BILL NUMBER: SB 974	AMENDED
	BILL TEXT

	AMENDED IN SENATE  APRIL 5, 2010

INTRODUCED BY   Senator Steinberg
   (Coauthor: Senator Hancock)

                        FEBRUARY 8, 2010

    An act to add Section 88560 to the Education Code,
relating to taxation.   An act to add Part 38
(commencing with Section 64200) to Division 4 of Title 2 of the
Education Code, and to amend Sections 17053.74 and 23634 of, and to
add Sections 6902.6, 17057.6, and 23610.5 to, the Revenue and
Taxation Code, relating to taxation, to take effect immediately, tax
levy. 



	LEGISLATIVE COUNSEL'S DIGEST


   SB 974, as amended, Steinberg. Income  and corporations 
tax:  credit: career pathways investment credit. 
 hiring and career credit.  
   The
    (1)     The  Personal Income Tax Law
and Corporation Tax Law authorize various credits against the taxes
imposed by those laws. 
   This bill would find and declare that the deep economic recession
in California requires strategic investments to educate and prepare
the workforce to fuel the next state of economic growth. This bill
would find and declare that if the dropout crisis is left unchecked,
the rate of middle and high school dropouts will increase. This bill
would state the intent of the Legislature to enact legislation to
ensure that the state's tax expenditure investments are rigorously
evaluated and to establish fiscal incentives, such as tax credits,
that encourage California businesses to enter into partnerships with
schools to strengthen education and develop career skills. 

   This bill, in accordance with legislative findings contained in
this bill and for taxable years beginning on or after January 1,
2011, would, for a business entity that provides career technical
education, authorize a credit against those taxes, subject to
specified limitations, in an amount equal to that allocated by the
California Tax Allocation Committee.  
   This bill would, for taxable years beginning on or after January
1, 2011, in lieu of these credits authorized under the Personal
Income Tax Law and the Corporation Tax Law, allow a credit against
qualified state sales and use taxes, as provided. This bill would
impose specified duties on the California Tax Allocation Committee,
the Franchise Tax Board, and the State Board of Equalization, in
administering the credits.  
   (2) 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, subject to specific
criteria. Qualified employees includes, for purposes of the credit,
an ex-offender, as defined.  
   This bill would revise the definition of "qualified employee" for
this purpose, by providing that an ex-offender includes an individual
who has been convicted of a felony or a misdemeanor offense
punishable by incarceration, or a person charged with a felony or
misdemeanor punishable by incarceration but placed on probation
without a finding of guilt, with specified exclusions. This bill
would also make technical, nonsubstantive changes to remove obsolete
references in the credit provisions.  
   This bill would take effect immediately as a tax levy. 
   Vote: majority. Appropriation: no. Fiscal committee:  no
  yes  . State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
   
  SECTION 1.    Section 88560 is added to the
Education Code, to read:
   88560.  (a) The Legislature finds and declares the following:
 
  SECTION 1.    Part 38 (commencing with Section 64200) is
added to Division 4 of Title 2 of the Education Code, to read: 

      PART 38.   Career Pathways Investment Credit


    64200.   (a)  The Legislature finds and declares the
following: 
   (1) The deep economic recession that has gripped California
requires a timely response and strategic investments to educate and
prepare the workforce that will help fuel the next stage of the state'
s economic growth.
   (2) The swift recovery of the California economy faces an obstacle
in the high numbers of young people dropping out of the state's
middle and high schools. Longitudinal data show that fewer than 70
percent of 9th graders in California graduate from high school in
four years. According to the State Department of Education, some
85,000 middle and high school pupils are abandoning secondary schools
annually.
   (3) If the dropout crisis is left unchecked, demographic trends
suggest that the rate of future dropouts will increase. The Public
Policy Institute of California predicts there will be twice as many
high school dropouts in California in 2025 as there will be jobs to
support them.
   (4) According to a 2007 study by the California Dropout Research
Project, each cohort of dropouts costs California more than $46
billion in total economic losses over the lifetimes of those
dropouts.
   (5) The fastest growing occupations in the coming years are
expected to be those that require scientific, technical, engineering,
or math (STEM) skills, such as jobs in biotechnology, digital media
arts, green technology, or computer-related and health-related
fields.
   (6) A 2006 poll of at-risk California 9th and 10th graders by
Peter D. Hart Research Associates found that 6 in 10 pupils were not
motivated to succeed in school. Of those pupils, more than 90 percent
said they would be more engaged in their education if classes helped
them acquire skills and knowledge relevant to future careers.
   (7) Comprehensive programs that link challenging academics with
demanding career and technical education create engaging pathways to
further education, advanced training, and productive jobs in high
opportunity careers. They keep students on track to a diploma,
postsecondary credentials, and lasting career success.
   (8) New research from the Public Policy Institute of California
suggests that the state's enterprise zone tax credit program has not
significantly increased job creation or the employment of
hard-to-hire individuals, as was intended.  Two aspects of
the program that were poorly designed and have produced an especially

