BILL NUMBER: SB 116 AMENDED
BILL TEXT
AMENDED IN SENATE AUGUST 18, 2011
AMENDED IN SENATE JULY 7, 2011
AMENDED IN SENATE FEBRUARY 23, 2011
INTRODUCED BY Senator De León
(Coauthors: Senators DeSaulnier, Hancock, Hernandez, Leno,
Lowenthal, Price, Steinberg, and Wolk)
(Coauthors: Assembly Members Blumenfield and Hueso)
JANUARY 19, 2011
An act to amend Sections 23101, 25113, 25128, 25128.5, and 25136
of, to add Sections 17053.86, 23686, and
Section 25136.1 to, to add and repeal Section 6377
Sections 6377, 17053.86, and 23686 of, and to
repeal and amend Sections 17053.80 and 23623 of, the Revenue and
Taxation Code, relating to taxation, making an appropriation
therefor, and declaring the urgency thereof, to take effect
immediately.
LEGISLATIVE COUNSEL'S DIGEST
SB 116, as amended, De León. Income taxes: credits: contributions
to education funds: hiring credit: single sales factor: sales and use
taxes: manufacturing exemption.
(1) The Personal Income Tax Law and the Corporation Tax Law
authorize various credits against the taxes imposed by those laws.
This bill, under both laws, for taxable years beginning on or
after January 1, 2012, and before January 1, 2017, would
allow a credit of 75% of a taxpayer's contribution to either
the K-12 Investment Tax Credit Program Special Fund, a continuously
appropriated special fund, or the Higher Education
Investment Tax Credit Program Special Fund, established by this bill,
for specified education purposes, as provided. This bill would
specify that the aggregate amount of credit that may be allocated
under both laws shall not exceed $1,000,000,000
$500,000,000 for each calendar year.
(2) The Corporation Tax Law imposes taxes measured by income and,
in the case of a business with income derived from or attributable to
sources both within and without this state, apportions the business
income between this state and other states and foreign countries in
accordance with a specified 4-factor formula based on the property,
payroll, and sales within and without this state, except that in the
case of an apportioning trade or business that derives more than 50%
of its gross business receipts from conducting one or more qualified
business activities, as defined, business income is apportioned in
accordance with a specified 3-factor formula. Existing law, for
taxable years beginning on or after January 1, 2011, authorizes a
taxpayer required to apportion its business income in accordance with
the 4-factor formula to make an annual election to have that
business income apportioned in accordance with a single sales factor
formula.
This bill would eliminate the authorization for specified
taxpayers to elect to have business income apportioned in accordance
with a single sales factor formula and instead require those
taxpayers to apportion their business income in accordance with a
single sales factor formula for taxable years beginning on or after
January 1, 2011, and would make related changes. This bill would, for
taxable years beginning on or after January 1, 2011, authorize
specified taxpayers to elect to have business income apportioned in
accordance with the 4-factor formula rather than in accordance with a
single sales factor formula, if the tax before the application of
any credits using the 4-factor formula to apportion business income
is not less than the tax before the application of any credits using
the single sales factor formula to apportion that income. This bill
would also revise the method by which source of income is determined
for a qualified taxpayer, as defined.
(3) The Personal Income Tax Law and the Corporation Tax Law
authorize various credits against the taxes imposed by those laws,
including a credit for taxable years beginning on or after January 1,
2009, in the amount of $3,000 for each net increase in full-time
employees hired by a qualified employer. Those laws define "qualified
employer" as a taxpayer that employed 20 or fewer employees as of
the last day of the preceding taxable year. Those laws establish a
cut-off date when the total amount of credit allocated under those
laws reaches $400,000,000.
This bill, under both laws, for taxable years beginning on or
after January 1, 2011, would increase the amount of the credit to
$4,000 for each net increase in full-time employees hired by a
qualified employer that employs 50 or fewer employees, as of the last
day of the preceding taxable year. This bill would change the
cut-off date to either when the total amount of credit allocated
under those laws reaches $400,000,000, as provided, or on December
31, 2012, which ever 2015, whichever
occurs first.
(4) The Sales and Use Tax Law imposes a tax on retailers measured
by the gross receipts from the sale of tangible personal property
sold at retail in this state, or on the storage, use, or other
consumption in this state of tangible personal property purchased
from a retailer for storage, use, or other consumption in this state.
That law provides various exemptions from those taxes.
This bill would exempt from those taxes the sale of, and the
storage, use, or other consumption in this state, of tangible
personal property, as defined, purchased for use by a qualified
person, as defined, primarily in any stage of manufacturing,
processing, refining, fabricating, or recycling of property; in
research and development; to maintain, repair, measure, or test
specified property; and by a contractor for use in a construction
contract with a qualified person, as specified. This exemption would
only become operative if a sales and use tax increase
extension is enacted and the exemption would remain in
effect until July 1, 2016.
The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes
counties and cities to impose local sales and use taxes in conformity
with the Sales and Use Tax Law, and the Transactions and Use Tax Law
authorizes districts, as specified, to impose transactions and use
taxes in conformity with the Sales and Use Tax Law. Exemptions from
state sales and use taxes are incorporated in these laws.
This bill would specify that this exemption does not apply to
local sales and use taxes, transactions and use taxes, specified
state sales and use taxes , and portions of other
specified state sales and use taxes, as provided.
(5) This bill would declare that it is to take effect immediately
as an urgency statute.
Vote: 2/3. Appropriation: yes. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 6377 is added to the Revenue and Taxation Code,
to read:
6377. (a) (1) Subject to the limitations described in
subdivisions (d) and (e), there are exempted from the taxes imposed
by this part the gross receipts from the sale of, and the storage,
use, or other consumption in this state of, any of the following:
(A) Tangible personal property purchased for use by a qualified
person to be used primarily in any stage of the manufacturing,
processing, refining, fabricating, or recycling of tangible personal
property, beginning at the point any raw materials are received by
the qualified person and introduced into the process and ending at
the point at which the manufacturing, processing, refining,
fabricating, or recycling has altered that property to its completed
form, including packaging, if required.
(B) Tangible personal property purchased for use by a qualified
person to be used primarily in research and development.
(C) Tangible personal property purchased for use by a qualified
person to be used primarily to maintain, repair, measure, or test any
property described in subparagraph (A) or (B).
(D) Tangible personal property purchased by a contractor for use
in the performance of a construction contract for a qualified person
who will use the tangible personal property as an integral part of
the manufacturing, processing, refining, fabricating, or recycling
process, or as a research or storage facility for use in connection
with the manufacturing process.
(2) The exemption described in paragraph (1) shall not apply to
the gross receipts from the sale of, or the storage, use, or other
consumption of tangible personal property that is used primarily in
administration, general management, or marketing.
(b) For purposes of this section:
(1) "Acquire" includes any gift, inheritance, transfer incident to
divorce, or any other transfer, whether or not for consideration.
(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 tangible personal 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) "Primarily," for the purposes of subdivision (a), means
tangible personal property used 50 percent or more of the time in an
activity described in subdivision (a).
