
exceed the amount of tax which would be imposed on the taxpayer's
business income attributable to the enterprise zone determined as if
that attributable income represented all of the income of the
taxpayer subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone. For that purpose, the taxpayer's business
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the enterprise zone
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this section in accordance with
paragraph (3).
(3) Business income shall be apportioned to the enterprise zone by
multiplying the total California business income of the taxpayer by
a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the enterprise zone during the
income year, and the denominator of which is the average value of all
the taxpayer's real and tangible personal property owned or rented
and used in this state during the income year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the enterprise zone during
the income year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
income year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, as if it were an amount exceeding the "tax" for the taxable
year, as provided in subdivision (i).
(k) The changes made to this section by the act adding this
subdivision shall apply to taxable years on or after January 1, 1997.
(l) (1) The credit authorized by this section shall not be allowed
for taxable years beginning on or after January 1, 2008.
(2) On or after January 1, 2008, taxpayers that would otherwise be
eligible to claim a credit authorized by this section may claim a
credit for these expenses under Section 23622.9.
(3) Notwithstanding this subdivision, the provisions of
subdivision (f) of Section 23036 shall apply with respect to any
remaining carryover of the credit previously authorized by this
section.
SEC. 7. Section 23622.8 of the Revenue and Taxation Code is
amended to read:
23622.8. (a) For each taxable year beginning on or after January
1, 1998, there shall be allowed a credit against the "tax" (as
defined in Section 23036) to a qualified taxpayer for hiring a
qualified disadvantaged individual during the taxable year for
employment in the manufacturing enhancement area. The credit shall be
equal to the sum of each of the following:
(1) Fifty percent of the qualified wages in the first year of
employment.
(2) Forty percent of the qualified wages in the second year of
employment.
(3) Thirty percent of the qualified wages in the third year of
employment.
(4) Twenty percent of the qualified wages in the fourth year of
employment.
(5) Ten percent of the qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means the following:
(A) That portion of wages paid or incurred by the qualified
taxpayer during the taxable year to qualified disadvantaged
individuals that does not exceed 150 percent of the minimum wage.
(B) The total amount of qualified wages which may be taken into
account for purposes of claiming the credit allowed under this
section shall not exceed two million dollars ($2,000,000) per taxable
year.
(C) Wages received during the 60-month period beginning with the
first day the qualified disadvantaged individual commences employment
with the qualified taxpayer. Reemployment in connection with any
increase, including a regularly occurring seasonal increase, in the
trade or business operations of the qualified taxpayer does not
constitute commencement of employment for purposes of this section.
(D) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the manufacturing enhancement area
expiration date. However, wages paid or incurred with respect to
qualified employees who are employed by the qualified taxpayer within
the manufacturing enhancement area within the 60-month period prior
to the manufacturing enhancement area expiration date shall continue
to qualify for the credit under this section after the manufacturing
enhancement area expiration date, in accordance with all provisions
of this section applied as if the manufacturing enhancement area
designation were still in existence and binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "Manufacturing enhancement area" means an area designated
pursuant to Section 7073.8 of the Government Code according to the
procedures of Chapter 12.8 (commencing with Section 7070) of Division
7 of Title 1 of the Government Code.
(4) "Manufacturing enhancement area expiration date" means the
date the manufacturing enhancement area designation expires, is no
longer binding, or becomes inoperative.
(5) "Qualified disadvantaged individual" means an individual who
satisfies all of the following requirements:
(A) (i) At least 90 percent of whose services for the qualified
taxpayer during the taxable year are directly related to the conduct
of the qualified taxpayer's trade or business located in a
manufacturing enhancement area.
(ii) Who performs at least 50 percent of his or her services for
the qualified taxpayer during the taxable year in the manufacturing
enhancement area.
(B) Who is hired by the qualified taxpayer after the designation
of the area as a manufacturing enhancement area in which the
individual's services were primarily performed.
(C) Who is any of the following immediately preceding the
individual's commencement of employment with the qualified taxpayer:
(i) An individual who has been determined eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.) or its successor.
(ii) Any voluntary or mandatory registrant under the Greater
Avenues for Independence Act of 1985, or its successor, as provided
pursuant to Article 3.2 (commencing with Section 11320) of Chapter 2
of Part 3 of Division 9 of the Welfare and Institutions Code.
(iii) Any individual who has been certified eligible by the
Employment Development Department under the federal Targeted Jobs Tax
Credit Program, or its successor, whether or not this program is in
effect.
(6) "Qualified taxpayer" means any corporation engaged in a trade
or business within a manufacturing enhancement area designated
pursuant to Section 7073.8 of the Government Code and that meets all
of the following requirements:
(A) Is engaged in those lines of business described in Codes 0211
to 0291, inclusive, Code 0723, or in Codes 2011 to 3999, inclusive,
of the Standard Industrial Classification (SIC) Manual published by
the United States Office of Management and Budget, 1987 edition.
(B) At least 50 percent of the qualified taxpayer's workforce
hired after the designation of the manufacturing enhancement area is
composed of individuals who, at the time of hire, are residents of
the county in which the manufacturing enhancement area is located.
(C) Of this percentage of local hires, at least 30 percent shall
be qualified disadvantaged individuals.
(7) "Seasonal employment" means employment by a qualified taxpayer
that has regular and predictable substantial reductions in trade or
business operations.
(c) (1) For purposes of this section, all of the following apply:
(A) All employees of all corporations that are members of the same
controlled group of corporations shall be treated as employed by a
single qualified taxpayer.
(B) The credit (if any) allowable by this section with respect to
each member shall be determined by reference to its proportionate
share of the expenses of the qualified wages giving rise to the
credit and shall be allocated in that manner.
(C) Principles that apply in the case of controlled groups of
corporations, as specified in subdivision (d) of Section 23622.7,
shall apply with respect to determining employment.
(2) If a qualified taxpayer acquires the major portion of a trade
or business of another employer (hereinafter in this paragraph
referred to as the "predecessor") or the major portion of a separate
unit of a trade or business of a predecessor, then, for purposes of
applying this section (other than subdivision (d)) for any calendar
year ending after that acquisition, the employment relationship
between a qualified disadvantaged individual and a qualified taxpayer
shall not be treated as terminated if the qualified disadvantaged
individual continues to be employed in that trade or business.
(d) (1) (A) If the employment, other than seasonal employment, of
any qualified disadvantaged individual, with respect to whom
qualified wages are taken into account under subdivision (b) is
terminated by the qualified taxpayer at any time during the first 270
days of that employment (whether or not consecutive) or before the
close of the 270th calendar day after the day in which that qualified
disadvantaged individual completes 90 days of employment with the
qualified taxpayer, the tax imposed by this part for the taxable year
in which that employment is terminated shall be increased by an
amount equal to the credit allowed under subdivision (a) for that
taxable year and all prior taxable years attributable to qualified
wages paid or incurred with respect to that qualified disadvantaged
individual.
