BILL NUMBER: SB 445	INTRODUCED
	BILL TEXT


INTRODUCED BY   Senator Ashburn

                        FEBRUARY 26, 2009

   An act to add Sections 17053.49 and 23649 to the Revenue and
Taxation Code, relating to taxation, to take effect immediately, tax
levy.



	LEGISLATIVE COUNSEL'S DIGEST


   SB 445, as introduced, Ashburn. Income and corporation taxes:
credit: manufacturer's investment.
   The Personal Income Tax Law and the Corporation Tax Law authorize
various credits against the taxes imposed by those laws.
   This bill would, for taxable years beginning on or after January
1, 2009, allow a credit against the taxes imposed by those laws in an
amount equal to 6% of the amount paid or incurred by the taxpayer
during the taxable year for qualified property, as defined, that is
placed in service in this state.
   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 17053.49 is added to the Revenue and Taxation
Code, to read:
   17053.49.  (a) For taxable years beginning on or after January 1,
2009, a qualified taxpayer shall be allowed a credit against the "net
tax," as defined in Section 17039, an amount equal to 6 percent of
the qualified cost of qualified property that is placed in service in
this state.
   (b) For purposes of this section, "qualified cost" means any cost
that satisfies each of the following conditions:
   (1) Is a cost paid or incurred by the qualified taxpayer for the
construction, reconstruction, or acquisition of qualified property on
or after January 1, 2009.
   (2) Except as provided in paragraph (3) of subdivision (d) and
subparagraph (B) of paragraph (4) of subdivision (d), is an amount
upon which the qualified taxpayer has paid, directly or indirectly,
as a separately stated contract amount or as determined from the
records of the qualified taxpayer, sales or use tax under Part 1
(commencing with Section 6001).
   (3) Is an amount properly chargeable to the capital account of the
qualified taxpayer.
   (c) (1) For purposes of this section, "qualified taxpayer" means
any taxpayer engaged in those lines of business described in Codes
2011 to 3999, inclusive, of the North American Industrial
Classification (NAICS) Manual published by the United States Office
of Management and Budget, 2007 edition.
   (2) 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 23649 shall be allowed to the passthrough entity and passed
through to the partners or shareholders in accordance with applicable
provisions of Part 10 (commencing with Section 17001) or Part 11
(commencing with Section 23001). For purposes of this paragraph, the
term "passthrough entity" means any partnership or "S" corporation.
   (3) The Franchise Tax Board may prescribe regulations to carry out
the purposes of this section, including any regulations necessary to
prevent the avoidance of the effect of this section through
splitups, shell corporations, partnerships, tiered ownership
structures, sale-leaseback transactions, or otherwise.
   (d) For purposes of this section, "qualified property" means
property that is described as any of the following:
   (1) Tangible personal property that is defined in Section 1245(a)
of the Internal Revenue Code for use by a qualified taxpayer in those
lines of business described in Codes 2011 to 3999, inclusive, of the
North American Industrial Classification (NAICS) Manual published by
the United States Office of Management and Budget, 2007 edition,
that is primarily used for any of the following:
   (A) For the manufacturing, processing, refining, fabricating, or
recycling of property, beginning at the point at which any raw
materials are received by the qualified taxpayer and introduced into
the process and ending at the point at which the manufacturing,
processing, refining, fabricating, or recycling has altered tangible
personal property to its completed form, including packaging, if
required.
   (B) In research and development.
   (C) To maintain, repair, measure, or test any property described
in this paragraph.
   (D) For pollution control that meets or exceeds standards
established by the state or by any local or regional governmental
agency within the state.
   (E) For recycling.
   (2) Computers and computer peripheral equipment, as defined in
Section 168(i)(2)(B) of the Internal Revenue Code, that is tangible
personal property as defined in Section 1245(a) of the Internal
Revenue Code for use by a qualified taxpayer in those lines of
business described in Sector 334 of the NAICS Manual, 2007 edition,
that is primarily used to develop or manufacture prepackaged software
or custom software prepared to the special order of the purchaser
who uses the program to produce and sell or license copies of the
program as prepackaged software.
