BILL NUMBER: AB 1369	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Member Gatto

                        FEBRUARY 18, 2011

   An act to amend Sections 17282 and 24436.1 of, and to repeal
Sections 17281 and 24436 of, the Revenue and Taxation Code, relating
to taxation, to take effect immediately, tax levy.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1369, as introduced, Gatto.  Personal and corporate income
taxes: deductions: illegal activities.
   The Personal Income Tax Law and the Corporation Tax Law allow
various deductions in computing the income that is subject to the
taxes imposed by those laws. Those laws, in modified conformity to
federal income tax laws, disallow any deduction from gross income if
that income is directly derived from, or directly tends to promote or
further, illegal activities relating to lotteries, gaming, or horse
racing, and other specified illegal activities.
   This bill would instead disallow a deduction for expenses
attributable to income derived by a taxpayer from any criminal
profiteering activity, specified illegal activities relating to drug
trafficking, and insurance fraud, as provided.
   This bill would include a change in state statute that would
result in a taxpayer paying a higher tax within the meaning of
Section 3 of Article XIII A of the California Constitution, and thus
would require for passage the approval of 2/3 of the membership of
each house of the Legislature.
   This bill would take effect immediately as a tax levy.
   Vote: 2/3. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 17281 of the Revenue and Taxation Code is
repealed. 
   17281.  In computing taxable income, no deductions shall be
allowed to any taxpayer on any of his or her gross income directly
derived from illegal activities as defined in Chapter 9 (commencing
with Section 319), 10 (commencing with Section 330), or 10.5
(commencing with Section 337.1) of Title 9 of Part 1 of the Penal
Code; nor shall any deductions be allowed to any taxpayer on any of
his or her gross income derived from any other activities which
directly tend to promote or to further, or are directly connected or
associated with, those illegal activities. A prior, final
determination by a court of competent jurisdiction of the state in
any criminal proceeding or any proceeding in which the state, county,
city and county, city, or other political subdivision was a party
thereto on the merits of the legality of the activities of a taxpayer
or predecessor in interest of a taxpayer shall be binding upon the
Franchise Tax Board and State Board of Equalization. 
  SEC. 2.  Section 17282 of the Revenue and Taxation Code is amended
to read:
   17282.  (a) In computing taxable income,  no deductions
(including   deductions, including  deductions for
cost of goods  sold)  sold,  shall  not
 be allowed to any taxpayer  on   from
 any of his or her gross income directly derived from 
illegal activities as defined in Sections 266h or 266i of, or in
Chapter 4 (commencing with Section 211) of Title 8 of, Chapter 7.5
(commencing with Section 311) of Title 9 of, Chapter 8 (commencing
with Section 314) of Title 9 of, or Chapter 2 (commencing with
Section 459), Chapter 5 (commencing with Section 484), or Chapter 6
(commencing with Section 503) of Title 13 of, Part 1 of the Penal
Code,   any act or omission of criminal profiteering
activity, as defined in Section 186.2 of the Penal Code   ,
 or as defined in Chapter 6 (commencing with Section 11350) of
Division 10 of the Health and Safety Code  , or Article 5
(commencing with Section 750) of Chapter 1 of Part 2 of Division 1 of
the Insurance Code  ;  nor shall any   and
 deductions  shall not  be allowed to any taxpayer
 on   from any of his or her gross income
derived from any other activities which directly tend to promote or
to further, or are directly connected or associated with, those
 illegal activities   acts or omissions  .
   (b) A prior, final determination by a court of competent
jurisdiction of this state in any criminal proceedings or any
proceeding in which the state, county, city and county, city, or
other political subdivision was a party thereto on the merits of the
legality of the activities of a  taxpayer  
taxpayer,  or predecessor in interest of a taxpayer  , shall
be required in order for subdivision (a) to apply and shall be
binding upon the Franchise Tax Board and the State Board of
Equalization.
   (c) This section  ,   including amendments made by
the act amending this subdivision,  shall be applied with
respect to taxable years which have not been closed by a statute of
limitations, res judicata, or otherwise.
  SEC. 3.  Section 24436 of the Revenue and Taxation Code is
repealed. 
   24436.  In computing net income, no deductions shall be allowed to
any taxpayer on any of its gross income directly derived from
illegal activities as defined in Chapters 9, 10 or 10.5 of Title 9 of
Part 1 of the Penal Code of California; nor shall any deduction be
allowed to any taxpayer on any of its gross income derived from any
other activities which directly tend to promote or to further, or are
directly connected or associated with, such illegal activities. A
prior, final determination by a court of competent jurisdiction of
this state in any criminal proceedings or any proceeding in which the
state, county, city and county, city or other political subdivision
was a party thereto on the merits of the legality of the activities
of a taxpayer or predecessor in interest of a taxpayer shall be
binding upon the Franchise Tax Board and State Board of Equalization.

  SEC. 4.  Section 24436.1 of the Revenue and Taxation Code is
amended to read:
   24436.1.  (a) In computing net income,  no deductions
(including   deductions, including deductions for
cost of goods  sold)   sold,  shall 
not  be allowed to any taxpayer  on   from
 any of its gross income directly derived from  illegal
activities as defined in Sections 266h or 266i of, or in Chapter 4
(commencing with Section 211) of Title 8 of, Chapter 7.5 (commencing
with Section 311) of Title 9 of, Chapter 8 (commencing with Section
314) of Title 9 of, or Chapter 2 (commencing with Section 459),
Chapter 5 (commencing with Section 484), or Chapter 6 (commencing
with Section 503) of Title 13 of, Part 1 of the Penal Code, 
 any act or omission of criminal profiteering activity, as
defined in Section 186.2 of the Penal Code,  or as defined in
Chapter 6 (commencing with Section 11350) of Division 10 of the
Health and Safety Code  , or Article 5 (commencing with Section
750) of Chapter 1 of Part 2 of Division 1 of the Insurance Code 
;  nor shall any   and  deductions 
shall not  be allowed to any taxpayer on any of its gross income
derived from any other activities which directly tend to promote or
to further, or are directly connected or associated with, those
 illegal activities   acts or omissions  .
   (b) A prior, final determination by a court of competent
jurisdiction of this state in any criminal proceedings or any
proceeding in which the state, county, city and county, city, or
other political subdivision was a party thereto on the merits of the
legality of the activities of a  taxpayer  
taxpayer,  or predecessor in interest of a taxpayer  , shall
be required in order for subdivision (a) to apply and  shall be
binding upon the Franchise Tax Board and the State Board of
Equalization.
   (c) This section  ,   including amendments made by
the act amending this subdivision,  shall be applied with
respect to taxable years which have not been closed by a statute of
limitations, res judicata, or otherwise.
  SEC. 5.  This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.