(B) If the seasonal employment of any qualified disadvantaged
individual, with respect to whom qualified wages are taken into
account under subdivision (a) is not continued by the qualified
taxpayer for a period of 270 days of employment during the 60-month
period beginning with the day the qualified disadvantaged individual
commences seasonal employment with the qualified taxpayer, the tax
imposed by this part, for the income year that includes the 60th
month following the month in which the qualified disadvantaged
individual commences seasonal employment with the qualified taxpayer,
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
qualified disadvantaged
individual.
(2) (A) Subparagraph (A) of paragraph (1) does not apply to any of
the following:
(i) A termination of employment of a qualified disadvantaged
individual who voluntarily leaves the employment of the qualified
taxpayer.
(ii) A termination of employment of a qualified disadvantaged
individual who, before the close of the period referred to in
subparagraph (A) of paragraph (1), becomes disabled to perform the
services of that employment, unless that disability is removed before
the close of that period and the qualified taxpayer fails to offer
reemployment to that individual.
(iii) A termination of employment of a qualified disadvantaged
individual, if it is determined that the termination was due to the
misconduct (as defined in Sections 1256-30 to 1256-43, inclusive, of
Title 22 of the California Code of Regulations) of that individual.
(iv) A termination of employment of a qualified disadvantaged
individual due to a substantial reduction in the trade or business
operations of the qualified taxpayer.
(v) A termination of employment of a qualified disadvantaged
individual, if that individual is replaced by other qualified
disadvantaged individuals so as to create a net increase in both the
number of employees and the hours of employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
disadvantaged individual who voluntarily fails to return to the
seasonal employment of the qualified taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
disadvantaged individual who, before the close of the period referred
to in subparagraph (B) of paragraph (1), becomes disabled and unable
to perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
qualified taxpayer fails to offer seasonal employment to that
qualified disadvantaged individual.
(iii) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if it is determined that the failure to
continue the seasonal employment was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that qualified disadvantaged
individual.
(iv) A failure to continue seasonal employment of a qualified
disadvantaged individual due to a substantial reduction in the
regular seasonal trade or business operations of the qualified
taxpayer.
(v) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if that qualified disadvantaged individual
is replaced by other qualified disadvantaged individuals so as to
create a net increase in both the number of seasonal employees and
the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the qualified taxpayer and a qualified disadvantaged
individual shall not be treated as terminated by either of the
following:
(i) By a transaction to which Section 381(a) of the Internal
Revenue Code applies, if the qualified disadvantaged individual
continues to be employed by the acquiring corporation.
(ii) By reason of a mere change in the form of conducting the
trade or business of the qualified taxpayer, if the qualified
disadvantaged individual continues to be employed in that trade or
business and the qualified taxpayer retains a substantial interest in
that trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(e) The credit shall be reduced by the credit allowed under
Section 23621. The credit shall also be reduced by the federal credit
allowed under Section 51 of the Internal Revenue Code.
In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the qualified taxpayer upon
which the credit is based shall be reduced by the amount of the
credit, prior to any reduction required by subdivision (f) or (g).
(f) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the taxable year, that portion of the
credit that exceeds the "tax" may be carried over and added to the
credit, if any, in succeeding years, until the credit is exhausted.
The credit shall be applied first to the earliest taxable years
possible.
(g) (1) The amount of credit otherwise allowed under this section,
including prior year credit carryovers, that may reduce the "tax"
for the taxable year shall not exceed the amount of tax that would be
imposed on the qualified taxpayer's business income attributed to a
manufacturing enhancement area determined as if that attributed
income represented all of the net income of the qualified taxpayer
subject to tax under this part.
(2) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the
manufacturing enhancement area. For that purpose, the taxpayer's
business income attributable to sources in this state first shall be
determined in accordance with Chapter 17 (commencing with Section
25101). That business income shall be further apportioned to the
manufacturing enhancement area in accordance with Article 2
(commencing with Section 25120) of Chapter 17, modified for purposes
of this section in accordance with paragraph (3).
(3) Income shall be apportioned to a manufacturing enhancement
area by multiplying the total California business income of the
taxpayer by a fraction, the numerator of which is the property factor
plus the payroll factor, and the denominator of which is two. For
the purposes of this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the manufacturing enhancement
area during the taxable year, and the denominator of which is the
average value of all the taxpayer's real and tangible personal
property owned or rented and used in this state during the taxable
year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the manufacturing
enhancement area during the taxable year for compensation, and the
denominator of which is the total compensation paid by the taxpayer
in this state during the taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, as if it were an amount exceeding the "tax" for the taxable
year, as provided in subdivision (g).
(h) If the taxpayer is allowed a credit pursuant to this section
for qualified wages paid or incurred, only one credit shall be
allowed to the taxpayer under this part with respect to any wage
consisting in whole or in part of those qualified wages.
(i) The qualified taxpayer shall do both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
manufacturing enhancement area, a certification that provides that a
qualified disadvantaged individual meets the eligibility requirements
specified in paragraph (5) of subdivision (b). The Employment
Development Department may provide preliminary screening and referral
to a certifying agency. The Department of Housing and Community
Development shall develop regulations governing the issuance of
certificates pursuant to subdivision (d) of Section 7086 of the
Government Code and shall develop forms for this purpose.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(j) (1) The credit authorized by this section shall not be allowed
for taxable years beginning on or after January 1, 2008.
(2) On or after January 1, 2008, taxpayers that would otherwise be
eligible to claim a credit authorized by this section may claim a
credit for these expenses under Section 23622.9.
(3) Notwithstanding this subdivision, the provisions of
subdivision (f) of Section 23036 shall apply with respect to any
remaining carryover of the credit previously authorized by this
section.
SEC. 8. Section 23622.9 is added to the Revenue and Taxation Code,
to read:
23622.9. (a) For each taxable year beginning on or after January
1, 2008, there shall be allowed a credit against the "tax," as
defined in Section 23036, to a taxpayer
qualified taxpayer who employs a qualified employee in a
geographically targeted economic development area during the taxable
year. The amount of credit shall be equal to 30 percent of
the amount of all qualified wages paid to a qualified employee during
each year of his or her employment with the taxpayer, not to exceed
five full calendar years of employment per each qualified employee.
The credit shall be equal to the sum of each of the
following:
(1) Fifty percent of the qualified wages in the first year of
employment.
(2) Forty percent of the qualified wages in the second year of
employment.
(3) Thirty percent of the qualified wages in the third year of
employment.
(4) Twenty percent of the qualified wages in the fourth year of
employment.
(5) Ten percent of the qualified wages in the fifth year of
employment.
(b) For purposes of this section, all of the following definitions
apply:
(1) "Geographically targeted economic development area" means any
of the following:
(A) An enterprise zone designated as an enterprise zone pursuant
to Chapter 12.8 (commencing with Section 7070) of Division 7 of Title
1 of the Government Code.
(B) A local agency military base recovery area designated as a
local agency military base recovery area pursuant to Chapter 12.97
(commencing with Section 7105).