   (3) The value of any capitalized labor costs that are directly
allocable to the construction or modification of property described
in paragraph (1) or (2).
   (4) In the case of any qualified taxpayer engaged in manufacturing
activities related to biotechnology, those activities related to
biopharmaceutical establishments, those activities related to space
vehicles and parts, those activities related to space satellites and
communications satellites and equipment described in NAICS Code
51741, or those activities related to semiconductor equipment
manufacturing "qualified property" also includes the following:
   (A) Special purpose buildings and foundations that are constructed
or modified for use by the qualified taxpayer primarily in a
manufacturing, processing, refining, or fabricating process, or as a
research or storage facility primarily used in connection with a
manufacturing process.
   (B) The value of any capitalized labor costs that are directly
allocable to the construction or modification of special purpose
buildings and foundations that are used primarily in the
manufacturing, processing, refining, or fabricating process, or as a
research or storage facility primarily used in connection with a
manufacturing process.
   (C) (i) For purposes of this paragraph, "special purpose building
and foundation" means only a building and the foundation immediately
underlying the building that is specifically designed and constructed
or reconstructed for the installation, operation, and use of
specific machinery and equipment with a special purpose, which
machinery and equipment, after installation, will become affixed to
or a fixture of the real property, and the construction or
reconstruction of which is specifically designed and used exclusively
for the specified purposes as set forth in subparagraph (A) ("
qualified purpose").
   (ii) A building is specifically designed and constructed or
modified for a qualified purpose if it is not economical to design
and construct the building for the intended purpose and then use the
structure for a different purpose.
   (iii) For purposes of clause (i) and clause (vi), a building is
used exclusively for a qualified purpose only if its use does not
include a use for which it was not specifically designed and
constructed or modified. Incidental use of a building for
nonqualified purposes does not preclude the building from being a
special purpose building. "Incidental use" means a use that is both
related and subordinate to the qualified purpose. It will be
conclusively presumed that a use is not subordinate if more than
one-third of the total usable volume of the building is devoted to a
use that is not a qualified purpose.
   (iv) In the event an entire building does not qualify as a special
purpose building, a taxpayer may establish that a portion of a
building, and the foundation immediately underlying the portion,
qualifies for treatment as a special purpose building and foundation
if the portion satisfies all of the definitional provisions in this
subparagraph.
   (v) To the extent that a building is not a special purpose
building as defined above, but a portion of the building qualifies
for treatment as a special purpose building, then all equipment that
exclusively supports the qualified purpose occurring within that
portion and that would qualify as Internal Revenue Code Section 1245
property if it were not a fixture or affixed to the building shall be
treated as a cost of the portion of the building that qualifies for
treatment as a special purpose building.
   (vi) Buildings and foundations that do not meet the definition of
a special purpose building and foundation set forth above include,
but are not limited to: buildings designed and constructed or
reconstructed principally to function as a general purpose
manufacturing, industrial, or commercial building; research
facilities that are used primarily prior to or after, or prior to and
after, the manufacturing process; or storage facilities that are
used primarily prior to or after, or prior to and after, completion
of the manufacturing process. A research facility is not considered
to be used primarily prior to or after, or prior to and after, the
manufacturing process if its purpose and use relate exclusively to
the development and regulatory approval of the manufacturing process
for specific biopharmaceutical products. A research facility that is
used primarily in connection with the discovery of an organism from
which a biopharmaceutical product or process is developed does not
meet the requirements of the preceding sentence.
   (5) Subject to the provisions in paragraph (2) of subdivision (b),
qualified property also includes computer software that is primarily
used for those purposes set forth in paragraph (1) or (2) of this
subdivision.
   (6) Qualified property does not include any of the following:
   (A) Furniture.
   (B) Facilities used for warehousing purposes after completion of
the manufacturing process.
   (C) Inventory.
   (D) Equipment used in the extraction process.
   (E) Equipment used to store finished products that have completed
the manufacturing process.
   (F) Any tangible personal property that is used in administration,
general management, or marketing.
   (e) For purposes of this section:
   (1) "Biopharmaceutical activities" means those activities that use
organisms or materials derived from organisms, and their cellular,
subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities that make use of chemical compounds to produce commercial
products.