    (9)     Two aspects of the enterprise zone
program that have produced an especially  poor return on
investment, Targeted Employment Areas (TEA) and retroactive
vouchering, should be phased out in favor of fiscal incentives that
enhance workforce development for the jobs of the future and that
have a beneficial impact on high school graduation rates.
   (b) It is the intent of the Legislature to do the following:
   (1) Evaluate the state's tax expenditure investments as rigorously
as it evaluates the state's spending programs.
   (2) Establish fiscal incentives, such as tax credits, that
encourage California businesses and industry to enter into
partnerships with schools that strengthen middle and high school
education statewide. These partnerships will connect 
students   pupils  and teachers to real-world
experience that provides sustained exposure to applied academics,
skill development, work-related education, and potential future
employers. This experience will keep students engaged and on track to
graduation, further education, and productive careers.
   (c) As used in this section, "tax expenditure" means a credit,
deduction, exclusion, exemption, or any other tax benefit as may be
provided for by state law. 
   64201.  For purposes of this part:
   (a) "Applicant" means a local educational agency that applies to
the committee for either an allocation of a portion of the career
pathways investment credit ceiling for the current taxable year or
for a reservation of a portion of the career pathways investment
credit ceiling for a subsequent taxable year.
   (b) "Authentic application" means an activity in the context of a
middle or high school course that requires pupils to work actively
with academic and technical concepts, facts, and skills in a
realistic, work-like setting that emulates the problems encountered
by professionals and the practices they use to address them. These
applications typically require pupils to examine a task from a
variety of perspectives, to draw upon multiple resources, to
collaborate with others, and to accomplish tasks and projects by
working in teams rather than individually.
   (c) "Career pathways investment credit ceiling" means the
aggregate amount of credit that may be annually allocated by the
committee pursuant to Sections 17057.6 and 23610.5 of the Revenue and
Taxation Code.
   (d) "Committee" means the California Tax Credit Allocation
Committee.
   (e) "Middle school or high school programs that create career
pathways" means programs that support the following:
   (1) High school pathways programs delivered through high schools,
regional occupation centers or programs, California Partnership
Academies and other career academies, alternative education programs,
including continuation schools and programs administered by county
offices of education, or adult education programs, that integrate
academic and technical learning to prepare pupils for both
postsecondary education and careers in high-growth or high-need
sectors of the economy. These programs include core academic courses
emphasizing authentic applications, sequences or clusters of three or
more courses that align with the State Board of Education approved
career technical education standards and frameworks that also
integrate key academic concepts and skills, work-based learning
opportunities, additional services like counseling or supplementary
instruction in reading, writing, and mathematics. These programs
shall also:
   (A) Focus on occupations requiring comprehensive skills in leading
to high entry-level wages or the possibility of significant wage
increases after a demonstrated amount of time at the position.
   (B) Provide prerequisite courses that are needed to enter
apprenticeships, or postsecondary vocation certificate or degree
programs. Where possible, sequenced courses shall be articulated
with, or linked to, postsecondary certificate and degree programs in
the region.
   (C) Offer as many courses as possible that have been approved by
the University of California as courses meeting the "A-G" admissions
requirements.
   (2) Curriculum and professional development.
   (3) Middle school career exploration activities.
   (4) Externship opportunities that expose middle school and high
school teachers to the skills and competencies that pupils need for
successful employment in high-growth sectors of the California
economy.
   (5) Active engagement by business and industry in pathway design
and implementation, work-based learning, assessment of student work,
and other aspects of effective preparation for success in further
postsecondary education and careers.
   (f) "Qualified taxpayer" means a business entity that enters into
a contract or memorandum of understanding with an applicant to
provide career technical education that connects pupils to real-world
experience and provides sustained exposure to applied academics,
skill development, work-related education, and potential future
employment.  
   64202.  On and after ____, the committee shall determine and
allocate the career pathways investment credit ceiling. The committee
may reserve a portion of anticipated career pathways investment
credit ceiling for subsequent taxable years. For purposes of this