(C) A targeted tax area designated as a targeted tax area pursuant
to Chapter 12.93 (commencing with Section 7097).
(D) A manufacturing enhancement area designated as a manufacturing
enhancement area pursuant to Chapter 12.8 (commencing with Section
7073.8).
(2) "Geographically targeted economic development area expiration
date" means the date the geographically targeted economic development
area designation expires, is no longer binding, or becomes
inoperative.
(3) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(4) (A) "Qualified employee" means an individual who meets all of
the following requirements:
(i) At least 90 percent of whose services for the
taxpayer qualified taxpayer during the taxable
year are directly related to the conduct of the taxpayer's
qualified taxpayer's trade or business located
in a geographically targeted economic development area.
(ii) Performs at least 50 percent of his or her services for the
taxpayer qualified taxpayer during the
taxable year in a geographically targeted economic development area.
(iii) Is initially hired by the taxpayer
qualified taxpayer after the date of original designation of
the area in which services were performed as a geographically
targeted economic development area.
(iv) Is any of the following, as documented by the geographically
targeted economic development area coordinator:
(I) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a person enrolled and documented
in the California Job Training Automation System by an authorized WIA
representative under the federal Workforce Investment Act (29 U.S.C.
Sec. 720 et seq.), or its successor.
(II) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a person receiving benefits
under the California Work Opportunity and Responsibility to Kids
program pursuant to Article 3.2 (commencing with Section 11200) of
Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions
Code, or its successor.
(I) Immediately preceding the qualified employee's commencement of
employment with the qualified taxpayer, was a person eligible for
services under the federal Job Training Partnership Act (29 U.S.C.
Sec. 1501 et seq.), or its successor, who is receiving, or is
eligible to receive, subsidized employment, training, or services
funded by the federal Job Training Partnership Act, or its successor.
(II) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a person eligible to
be a voluntary or mandatory registrant under the Greater Avenues for
Independence Act of 1985 (GAIN) program provided for pursuant to
Article 3.2 (commencing with Section 11320) of Chapter 2 of Part 3 of
Division 9 of the Welfare and Institutions Code, or its successor.
(III) Immediately preceding the qualified employee's commencement
of employment with the taxpayer qualified
taxpayer , was an economically disadvantaged individual
14 16 years of age or older. For
purposes of this section, "economically disadvantaged individual"
means an individual who meets the definition of that term under the
Workforce Investment Act, or its successor.
(IV) Immediately preceding the qualified employee's commencement
of employment with the taxpayer qualified
taxpayer , was a dislocated worker. For purposes of
this section, a "dislocated worker" means an individual who meets the
definition of that term under the Workforce Investment Act, or its
successor. worker who meets any of the following
requirements:
(aa) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(bb) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(cc) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(dd) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(ee) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(ff) Was an active member of the Armed Forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(gg) Is a seasonal or migrant worker who experiences chronic
seasonal unemployment and underemployment in the agriculture
industry, aggravated by continual advancements in technology and
mechanization.
(hh) Has been terminated or laid off, or has received a notice of
termination or layoff, as a consequence of compliance with the Clean
Air Act.
(V) Immediately preceding the qualified employee's commencement of
employment with the taxpayer qualified
taxpayer , was a disabled individual who is eligible for
or enrolled in, or has completed a state rehabilitation plan.
(VI) Is an individual who was discharged or released from service
under conditions other than dishonorable, and is either of the
following:
(aa) A service-connected disabled veteran.
(bb) An individual who was discharged or released in the last 48
months from active military, naval, or an air service.
(cc) An individual who served in the active military, naval, or
air service of the United States between February 28, 1961, and May
8, 1975.
(dd) An individual who was discharged or released in the last 48
months from active service in the National Guard if the individual
served on foreign soil prior to discharge.
(VII) Has a prior felony conviction. An individual shall be
treated as convicted if he or she was placed on probation by a state
court without a finding of guilt.
(VII) Is an individual who has convicted of a felony or a
misdemeanor offense punishable by incarceration, or a person charged
with a felony offense or a misdemeanor offense punishable by
incarceration but placed on probation by a state court without a
finding of guilt.
(VIII) Is an individual who is a former member of a criminal
street gang, certified as such by a federal, state, or local law
enforcement agency.
(VIII)
(IX) Immediately preceding the qualified employee's
commencement of employment with the taxpayer
qualified taxpayer , was a person receiving
eligible for, or a recipient of, any of the following:
(aa) Federal Supplemental Security Income benefits.
(bb) Temporary Assistance for Needy Families.
(cc) Food stamps.
(dd) State and local general assistance.
(IX)
(X) Immediately preceding the qualified employee's
commencement of employment with the taxpayer
qualified taxpayer , was a member of a federally recognized
Indian tribe, band, or other group of Native American descent.
(X)
(XI) Immediately preceding the qualified employee's
commencement of employment with the taxpayer
qualified taxpayer , was a resident of a targeted employment
area, as defined in Section 7072 of the Government Code.
(XII) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer located in a targeted tax
area, was a resident of that targeted tax area.
(XI)
(XIII) Immediately preceding the qualified employee's
commencement of employment with the taxpayer
qualified taxpayer , was a member of a targeted group, as
defined in Section 51(d) of the Internal Revenue Code, or its
successor.
(XII) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a "qualified former foster care
recipient," which means an individual who is certified by the local
designated agency to have met both the following:
(aa) Having attained age 17 but not age 25 on the hiring date.
(bb) Having, before attaining the age of 18, been either a
recipient of foster care maintenance payments under a state plan
approved under Part E of Title IV of the Social Security Act (42
U.S.C. Sec. 301), or in foster care under the responsibility of a
state.
(B) (i) Priority for employment shall be provided to any of the
following individuals:
(I) An individual who is enrolled in a qualified program under the
federal Workforce Investment Act, or its successor.
(II) An individual who is enrolled in the California Work
Opportunity and Responsibility to Kids Program, or its successor.
(III) An individual who is eligible as a member of a targeted
group under the Work Opportunity Tax Credit (Section 51 of the
Internal Revenue Code), or its successor.
(ii) On or before December 15 of each calendar year, the
Employment Development Department shall report to the Legislature
regarding the following information:
(I) Types of training and services that the department provided,
in the previous fiscal year, to the individuals enrolled and
documented in the California Job Training Automation System and in
the California Work Opportunity and Responsibility to Kids Program.
(II) Number of individuals enrolled in the California Job Training
Automation System and in the California Work Opportunity and
Responsibility to Kids Program who, in the previous fiscal year, were
referred by the Employment Development Department to the
geographically targeted economic development area programs for
employment.
(5) "Qualified wages" means the following:
(A) (i) Except as provided in clause (ii), that portion of wages
paid or incurred by the taxpayer qualified
taxpayer during the taxable year to qualified employees that
does not exceed 150 percent of the minimum wage.