(5) "Process" means the period beginning at the point at which any
raw materials are received by the qualified person 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 person has altered tangible
personal property to its completed form, including packaging, if
required. Raw materials shall be considered to have been introduced
into the process when the raw materials are stored on the same
premises where the qualified person's manufacturing, processing,
refining, fabricating, or recycling activity is conducted. Raw
materials that are stored on premises other than where the qualified
person's manufacturing, processing, refining, fabricating, or
recycling activity is conducted, shall not be considered to have been
introduced into the manufacturing, processing, refining,
fabricating, or recycling process.
(6) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
tangible personal property.
(7) "Qualified person" means a person that is either of the
following:
(A) A new trade or business that is primarily engaged in those
lines of business classified in Industry Groups 3111 to 3399,
inclusive, of the North American Industry Classification System
(NAICS) published by the United States Office of Management and
Budget (OMB), 2007 edition. In determining whether a trade or
business activity qualifies as a new trade or business, the following
rules shall apply:
(i) In any case where a person purchases or otherwise acquires all
or any portion of the assets of an existing trade or business,
irrespective of the form of entity, that is doing business in this
state (within the meaning of Chapter 2 (commencing with Section
23101) of Part 11), the trade or business thereafter conducted by
that person, or any related person, shall not be treated as a new
business if the aggregate fair market value of the acquired assets,
including real, personal, tangible, and intangible property, used by
that person, or any related person, in the conduct of his or her
trade or business exceeds 20 percent of the aggregate fair market
value of the total assets of the trade or business being conducted by
the person, or any related person. For purposes of this subparagraph
only, the following rules shall apply:
(I) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the month following the quarterly period in which the person, or
any related person, first uses any of the acquired trade or business
assets in his or her business activity.
(II) Any acquired assets that constituted property described in
Section 1221(a) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(a) of the Internal Revenue Code in the
hands of the acquiring person or related person.
(ii) In any case where a person, or any related person, is engaged
in one or more trade or business activities in this state, or has
been engaged in one or more trade or business activities in this
state within the preceding 36 months, "prior trade or business
activity," and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall be treated as a new business only if the additional trade or
business activity is classified under a different Industry Group (4
digit) of the NAICS published by the United States OMB, 2007 edition,
than are any of the person's or any related person's current or
prior trade or business activities in this state.
(iii) In any case where a person, including all related persons,
is engaged in trade or business activities wholly outside of this
state and that person first commences doing business in this state
(within the meaning of Chapter 2 (commencing with Section 23101) of
Part 11) on or after June 30, 2012, other than by purchase or other
acquisition described in clause (i), the trade or business activity
shall be treated as a new business.
(iv) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
person as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
clause (i).
(v) A "qualified person" shall not be regarded as a new trade or
business when the person has conducted business activities in a new
trade or business for three or more years.
(B) A trade or business, other than a new trade or business as
described in subparagraph (A), that is primarily engaged in those
lines of business classified in Industry Groups 3111 to 3399,
inclusive, of the NAICS published by the United States OMB, 2007
edition.
(8) Notwithstanding paragraph (7), "qualified person," for
purposes of this section, does not include an apportioning trade or
business described in subdivision (b) of Section 25128.
(9) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
(10) "Related person" means any person that is related to another
person under either Section 267 or 318 of the Internal Revenue Code.
(11) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
(12) "Tangible personal property" includes, but is not limited to,
all of the following:
(A) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.
(B) All equipment or devices used or required to operate, control,
regulate, or maintain the machinery, including, without limitation,
computers, data-processing equipment, and computer software, together
with all repair and replacement parts with a useful life of one or
more years therefor, whether purchased separately or in conjunction
with a complete machine and regardless of whether the machine or
component parts are assembled by the qualified person or another
party.
(C) Property used in pollution control that meets or exceeds
standards established by this state or any local or regional
governmental agency within this state.
(D) Special purpose buildings and foundations used as an integral
part of the manufacturing, processing, refining, or fabricating
process, or that constitute a research or storage facility used
during the manufacturing process. Buildings used solely for
warehousing purposes after completion of the manufacturing process
are not included.
(E) Property used in recycling.
(13) "Tangible personal property" does not include any of the
following:
(A) Consumables with a useful life of less than one year.
(B) Furniture, inventory, equipment used in the extraction
process, or equipment used to store finished products that have
completed the manufacturing process.
(14) "Useful life" for tangible personal property that a qualified
person treats as having a useful life of one or more years for state
income or franchise tax purposes shall be deemed to have a useful
life of one or more years for purposes of this section. Useful life
for tangible personal property that a qualified person treats as
having a useful life of less than one year for state income or
franchise tax purposes shall be deemed to have a useful life of less
than one year for purposes of this section.
(c) An exemption shall not be allowed under this section unless
the purchaser furnishes the retailer with an exemption certificate,
completed in accordance with any instructions or regulations as the
board may prescribe, and the retailer retains a copy of the exemption
certificate in his or her records. The exemption certificate shall
contain the sales price of the tangible personal property that is
exempt pursuant to subdivision (a), and shall be furnished to the
board upon request.
(d) (1) Notwithstanding subdivision (a), the exemption established
by this section shall not apply with respect to any tax levied
pursuant to Sections 6051.2, 6051.5, 6051.8, 6201.2, 6201.5, and
6201.8, or pursuant to Article XIII of the California Constitution.
(2) Notwithstanding any other law, the exemption established by
this section shall not apply to any tax levied by a county, city, or
district pursuant to, or in accordance with, the Bradley-Burns
Uniform Local Sales and Use Tax Law (Part 1.5 (commencing with
Section 7200)) or the Transactions and Use Tax Law (Part 1.6
(commencing with Section 7251)).
(e) Notwithstanding subdivision (a), for a qualified person that
is described in subparagraph (B) of paragraph (7) of subdivision (b),
and for a contractor performing a construction contract as described
in subparagraph (D) of paragraph (1) of subdivision (a) for a
qualified person as described in subparagraph (B) of paragraph (7) of
subdivision (b), the exemption established by this section shall be
limited to 20 percent of the amount that would otherwise be allowed
as an exemption under this section.
(f) Notwithstanding subdivision (a), the exemption provided by
this section shall not apply to any sale or use of property which,
within one year from the date of purchase, is either removed from
California or converted from an exempt use under subdivision (a) to
some other use not qualifying for the exemption.
(g) If a purchaser certifies in writing to the seller that the
property purchased without payment of the tax will be used in a
manner entitling the seller to regard the gross receipts from the
sale as exempt from the sales tax pursuant to this section, and
within one year from the date of purchase, the purchaser (1) removes
that property outside California, (2) converts that property for use
in a manner not qualifying for the exemption, or (3) uses that
property in a manner not qualifying for the exemption, the purchaser
shall be liable for payment of sales tax, with applicable interest,
as if the purchaser were a retailer making a retail sale of the
property at the time the property is so removed, converted, or used,
and the sales price of the property to the purchaser shall be deemed
the gross receipts from that retail sale.
(h) At the time necessary information technologies and electronic
data warehousing capabilities of the board are sufficiently
established, the board shall determine an efficient means by which
qualified persons may electronically apply for, and receive, an
exemption certificate that contains information that would assist
retailers in complying with this part with respect to the exemption
described by this section.