   (2) "Fabricating" means to make, build, create, produce, or
assemble components or property to work in a new or different manner.

   (3) "Manufacturing" means the activity of converting or
conditioning property by changing the form, composition, quality, or
character of the property for ultimate sale at retail or use in the
manufacturing of a product to be ultimately sold at retail.
Manufacturing includes any improvements to tangible personal property
that result in a greater service life or greater functionality than
that of the original property.
   (4) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
   (5) "Primarily" means tangible personal property used 50 percent
or more of the time in an activity described in subdivision (d).
   (6) "Process" means the period beginning at the point at which any
raw materials are received by the qualified taxpayer and introduced
into the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer and ending at the point
at which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer has altered tangible
personal property to its completed form, including packaging, if
required. Raw materials are considered to have been introduced into
the process when the raw materials are stored on the same premises
where the qualified taxpayer's manufacturing, processing, refining,
or recycling activity is conducted. Raw materials that are stored on
premises other than where the qualified taxpayer's manufacturing,
processing, refining, fabricating, or recycling activity is
conducted, are not considered to have been introduced into the
manufacturing, processing, refining, fabricating, or recycling
process.
   (7) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.
   (8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
   (9) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
   (10) "Small business" means a qualified taxpayer that meets any of
the following requirements during the taxable year for which the
credit is allowed:
   (A) Has gross receipts of less than fifty million dollars
($50,000,000).
   (B) Has net assets of less than fifty million dollars
($50,000,000).
   (C) Has a total credit of less than one million dollars
($1,000,000).
   (D) Is engaged in biopharmaceutical activities or other
biotechnology activities, and has not received regulatory approval
for any product from the United States Food and Drug Administration.
   (f) The credit allowed under subdivision (a) shall apply to
qualified property that is acquired by or subject to lease by a
qualified taxpayer, subject to the following special rules:
   (1) A lessor of qualified property, irrespective of whether the
lessor is a qualified taxpayer, is not allowed the credit provided
under subdivision (a) with respect to any qualified property leased
to another qualified taxpayer.
   (2) (A) For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is not treated
as a sale under Part 1 (commencing with Section 6001), the following
rules apply:
   (i) Except as provided by subparagraph (C) of this paragraph,
paragraphs (1) and (3) of subdivision (b) do not apply.
   (ii) Except as provided in subparagraph (B) and clause (iii), the
"qualified cost" upon which the lessee shall compute the credit
provided under this section shall be equal to the original cost to
the lessor (within the meaning of Section 18031) of the qualified
property that is the subject of the lease.
   (iii) The requirement of paragraph (2) of subdivision (b) shall be
treated as satisfied only if the lessor has made a timely election
under either Section 6094.1 or subdivision (d) of Section 6244 and
has paid sales tax reimbursement or use tax measured by the purchase
price of the qualified property (within the meaning of paragraph (5)
of subdivision (g) of Section 6006). For purposes of this
subdivision, the amount of original cost to the lessor that may be
taken into account under clause (ii) may not exceed the purchase
price upon which sales tax reimbursement or use tax has been paid
under the preceding sentence.
   (B) For purposes of applying subparagraph (A) only, the following
special rules shall apply:
   (i) The original cost to the lessor of the qualified property
shall be reduced by the amount of any original cost of that property
that was taken into account by any predecessor lessee in computing
the credit allowable under this section.
   (ii) Clause (i) does not apply in any case where the predecessor
lessee was required to recapture the credit provided under this
section pursuant to subdivision (g).
   (iii) For purposes of this section only, in any case where a
successor lessor has acquired qualified property from a predecessor
lessor in a transaction not treated as a sale under Part 1
(commencing with Section 6001), the original cost to the successor
lessor of the qualified property shall be reduced by the amount of
the original cost of the qualified property that was taken into
account by any lessee of the predecessor lessor in computing the
credit allowable under this section.
   (C) In determining the original cost of any qualified property
under this paragraph, only amounts paid or incurred by the lessor on
or after January 1, 2009, shall be taken into account.