(ii) For up to 1,350 qualified employees who are employed by the
taxpayer qualified taxpayer in the Long
Beach Enterprise Zone in aircraft manufacturing activities
described in Codes 3721 to 3728, inclusive, and Code 3812 of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition,
"qualified wages" means manufacturing activities
described as industrial activities in the North American Industry
Classification System Manual, published by the United States Office
of Management and Budget, "qualified wages" means that portion
of hourly wages that does not exceed 202 percent of the minimum wage.
The Employment Development Department shall determine which
classifications apply and annually publish those classifications on
the Employment Development Department's Web site.
(B) Wages received during the 60-month period beginning with the
first day the employee commences employment with the
taxpayer qualified taxpayer . Reemployment in
connection with any increase, including a regularly occurring
seasonal increase, in the trade or business operations of the
taxpayer qualified taxpayer does not
constitute commencement of employment for purposes of this section.
(C) Qualified wages do not include any wages paid or incurred by
the taxpayer qualified taxpayer on or
after the expiration date of the geographically targeted economic
development area. However, wages paid or incurred with respect to
qualified employees who are employed by the taxpayer
qualified taxpayer within the geographically
targeted economic development area within the 60-month period prior
to the zone expiration date shall continue to qualify for the credit
under this section after the expiration date of the geographically
targeted economic development area, in accordance with all provisions
of this section applied as if the geographically targeted economic
development area designation were still in existence and binding.
(6) "Seasonal employment" means employment by a taxpayer
qualified taxpayer that has regular and
predictable substantial reductions in trade or business operations.
(7) "Taxpayer" means a person or entity engaged in a trade or
business within a geographically targeted economic development area.
(7) "Qualified taxpayer" means a taxpayer that meets any of the
following requirements:
(A) Is a person or entity engaged in a trade or business within an
enterprise zone designated pursuant to Chapter 12.8 (commencing with
Section 7070) of Division 7 of Title 1 of the Government Code.
(B) Is a person or entity engaged in a trade or business within a
local agency military base recovery area designated pursuant to
Chapter 12.97 (commencing with Section 7105) of the Government Code.
(C) Is a person or entity that meets both of the following:
(i) Is engaged in a trade or business within a targeted tax area
designated pursuant to Chapter 12.93 (commencing with Section 7097)
of the Government Code, or is engaged in a trade or business within a
manufacturing enhancement area designated pursuant to Chapter 12.8
(commencing with Section 7073.8) of the Government Code.
(ii) Is engaged in those lines of business described as industrial
in the North American Industry Classification System Manual,
published by the United States Office of Management and Budget. The
Employment Development Department shall determine which
classifications apply and annually publish those classifications on
the Employment Development Department's Web site.
(c) The taxpayer qualified taxpayer
shall do both of the following:
(1) Obtain a certificate from the geographically targeted economic
development area coordinator designated by the local jurisdiction in
which the employee is employed. The Department of Housing and
Community Development shall develop regulations governing the
issuance of certificates by local governments pursuant to subdivision
(a) of Section 7086 of the Government Code. Applications
for this certification shall be submitted to the certifying agency
within 24 months of the commencement date of employment with the
taxpayer. The certifying agency shall not Code. The
certifying agency shall not issue a certification when the
employer or the employer's agent is the second signatory on the
applicant's statement for establishing eligibility.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(d) (1) For purposes of this section:
(A) All employees of all corporations which are members of the
same controlled group of corporations shall be treated as employed by
a single taxpayer qualified taxpayer .
(B) The credit, if any, allowable by this section with respect to
each trade or business shall be determined by reference to its
proportionate share of the expense of the qualified wages giving rise
to the credit, and shall be allocated in that manner.
(C) For purposes
of this subdivision, "controlled group of corporations" means
"controlled group of corporations" as defined in Section 1563(a) of
the Internal Revenue Code, except that:
(i) "More than 50 percent" shall be substituted for "at least 80
percent" each place it appears in Section 1563 (a)(1) of the Internal
Revenue Code.
(ii) The determination shall be made without regard to Sections
1563 (a)(4) and (e)(3)(c) of the Internal Revenue Code.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section, other than subdivision (e), for any calendar year
ending after that acquisition, the employment relationship between a
qualified employee and an employer shall not be treated as terminated
if the employee continues to be employed in that trade or business.
(e) (1) (A) If the employment, other than seasonal employment, of
any qualified employee, with respect to whom qualified wages are
taken into account under subdivision (a) is terminated by the
taxpayer qualified taxpayer at any time
during the first 270 days of that employment, whether or not
consecutive, or before the close of the 270th calendar day after the
day in which that employee completes 90 days of employment with the
taxpayer qualified taxpayer , the tax
imposed by this part for the taxable year in which that employment is
terminated shall be increased by an amount equal to the credit
allowed under subdivision (a) for that taxable year and all prior
taxable years attributable to qualified wages paid or incurred with
respect to that employee.
(B) If the seasonal employment of any qualified employee, with
respect to whom qualified wages are taken into account under
subdivision (a) is not continued by the taxpayer
qualified taxpayer for a period of 270 days of employment
during the 60-month period beginning with the day the qualified
employee commences seasonal employment with the taxpayer
qualified taxpayer , the tax imposed
by this part, for the taxable year that includes the 60th month
following the month in which the qualified employee commences
seasonal employment with the taxpayer
qualified taxpayer , shall be increased by an amount equal to
the credit allowed under subdivision (a) for that taxable year and
all prior taxable years attributable to qualified wages paid or
incurred with respect to that qualified employee. If the employer is
located in an area where a state of disaster has been declared, a
qualified employee has 360 additional days of nonemployment for
purposes of determining his or her status as a "qualified employee,"
as defined in this section.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of a qualified employee who
voluntarily leaves the employment of the taxpayer
qualified taxpayer .
(ii) A termination of employment of a qualified employee who,
before the close of the period referred to in paragraph (1), becomes
disabled and unable to perform the services of that employment,
unless that disability is removed before the close of that period and
the taxpayer qualified taxpayer fails
to offer reemployment to that employee.
(iii) A termination of employment of a qualified employee, if it
is determined that the termination was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that employee.
(iv) A termination of employment of a qualified employee due to a
substantial reduction in the trade or business operations of the
taxpayer qualified taxpayer .
(v) A termination of employment of a qualified employee, if that
employee is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
employee who voluntarily fails to return to the seasonal employment
of the taxpayer qualified taxpayer .
(ii) A failure to continue the seasonal employment of a qualified
employee who, before the close of the period referred to in
subparagraph (B) of paragraph (1), becomes disabled and unable to
perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
taxpayer qualified taxpayer fails to
offer seasonal employment to that qualified employee.
(iii) A failure to continue the seasonal employment of a qualified
employee, if it is determined that the failure to continue the
seasonal employment was due to the misconduct (as defined in Sections
1256-30 to 1256-43, inclusive, of Title 22 of the California Code of
Regulations) of that qualified employee.
(iv) A failure to continue seasonal employment of a qualified
employee due to a substantial reduction in the regular seasonal trade
or business operations of the taxpayer
qualified taxpayer .