(i) This section shall remain in effect only until July 1, 2016,
and as of January 1, 2017, is repealed.
SEC. 2. Section 17053.80 of the Revenue and Taxation Code, as
added by Section 3 of Chapter 10 of the Third Extraordinary Session
of the Statutes of 2009, is repealed.
SEC. 3. Section 17053.80 of the Revenue and Taxation Code, as
added by Section 3 of Chapter 17 of the Third Extraordinary Session
of the Statutes of 2009, is amended to read:
17053.80. (a) There shall be allowed a credit against the "net
tax," as defined in Section 17039, for each net increase in qualified
full-time employees, as specified in subdivision (c), hired during
the taxable year by a qualified employer, as follows:
(1) For each taxable year beginning on or after January 1, 2009,
and before January 1, 2011, the credit shall be equal to three
thousand dollars ($3,000).
(2) For each taxable year beginning on or after January 1, 2011,
and before January 1, 2015, the credit shall be equal to
four thousand dollars ($4,000).
(b) For purposes of this section:
(1) "Acquired" includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.
(2) "Qualified full-time employee" means:
(A) A qualified employee who was paid qualified wages by the
qualified employer for services of not less than an average of 35
hours per week.
(B) A qualified employee who was a salaried employee and was paid
compensation during the taxable year for full-time employment, within
the meaning of Section 515 of the Labor Code, by the qualified
employer.
(3) A "qualified employee" shall not include any of the following:
(A) An employee certified as a qualified employee in an enterprise
zone designated in accordance with Chapter 12.8 (commencing with
Section 7070) of Division 7 of Title 1 of the Government Code.
(B) An employee certified as a qualified disadvantaged individual
in a manufacturing enhancement area designated in accordance with
Section 7073.8 of the Government Code.
(C) An employee certified as a qualified employee in a targeted
tax area designated in accordance with Section 7097 of the Government
Code.
(D) An employee certified as a qualified disadvantaged individual
or a qualified displaced employee in a local agency military base
recovery area (LAMBRA) designated in accordance with Chapter 12.97
(commencing with Section 7105) of Division 7 of Title 1 of the
Government Code.
(E) An employee whose wages are included in calculating any other
credit allowed under this part.
(4) "Qualified employer" means either of the following:
(A) For each taxable year beginning on or after January 1, 2009,
and before January 1, 2011, a taxpayer that, as of the last day of
the preceding taxable year, employed a total of 20 or fewer
employees.
(B) For each taxable year beginning on or after January 1, 2011, a
taxpayer that, as of the last day of the preceding taxable year,
employed a total of 50 or fewer employees.
(5) "Qualified wages" means wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance Code.
(6) (A) "Annual full-time equivalent" means
either of the following:
(A)
(i) In the case of a full-time employee paid hourly
qualified wages, "annual full-time equivalent" means the total number
of hours worked for the taxpayer by the employee (not to exceed
2,000 hours per employee) divided by 2,000.
(B)
(ii) In the case of a salaried full-time employee,
"annual full-time equivalent" means the total number of weeks worked
for the taxpayer by the employee divided by 52.
(B) If either of the taxable years used to compute the net
increase in qualified full-time employees in paragraph (1) of
subdivision (c) is a period of less than 12 months, the computation
of "annual full-time equivalents" as prescribed in subparagraph (A)
shall be annualized by adjusting the number of hours or weeks,
respectively, in the formula so that each annual full-time equivalent
equals a 12-month equivalent.
(c) The net increase in qualified full-time employees of a
qualified employer shall be determined as provided by this
subdivision:
(1) (A) The net increase in qualified full-time employees shall be
determined on an annual full-time equivalent basis by subtracting
from the amount determined in subparagraph (C) the amount determined
in subparagraph (B).
(B) The total number of qualified full-time employees employed in
the preceding taxable year by the taxpayer and by any trade or
business acquired by the taxpayer during the current taxable year.
(C) The total number of full-time employees employed in the
current taxable year by the taxpayer and by any trade or business
acquired during the current taxable year.
(2) For taxpayers who first commence doing business in this state
during the taxable year, the number of full-time employees for the
immediately preceding prior taxable year shall be zero.
(d) 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 seven years if necessary,
until the credit is exhausted.
(e) Any deduction otherwise allowed under this part for qualified
wages shall not be reduced by the amount of the credit allowed under
this section.
(f) For purposes of this section:
(1) All employees of the trades or businesses that are treated as
related under either Section 267, 318, or 707 of the Internal Revenue
Code shall be treated as employed by a single taxpayer.
(2) In determining whether the taxpayer has first commenced doing
business in this state during the taxable year, the provisions of
subdivision (f) of Section 17276.20, without application of paragraph
(7) of that subdivision, shall apply.
(g) (1) (A) Credit under this section and Section 23623 shall be
allowed only for credits claimed on timely filed original returns
received by the Franchise Tax Board on or before the cut-off date
established by the Franchise Tax Board.
(B) For purposes of this paragraph, the cut-off date shall be the
earlier date of the following:
(i) The last day of the calendar quarter within which the
Franchise Tax Board estimates it will have received timely filed
original returns claiming credits under this section and Section
23623 that cumulatively total four hundred million dollars
($400,000,000) for all taxable years.
(ii) December 31, 2012 2015 .
(2) The date a return is received shall be determined by the
Franchise Tax Board.
(3) (A) The determinations of the Franchise Tax Board with respect
to the cut-off date, the date a return is received, and whether a
return has been timely filed for purposes of this subdivision shall
not be reviewed in any administrative or judicial proceeding.
(B) Any disallowance of a credit claimed due to a determination
under this subdivision, including the application of the limitation
specified in paragraph (1), shall be treated as a mathematical error
appearing on the return. Any amount of tax resulting from such
disallowance may be assessed by the Franchise Tax Board in the same
manner as provided by Section 19051.
(4) The Franchise Tax Board shall periodically provide notice on
its Internet Web site with respect to the amount of credit
under this section and Section 23623 claimed on timely filed
original returns received by the Franchise Tax Board.
(h) (1) The Franchise Tax Board may prescribe rules, guidelines
, or procedures necessary or appropriate to carry out the
purposes of this section, including any guidelines regarding the
limitation on total credits allowable under this section and Section
23623 and guidelines necessary to avoid the application of paragraph
(2) of subdivision (f) through split-ups, shell corporations,
partnerships, tiered ownership structures, or otherwise.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this section.
(i) This section shall remain in effect only until December 1,
2013 2016 , and as of that date is
repealed.
SEC. 4. Section 17053.86 is added to the Revenue and Taxation
Code, to read:
17053.86. (a) (1) For each taxable year beginning on or after
January 1, 2012, and before January 1, 2017, there shall
be allowed as a credit against the "net tax," as
defined in Section 17039, an amount equal to 75 percent of the amount
contributed during the taxable year by a taxpayer to either
the K-12 Investment Tax Credit Program Special Fund or the
Higher Education Investment Tax Credit Program Special Fund.
(2) Contributions shall be made only in cash.