   (D) Notwithstanding subparagraph (A), in the case of any leasing
transaction for which the lessee is allowed the credit under this
section and thereafter the lessee (or any party related to the lessee
within the meaning of Section 267 or 318 of the Internal Revenue
Code) acquires the qualified property from the lessor (or any
successor lessor) within one year from the date the qualified
property is first used by the lessee under the terms of the lease,
the lessee's (or related party's) acquisition of the qualified
property from the lessor (or successor lessor) shall be treated as a
disposition by the lessee of the qualified property that was subject
to the lease under subdivision (g).
   (3) For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is treated as a
sale under Part 1 (commencing with Section 6001), the following rules
apply:
   (A) Paragraph (1) of subdivision (b) is applied by substituting
the term "purchase" for the term "construction, reconstruction, or
acquisition."
   (B) Paragraph (3) of subdivision (b) applies.
   (C) The requirement of paragraph (2) of subdivision (b) are
treated as satisfied at the time that either the lessor or the
qualified taxpayer pays sales or use tax under Part 1 (commencing
with Section 6001).
   (4) (A) In the case of any leasing transaction described in
paragraph (2), the lessor shall provide a statement to the lessee
specifying the amount of the lessor's original cost of the qualified
property and the amount of that cost upon which a sales or use tax
was paid within 45 days after the close of the lessee's taxable year
in which the credit is allowable to the lessee under this section.
   (B) The statement required under subparagraph (A) shall be made
available to the Franchise Tax Board upon request.
   (g) No credit is allowed if the qualified property is removed from
the state, is disposed of to an unrelated party, or is used for any
purpose not qualifying for the credit provided in this section in the
same taxable year in which the qualified property is first placed in
service in this state. If any qualified property for which a credit
is allowed pursuant to this section is thereafter removed from this
state, disposed of to an unrelated party, or used for any purpose not
qualifying for the credit provided in this section within one year
from the date the qualified property is first placed in service in
this state, the amount of the credit allowed by this section for that
qualified property shall be recaptured by adding that credit amount
to the net tax of the qualified taxpayer for the taxable year in
which the qualified property is disposed of, removed, or put to an
ineligible use.
   (h) In the case where the credit allowed by this section exceeds
the "net tax," the excess may be carried over to reduce the "net tax"
in the following year, and succeeding years as follows:
   (1) Except as provided in paragraph (2), for the seven succeeding
years if necessary, until the credit is exhausted.
   (2) In the case of a small business, for the nine succeeding
years, if necessary, until the credit is exhausted.
  SEC. 2.  Section 23649 is added to the Revenue and Taxation Code,
to read:
   23649.  (a) For taxable years beginning on or after January 1,
2009, a qualified taxpayer is allowed a credit against the "tax," as
defined in Section 23036, equal to 6 percent of the qualified cost of
qualified property that is placed in service in this state.
   (b) For purposes of this section, "qualified cost" means any cost
that satisfies each of the following conditions:
   (1) Is a cost paid or incurred by the qualified taxpayer for the
construction, reconstruction, or acquisition of qualified property on
or after January 1, 2009.
   (2) Except as provided in paragraph (3) of subdivision (d) and
subparagraph (B) of paragraph (4) of subdivision (d), is an amount
upon which the qualified taxpayer has paid, directly or indirectly as
a separately stated contract amount or as determined from the
records of the qualified taxpayer, sales or use tax under Part 1
(commencing with Section 6001).
   (3) Is an amount properly chargeable to the capital account of the
qualified taxpayer.
   (c) (1) For purposes of this section, "qualified taxpayer" means
any taxpayer engaged in those lines of business described in Codes
2011 to 3999, inclusive, of the North American Industrial
Classification (NAICS) Manual published by the United States Office
of Management and Budget, 2007 edition.
   (2) In the case of any passthrough entity, the determination of
whether a taxpayer is a qualified taxpayer shall be made at the
entity level and any credit under this section or Section 17053.49
shall be allowed to the passthrough entity and passed through to the
partners or shareholders in accordance with applicable provisions of
Part 10 (commencing with Section 17001) or Part 11 (commencing with
Section 23001). For purposes of this paragraph, the term "passthrough
entity" means any partnership or "S" corporation.