(v) A failure to continue the seasonal employment of a qualified
employee, if that qualified employee is replaced by other qualified
employees so as to create a net increase in both the number of
seasonal employees and the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the taxpayer qualified taxpayer
and a qualified employee shall not be treated as terminated by
either of the following:
(i) By a transaction to which Section 381(a) of the Internal
Revenue Code applies, if the qualified employee continues to be
employed by the acquiring corporation.
(ii) By reason of a mere change in the form of conducting the
trade or business of the taxpayer qualified
taxpayer , if the qualified employee continues to be employed
in that trade or business and the taxpayer
qualified taxpayer retains a substantial interest in the trade
or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(f) Rules similar to the rules provided in Section 46(e) and (h)
of the Internal Revenue Code shall apply to both the following:
(1) An organization to which Section 593 of the Internal Revenue
Code applies.
(2) A regulated investment company or a real estate investment
trust subject to taxation under this part.
(g) (1) The credit allowable under this section shall be reduced
by the credit allowed under Sections 23623.5 and 23625
claimed for the same employee. The credit shall also be reduced by
the by the federal credit allowed under Section
51 of the Internal Revenue Code.
(2) Any deduction otherwise allowed under this part for the wages
or salaries paid or incurred by the taxpayer
qualified taxpayer upon which the credit is based shall be
reduced by the amount of the credit, prior to any reduction required
by subdivision (h) or (i).
(h) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the taxable year, that portion of the
credit that exceeds the "tax" may be carried over and added to the
credit, if any, in succeeding taxable years, until the credit is
exhausted. The credit shall be applied first to the earliest taxable
years possible.
(i) (1) The amount of the credit otherwise allowed under this
section and Section 23612.2 Sections 23612.2,
23633, and 23645 , including any credit carryover from prior
years, that may reduce the "tax" for the taxable year shall not
exceed the amount of tax which would be imposed on the
taxpayer's qualified taxpayer's business income
attributable to the geographically targeted economic development area
determined as if that attributable income represented all of the
income of the taxpayer qualified taxpayer
subject to tax under this part.
(2) Attributable income shall be that portion of the
taxpayer's qualified taxpayer's California
source business income that is apportioned to the geographically
targeted economic development area. For that purpose, the
taxpayer's qualified taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101) of Part
11. That business income shall be further apportioned to the
geographically targeted economic development area in accordance with
Article 2 (commencing with Section 25120) of Chapter 17 of Part 11,
modified for purposes of this section in accordance with paragraph
(3).
(3) Business income shall be apportioned to the geographically
targeted economic development area by multiplying the total
California business income of the taxpayer
qualified taxpayer by a fraction, the numerator of which is the
property factor plus the payroll factor, and the denominator of
which is two. For purposes of this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's qualified
taxpayer's real and tangible personal property owned or rented
and used in the geographically targeted economic development area
during the taxable year, and the denominator of which is the average
value of all the taxpayer's qualified
taxpayer's real and tangible personal property owned or rented
and used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer
qualified taxpayer in the geographically targeted economic
development area during the taxable year for compensation, and the
denominator of which is the total compensation paid by the
taxpayer qualified taxpayer in this state during
the taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, as if it were an amount exceeding the "tax" for the taxable
year, as provided in subdivision (h).
(j) The credit allowed to a qualified taxpayer pursuant to this
section shall be known and may be cited as the Enterprise Zone
Credit.
SEC. 9. Section 23634 of the Revenue and Taxation Code is amended
to read:
23634. (a) For each taxable year beginning on or after January 1,
1998, there shall be allowed a credit against the "tax" (as defined
by Section 23036) to a qualified taxpayer who employs a qualified
employee in a targeted tax area during the taxable year. The credit
shall be equal to the sum of each of the following:
(1) Fifty percent of qualified wages in the first year of
employment.
(2) Forty percent of qualified wages in the second year of
employment.
(3) Thirty percent of qualified wages in the third year of
employment.
(4) Twenty percent of qualified wages in the fourth year of
employment.
(5) Ten percent of qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) That portion of wages paid or incurred by the qualified
taxpayer during the taxable year to qualified employees that does not
exceed 150 percent of the minimum wage.
(B) Wages received during the 60-month period beginning with the
first day the employee commences employment with the qualified
taxpayer. Reemployment in connection with any increase, including a
regularly occurring seasonal increase, in the trade or business
operations of the qualified taxpayer does not constitute commencement
of employment for purposes of this section.
(C) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the targeted tax area expiration
date. However, wages paid or incurred with respect to qualified
employees who are employed by the qualified taxpayer within the
targeted tax area within the 60-month period prior to the targeted
tax area expiration date shall continue to qualify for the credit
under this section after the targeted tax area expiration date, in
accordance with all provisions of this section applied as if the
targeted tax area designation were still in existence and binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "Targeted tax area expiration date" means the date the
targeted tax area designation expires, is revoked, is no longer
binding, or becomes inoperative.
(4) (A) "Qualified employee" means an individual who meets all of
the following requirements:
(i) At least 90 percent of his or her services for the qualified
taxpayer during the taxable year are directly related to the conduct
of the qualified taxpayer's trade or business located in a targeted
tax area.
(ii) Performs at least 50 percent of his or her services for the
qualified taxpayer during the taxable year in a targeted tax area.
(iii) Is hired by the qualified taxpayer after the date of
original designation of the area in which services were performed as
a targeted tax area.
(iv) Is any of the following:
(I) Immediately preceding the qualified employee's commencement of
employment with the qualified taxpayer, was a person eligible for
services under the federal Job Training Partnership Act (29 U.S.C.
Sec. 1501 et seq.), or its successor, who is receiving, or is
eligible to receive, subsidized employment, training, or services
funded by the federal Job Training Partnership Act, or its successor.
(II) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a person eligible to
be a voluntary or mandatory registrant under the Greater Avenues for
Independence Act of 1985 (GAIN) provided for pursuant to Article 3.2
(commencing with Section 11320) of Chapter 2 of Part 3 of Division 9
of the Welfare and Institutions Code, or its successor.
(III) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was an economically
disadvantaged individual 14 years of age or older.
(IV) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a dislocated worker
who meets any of the following:
(aa) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(bb) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(cc) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(dd) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(ee) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(ff) Was an active member of the Armed Forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(gg) Is a seasonal or migrant worker who experiences chronic
seasonal unemployment and underemployment in the agriculture
industry, aggravated by continual advancements in technology and
mechanization.
(hh) Has been terminated or laid off, or has received a notice of
termination or layoff, as a consequence of compliance with the Clean
Air Act.
(V) Immediately preceding the qualified employee's commencement of
employment with the qualified taxpayer, was a disabled individual
who is eligible for or enrolled in, or has completed a state
rehabilitation plan or is a service-connected disabled veteran,
veteran of the Vietnam era, or veteran who is recently separated from
military service.
(VI) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was an ex-offender. An
individual shall be treated as convicted if he or she was placed on
probation by a state court without a finding of guilt.