(b) (1) The aggregate amount of credit that may be allocated
pursuant to this section and Section 23686 shall not exceed
one billion dollars ($1,000,000,000) for the 2012 calendar year and
one billion dollars ($1,000,000,000) five hundred
million dollars ($500,000,000) for the 2012 calendar year and five
hundred million dollars ($500,000,000) for each calendar year
thereafter.
(2) (A) Credit under this section and Section 23686 shall be
allowed only for credits claimed on timely filed original returns
received by the Franchise Tax Board on or before the cut-off date
established by the Franchise Tax Board and shall be allocated on a
first-come-first-served basis. The date a return is received shall be
determined by the Franchise Tax Board.
(B) For purposes of this subdivision, the cut-off date shall be
the last day of the calendar quarter within which the Franchise Tax
Board estimates it will have received timely filed original returns
claiming credits under this section and Section 23686 totaling
five hundred million dollars ($500,000,000) for the calendar year
.
(3) (A) The determinations of the Franchise Tax Board with respect
to the cut-off date, the date a return is received and whether a
return has been timely filed for purposes of this subdivision shall
not be reviewed in any administrative or judicial proceeding.
(B) Any disallowance of a credit claimed due to a determination
under this subdivision, including the application of the limitation
specified in paragraph (1), shall be treated as a mathematical error
appearing on the return. Any amount of tax resulting from such
disallowance may be assessed by the Franchise Tax Board in the same
manner as provided by Section 19051.
(4) The Franchise Tax Board shall periodically provide notice on
its Internet Web site with respect to the amount of credit under this
section and Section 23686 claimed on timely filed original returns
received by the Franchise Tax Board.
(c) (1) 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 five years if
necessary, until the credit is exhausted.
(2) A deduction shall not be allowed under this part for amounts
taken into account under this section in calculating the credit
allowed by this section.
(d) (1) The K-12 Investment Tax Credit Program Special Fund is
hereby created as a special fund in the State Treasury consisting of
funds contributed by taxpayers. Notwithstanding Section 13340 of the
Government Code, all revenue in this special fund is continuously
appropriated, without regard to fiscal year, as follows:
(A) First to school districts in an amount equal to any amounts
suspended, deferred, or otherwise not appropriated, regardless of
fiscal year, to each school district pursuant to a suspension of the
minimum funding obligation, determined pursuant to subdivision (b) of
Article XVI of the California Constitution.
(B) Any surplus moneys shall be allocated to the Superintendent of
Public Instruction for educational purposes.
(2) The tax credit allowed by subdivision (a) of this section and
subdivision (a) of Section 23686 for donations to the K-12 Investment
Tax Credit Program Special Fund shall be known as the K-12
Investment Tax Credit Program. The Superintendent of Public
Instruction shall maintain an Internet Web site that lists all the
taxpayers that contribute to the K-12 Investment Tax Credit Program
Special Fund. The contributing taxpayer may honor a school that
motivated its contribution by listing the name of the school for
inclusion on the Internet Web site. School districts are encouraged
to publicly acknowledge taxpayers that contribute to this program in
honor of schools within their district.
(e)
(d) (1) The Higher Education Investment Tax Credit
Program Special Fund is hereby created as a special fund in the State
Treasury managed by the State Treasurer consisting of
funds contributed by taxpayers. All revenue in this special fund,
upon appropriation by the Legislature, shall be allocated by the
State Controller in equal parts to the Regents of the
University of California, the Trustees of the California State
University, and the Board of Governors of the California Community
Colleges.
(2) The tax credit allowed by subdivision (a) of this section and
subdivision (a) of Section 23686 for donations to the Higher
Education Investment Tax Credit Program Special Fund shall be known
as the Higher Education Investment Tax Credit Program. The President
of the University of California is encouraged, and the Chancellors of
the California State University and California Community Colleges
are directed to, maintain an Internet Web site that lists all the
taxpayers that contribute to the Higher Education Investment Tax
Credit Program Special Fund. The contributing taxpayer may honor a
California university or college that motivated its contribution by
listing the name of the university or college for inclusion on the
Internet Web sites. The University of California, the California
State University, and the California Community Colleges are
encouraged to publicly acknowledge taxpayers that contribute to this
program in honor of their institutions.
(f)
(e) (1) The Franchise Tax Board may prescribe rules,
guidelines, or procedures necessary or appropriate to carry out the
purposes of this section, including any guidelines regarding the
limitation on total credits allowable under this section and Section
23686.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this section.
(f) This section shall remain in effect only until December 1,
2017, and as of that date is repealed.
SEC. 5. Section 23101 of the Revenue and Taxation Code is amended
to read:
23101. (a) "Doing business" means actively engaging in any
transaction for the purpose of financial or pecuniary gain or profit.
(b) For taxable years beginning on or after January 1, 2011, a
taxpayer is doing business in this state for a taxable year if any of
the following conditions has been satisfied:
(1) The taxpayer is organized or commercially domiciled in this
state.
(2) Sales, as defined in subdivision (f) of Section 25120, of the
taxpayer in this state exceed the lesser of five hundred thousand
dollars ($500,000) or 25 percent of the taxpayer's total sales. For
purposes of this paragraph, sales of the taxpayer include sales by an
agent or independent contractor of the taxpayer. For purposes of
this paragraph, sales in this state shall be determined using the
rules for assigning sales under Section 25135 and Section 25136 and
the regulations thereunder, as modified by regulations under Section
25137.
(3) The real property and tangible personal property of the
taxpayer in this state exceed the lesser of fifty thousand dollars
($50,000) or 25 percent of the taxpayer's total real property and
tangible personal property. The value of real and tangible personal
property and the determination of whether property is in this state
shall be determined using the rules contained in Sections 25129 to
25131, inclusive, and the regulations thereunder, as modified by
regulation under Section 25137.
(4) The amount paid in this state by the taxpayer for
compensation, as defined in subdivision (c) of Section 25120, exceeds
the lesser of fifty thousand dollars ($50,000) or 25 percent of the
total compensation paid by the taxpayer. Compensation in this state
shall be determined using the rules for assigning payroll contained
in Section 25133 and the regulations thereunder, as modified by
regulations under Section 25137.
(c) (1) The Franchise Tax Board shall annually revise the amounts
in paragraphs (2), (3), and (4) of subdivision (b) in accordance with
subdivision (h) of Section 17041.
(2) For purposes of the adjustment required by paragraph (1),
subdivision (h) of Section 17041 shall be applied by substituting
"2012" in lieu of "1988."
(d) The sales, property, and payroll of the taxpayer include the
taxpayer's pro rata or distributive share of pass-through entities.
For purposes of this subdivision, "pass-through entities" means a
partnership or an "S" corporation.
SEC. 6. Section 23623 of the Revenue and Taxation Code, as added
by Section 8 of Chapter 10 of the Third Extraordinary Session of the
Statutes of 2009, is repealed.
SEC. 7. Section 23623 of the Revenue and Taxation Code, as added
by Section 8 of Chapter 17 of the Third Extraordinary Session of the
Statutes of 2009, is amended to read:
23623. (a) There shall be allowed a credit against the "tax," as
defined in Section 23036, for each net increase in qualified
full-time employees, as specified in subdivision (c), hired during
the taxable year by a qualified employer as follows:
(1) For each taxable year beginning on or after January 1, 2009,
and before January 1, 2011, the credit shall be equal to three
thousand dollars ($3,000).
