BILL NUMBER: AB 1369	ENROLLED
	BILL TEXT

	PASSED THE SENATE  SEPTEMBER 6, 2011
	PASSED THE ASSEMBLY  JUNE 2, 2011
	AMENDED IN ASSEMBLY  MAY 18, 2011

INTRODUCED BY   Assembly Members Gatto and Perea

                        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, 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.


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

  SECTION 1.  Section 17281 of the Revenue and Taxation Code is
repealed.
  SEC. 2.  Section 17282 of the Revenue and Taxation Code is amended
to read:
   17282.  (a) In computing taxable income, deductions, including
deductions for cost of goods sold, shall not be allowed to any
taxpayer from any of his or her gross income directly derived from
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; and deductions shall
not be allowed to any taxpayer 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 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, 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) (1) Except as provided in paragraphs (2) and (3), this section
shall be applied with respect to taxable years that have not been
closed by a statute of limitations, res judicata, or otherwise as of
September 14, 1982.
   (2) The amendments made to this section by Chapter 962 of the
Statutes of 1984 shall be applied with respect to taxable years that
have not been closed by a statute of limitations, res judicata, or
otherwise as of January 1, 1985.
   (3) The amendments made to this section by the act adding this
paragraph shall be applied with respect to taxable years that have
not been closed by a statute of limitations, res judicata, or
otherwise as of the effective date of that act.
  SEC. 3.  Section 24436 of the Revenue and Taxation Code is
repealed.
  SEC. 4.  Section 24436.1 of the Revenue and Taxation Code is
amended to read:
   24436.1.  (a) In computing net income, deductions, including
deductions for cost of goods sold, shall not be allowed to any
taxpayer from any of its gross income directly derived from 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; 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 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, 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) (1) Except as provided in paragraphs (2) and (3), this section
shall be applied with respect to taxable years that have not been
closed by a statute of limitations, res judicata, or otherwise as of
September 14, 1982.
   (2) The amendments made to this section by Chapter 962 of the
Statutes of 1984 shall be applied with respect to taxable years that
have not been closed by a statute of limitations, res judicata, or
otherwise as of January 1, 1985.
   (3) The amendments made to this section by the act adding this
paragraph shall be applied with respect to taxable years that have
not been closed by a statute of limitations, res judicata, or
otherwise as of the effective date of that act.
  SEC. 5.  This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.