BILL NUMBER: AB 1565 AMENDED BILL TEXT AMENDED IN SENATE MAY 28, 2009 AMENDED IN ASSEMBLY APRIL 13, 2009 INTRODUCED BYCommittee on Insurance(Coto (Chair), Garrick (Vice Chair), Blakeslee, Charles Calderon, Carter, Feuer, Hayashi, Nava, Niello, and Torres)Assembly Member Ruskin ( Principal coauthors: Assembly Members Coto and Fletcher ) ( Principal coauthor: Senator Alquist ) ( Coauthors: Assembly Members Buchanan, Fong, Jeffries, Lieu, and Ma ) ( Coauthor: Senator Correa ) MARCH 12, 2009An act to amend Sections 779.11, 1765, and 11659 of the Insurance Code, relating to insurance.An act to amend Sections 17052.12 and 23609 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. LEGISLATIVE COUNSEL'S DIGEST AB 1565, as amended,Committee on InsuranceRuskin .Insurance.Income and corporation taxes: credits: research. The Personal Income Tax Law and the Corporation Tax Law, by reference to a specified federal statute, allow a credit against taxes imposed by those laws for increasing research activities. The amount of the credit under both laws is equal to 15% of the excess of the qualified research expenses, as defined, for the taxable year over the base amount, as defined, and, in addition, under the Corporation Tax Law, 24% of the basic research payments, as defined. This bill would, under both laws for taxable years beginning on or after January 1, 2011, incrementally increase the applicable percentage of the credit for qualified research expenditures from 15% to 20%. This bill would, under the Personal Income Tax Law, also allow a credit for 24% of the basic research payments for taxable years beginning on or after January 1, 2011. This bill would take effect immediately as a tax levy.Existing law regulates insurance, as specified.This bill would make technical, nonsubstantive changes to specified provisions regulating insurance.Vote: majority. Appropriation: no. Fiscal committee:noyes . State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 17052.12 of the Revenue and Taxation Code is amended to read: 17052.12. For each taxable year beginning on or after January 1, 1987, there shall be allowed as a credit against the "net tax" (as defined by Section 17039) for the taxable year an amount determined in accordance with Section 41 of the Internal Revenue Code, except as follows: (a) For each taxable year beginning before January 1, 1997, the reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "8 percent." (b) (1) For each taxable year beginning on or after January 1, 1997, and before January 1, 1999, the reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "11 percent." (2) For each taxable year beginning on or after January 1, 1999, and before January 1, 2000, the reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "12 percent." (3) For each taxable year beginning on or after January 1, 2000, and before January 1, 2011, the reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "15 percent." (4) For each taxable year beginning on or after January 1, 2011, and before January 1, 2013, both of the following shall apply: (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "16.25 percent." (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (5) For each taxable year beginning on or after January 1, 2013, and before January 1, 2014, both of the following shall apply: (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "17.50 percent." (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (6) For each taxable year beginning on or after January 1, 2014, and before January 1, 2015, both of the following shall apply: (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "18.75 percent." (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (7) For each taxable year beginning on or after January 1, 2015, both of the following shall apply: (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code shall apply. (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (c) Section 41(a)(2) of the Internal Revenue Code, relating to basic research payments, shall not apply. (d) "Qualified research" shall include only research conducted in California. (e) In the case where the credit allowed under this section exceeds the "net tax," the excess may be carried over to reduce the "net tax" in the following year, and succeeding years if necessary, until the credit has been exhausted. (f) (1) With respect to any expense paid or incurred after the operative date of Section 6378, Section 41(b)(1) of the Internal Revenue Code is modified to exclude from the definition of "qualified research expense" any amount paid or incurred for tangible personal property that is eligible for the exemption from sales or use tax provided by Section 6378. (2) For each taxable year beginning on or after January 1, 1998, the reference to "Section 501(a)" in Section 41(b)(3)(C) of the Internal Revenue Code, relating to contract research expenses, is modified to read "this part or Part 11 (commencing with Section 23001)." (g) (1) For each taxable year beginning on or after January 1, 2000: (A) The reference to "2.65 percent" in Section 41(c)(4)(A)(i) of the Internal Revenue Code is modified to read "one and forty-nine hundredths of one percent." (B) The reference to "3.2 percent" in Section 41(c)(4)(A)(ii) of the Internal Revenue Code is modified to read "one and ninety-eight hundredths of one percent." (C) The reference to "3.75 percent" in Section 41(c)(4)(A)(iii) of the Internal Revenue Code is modified to read "two and forty-eight hundredths of one percent." (2) Section 41(c)(4)(B) shall not apply and in lieu thereof an election under Section 41(c)(4)(A) of the Internal Revenue Code may be made for any taxable year of the taxpayer beginning on or after January 1, 1998. That election shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Franchise Tax Board. (3) Section 41(c)(6) of the Internal Revenue Code, relating to gross receipts, is modified to take into account only those gross receipts from the sale of property held primarily for sale to customers in the ordinary course of the taxpayer's trade or business that is delivered or shipped to a purchaser within this state, regardless of f.o.b. point or any other condition of the sale. (h) Section 41(h) of the Internal Revenue Code, relating to termination, shall not apply. (i) Section 41(g) of the Internal Revenue Code, relating to special rule for passthrough of credit, is modified by each of the following: (1) The last sentence shall not