(2) For each taxable year beginning on or after January 1, 2011,
and before January 1, 2015, the credit shall be equal to
four thousand dollars ($4,000).
(b) For purposes of this section:
(1) "Acquired" includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.
(2) "Qualified full-time employee" means:
(A) A qualified employee who was paid qualified wages during the
taxable year by the qualified employer for services of not less than
an average of 35 hours per week.
(B) A qualified employee who was a salaried employee and was paid
compensation during the taxable year for full-time employment, within
the meaning of Section 515 of the Labor Code, by the qualified
employer.
(3) A "qualified employee" shall not include any of the following:
(A) An employee certified as a qualified employee in an enterprise
zone designated in accordance with Chapter 12.8 (commencing with
Section 7070) of Division 7 of Title 1 of the Government Code.
(B) An employee certified as a qualified disadvantaged individual
in a manufacturing enhancement area designated in accordance with
Section 7073.8 of the Government Code.
(C) An employee certified as a qualified employee in a targeted
tax area designated in accordance with Section 7097 of the Government
Code.
(D) An employee certified as a qualified disadvantaged individual
or a qualified displaced employee in a local agency military base
recovery area (LAMBRA) designated in accordance with Chapter 12.97
(commencing with Section 7105) of Division 7 of Title 1 of the
Government Code.
(E) An employee whose wages are included in calculating any other
credit allowed under this part.
(4) "Qualified employer" means either of the following:
(A) For each taxable year beginning on or after January 1, 2009,
and before January 1, 2011, a taxpayer that, as of the last day of
the preceding taxable year, employed a total of 20 or fewer
employees.
(B) For each taxable year beginning on or after January 1, 2011, a
taxpayer that, as of the last day of the preceding taxable year,
employed a total of 50 or fewer employees.
(5) "Qualified wages" means wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance Code.
(6) (A) "Annual full-time equivalent" means
either of the following:
(A)
(i) In the case of a full-time employee paid hourly
qualified wages, "annual full-time equivalent" means the total number
of hours worked for the taxpayer by the employee (not to exceed
2,000 hours per employee) divided by 2,000.
(B)
(ii) In the case of a salaried full-time employee,
"annual full-time equivalent" means the total number of weeks worked
for the taxpayer by the employee divided by 52.
(B) If either of the taxable years used to compute the net
increase in qualified full-time employees in paragraph (1) of
subdivision (c) is a period of less than 12 months, the computation
of "annual full-time equivalents" as prescribed in subparagraph (A)
shall be annualized by adjusting the number of hours or weeks,
respectively, in the formula so that each annual full-time equivalent
equals a 12-month equivalent.
(c) The net increase in qualified full-time employees of a
qualified employer shall be determined as provided by this
subdivision:
(1) (A) The net increase in qualified full-time employees shall be
determined on an annual full-time equivalent basis by subtracting
from the amount determined in subparagraph (C) the amount determined
in subparagraph (B).
(B) The total number of qualified full-time employees employed in
the preceding taxable year by the taxpayer and by any trade or
business acquired by the taxpayer during the current taxable year.
(C) The total number of full-time employees employed in the
current taxable year by the taxpayer and by any trade or business
acquired during the current taxable year.
(2) For taxpayers who first commence doing business in this state
during the taxable year, the number of full-time employees for the
immediately preceding prior taxable year shall be zero.
(d) 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 seven years if necessary, until the
credit is exhausted.
(e) Any deduction otherwise allowed under this part for qualified
wages shall not be reduced by the amount of the credit allowed under
this section.
(f) For purposes of this section:
(1) All employees of the trades or businesses that are treated as
related under either Section 267, 318, or 707 of the Internal Revenue
Code shall be treated as employed by a single taxpayer.
(2) In determining whether the taxpayer has first commenced doing
business in this state during the taxable year, the provisions of
subdivision (g) of Section 24416.20, without application of paragraph
(7) of that subdivision, shall apply.
(g) (1) (A) Credit under this section and Section 17053.80 shall
be allowed only for credits claimed on timely filed original returns
received by the Franchise Tax Board on or before the cut-off date
established by the Franchise Tax Board.
(B) For purposes of this paragraph, the cut-off date shall be the
earlier date of the following:
(i) The last day of the calendar quarter within which the
Franchise Tax Board estimates it will have received timely filed
original returns claiming credits under this section and Section
17053.80 that cumulatively total four hundred million dollars
($400,000,000) for all taxable years.
(ii) December 31, 2012 2015 .
(2) The date a return is received shall be determined by the
Franchise Tax Board.
(3) (A) The determinations of the Franchise Tax Board with respect
to the cut-off date, the date a return is received, and whether a
return has been timely filed for purposes of this subdivision shall
not be reviewed in any administrative or judicial proceeding.
(B) Any disallowance of a credit claimed due to a determination
under this subdivision, including the application of the limitation
specified in paragraph (1), shall be treated as a mathematical error
appearing on the return. Any amount of tax resulting from such
disallowance may be assessed by the Franchise Tax Board in the same
manner as provided by Section 19051.
(4) The Franchise Tax Board shall periodically provide notice on
its Internet Web site with respect to the amount of credit
under this section and Section 17053.80 claimed on timely filed
original returns received by the Franchise Tax Board.
(h) (1) The Franchise Tax Board may prescribe rules, guidelines
, or procedures necessary or appropriate to carry out the
purposes of this section, including any guidelines regarding the
limitation on total credits allowable under this section and Section
17053.80 and guidelines necessary to avoid the application of
paragraph (2) of subdivision (f) through split-ups, shell
corporations, partnerships, tiered ownership structures, or
otherwise.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this section.
(i) This section shall remain in effect only until December 1,
2013 2016 , and as of that date is
repealed.
SEC. 8. Section 23686 is added to the Revenue and Taxation Code,
to read:
23686. (a) (1) For each taxable year beginning on or after
January 1, 2012, and before January 1, 2017, there shall
be allowed as a credit against the "tax," as
defined in Section 23036, an amount equal to 75 percent of the amount
contributed during the taxable year by a taxpayer to either
the K-12 Investment Tax Credit Program Special Fund, created by
subdivision (d) of Section 17053.86, or the Higher
Education Investment Tax Credit Program Special Fund, created by
subdivision (e) (d) of Section
17053.86.
(2) Contributions shall be made only in cash.
(b) (1) The aggregate amount of credit that may be allocated
pursuant to this section and Section 17053.86 shall not exceed
one billion dollars ($1,000,000,000) for the 2012 calendar
year and one billion dollars ($1,000,000,000) five
hundred million dollars ($500,000,000) for the 2012 calendar year and
five hundred million dollars ($500,000,000) for each calendar
year thereafter.
(2) (A) Credit under this section and Section 17053.86 shall be
allowed only for credits claimed on timely filed original returns
received by the Franchise Tax Board on or before the cut-off date
established by the Franchise Tax Board and shall be allocated on a
first-come-first-served basis. The date a return is received shall be
determined by the Franchise Tax Board.