   (3) The Franchise Tax Board may prescribe regulations to carry out
the purposes of this section, including any regulations necessary to
prevent the avoidance of the effect of this section through
splitups, shell corporations, partnerships, tiered ownership
structures, sale-leaseback transactions, or otherwise.
   (d) For purposes of this section, "qualified property" means
property that is described as either of the following:
   (1) Tangible personal property that is defined in Section 1245(a)
of the Internal Revenue Code for use by a qualified taxpayer in those
lines of business described in Codes 2011 to 3999, inclusive, of the
North American Industrial Classification (NAICS) Manual published by
the United States Office of Management and Budget, 2007 edition,
that is primarily used for any of the following:
   (A) For the manufacturing, processing, refining, fabricating, or
recycling of property, beginning at the point at which any raw
materials are received by the qualified taxpayer and introduced into
the process and ending at the point at which the manufacturing,
processing, refining, fabricating, or recycling has altered tangible
personal property to its completed form, including packaging, if
required.
   (B) In research and development.
   (C) To maintain, repair, measure, or test any property described
in this paragraph.
   (D) For pollution control that meets or exceeds standards
established by the state or by any local or regional governmental
agency within the state.
   (E) For recycling.
   (2) Computers and computer peripheral equipment, as defined in
Section 168(i)(2)(B) of the Internal Revenue Code, that is tangible
personal property as defined in Section 1245(a) of the Internal
Revenue Code for use by a qualified taxpayer in those lines of
business described in Sector 334 of the NAICS Manual, 2007 edition,
that is primarily used to develop or manufacture prepackaged software
or custom software prepared to the special order of the purchaser
who uses the program to produce and sell or license copies of the
program as prepackaged software.
   (3) The value of any capitalized labor costs that are directly
allocable to the construction or modification of property described
in paragraph (1) or (2).
   (4) In the case of any qualified taxpayer engaged in manufacturing
activities related to biotechnology, those activities related to
biopharmaceutical establishments, those activities related to space
vehicles and parts, those activities related to space satellites and
communications satellites and equipment, or those activities related
to semiconductor equipment manufacturing, "qualified property" also
includes the following:
   (A) Special purpose buildings and foundations that are constructed
or modified for use by the qualified taxpayer primarily in a
manufacturing, processing, refining, or fabricating process, or as a
research or storage facility primarily used in connection with a
manufacturing process.
   (B) The value of any capitalized labor costs that are directly
allocable to the construction or modification of special purpose
buildings and foundations that are used primarily in the
manufacturing, processing, refining, or fabricating process, or as a
research or storage facility primarily used in connection with a
manufacturing process.
   (C) (i) For purposes of this paragraph, "special purpose building
and foundation" means only a building and the foundation immediately
underlying the building that is specifically designed and constructed
or reconstructed for the installation, operation, and use of
specific machinery and equipment with a special purpose, which
machinery and equipment, after installation, will become affixed to
or a fixture of the real property, and the construction or
reconstruction of which is specifically designed and used exclusively
for the specified purposes as set forth in subparagraph (A) ("
qualified purpose").
   (ii) A building is specifically designed and constructed or
modified for a qualified purpose if it is not economical to design
and construct the building for the intended purpose and then use the
structure for a different purpose.
   (iii) For purposes of clause (i) and clause (vi), a building is
used exclusively for a qualified purpose only if its use does not
include a use for which it was not specifically designed and
constructed or modified. Incidental use of a building for
nonqualified purposes does not preclude the building from being a
special purpose building. "Incidental use" means a use that is both
related and subordinate to the qualified purpose. It will be
conclusively presumed that a use is not subordinate if more than
one-third of the total usable volume of the building is devoted to a
use that is not a qualified purpose.
   (iv) In the event an entire building does not qualify as a special
purpose building, a taxpayer may establish that a portion of a
building, and the foundation immediately underlying the portion,
qualifies for treatment as a special purpose building and foundation
if the portion satisfies all of the definitional provisions in this
subparagraph.
   (v) To the extent that a building is not a special purpose
building as defined above, but a portion of the building qualifies
for treatment as a special purpose building, then all equipment that
exclusively supports the qualified purpose occurring within that
portion and that would qualify as Internal Revenue Code Section 1245
property if it were not a fixture or affixed to the building shall be
treated as a cost of the portion of the building that qualifies for
treatment as a special purpose building.