apply. (2) If the amount determined under Section 41(a) of the Internal Revenue Code for any taxable year exceeds the limitation of Section 41(g) of the Internal Revenue Code, that amount may be carried over to other taxable years under the rules of subdivision (e); except that the limitation of Section 41(g) of the Internal Revenue Code shall be taken into account in each subsequent taxable year. SEC. 2. Section 23609 of the Revenue and Taxation Code is amended to read: 23609. For each taxable year beginning on or after January 1, 1987, there shall be allowed as a credit against the "tax" (as defined by Section 23036) an amount determined in accordance with Section 41 of the Internal Revenue Code, except as follows: (a) For each taxable year beginning before January 1, 1997, both of the following modifications shall apply: (1) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "8 percent." (2) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "12 percent." (b) (1) For each taxable year beginning on or after January 1, 1997, and before January 1, 1999, both of the following modifications shall apply: (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "11 percent." (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (2) For each taxable year beginning on or after January 1, 1999, and before January 1, 2000, both of the following shall apply: (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "12 percent." (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (3) For each taxable year beginning on or after January 1, 2000, and before January 1, 2011, both of the following shall apply: (4) For each taxable year beginning on or after January 1, 2011, and before January 1, 2013, both of the following shall apply: (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "16.25 percent." (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (5) For each taxable year beginning on or after January 1, 2013, and before January 1, 2014, both of the following shall apply: (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "17.50 percent." (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (6) For each taxable year beginning on or after January 1, 2014, and before January 1, 2015, both of the following shall apply: (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "18.75 percent." (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (7) For each taxable year beginning on or after January 1, 2015, both of the following shall apply: (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code shall apply. (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "15 percent." (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (c) (1) With respect to any expense paid or incurred after the operative date of Section 6378, Section 41(b)(1) of the Internal Revenue Code is modified to exclude from the definition of "qualified research expense" any amount paid or incurred for tangible personal property that is eligible for the exemption from sales or use tax provided by Section 6378. (2) "Qualified research" and "basic research" shall include only research conducted in California. (d) The provisions of Section 41(e)(7)(A) of the Internal Revenue Code, shall be modified so that "basic research," for purposes of this section, includes any basic or applied research including scientific inquiry or original investigation for the advancement of scientific or engineering knowledge or the improved effectiveness of commercial products, except that the term does not include any of the following: (1) Basic research conducted outside California. (2) Basic research in the social sciences, arts, or humanities. (3) Basic research for the purpose of improving a commercial product if the improvements relate to style, taste, cosmetic, or seasonal design factors. (4) Any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). (e) (1) In the case of a taxpayer engaged in any biopharmaceutical research activities that are described in codes 2833 to 2836, inclusive, or any research activities that are described in codes 3826, 3829, or 3841 to 3845, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, or any other biotechnology research and development activities, the provisions of Section 41(e) (6) of the Internal Revenue Code shall be modified to include both of the following: (A) A qualified organization as described in Section 170(b)(1)(A) (iii) of the Internal Revenue Code and owned by an institution of higher education as described in Section 3304(f) of the Internal Revenue Code. (B) A charitable research hospital owned by an organization that is described in Section 501(c)(3) of the Internal Revenue Code, is exempt from taxation under Section 501(a) of the Internal Revenue Code, is not a private foundation, is designated a "specialized laboratory cancer center," and has received Clinical Cancer Research Center status from the National Cancer Institute. (2) For purposes of this subdivision: (A) "Biopharmaceutical research activities" means those activities that use organisms or materials derived from organisms, and their cellular, subcellular, or molecular components, in order to provide pharmaceutical products for human or animal therapeutics and diagnostics. Biopharmaceutical activities make use of living organisms to make commercial products, as opposed to pharmaceutical activities that make use of chemical compounds to produce commercial products. (B) "Other biotechnology research and development activities" means research and development activities consisting of the application of recombinant DNA technology to produce commercial products, as well as research and development activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery. (f) In the case where the credit allowed by this section exceeds the "tax," the excess may be carried over to reduce the "tax" in the following year, and succeeding years if necessary, until the credit has been exhausted. (g) For each taxable year beginning on or after January 1, 1998, the reference to "Section 501(a)" in Section 41(b)(3)(C) of the Internal Revenue Code, relating to contract research expenses, is modified to read "this part or Part 10 (commencing with Section 17001)." (h) (1) For each taxable year beginning on or after January 1, 2000: (A) The reference to "2.65 percent" in Section 41(c)(4)(A)(i) of the Internal Revenue Code is modified to read "one and forty-nine hundredths of one percent." (B) The reference to "3.2 percent" in Section 