(VII) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a person eligible for
or a recipient of any of the following:
(aa) Federal Supplemental Security Income benefits.
(bb) Aid to Families with Dependent Children.
(cc) Food stamps.
(dd) State and local general assistance.
(VIII) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a member of a
federally recognized Indian tribe, band, or other group of Native
American descent.
(IX) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a resident of a
targeted tax area.
(X) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a member of a targeted group, as
defined in Section 51(d) of the Internal Revenue Code, or its
successor.
(B) Priority for employment shall be provided to an individual who
is enrolled in a qualified program under the federal Job Training
Partnership Act or the Greater Avenues for Independence Act of 1985
or who is eligible as a member of a targeted group under the Work
Opportunity Tax Credit (Section 51 of the Internal Revenue Code), or
its successor.
(5) (A) "Qualified taxpayer" means a person or entity that meets
both of the following:
(i) Is engaged in a trade or business within a targeted tax area
designated pursuant to Chapter 12.93 (commencing with Section 7097)
of Division 7 of Title 1 of the Government Code.
(ii) Is engaged in those lines of business described in Codes 2000
to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive, of
the Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition.
(B) In the case of any passthrough entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section or
Section 17053.34 shall be allowed to the passthrough entity and
passed through to the partners or shareholders in accordance with
applicable provisions of this part or Part 10 (commencing with
Section 17001). For purposes of this subparagraph, the term
"passthrough entity" means any partnership or "S" corporation.
(6) "Seasonal employment" means employment by a qualified taxpayer
that has regular and predictable substantial reductions in trade or
business operations.
(c) If the qualified taxpayer is allowed a credit for qualified
wages pursuant to this section, only one credit shall be allowed to
the taxpayer under this part with respect to those qualified wages.
(d) The qualified taxpayer shall do both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
targeted tax area, a certification that provides that a qualified
employee meets the eligibility requirements specified in clause (iv)
of subparagraph (A) of paragraph (4) of subdivision (b). The
Employment Development Department may provide preliminary screening
and referral to a certifying agency. The Department of Housing and
Community Development shall develop regulations for the issuance of
certificates pursuant to subdivision (g) of Section 7097 of the
Government Code, and shall develop forms for this purpose.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(e) (1) For purposes of this section:
(A) All employees of all corporations that are members of the same
controlled group of corporations shall be treated as employed by a
single taxpayer.
(B) The credit, if any, allowable by this section to each member
shall be determined by reference to its proportionate share of the
expense of the qualified wages giving rise to the credit, and shall
be allocated in that manner.
(C) For purposes of this subdivision, "controlled group of
corporations" means "controlled group of corporations" as defined in
Section 1563(a) of the Internal Revenue Code, except that:
(i) "More than 50 percent" shall be substituted for "at least 80
percent" each place it appears in Section 1563(a)(1) of the Internal
Revenue Code.
(ii) The determination shall be made without regard to Sections
1563 (a)(4) and (e)(3)(C) of the Internal Revenue Code.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section (other than subdivision (f)) for any calendar year
ending after that acquisition, the employment relationship between a
qualified employee and an employer shall not be treated as terminated
if the employee continues to be employed in that trade or business.
(f) (1) (A) If the employment, other than seasonal employment, of
any qualified employee with respect to whom qualified wages are taken
into account under subdivision (a) is terminated by the qualified
taxpayer at any time during the first 270 days of that employment
(whether or not consecutive) or before the close of the 270th
calendar day after the day in which that employee completes 90 days
of employment with the qualified taxpayer, the tax imposed by this
part for the taxable year in which that employment is terminated
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
employee.
(B) If the seasonal employment of any qualified employee, with
respect to whom qualified wages are taken into account under
subdivision (a) is not continued by the qualified taxpayer for a
period of 270 days of employment during the 60-month period beginning
with the day the qualified employee commences seasonal employment
with the qualified taxpayer, the tax imposed by this part, for the
taxable year that includes the 60th month following the month in
which the qualified employee commences seasonal employment with the
qualified taxpayer, shall be increased by an amount equal to the
credit allowed under subdivision (a) for that taxable year and all
prior taxable years attributable to qualified wages paid or incurred
with respect to that qualified employee.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of a qualified employee who
voluntarily leaves the employment of the qualified taxpayer.
(ii) A termination of employment of a qualified employee who,
before the close of the period referred to in subparagraph (A) of
paragraph (1), becomes disabled and unable to perform the services of
that employment, unless that disability is removed before the close
of that period and the qualified taxpayer fails to offer reemployment
to that employee.
(iii) A termination of employment of a qualified employee, if it
is determined that the termination was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that employee.
(iv) A termination of employment of a qualified employee due to a
substantial reduction in the trade or business operations of the
taxpayer.
(v) A termination of employment of a qualified employee, if that
employee is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
employee who voluntarily fails to return to the seasonal employment
of the qualified taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
employee who, before the close of the period referred to in
subparagraph (B) of paragraph (1), becomes disabled and unable to
perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
qualified taxpayer fails to offer seasonal employment to that
qualified employee.
(iii) A failure to continue the seasonal employment of a qualified
employee, if it is determined that the failure to continue the
seasonal employment was due to the misconduct (as defined in Sections
1256-30 to 1256-43, inclusive, of Title 22 of the California Code of
Regulations) of that qualified employee.
(iv) A failure to continue seasonal employment of a qualified
employee due to a substantial reduction in the regular seasonal trade
or business operations of the qualified taxpayer.
(v) A failure to continue the seasonal employment of a qualified
employee, if that qualified employee is replaced by other qualified
employees so as to create a net increase in both the number of
seasonal employees and the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the qualified taxpayer and a qualified employee shall not be
treated as terminated by either of the following:
(i) By a transaction to which Section 381(a) of the Internal
Revenue Code applies, if the qualified employee continues to be
employed by the acquiring corporation.
(ii) By reason of a mere change in the form of conducting the
trade or business of the qualified taxpayer, if the qualified
employee continues to be employed in that trade or business and the
qualified taxpayer retains a substantial interest in that trade or
business.
(3) Any increase in tax under paragraph (1)
shall not be treated as tax imposed by this part for purposes of
determining the amount of any credit allowable under this part.
(g) Rules similar to the rules provided in Sections 46(e) and (h)
of the Internal Revenue Code shall apply to both of the following:
(1) An organization to which Section 593 of the Internal Revenue
Code applies.
(2) A regulated investment company or a real estate investment
trust subject to taxation under this part.
(h) For purposes of this section, "targeted tax area" means an
area designated pursuant to Chapter 12.93 (commencing with Section
7097) of Division 7 of Title 1 of the Government Code.
(i) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the taxable year, that portion of the
credit that exceeds the "tax" may be carried over and added to the
credit, if any, in succeeding taxable years, until the credit is
exhausted. The credit shall be applied first to the earliest taxable
years possible.