section, the committee shall do all of the following:
   (a) Allocate the career pathways investment credit ceiling on a
regular basis consisting of two or more periods in a calendar year in
which applications may be filed and considered.
   (b) (1) Establish application filing deadlines, the maximum amount
of career pathways investment credit ceiling that the committee may
allocate for that period, and the approximate date on which the
allocations are made.
   (2) The committee may contract with other entities to aid in the
processing and review of applications.
   (c) (1) Give priority in allocating tax credits to the following:
   (A) Applicants in communities that have an unemployment rate
higher than the statewide unemployment rate, as determined by the
United States Census, and a high school graduation rate lower than
the statewide high school graduation rate, as determined by the
Department of Education using the California Longitudinal Pupil
Achievement Data System.
   (B) Applicants with proportions of private funding support that
exceed the one-to-one match requirement described in paragraph (1) of
subdivision (e).
   (C) Applicants that are articulated with postsecondary certificate
and degree programs in their region.
   (2) To the maximum extent practicable, subject to paragraph (1),
give priority in allocating career pathways investment credits to
applicants serving socioeconomically diverse student populations and
on a geographically equitable basis.
   (3) The committee shall not give priority to any applicant by
virtue of the date of submission of its application, except to
allocate credits where two or more applicants have the same rating.
   (d) Only allocate the career pathways investment credit ceiling to
an applicant that enters into an enforceable contract or memorandum
of understanding with the committee to comply with the requirements
of this part, Sections 17057.6 and 23610.5 of the Revenue and
Taxation Code, any applicable state laws, and any additional
requirements the committee deems necessary or appropriate to serve
the purposes of this part. The contract or memorandum of
understanding shall also provide for legal action to obtain specified
performance or monetary damages for breach of contract and shall
require regular programmatic audits.
   (e) Adopt allocation criteria that awards credits to applicants
that demonstrate all of the following:
   (1) At least a one-to-one match of private to public investment in
middle school and high school programs that create career pathways
or similar programs.
   (2) The effectiveness of the career pathway program toward
preparing students for productive, high-wage employment in growing or
high-need sectors of the California economy. Effectiveness criteria
shall include:
   (A) Pathway completion rates.
   (B) High school graduation rates.
   (C) Percentages of students attaining an industry certification.
   (D) Percentages of students transitioning successfully to
postsecondary education.
   (E) Employment and earnings after high school.
   (3) The level of the applicant's investment in, oversight of, and
ability to leverage and sustain current career pathways programs and
current career technical education programs.
   (f) Develop and provide forms for the purposes of informing
potential applicants and taxpayers of the purposes of this part.
   (g) (1) Certify to each applicant the amount of the career
pathways credit ceiling allocated to it for the taxable year, or the
reserved amount for the succeeding year.
   (2) An applicant shall provide a copy of the certification
provided by the committee to the taxpayer.  
   64203.  On and after ____, the committee shall, in consultation
with the State Department of Education, develop and provide forms for
use by applicants and adopt uniform procedures for submission and
review of applications. The application shall include, but not be
limited to, the following:
   (a) A contract or memorandum of understanding between the
applicant and the taxpayer that includes, but is not limited to, the
following:
   (1) A clear and comprehensive plan for each middle school or high
school program that creates career pathways.
   (2) A description of the nature and value of the taxpayer's
support for career exploration activities, curriculum and
professional development programs, and middle school or high school
programs that create career pathways that integrate academic and
technical learning to prepare pupils for both college and careers.
The support may include any of the following:
   (A) Equipment or instructional materials.
   (B) Employees to provide instruction, in partnership with
credentialed teachers employed by the school district, at the
schoolsite.
   (C) Opportunities for pupils to be mentored by, or to shadow,
employees at a partnering private entity.
   (D) Paid or unpaid internships.
   (E) Paid jobs.
   (F) Teacher externships.
   (b) Details about the strength and relevance of the education plan
to the needs of industry for qualified technical employees
applicable to the economic development needs of the region in which
the local education agency and partnering private entity are located.