(B) For purposes of this subdivision, the cut-off date shall be
the last day of the calendar quarter within which the Franchise Tax
Board estimates it will have received timely filed original returns
claiming credits under this section and Section 17053.86
totaling five hundred million dollars ($500,000,000) for the calendar
year .
(3) (A) The determinations of the Franchise Tax Board with respect
to the cut-off date, the date a return is received , and
whether a return has been timely filed for purposes of this
subdivision shall not be reviewed in any administrative or judicial
proceeding.
(B) Any disallowance of a credit claimed due to a determination
under this subdivision, including the application of the limitation
specified in paragraph (1), shall be treated as a mathematical error
appearing on the return. Any amount of tax resulting from such
disallowance may be assessed by the Franchise Tax Board in the same
manner as provided by Section 19051.
(4) The Franchise Tax Board shall periodically provide notice on
its Internet Web site with respect to the amount of credit under this
section and Section 17053.86 claimed on timely filed original
returns received by the Franchise Tax Board.
(c) (1) 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 five years if necessary, until
the credit is exhausted.
(2) A deduction shall not be allowed under this part for amounts
taken into account under this section in calculating the credit
allowed by this section.
(d) (1) The Franchise Tax Board may prescribe rules, guidelines
, or procedures necessary or appropriate to carry out the
purposes of this section, including any guidelines regarding the
limitation on total credits allowable under this section and Section
17053.86.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this section.
(e) This section shall remain in effect only until December 1,
2017, and as of that date is repealed.
SEC. 9. Section 25113 of the Revenue and Taxation Code, as added
by Section 4 of Chapter 657 of the Statutes of 2003, is amended to
read:
25113. (a) Except as provided in subdivision (f), for taxable
years beginning on or after January 1, 2003, the election provided
for in Section 25110 shall be made on an original, timely filed
return for the year of the election. The election will be considered
valid if both of the following conditions are satisfied:
(1) The tax is computed in a manner consistent with a water's-edge
election.
(2) A written notification of election is filed with the return on
a form prescribed by the Franchise Tax Board. Pursuant to
regulations promulgated under this section, the Franchise Tax Board
may accept the filing of other objective evidence that supports the
conclusion that a water's-edge election was intended in lieu of
notification on the designated form.
(b) Except as otherwise provided, a water's-edge election shall be
effective only if made by every member of the self-assessed combined
reporting group that is subject to taxation under this part.
(1) An election made on a group return of a self-assessed combined
reporting group shall constitute an election by each taxpayer member
included in that group return, unless one of those taxpayers files a
separate return in which no election is made and paragraph (2) does
not apply.
(2) A taxpayer that fails to make an election on its own timely
filed original return shall be deemed to have elected if either of
the following applies:
(A) It has a parent corporation that is an electing taxpayer that
included the income and apportionment factors of the nonelecting
taxpayer in the self-assessed combined reporting group reflected in
the electing parent's timely filed original return, including a group
return.
(B) The income and apportionment factors of the nonelecting
taxpayer are reflected in the self-assessed combined reporting group
of a timely filed original return of an electing taxpayer, and the
notification of election filed by the electing taxpayer pursuant to
paragraph (2) of subdivision (a) is signed by an officer or other
authorized agent of either a parent corporation of the nonelecting
taxpayer or another corporation with authority to bind the
nonelecting taxpayer to an election.
(3) For purposes of this subdivision, a "parent corporation" of
the taxpayer is a corporation that owns or constructively owns stock
possessing more than 50 percent of the voting power of the taxpayer
as determined under subdivisions (e) and (f) of Section 25105.
(4) If a corporation that is a member of a combined reporting
group is not itself subject to taxation under this part in the year
for which the water's-edge election is made, but subsequently becomes
subject to taxation under this part, that corporation shall be
deemed to have elected with the other taxpayer members of the
combined reporting group.
(5) A taxpayer that is engaged in more than one apportioning trade
or business, as defined in paragraph (2) of subdivision (c) of
Section 25128, may make a separate election for each apportioning
trade or business.
(c) A water's-edge election shall remain in effect or be
terminated in accordance with this subdivision.
(1) Except as otherwise provided in this subdivision, if one or
more electing taxpayer members of a combined reporting group later
become disaffiliated or otherwise cease to be included in the
combined reporting group, the water's-edge election shall remain in
effect as to both the departing taxpayer members and any remaining
taxpayer members.
(2) If an electing taxpayer and a nonelecting taxpayer become
members of a new unitary affiliate group, the nonelecting taxpayer
shall be deemed to have elected if the value of the total business
assets of the electing taxpayer, and its component unitary group, if
any, is larger than the value of the total business assets of the
nonelecting taxpayer, and its component unitary group, if any.
Otherwise, the water's-edge election shall be automatically
terminated at the time the electing members become part of the
combined report. For purposes of applying paragraphs (9) and (10),
the commencement date of the deemed election shall be the same as the
commencement date of the electing taxpayers.
(3) If taxpayers filing under water's-edge elections with
different commencement dates become members of a new unitary
affiliate group, the earliest election date shall be deemed to apply
to all electing taxpayers if the total business assets of the earlier
electing taxpayer, and its component unitary group, if any, is
larger than the value of the total business assets of the later
electing taxpayer, and its component unitary group, if any.
Otherwise, the later election commencement date shall apply to all
electing taxpayers.
(4) (A) If a taxpayer with an election that has been terminated
under paragraph (9) or (10) becomes a member of a new unitary
affiliate group that includes another electing or nonelecting
taxpayer not affected by those paragraphs, any water's-edge election
of the other taxpayer member, if applicable, shall terminate, and any
restrictions on making a new water's-edge election, relating to an
election terminated under those paragraphs, shall apply to all
taxpayer members of the new unitary affiliate group if the total
business assets of the taxpayer with the terminated election, and its
component unitary group, if any, is larger than the other taxpayer,
and its component unitary group, if any. Otherwise, paragraph (2)
shall apply, if applicable. If paragraph (2) does not apply, all
taxpayer members of the new unitary affiliate group will be treated
as nonelecting taxpayers that are not subject to any restrictions on
making a new water's-edge election.
(B) If two nonelecting taxpayers with different termination dates
under paragraph (9) or (10) become members of a new unitary affiliate
group, the earliest termination date shall be deemed to apply to all
nonelecting taxpayers, as well as any restrictions on making a new
water's-edge election relating to that termination, if the total
business assets of the earlier terminating taxpayer, and its
component unitary group, if any, is larger than the value of the
total business assets of the later terminating taxpayer, and its
component unitary group, if any. Otherwise, the later termination
date, and the related restrictions on making a new water's-edge
election, shall apply to all taxpayer members of the new unitary
affiliate group.
(5) (A) Except as provided in subparagraph (B), if one or more
electing taxpayers did not report their income and apportionment
factors as members of a combined reporting group with one or more
nonelecting taxpayers, and, pursuant to a Franchise Tax Board audit
determination, the nonelecting taxpayers, are properly in the same
combined reporting group as the electing taxpayers, the water's-edge
election of the electing taxpayers shall remain in effect and the
nonelecting taxpayers shall be deemed to have made a water's-edge
election. The commencement date of the deemed water's-edge election
shall be the same as the commencement date of the electing taxpayers.