(j) (1) The amount of the credit otherwise allowed under this
section and Section 23633, including any credit carryover from prior
years, that may reduce the "tax" for the taxable year shall not
exceed the amount of tax that would be imposed on the qualified
taxpayer's business income attributable to the targeted tax area
determined as if that attributable income represented all of the
income of the qualified taxpayer subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the targeted
tax area. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the targeted tax area
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this section in accordance with
paragraph (3).
(3) Business income shall be apportioned to the targeted tax area
by multiplying the total California business income of the taxpayer
by a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the targeted tax area during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the targeted tax area during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, as if it were an amount exceeding the "tax" for the taxable
year, as provided in subdivision (h).
(5) In the event that a credit carryover is allowable under
subdivision (h) for any taxable year after the targeted tax area
designation has expired or been revoked, the targeted tax area shall
be deemed to remain in existence for purposes of computing the
limitation specified in this subdivision.
(k) (1) The credit authorized by this section shall not be allowed
on or after January 1, 2008.
(2) On or after January 1, 2008, taxpayers that would otherwise be
eligible to claim a credit authorized by this section may claim a
credit for these expenses under Section 23622.9.
(3) Notwithstanding this subdivision, the provisions of
subdivision (f) of Section 23036 shall apply with respect to any
remaining carryover of the credit previously authorized by this
section.
SEC. 10. Section 23646 of the Revenue and Taxation Code is amended
to read:
23646. (a) For each taxable year beginning on or after January 1,
1995, there shall be allowed as a credit against the "tax" (as
defined in Section 23036) to a qualified taxpayer for hiring a
qualified disadvantaged individual or a qualified displaced employee
during the taxable year for employment in the LAMBRA. The credit
shall be equal to the sum of each of the following:
(1) Fifty percent of the qualified wages in the first year of
employment.
(2) Forty percent of the qualified wages in the second year of
employment.
(3) Thirty percent of the qualified wages in the third year of
employment.
(4) Twenty percent of the qualified wages in the fourth year of
employment.
(5) Ten percent of the qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) That portion of wages paid or incurred by the employer during
the taxable year to qualified disadvantaged individuals or qualified
displaced employees that does not exceed 150 percent of the minimum
wage.
(B) The total amount of qualified wages which may be taken into
account for purposes of claiming the credit allowed under this
section shall not exceed two million dollars ($2,000,000) per taxable
year.
(C) Wages received during the 60-month period beginning with the
first day the individual commences employment with the taxpayer.
Reemployment in connection with any increase, including a regularly
occurring seasonal increase, in the trade or business operation of
the qualified taxpayer does not constitute commencement of employment
for purposes of this section.
(D) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the LAMBRA expiration date.
However, wages paid or incurred with respect to qualified
disadvantaged individuals or qualified displaced employees who are
employed by the qualified taxpayer within the LAMBRA within the
60-month period prior to the LAMBRA expiration date shall continue to
qualify for the credit under this section after the LAMBRA
expiration date, in accordance with all provisions of this section
applied as if the LAMBRA designation were still in existence and
binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "LAMBRA" means a local agency military base recovery area
designated in accordance with the provisions of Section 7114 of the
Government Code.
(4) "Qualified disadvantaged individual" means an individual who
satisfies all of the following requirements:
(A) (i) At least 90 percent of whose services for the taxpayer
during the taxable year are directly related to the conduct of the
taxpayer's trade or business located in a LAMBRA.
(ii) Who performs at least 50 percent of his or her services for
the taxpayer during the taxable year in the LAMBRA.
(B) Who is hired by the employer after the designation of the area
as a LAMBRA in which the individual's services were primarily
performed.
(C) Who is any of the following immediately preceding the
individual's commencement of employment with the taxpayer:
(i) An individual who has been determined eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.), or its successor.
(ii) Any voluntary or mandatory registrant under the Greater
Avenues for Independence Act of 1985 provided for pursuant to Article
3.2 (commencing with Section 11320) of Chapter 2 of Part 3 of
Division 9 of the Welfare and Institutions Code.
(iii) An economically disadvantaged individual age 16 years or
older.
(iv) A dislocated worker who meets any of the following
conditions:
(I) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(II) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(III) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(IV) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(V) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(VI) Was an active member of the Armed Forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(VII) Experiences chronic seasonal unemployment and
underemployment in the agriculture industry, aggravated by continual
advancements in technology and mechanization.
(VIII) Has been terminated or laid off or has received a notice of
termination or layoff as a consequence of compliance with the Clean
Air Act.
(v) An individual who is enrolled in or has completed a state
rehabilitation plan or is a service-connected disabled veteran,
veteran of the Vietnam era, or veteran who is recently separated from
military service.
(vi) An ex-offender. An individual shall be treated as convicted
if he or she was placed on probation by a state court without a
finding of guilty.
(vii) A recipient of:
(I) Federal Supplemental Security Income benefits.
(II) Aid to Families with Dependent Children.
(III) Food stamps.
(IV) State and local general assistance.
(viii) Is a member of a federally recognized Indian tribe, band,
or other group of Native American descent.
(5) "Qualified taxpayer" means a corporation that conducts a trade
or business within a LAMBRA and, for the first two taxable years,
has a net increase in jobs (defined as 2,000 paid hours per employee
per year) of one or more employees as determined below in the LAMBRA.
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA. For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero. If the
taxpayer has a net increase in jobs in the state, the credit shall be
allowed only if one or more full-time employees is employed within
the LAMBRA.
(B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
(i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
(ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
(C) In the case of a qualified taxpayer that first commences doing
business in the LAMBRA during the taxable year, for purposes of
clauses (i) and (ii), respectively, of subparagraph (B) the divisors
"2,000" and "12" shall be multiplied by a fraction, the numerator of
which is the number of months of the taxable year that the taxpayer
was doing business in the LAMBRA and the denominator of which is 12.
(6) "Qualified displaced employee" means an individual who
satisfies all of the following requirements:
(A) Any civilian or military employee of a base or former base
that has been displaced as a result of a federal base closure act.
(B) (i) At least 90 percent of whose services for the taxpayer
during the taxable year are directly related to the conduct of the
taxpayer's trade or business located in a LAMBRA.
(ii) Who performs at least 50 percent of his or her services for
the taxpayer during the taxable year in a LAMBRA.
(C) Who is hired by the employer after the designation of the area
in which services were performed as a LAMBRA.
(7) "Seasonal employment" means employment by a qualified taxpayer
that has regular and predictable substantial reductions in trade or
business operations.
(8) "LAMBRA expiration date" means the date the LAMBRA designation
expires, is no longer binding, or becomes inoperative.
(c) For qualified disadvantaged individuals or qualified displaced
employees hired on or after January 1, 2001, the taxpayer shall do
both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the administrative entity of the local
county or city for the federal Job Training Partnership Act, or its
successor, the local county GAIN office or social services agency, or
the local government administering the LAMBRA, a certification that
provides that a qualified disadvantaged individual or qualified
displaced employee meets the eligibility requirements specified in
subparagraph (C) of paragraph (4) of subdivision (b) or subparagraph
(A) of paragraph (6) of subdivision (b). The Employment Development
Department may provide preliminary screening and referral to a
certifying agency. The Department of Housing and Community
Development shall develop regulations governing the issuance of
certificates pursuant to Section 7114.2 of the Government Code and
shall develop forms for this purpose.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(d) (1) For purposes of this section, both of the following apply:
(A) All employees of all corporations that are members of the same
controlled group of corporations shall be treated as employed by a
single employer.