41(c)(4)(A)(ii) of the Internal Revenue Code is modified to read "one and ninety-eight hundredths of one percent." (C) The reference to "3.75 percent" in Section 41(c)(4)(A)(iii) of the Internal Revenue Code is modified to read "two and forty-eight hundredths of one percent." (2) Section 41(c)(4)(B) shall not apply and in lieu thereof an election under Section 41(c)(4)(A) of the Internal Revenue Code may be made for any taxable year of the taxpayer beginning on or after January 1, 1998. That election shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Franchise Tax Board. (3) Section 41(c)(6) of the Internal Revenue Code, relating to gross receipts, is modified to take into account only those gross receipts from the sale of property held primarily for sale to customers in the ordinary course of the taxpayer's trade or business that is delivered or shipped to a purchaser within this state, regardless of f.o.b. point or any other condition of the sale. (i) Section 41(h) of the Internal Revenue Code, relating to termination, shall not apply. (j) Section 41(g) of the Internal Revenue Code, relating to special rule for passthrough of credit, is modified by each of the following: (1) The last sentence shall not apply. (2) If the amount determined under Section 41(a) of the Internal Revenue Code for any taxable year exceeds the limitation of Section 41(g) of the Internal Revenue Code, that amount may be carried over to other taxable years under the rules of subdivision (f), except that the limitation of Section 41(g) of the Internal Revenue Code shall be taken into account in each subsequent taxable year. SEC. 3. This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.SECTION 1.Section 779.11 of the Insurance Code is amended to read: 779.11. The provisions of subdivisions (f) and (g) of Section 10291.5 shall be applicable to the withdrawal of the approval of forms, whether of life or disability insurance, required by this article to be filed with or approved by the commissioner.SEC. 2.Section 1765 of the Insurance Code is amended to read: 1765. (a) A license under this chapter shall be applied for and renewed by the filing with the commissioner of a written application therefor, in accordance with Section 1652. (b) Subject to subdivision (f), the commissioner shall issue a license authorizing any applicant who is trustworthy and competent to transact an insurance brokerage business in a manner as to safeguard the interest of the insured, to act as a surplus line broker from the date of the license until the expiration date specified in Section 1630. (c) An applicant for a surplus line broker's license shall, as part of the application and a condition of the issuance of the license, file a bond to the people of the State of California in the sum of fifty thousand dollars ($50,000), conditioned that the licensee will fully and faithfully comply with the requirements of this chapter, and all applicable provisions of this code. The bond shall be subject to Sections 1662 and 1663. A surplus line broker bond is not required for an individual licensed as a surplus line broker who only transacts on behalf of a licensed surplus line broker organization. (d) The filing fee for a license to act as a surplus line broker shall be one thousand dollars ($1,000) every two years, or for any initial fractional license year. For an individual licensed as a surplus line broker who only transacts on behalf of a surplus line broker organization, the filing fee shall be five hundred dollars ($500) every two years, or for any initial fractional license year. Every applicant for a business entity license, as provided in subdivision (a) of Section 1765.2, shall provide the names of all persons who may exercise the power and perform the duties under the license. Whenever an organization licensed as a surplus line broker desires to change, remove, or add to the natural person or persons who are to transact insurance under authority of its license, it shall immediately file an application or notice with the commissioner for an endorsement changing its license accordingly, on a form prescribed by the commissioner. The fee for adding or removing from any surplus line broker's license issued to an organization the name of any natural person, named thereon, shall be twenty-four dollars ($24). The commissioner shall require that the qualifying examination provided by subdivision (a) of Section 1676 be taken by any natural person named by the organization to exercise its agency or brokerage powers who would be required to take and pass the qualifying examination. That natural person or persons and the organization are in all other respects subject to the provisions of this chapter and the insurance laws. (e) The department is authorized to collect additional license fees resulting from the increases in license fees provided by Chapter 29 of the Statutes of 2008 and shall credit any overpayment resulting from reductions in license fees provided by that act. (f) A business entity licensed under this chapter shall provide two hours of appropriate training to its employees who solicit, negotiate, or effect insurance coverage placed by a nonadmitted insurer. The training shall be given to each eligible employee every five years. The surplus line advisory organization authorized pursuant to Chapter 6.1 (commencing with Section 1780.50) shall develop the curriculum for the training. (g) The license shall be renewed in accordance with, and subject to, Sections 1717, 1718, 1719, and 1720. (h) The commissioner may deny, suspend, or revoke any license applied for or granted pursuant to this chapter on all or any one of the grounds and in accordance with the procedures provided in Article 6 (commencing with Section 1666) and Article 13 (commencing with Section 1737) of Chapter 5, whenever the commissioner finds that the applicant or licensee has committed a violation of any provision of this code.SEC. 3.Section 11659 of the Insurance Code is amended to read: 11659. The approved form of policy, limited pursuant to Section 11657, shall not be otherwise limited except by endorsement thereon in accordance with a form prescribed by the commissioner or in accordance with rules adopted by the commissioner. The endorsement form shall not be subject to Section 11658. Before prescribing the endorsement form or adopting a rule, the commissioner shall consult concerning it with the Workers' Compensation Appeals Board.