   (vi) Buildings and foundations that do not meet the definition of
a special purpose building and foundation set forth above include,
but are not limited to: buildings designed and constructed or
reconstructed principally to function as a general purpose
manufacturing, industrial, or commercial building; research
facilities that are used primarily prior to or after, or prior to and
after, the manufacturing process; or storage facilities that are
used primarily prior to or after, or prior to
                    and after, completion of the manufacturing
process. A research facility is not considered to be used primarily
prior to or after, or prior to and after, the manufacturing process
if its purpose and use relate exclusively to the development and
regulatory approval of the manufacturing process for specific
biopharmaceutical products. A research facility that is used
primarily in connection with the discovery of an organism from which
a biopharmaceutical product or process is developed does not meet the
requirements of the preceding sentence.
   (5) Subject to the provisions in paragraph (2) of subdivision (b),
qualified property also includes computer software that is primarily
used for those purposes set forth in paragraph (1) or (2) of this
subdivision.
   (6) Qualified property does not include any of the following:
   (A) Furniture.
   (B) Facilities used for warehousing purposes after completion of
the manufacturing process.
   (C) Inventory.
   (D) Equipment used in the extraction process.
   (E) Equipment used to store finished products that have completed
the manufacturing process.
   (F) Any tangible personal property that is used in administration,
general management, or marketing.
   (e) For purposes of this section:
   (1) "Biopharmaceutical activities" means those activities that use
organisms or materials derived from organisms, and their cellular,
subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities that make use of chemical compounds to produce commercial
products.
   (2) "Fabricating" means to make, build, create, produce, or
assemble components or property to work in a new or different manner.

   (3) "Manufacturing" means the activity of converting or
conditioning property by changing the form, composition, quality, or
character of the property for ultimate sale at retail or use in the
manufacturing of a product to be ultimately sold at retail.
Manufacturing includes any improvements to tangible personal property
that result in a greater service life or greater functionality than
that of the original property.
   (4) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
   (5) "Primarily" means tangible personal property used 50 percent
or more of the time in an activity described in subdivision (d).
   (6) "Process" means the period beginning at the point at which any
raw materials are received by the qualified taxpayer and introduced
into the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified person and ending at the point at
which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer has altered tangible
personal property to its completed form, including packaging, if
required. Raw materials are considered to have been introduced into
the process when the raw materials are stored on the same premises
where the qualified taxpayer's manufacturing, processing, refining,
fabricating, or recycling activity is conducted. Raw materials that
are stored on premises other than where the qualified taxpayer's
manufacturing, processing, refining, fabricating, or recycling
activity is conducted, are not considered to have been introduced
into the manufacturing, processing, refining, fabricating, or
recycling process.
   (7) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.
   (8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
   (9) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
   (10) "Small business" means a qualified taxpayer that meets any of
the following requirements during the taxable year for which the
credit is allowed:
   (A) Has gross receipts of less than fifty million dollars
($50,000,000).
   (B) Has net assets of less than fifty million dollars
($50,000,000).
   (C) Has a total credit of less than one million dollars
($1,000,000).
   (D) Is engaged in biopharmaceutical activities or other
biotechnology activities and has not received regulatory approval for
any product from the United States Food and Drug Administration.
   (f) The credit allowed under subdivision (a) shall apply to
qualified property that is acquired by or subject to lease by a
qualified taxpayer, subject to the following special rules:
   (1) A lessor of qualified property, irrespective of whether the
lessor is a qualified taxpayer, is not allowed the credit provided
under subdivision (a) with respect to any qualified property leased
to another qualified taxpayer.
   (2) (A) For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is not treated
as a sale under Part 1 (commencing with Section 6001), the following
rules apply:
   (i) Except as provided by subparagraph (C) of this paragraph,
paragraphs (1) and (3) of subdivision (b) do not apply.
   (ii) Except as provided in subparagraph (B) and clause (iii), the
"qualified cost" upon which the lessee shall compute the credit
provided under this section shall be equal to the original cost to
the lessor (within the meaning of Section 24912) of the qualified
property that is the subject of the lease.