(B) The credit (if any) allowable by this section to each member
shall be determined by reference to its proportionate share of the
qualified wages giving rise to the credit.
(2) For purposes of this subdivision, "controlled group of
corporations" has the meaning given to that term by Section 1563(a)
of the Internal Revenue Code, except that both of the following
apply:
(A) "More than 50 percent" shall be substituted for "at least 80
percent" each place it appears in Section 1563(a)(1) of the Internal
Revenue Code.
(B) The determination shall be made without regard to Sections
1563(a)(4) and (e)(3)(C) of the Internal Revenue Code.
(3) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section (other than subdivision (e)) for any calendar year
ending after that acquisition, the employment relationship between an
employee and an employer shall not be treated as terminated if the
employee continues to be employed in that trade or business.
(e) (1) (A) If the employment of any employee, other than seasonal
employment, with respect to whom qualified wages are taken into
account under subdivision (a) is terminated by the taxpayer at any
time during the first 270 days of that employment (whether or not
consecutive) or before the close of the 270th calendar day after the
day in which that employee completes 90 days of employment with the
taxpayer, the tax imposed by this part for the taxable year in which
that employment is terminated shall be increased by an amount equal
to the credit allowed under subdivision (a) for that taxable year and
all prior income years attributable to qualified wages paid or
incurred with respect to that employee.
(B) If the seasonal employment of any qualified disadvantaged
individual, with respect to whom qualified wages are taken into
account under subdivision (a) is not continued by the qualified
taxpayer for a period of 270 days of employment during the 60-month
period beginning with the day the qualified disadvantaged individual
commences seasonal employment with the qualified taxpayer, the tax
imposed by this part, for the taxable year that includes the 60th
month following the month in which the qualified disadvantaged
individual commences seasonal employment with the qualified taxpayer,
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
qualified disadvantaged individual.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of an employee who voluntarily
leaves the employment of the taxpayer.
(ii) A termination of employment of an individual who, before the
close of the period referred to in paragraph (1), becomes disabled to
perform the services of that employment, unless that disability is
removed before the close of that period and the taxpayer fails to
offer reemployment to that individual.
(iii) A termination of employment of an individual, if it is
determined that the termination was due to the misconduct (as defined
in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that individual.
(iv) A termination of employment of an individual due to a
substantial reduction in the trade or business operations of the
taxpayer.
(v) A termination of employment of an individual, if that
individual is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
disadvantaged individual who voluntarily fails to return to the
seasonal employment of the qualified taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
disadvantaged individual who, before the close of the period referred
to in subparagraph (B) of paragraph (1), becomes disabled and unable
to perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
qualified taxpayer fails to offer seasonal employment to that
qualified disadvantaged individual.
(iii) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if it is determined that the failure to
continue the seasonal employment was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that individual.
(iv) A failure to continue seasonal employment of a qualified
disadvantaged individual due to a substantial reduction in the
regular seasonal trade or business operations of the qualified
taxpayer.
(v) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if that individual is replaced by other
qualified disadvantaged individuals so as to create a net increase in
both the number of seasonal employees and the hours of seasonal
employment.
(C) For purposes of paragraph (1), the employment relationship
between the taxpayer and an employee shall not be treated as
terminated by either of the following:
(i) A transaction to which Section 381(a) of the Internal Revenue
Code applies, if the employee continues to be employed by the
acquiring corporation.
(ii) A mere change in the form of conducting the trade or business
of the taxpayer, if the employee continues to be employed in that
trade or business and the taxpayer retains a substantial interest in
that trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(4) At the close of the second taxable year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(5) of subdivision (b), then the amount of the credit previously
claimed shall be added to the taxpayer's tax for the taxpayer's
second taxable year.
(f) In the case of an organization to which Section 593 of the
Internal Revenue Code applies, and a regulated investment company or
a real estate investment trust subject to taxation under this part,
rules similar to the rules provided in Section 46(e) and Section 46
(h) of the Internal Revenue Code shall apply.
(g) The credit shall be reduced by the credit allowed under
Section 23621. The credit shall also be reduced by the federal credit
allowed under Section 51 of the Internal Revenue Code.
In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the taxpayer upon which the
credit is based shall be reduced by the amount of the credit, prior
to any reduction required by subdivision (h) or (i).
(h) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the taxable year, that portion of the
credit that exceeds the "tax" may be carried over and added to the
credit, if any, in succeeding years, until the credit is exhausted.
The credit shall be applied first to the earliest taxable years
possible.
(i) (1) The amount of credit otherwise allowed under this section
and Section 23645, including any prior year carryovers, that may
reduce the "tax" for the taxable year shall not exceed the amount of
tax that would be imposed on the taxpayer's business income
attributed to a LAMBRA determined as if that attributed income
represented all of the income of the taxpayer subject to tax under
this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income that is attributable
to sources in this state first shall be determined in accordance
with Chapter 17 (commencing with Section 25101). That business income
shall be further apportioned to the LAMBRA in accordance with
Article 2 (commencing with Section 25120) of Chapter 17, modified for
purposes of this section in accordance with paragraph (3).
(3) Income shall be apportioned to a LAMBRA by multiplying the
total California business income of the taxpayer by a fraction, the
numerator of which is the property factor plus the payroll factor,
and the denominator of which is two. For purposes of this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the LAMBRA during the taxable
year, and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA during the
taxable year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, as if it were an amount exceeding the "tax" for the taxable
year, as provided in subdivision (h).
(j) If the taxpayer is allowed a credit pursuant to this section
for qualified wages paid or incurred, only one credit shall be
allowed to the taxpayer under this part with respect to any wage
consisting in whole or in part of those qualified wages.
(k) (1) The credit authorized by this section shall not be allowed
on or after January 1, 2008.
(2) On or after January 1, 2008, taxpayers that would otherwise be
eligible to claim a credit authorized by this section may claim a
credit for these expenses under Section 23622.9.
(3) Notwithstanding this subdivision, the provisions of
subdivision (f) of Section 23036 shall apply with respect to any
remaining carryover of the credit previously authorized by this
section.
SEC. 11. It is the intent of the Legislature that no inference be
drawn in connection with any matter governed by Sections 17053.34,
17053.46, 17053.47, 17053.74, 23622.7, 23622.8, 23634, and 23646 of
the Revenue and Taxation Code, from the period to which the
amendments made to those sections by this act apply or in connection
with any matter governed by Sections 17053.76 and 236229 of the
Revenue and Taxation Code, as added by this act, for any taxable year
beginning before January 1, 2008.
SEC. 12. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.