   (c) Projections of program participant enrollment.
   (d) The method by which accountability for program participant
enrollments and outcomes will be maintained. Outcomes shall include
the criteria listed in paragraph (2) of subdivision (e) of Section
64202.
   (e) Any other information deemed relevant by the committee. 

   64204.  (a) The committee may charge a fee for the submission of
applications for allocations of the current taxable year's career
pathways investment credit ceiling, reservation of the following year'
s career pathways investment credit ceiling, or both. If the
committee chooses to impose a fee, it shall establish and charge fees
in an amount which it determines are reasonably sufficient to cover
the costs of the committee, the State Board of Equalization, and the
Franchise Tax Board in carrying out the administrative
responsibilities required by this part.
   (b) Fees collected pursuant to this subdivision shall be deposited
in the Tax Credit Allocation Fee Account, which is hereby created in
the State Treasury, and shall be available, upon appropriation by
the Legislature to cover the administrative costs of the committee,
the State Board of Equalization, and the Franchise Tax Board in
administering this part.
   (c) Until the time sufficient fee revenue is received by the
committee to fully cover the administrative costs of administering
this part, the committee may borrow moneys as may be required for the
purposes of meeting necessary administrative expenses of the
committee in administering this part. Any loan made to the committee
pursuant to this section shall be repayable solely from the moneys
appropriated to the committee from the Tax Credit Allocation Fee
Account and shall not constitute a general obligation for which the
faith and credit of the state are pledged. 
   SEC. 2.    Section 6902.6 is added to the  
Revenue and Taxation Code   , to read:  
   6902.6.  (a) A qualified taxpayer may, in lieu of claiming the
credit allowed by Section 17057.6 or 23610.5, make an irrevocable
election to apply the credit amount against sales tax reimbursement
paid and use taxes paid to a retailer by the qualified taxpayer in
accordance with this section.
   (b) For purposes of this section:
   (1) "Credit amount" means an amount equal to the tax credit amount
that would otherwise have been allowed to a qualified taxpayer
pursuant to Section 17057.6 or 23610.5 but for the election made
pursuant to this section.
   (2)  "Qualified taxpayer" means a person who is a qualified
taxpayer within the meaning of subdivision (b) of Section 17057.6 or
23610.5.
   (c) (1) A qualified taxpayer or affiliate shall submit to the
board an irrevocable election, in a form as prescribed by the board,
which shall include, but not be limited to, the following:
   (A) The credit amount.
   (B) The amount of sales tax reimbursement and use taxes paid on or
before January 1, 2011.
   (C) A copy of the certification issued by the local educational
agency to the qualified taxpayer under Section 64202 of the Education
Code.
   (2) The election shall be filed on or before the date on which the
qualified taxpayer would first be allowed to claim a credit pursuant
to Section 17057.6 or 23610.5 on its tax return.
   (d) (1) The claimant may elect to obtain a refund of sales and use
taxes paid during the period described in subparagraph (B) of
paragraph (1) of subdivision (c). If the claimant elects to obtain a
refund of sales and use taxes, the claimant shall file a claim for
refund with the irrevocable election described in subdivision (a).
The refund amount shall not exceed the credit amount.
   (2) No interest shall be paid on any amount refunded or credited
pursuant to paragraph (1).
   (3) If the claimant does not elect to obtain a refund or in the
case where the credit amount exceeds the amount of its claim for
refund for the sales and use taxes, the claimant may offset any
remaining credit amount against the sales and use taxes until the
credit is exhausted.
   (e) Section 6961 shall apply to any refund, or part thereof, that
is erroneously made and any credit, or part thereof, that is
erroneously allowed pursuant to this section.
   (f) The board shall provide an annual listing to the California
Tax Credit Allocation Committee and the Franchise Tax Board, in a
form and manner mutually agreed upon, of the qualified taxpayers who,
during the year, have made an irrevocable election pursuant to this
section and the credit amount claimed by each qualified taxpayer.

   SEC. 3.    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) 
    (ia)  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) 
    (ib)  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) 
    (ic)  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) 
    (id)  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) 
    (ie)  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) 
    (if)  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) 
    (ig)  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) 
    (ih)  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  
An ex-offender means 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. Ex-offender shall not include an individual whose record has
been expunged  .
   (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) 
    (ia)  Federal Supplemental Security Income benefits.

