Amended in Assembly April 8, 2013

Amended in Assembly March 14, 2013

California Legislature—2013–14 Regular Session

Assembly Bill No. 33

Introduced by Assembly Member Perea

( begin delete Coauthor: end delete begin insert Coauthors: end insert Assembly begin delete Member end delete begin insert Members end insert Mullin begin insert and Wieckowski end insert )

(Coauthor: Senator Beall)

December 3, 2012

An act to add and repeal Sections 17053.99 and 23699 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 33, as amended, Perea. Income taxes: credit: patent licensing.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill would, under the Personal Income Tax Law and the Corporation Tax Law, for taxable years beginning on or after January 1, 2013, allow a credit against those taxes in an amount equal to 15% of the qualified royalties, as defined, paid by a qualified taxpayer, as defined. The bill would calculate the cut-off date for the above-described credit based upon an estimate by the Franchise Tax Board of claims cumulatively totaling $100,000,000 for all taxable years, as specified. The bill would require a qualified taxpayer to commercialize, as defined, a qualified patent for at least 5 consecutive years.

This bill would take effect immediately as a tax levy.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 17053.99 is added to the Revenue and
Taxation Code, to read:

17053.99.  

(a) For each taxable year beginning on or after
January 1, 2013, there shall be allowed to a qualified taxpayer as
a credit against the “net tax,” as defined in Section 17039, an
amount equal to 15 percent of the qualified royalties paid by the
qualified taxpayer during the taxable year.

(b) For purposes of this section:

(1) “Commercialize” means the process in which a taxpayer is
a licensee of a qualified patent and uses the patent in connection
with, or incorporates the patent into, intellectual property or
tangible personal property in the manner described, with respect
to which a qualified patent is used directly or indirectly in
connection with the begin insert growing, end insert manufacturing, production, begin delete growing, end delete
or extraction process with respect to such property, or is
incorporated into such property and such incorporation serves a
significant commercial purpose.

(2) “Qualified patent” means a patent owned by the University
of California or the California State University for an invention
where the research and development for that invention was funded,
in whole or in part, by amounts eligible for the credit under Section
17052.12 or 23609.

(3) “Qualified research” has the same meaning as set forth in
Section 41(d) of the Internal Revenue Code, as modified by Section
17052.12.

(4) “Qualified royalties” means any royalties paid by a qualified
taxpayer for the use of a qualified patent through a license
agreement with the University of California, the California State
University, or another entity.

(5) “Qualified taxpayer” means a taxpayer that paid qualified
royalties during the taxable year and commercializes, for at least
one year within the state, the licensed patent for which qualified
royalties were paid during the taxable year.

(c) If the qualified taxpayer does not commercialize the qualified
patent for at least five consecutive years, the tax imposed by this
part shall be increased by an amount equal to the credit allowed
under subdivision (a) for all the taxable years the qualified taxpayer
claimed the credit.

(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 eight years if necessary,
until the credit is exhausted.

(e) (1) (A) Credit under this section and Section 23699 shall
be allowed only for credits claimed on timely filed original returns
received by the Franchise Tax Board on or before the cutoff date
established by the Franchise Tax Board.

(B) For purposes of this paragraph, the cutoff 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 23699 that
cumulatively total one hundred million dollars ($100,000,000) for
all taxable years.

(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 cutoff date, the date a return is received, and whether
a return has been timely filed for purposes of this subdivision may
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 23699 claimed on timely filed original
returns received by the Franchise Tax Board.

(f) (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 23699.

(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.

(g) This section shall remain in effect only until December 1 of
the calendar year after the year of the cutoff date, and as of that
December 1 is repealed.

SEC. 2.  

Section 23699 is added to the Revenue and Taxation
Code, to read:

23699.  

(a) For each taxable year beginning on or after January
1, 2013, there shall be allowed to a qualified taxpayer as a credit
against the “tax,” as defined in Section 23036, an amount equal
to 15 percent of the qualified amount paid by the qualified taxpayer
during the taxable year.

(b) For purposes of this section:

(1) “Commercialize” means the process in which a taxpayer is
a licensee of a qualified patent and uses the patent in connection
with, or incorporates the patent into, intellectual property or
tangible personal property in the manner described, with respect
to which a qualified patent is used directly or indirectly in
connection with the begin insert growing, end insert manufacturing, production, begin delete growing, end delete
or extraction process with respect to such property, or is
incorporated into such property and such incorporation serves a
significant commercial purpose.

(2) “Qualified patent” means a patent owned by the University
of California or the California State University for an invention
where the research and development for that invention was funded,
in whole or in part, by amounts eligible for the credit under Section
17052.12 or 23609.

(3) “Qualified research” has the same meaning as set forth in
Section 41(d) of the Internal Revenue Code, as modified by Section
23609.

(4) “Qualified royalties” means any royalties paid by a qualified
taxpayer for the use of a qualified patent through a license
agreement with the University of California, the California State
University, or another entity.

(5) “Qualified taxpayer” means a taxpayer that paid qualified
royalties during the taxable year and commercializes, for at least
one year within the state, the licensed patent for which qualified
royalties were paid during the taxable year.

(c) If the qualified taxpayer does not commercialize the qualified
patent for at least five consecutive years, the tax imposed by this
part shall be increased by an amount equal to the credit allowed
under subdivision (a) for all the taxable years the qualified taxpayer
claimed the credit.

(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 eight years if necessary, until
the credit is exhausted.

(e) (1) (A) Credit under this section and Section 17053.99 shall
be allowed only for credits claimed on timely filed original returns
received by the Franchise Tax Board on or before the cutoff date
established by the Franchise Tax Board.

(B) For purposes of this paragraph, the cutoff 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 17053.99 that
cumulatively total one hundred million dollars ($100,000,000) for
all taxable years.

(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 cutoff date, the date a return is received, and whether
a return has been timely filed for purposes of this subdivision may
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.

(f) (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 17053.99.

(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.

(g) This section shall remain in effect only until December 1 of
the calendar year after the year of the cutoff date, and as of that
December 1 is repealed.

SEC. 3.  

This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.