(B) Subparagraph (A) may not apply if the value of total business
assets of the electing taxpayers does not exceed the value of total
business assets of the nonelecting taxpayers. In that event, the
water's-edge election of each electing taxpayer is terminated as of
the date the nonelecting taxpayers are, pursuant to the audit
determination described in subparagraph (A), properly included in the
same combined reporting group as the electing taxpayers.
(C) For purposes of applying the business asset test of this
paragraph, the term "business assets" shall have the same meaning as
subparagraph (A) of paragraph (6), except that the business assets of
other members of the unitary affiliate group that are not taxpayers
shall not be taken into account.
(D) Notwithstanding subparagraph (A), nonelecting taxpayers may
not be deemed to have made a water's-edge election if the Franchise
Tax Board audit determination described in subparagraph (A) is
withdrawn or otherwise overturned.
(6) For purposes of paragraphs (2) to (5), inclusive, the
following shall apply:
(A) "Business assets" are assets, including intangible assets,
other than stock of a member of the unitary affiliate group, which
are used in the conduct of the business of the unitary affiliate
group or would produce business income to the unitary affiliate
group, if an election were not in place, if the assets were sold.
Business assets shall be valued at net book value.
(B) The phrase "unitary affiliate group" refers to all of those
corporations that would constitute a unitary group if a water's-edge
election were not made.
(C) The phrase "new unitary affiliate group" refers to a unitary
affiliate group that is created by a new affiliation of two or more
corporations, or by the addition of one or more new members to an
existing unitary affiliate group.
(D) The phrase "component unitary group" means that portion of a
group of corporations that have become members of a new unitary
affiliate group that were members of their own respective unitary
affiliate group prior to entering the new unitary affiliate group,
disregarding any corporations that did not become part of the new
unitary group.
(7) In the application of paragraphs (2) to (4), inclusive, a
series of acquisitions as steps of a single transaction shall be
aggregated as a single change of membership.
(8) In the event of a merger or consolidation, the water's-edge
status and election commencement date or termination date of the
surviving corporation shall be consistent with the result that would
have been obtained under paragraphs (2) to (4), inclusive, if the
surviving corporation had acquired the stock of the transferor
corporation.
(9) A water's-edge election may be terminated without the consent
of the Franchise Tax Board after it has been in effect for at least
84 months. The termination
shall be made on an original, timely filed return for the first year
in which the water's-edge election is to be terminated. To be
effective, the termination shall be made by every taxpayer that is a
member of the water's-edge group in the same manner as the election
provided under subdivisions (a) and (b).
(10) A water's-edge election may be terminated before the 84-month
period described in paragraph (9) has elapsed, but only with the
consent of the Franchise Tax Board. A request for termination shall
be made at the time and in the manner specified by the Franchise Tax
Board.
(A) The request may be granted for good cause. For purposes of
this section, good cause shall have the same meaning as specified in
Treasury Regulations Section 1.1502-75(c).
(B) The Franchise Tax Board shall consent to a termination
requested by all members of a water's-edge group, if the purpose of
the request is to permit the state to contract with an expatriate
corporation, or its subsidiary, pursuant to paragraph (2) of
subdivision (b) of Section 10286 of the Public Contract Code. A water'
s-edge election terminated pursuant to this subparagraph shall,
however, be effective for the year in which the expatriate
corporation, or its subsidiary, enters into the contract with the
state.
(11) Except for deemed elections as provided in paragraphs (2),
(4), and (5), if a water's-edge election is terminated under
paragraph (9) or (10), another election may not be made under this
section for any taxable year that begins within the 84-month period
following the last day of the election period that was terminated.
The Franchise Tax Board may waive the application of this prohibition
period for good cause.
(12) A water's-edge election shall remain in effect until
terminated.
(d) For purposes of this section, the following shall apply:
(1) A "combined reporting group" means those corporations whose
income and apportionment factors are properly considered pursuant to
this chapter in computing the income of the individual taxpayer that
is derived from or attributable to sources within this state, taking
into account a valid water's-edge election.
(2) A "group return" refers to the single return which taxpayer
members of a combined reporting group may elect by contract to file,
in the form and manner prescribed by the Franchise Tax Board, in lieu
of filing their own respective returns.
(3) A "self-assessed combined reporting group" means that group of
corporations whose income and apportionment factors are reflected in
a combined report prepared pursuant to this chapter in a timely
filed return, taking into account the effects of a purported water'
s-edge election, whether or not the membership of the corporations in
that combined report was correctly determined.
(e) The Franchise Tax Board may prescribe any regulations as may
be necessary or appropriate to carry out the purposes of this
section.
(f) To the extent that a taxpayer would have been required to file
on a water's-edge basis in its first taxable year beginning on or
after January 1, 2003, pursuant to a water's-edge election made in a
prior year under Section 25111, the terms of Section 25111 may not
apply and the election shall be deemed to have been made under the
terms of this section. However, the commencement date of the election
made in a prior year under Section 25111 shall continue to be
treated as the commencement date of the water's-edge election period
for purposes of applying this section.
(g) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 2011.
SEC. 10. Section 25128 of the Revenue and Taxation Code is amended
to read:
25128. (a) (1) Notwithstanding Section 38006, for taxable years
beginning on or after January 1, 2011, any apportioning trade or
business, other than an apportioning trade or business that is
described in subdivision (b) or that makes an election to apportion
its income in accordance with Section 25128.5, shall apportion its
business income in accordance with this subdivision.
(2) Notwithstanding Section 38006, for taxable years beginning on
or after January 1, 2011, all business income of an apportioning
trade or business described in paragraph (1) shall be apportioned to
this state by multiplying the business income by the sales factor.
(b) If an apportioning trade or business derives more than 50
percent of its "gross business receipts" from conducting one or more
qualified business activities, as defined in subdivision (c), all
business income of the apportioning trade or business shall be
apportioned to this state by multiplying business income by a
fraction, the numerator of which is the property factor plus the
payroll factor plus the sales factor, and the denominator of which is
three.
(c) For purposes of this section:
(1) "Agricultural business activity" means any activity relating
to any stock, dairy, poultry, fruit, furbearing animal, or truck
farm, plantation, ranch, nursery, or range. "Agricultural business
activity" also includes any activity relating to cultivating the soil
or raising or harvesting any agricultural or horticultural
commodity, including, but not limited to, the raising, shearing,
feeding, caring for, training, or management of animals on a farm as
well as the handling, drying, packing, grading, or storing on a farm
of any agricultural or horticultural commodity in its unmanufactured
state, but only if the owner, tenant, or operator of the farm
regularly produces more than one-half of the commodity so treated.
(2) "Apportioning trade or business" means a distinct trade or
business whose business income is required to be apportioned under
Sections 25101 and 25120, limited, if applicable, by Section 25110,
using the same denominator for each of the applicable payroll,
property, and sales factors.
(3) "Banking or financial business activity" means any activity
attributable to dealings in money or moneyed capital in substantial
competition with the business of national banks.
(4) "Extractive business activity" means any activity relating to
the production, refining, or processing of oil, natural gas, or
mineral ore.