   (bb) Aid to Families with Dependent Children.  
   (ib) Temporary Assistance for Needy Families.  
   (cc) 
    (ic)  Food stamps. 
   (dd) 
    (id)  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   Workforce Investment  Act or
the  Greater Avenues for Independence Act of 1985 
 California Work Opportunity and Responsibility to Kids Act
(CalWORKs)  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   Workforce Investment  Act
administrative entity, the local county  GAIN  
CalWORKs  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  
(hereafter  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) The changes made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 2011. 
  SEC. 4.    Section 17057.6 is added to the  
Revenue and Taxation Code  , to read:  
   17057.6.  (a) For taxable years beginning on or after January 1,
2011, there shall be allowed to a qualified taxpayer as a credit
against the "net tax," as defined in Section 17039, an amount equal
to that allocated to a local educational agency by the California Tax
Credit Allocation Committee pursuant to Section 64202 of the
Education Code.
   (b) For purposes of this section a "qualified taxpayer" means a
taxpayer, as defined in Section 64201 of the Education Code, who is
either the sole owner if an individual, partners if the taxpayer is a
partnership, or shareholders if the taxpayer is an "S" corporation.
   (c) No credit shall be allowed pursuant to this section unless the
qualified taxpayer attaches a copy of certification provided to the
qualified taxpayer pursuant to Section 64202 of the Education Code.
   (d) (1) Subject to paragraph (2), the aggregate amount of credits
that may be allocated in any fiscal year pursuant to this section and
Section 23610.5 shall be an amount equal to the sum of the
following:
   (A) ____ dollars ($____) in credits for the 2011-12 fiscal year
and each fiscal year thereafter.
   (B) The unused allocation credit amount, if any, for the preceding
fiscal year.
   (C) The amount of credits allocated pursuant to this section and
Section 23610.5 returned in the fiscal year.
   (2) The aggregate amount of credits allocated in any fiscal year
pursuant to this section and Section 23610.5 shall not exceed ____
dollars ($____) per fiscal year.
   (e) In the case where the credit allowed under this section
exceeds the "net tax," the excess credit may be carried over to
reduce the "net tax" in the following taxable year, and succeeding
taxable years, if necessary, until the credit has been exhausted.

   SEC. 5.    Section 23610.5 is added to the  
Revenue and Taxation Code   , to read:  
   23610.5.  (a) For taxable years beginning on or after January 1,
2011, there shall be allowed to a qualified taxpayer as a credit
against the "tax," as defined in Section 23036, an amount equal to
that allocated to a local educational agency by the California Tax
Credit Allocation Committee pursuant to Section 64202 of the
Education Code.
   (b) For purposes of this section a "qualified taxpayer" means a
taxpayer, as defined in Section 64201 of the Education Code, who is
either the sole owner if an individual, partners if the taxpayer is a
partnership, or shareholders if the taxpayer is an "S" corporation.
   (c) No credit shall be allowed pursuant to this section unless the
qualified taxpayer attaches a copy of certification provided to the
qualified taxpayer pursuant to Section 64202 of the Education Code.
   (d) (1) Subject to paragraph (2), the aggregate amount of credits
that may be allocated in any fiscal year pursuant to this section and
Section 17057.6 shall be an amount equal to the sum of the
following:
   (A) ____ dollars ($____) in credits for the 2011-12 fiscal year
and each fiscal year thereafter.
   (B) The unused allocation credit amount, if any, for the preceding
fiscal year.
   (C) The amount of credits allocated pursuant to this section and
Section 17057.6 returned in the fiscal year.
   (2) The aggregate amount of credits allocated in any fiscal year
pursuant to this section and Section 17057.6 shall not exceed ____
dollars ($____) per fiscal year.
   (e) In the case where the credit allowed under this section
exceeds the "net tax," the excess credit may be carried over to
reduce the "net tax" in the following taxable year, and succeeding
taxable years, if necessary, until the credit has been exhausted.

   SEC. 6.    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) 
    (ia)  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) 
    (ib)  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) 
    (ic)  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) 
    (id)  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) 
    (ie)  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) 
    (if)  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) 
    (ig)  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) 
    (ih)  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
  An ex-offender means an individual who has been
convicted of a felony or a misdemeanor offense punishable by
incarceration or an individual 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. Ex-offender
does not include an individual whose record has been expunged  .

   (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) 
    (ia)  Federal Supplemental Security Income benefits.

   (bb) Aid to Families with Dependent Children.  
   (ib) Temporary Assistance for Needy Families.  
   (cc) 
    (ic)  Food stamps. 
   (dd) 
    (id)  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   Workforce Training  Act or
the  Greater Avenues for Independence Act of 1985 
 California Work Opportunity and Responsibility to Kids Act
(CalWORKs)  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   Workforce Investment  Act
administrative entity, the local county  GAIN  
CalWORKs  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 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  
(hereafter  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) The changes made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 2011. 
   SEC. 7.    This act provides for a tax levy within
the meaning of Article IV of the Constitution and shall go into
immediate effect.