BILL ANALYSIS �
AB 33
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Date of Hearing: May 24, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 33 (Perea) - As Amended: April 8, 2013
Policy Committee: Revenue and
Taxation Vote: 9-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill allows an income tax credit to a qualified taxpayer in
an amount equal to 15% of qualified royalties paid for the use
of a patent owned by the University of California or the
California State University. Specifically, this bill:
1)Authorizes a tax credit, under both the personal income tax
and the corporation tax laws, for taxable years beginning on
or after January 1, 2013, in an amount equal to 15% of the
qualified royalties paid by a qualified taxpayer during a
taxable year.
2)Limits the total amount of credit allowed for all taxable
years to $100 million.
3)Specifies that the cutoff date shall be the last day of the
calendar quarter within which FTB estimates it will have
received timely filed original returns claiming the credit in
an amount totaling $100 million.
FISCAL EFFECT
The FTB estimates this bill will result in an annual revenue
loss of $23 million in the 2013-14 fiscal year, $24 million in
2014-15 and $25 million in 2015-16.
COMMENTS
1)Purpose. The author argues California has been dealing with a
high unemployment rate for a number of years, reaching as high
as 12.4 percent in 2010. Jobs are being relocated out of
AB 33
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state to lower tax jurisdictions and to more competitive
business environments elsewhere. According to the author, AB
33 would give California the ability to recapture out-of-state
investments and provide companies with an incentive to create
jobs here. In addition, the author notes, the direct link
with research and public universities would encourage
investment in our universities at a time when private
investment has decreased.
In 2011, 58 startup companies were formed from University of
California inventions. The author argues this shows the job
creation potential within our public universities, and
provides California a significant opportunity to help market
itself as a business friendly environment.
2)Support . Proponents contend AB 33 reduces the financial risk
involved with innovation, encourages investment in research
conducted at the state's public universities, and positions
the state to better convert its leadership in research into
the development of new job-creating products and services.
Proponents believe this bill gives California a competitive
advantage by improving the business environment with an
incentive no other state can offer.
According to supporters, while almost all of the industries in
which California leads the world grew out of university-based
research, it is often transferring viable research discoveries
to the marketplace that pose the greatest challenge to
innovators and entrepreneurs. Proponents contend providing an
incentive for these efforts, through a tax credit on royalty
payments, has the potential to increase investment in, and
commercialization of, UC inventions and discoveries.
3)Opposition . Opponents argue the tax system is already full of
incentives for R&D activities, at a level which is highest in
the country. Opponents state it is up to the market to
determine the appropriate payments and profits on those
royalties, and that state taxpayers gain little, if anything,
by paying out $100 million in tax credits in situations where
a product is likely to be fully commercialized in any case.
Proponents also point out much off-shore tax avoidance is the
result of failure to return royalties to where they have been
generated, and that there are too many opportunities for tax
avoidance, and a lack of direct benefits to California, in
this bill.
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4)Background . A patent box simply means a tax incentive that
allows income from the sale of patented products to be taxed
at a lower rate than other income. Literally, it is a box on
the tax form for a qualified taxpayer to check. A patent box
differs from a research and development (R&D) credit. While a
R&D credit is intended to spur R&D activity, a patent or
innovation box is put in place to incentivize
commercialization of innovations, rather than just the conduct
of R&D.
5)Previous legislation . AB 1818 (Perea) of 2012 was similar to
this bill. AB 1818 was held in this committee's Suspense
File.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081