   (iii) The requirement of paragraph (2) of subdivision (b) shall be
treated as satisfied only if the lessor has made a timely election
under either Section 6094.1 or subdivision (d) of Section 6244 and
has paid sales tax reimbursement or use tax measured by the purchase
price of the qualified property (within the meaning of paragraph (5)
of subdivision (g) of Section 6006). For purposes of this
subdivision, the amount of original cost to the lessor that may be
taken into account under clause (ii) may not exceed the purchase
price upon which sales tax reimbursement or use tax has been paid
under the preceding sentence.
   (B) For purposes of applying subparagraph (A) only, the following
special rules shall apply:
   (i) The original cost to the lessor of the qualified property
shall be reduced by the amount of any original cost of that property
that was taken into account by any predecessor lessee in computing
the credit allowable under this section.
   (ii) Clause (i) does not apply in any case where the predecessor
lessee was required to recapture the credit provided under this
section pursuant to subdivision (g).
   (iii) For purposes of this section only, in any case where a
successor lessor has acquired qualified property from a predecessor
lessor in a transaction not treated as a sale under Part 1
(commencing with Section 6001), the original cost to the successor
lessor of the qualified property shall be reduced by the amount of
the original cost of the qualified property that was taken into
account by any lessee of the predecessor lessor in computing the
credit allowable under this section.
   (C) In determining the original cost of any qualified property
under this paragraph, only amounts paid or incurred by the lessor on
or after January 1, 2009, shall be taken into account.
   (D) Notwithstanding subparagraph (A), in the case of any leasing
transaction for which the lessee is allowed the credit under this
section and thereafter the lessee (or any party related to the lessee
within the meaning of Section 267 or 318 of the Internal Revenue
Code) acquires the qualified property from the lessor (or any
successor lessor) within one year from the date the qualified
property is first used by the lessee under the terms of the lease,
the lessee's (or related party's) acquisition of the qualified
property from the lessor (or successor lessor) shall be treated as a
disposition by the lessee of the qualified property that was subject
to the lease under subdivision (g).
   (3) For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is treated as a
sale under Part 1 (commencing with Section 6001), the following rules
apply:
   (A) Paragraph (1) of subdivision (b) shall be applied by
substituting the term "purchase" for the term "construction,
reconstruction, or acquisition."
   (B) Paragraph (3) of subdivision (b) shall apply.
   (C) The requirement of paragraph (2) of subdivision (b) shall be
treated as satisfied at the time that either the lessor or the
qualified taxpayer pays sales or use tax under Part 1 (commencing
with Section 6001).
   (4) (A) In the case of any leasing transaction described in
paragraph (2), the lessor shall provide a statement to the lessee
specifying the amount of the lessor's original cost of the qualified
property and the amount of that cost upon which a sales or use tax
was paid within 45 days after the close of the lessee's taxable year
in which the credit is allowable to the lessee under this section.
   (B) The statement required under subparagraph (A) shall be made
available to the Franchise Tax Board upon request.
   (g) No credit is allowed if the qualified property is removed from
the state, is disposed of to an unrelated party, or is used for any
purpose not qualifying for the credit provided in this section in the
same taxable year in which the qualified property is first placed in
service in this state. If any qualified property for which a credit
is allowed pursuant to this section is thereafter removed from this
state, disposed of to an unrelated party, or used for any purpose not
qualifying for the credit provided in this section within one year
from the date the qualified property is first placed in service in
this state, the amount of the credit allowed by this section for that
qualified property shall be recaptured by adding that credit amount
to the net tax of the qualified taxpayer for the taxable year in
which the qualified property is disposed of, removed, or put to an
ineligible use. The sale of stock for which an election was made or
deemed to have been made pursuant to Section 338(g) or 338(h)(10) of
the Internal Revenue Code may not be treated as a disposition of
qualified property to an unrelated party for purposes of this
subdivision.
   (h) 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 as follows:
   (1) Except as provided in paragraph (2), for the seven succeeding
years if necessary, until the credit is exhausted.
   (2) In the case of a small business, for the nine succeeding
years, if necessary, until the credit is exhausted.
  SEC. 3.  This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.