(5) "Gross business receipts" means gross receipts described in
subdivision (f) of Section 25120 (other than gross receipts from
sales or other transactions within an apportioning trade or business
between members of a group of corporations whose income and
apportionment factors are required to be included in a combined
report under Section 25101, limited, if applicable, by Section
25110), whether or not the receipts are excluded from the sales
factor by operation of Section 25137.
(6) "Qualified business activity" means any of the following:
(A) An agricultural business activity.
(B) An extractive business activity.
(C) A savings and loan activity.
(D) A banking or financial business activity.
(7) "Savings and loan activity" means any activity performed by
savings and loan associations or savings banks which have been
chartered by federal or state law.
(d) In any case where the income and apportionment factors of two
or more savings associations or corporations are required to be
included in a combined report under Section 25101, limited, if
applicable, by Section 25110, both of the following shall apply:
(1) The application of the more than 50 percent test of
subdivision (b) shall be made with respect to the "gross business
receipts" of the entire apportioning trade or business of the group.
(2) The entire business income of the group shall be apportioned
in accordance with either this section or Section 25128.5, as
applicable.
(e) The amendments made to this section by the act adding this
subdivision, shall apply to taxable years beginning on or after
January 1, 2011.
SEC. 11. Section 25128.5 of the Revenue and Taxation Code is
amended to read:
25128.5. (a) Notwithstanding Section 38006, for taxable years
beginning on or after January 1, 2011, any apportioning trade or
business, other than an apportioning trade or business described in
subdivision (b) of Section 25128, may make an irrevocable annual
election on an original timely filed return, in the manner and form
prescribed by the Franchise Tax Board, to apportion its income in
accordance with this section, and not in accordance with Section
25128, if the "tax," as defined in Section 23036 before the
application of any credits, using this section to apportion its
business income, is not less than the "tax," as defined in Section
23036 before the application of any credits, using subdivision (a) of
Section 25128 to apportion its business income.
(b) Notwithstanding Section 38006, for taxable years beginning on
or after January 1, 2011, all business income of an apportioning
trade or business making an election under subdivision (a) shall be
apportioned to this state by multiplying the business income by a
fraction, the numerator of which is the property factor plus the
payroll factor plus twice the sales factor, and the denominator of
which is four.
(c) The Franchise Tax Board is authorized to issue regulations
necessary or appropriate regarding the making of an election under
this section, including regulations that are consistent with rules
prescribed for making an election under Section 25113.
SEC. 12. Section 25136 of the Revenue and Taxation Code is amended
to read:
25136. (a) For taxable years beginning on or after January 1,
2011:
(1) Sales from services are in this state to the extent the
purchaser of the service received the benefit of the service in this
state.
(2) Sales from intangible property are in this state to the extent
the property is used in this state. In the case of marketable
securities, sales are in this state if the customer is in this state.
(3) Sales from the sale, lease, rental, or licensing of real
property are in this state if the real property is located in this
state.
(4) Sales from the rental, lease, or licensing of tangible
personal property are in this state if the property is located in
this state.
(b) The Franchise Tax Board may prescribe those regulations as
necessary or appropriate to carry out the purposes of subdivision
(a).
SEC. 13. Section 25136.1 is added to the Revenue and Taxation
Code, to read:
25136.1. (a) For taxable years beginning on or after January 1,
2011, a qualified taxpayer that apportions its business income under
Section 25128 shall apply the following provisions:
(1) Notwithstanding Section 25137, qualified sales assigned to
this state shall be equal to 50 percent of the amount of qualified
sales that would be assigned to this state pursuant to Section 25136
but for the application of this section. The remaining 50 percent
shall not be assigned to this state.
(2) All other sales shall be assigned pursuant to Section 25136.
(b) For purposes of this section:
(1) "Qualified taxpayer" means a member, as defined in paragraph
(10) of subdivision (b) of Section 25106.5 of Title 18 of the
California Code of Regulations, as in effect on the effective date of
the act adding this section, of a combined reporting group that is
also a qualified group.
(2) "Qualified group" means a combined reporting group, as defined
in paragraph (3) of subdivision (b) of Section 25106.5 of Title 18
of the California Code of Regulations, as in effect on the effective
date of the act adding this section, that satisfies the following
conditions:
(A) Has satisfied the minimum investment requirement for the
taxable year.
(B) For the combined reporting group's taxable year beginning in
calendar year 2006, the combined reporting group derived more than 50
percent of its United States network gross business receipts from
the operation of one or more cable systems.
(C) For purposes of satisfying the requirements of subparagraph
(B), the following rules shall apply:
(i) If a member of the combined reporting group for the taxable
year was not a member of the same combined reporting group for the
taxable year beginning in calendar year 2006, the gross business
receipts of that nonincluded member shall be included in determining
the combined reporting group's gross business receipts for its
taxable year beginning in calendar year 2006 as if the nonincluded
member were a member of the combined reporting group for the taxable
year beginning in calendar year 2006.
(ii) The gross business receipts shall include the gross business
receipts of a qualified partnership, but only to the extent of a
member's interest in the partnership.
(3) "Cable system," system" and
"network" shall have the same meaning as defined in Section 5830 of
the Public Utilities Code, as in effect on the effective date of the
act adding this section. "Network services" means video, cable,
voice, or data services.
(4) "Gross business receipts" means gross receipts defined in
paragraph (2) of subdivision (f) of Section 25120 (other than gross
receipts from sales or other transactions between or among members of
a combined reporting group, limited, if applicable, by Section
25110).
(5) "Minimum investment requirement" means qualified expenditures
of not less than two hundred fifty million dollars ($250,000,000) by
a combined reporting group during the calendar year that includes the
beginning of the taxable year.
(6) "Qualified expenditures" means any combination of expenditures
attributable to this state for tangible property, payroll, services,
franchise fees, or any intangible property distribution or other
rights, paid or incurred by or on behalf of a member of a combined
reporting group.
(A) An expenditure for other than tangible property shall be
attributable to this state if the member of the combined reporting
group received the benefit of the purchase or expenditure in this
state.
(B) A purchase of or expenditure for tangible property shall be
attributable to this state if the property is placed in service in
this state.
(C) Qualified expenditures shall include expenditures by a
combined reporting group for property or services purchased, used, or
rendered by independent contractors in this state.
(D) Qualified expenditures shall also include expenditures by a
qualified partnership, but only to the extent of the member's
interest in the partnership.
(7) "Qualified partnership" means a partnership if the partnership'
s income and apportionment factors are included in the income and
apportionment factors of a member of the combined reporting group,
but only to the extent of the member's interest in the partnership.
(8) "Qualified sales" means gross business receipts from the
provision of any network services, other than gross business receipts
from the sale or rental of customer premises equipment. "Qualified
sales" shall include qualified sales by a qualified partnership, but
only to the extent of a member's interest in the partnership.
(c) The rules in this section with respect to qualified sales by a
qualified partnership are intended to be consistent with the rules
for partnerships under paragraph (3) of subdivision (f) of Section
25137-1 of Title 18 of the California Code of Regulations.
SEC. 14. This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:
In order to mitigate acute fiscal difficulties facing the state,
it is necessary that this act take effect immediately.