BILL NUMBER: AB 879 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 16, 2013
INTRODUCED BY Assembly Member Bocanegra
FEBRUARY 22, 2013
An act to add and repeal Section 24416.23 to
of the Revenue and Taxation Code, relating to
economic development.
LEGISLATIVE COUNSEL'S DIGEST
AB 879, as amended, Bocanegra. Emerging technology and
biotechnology company: income taxes: net operating losses: transfers.
The Personal Income Tax Law and Corporation Tax Law impose taxes
measured by income, and allow individual and corporate taxpayers to
utilize net operating losses as carryovers and carrybacks of those
losses for purposes of offsetting their individual and corporate tax
liabilities.
This bill would require the Treasurer, in cooperation with the
Franchise Tax Board, to establish a corporation business tax benefit
certificate transfer program , for taxable years beginning on or
after January 1, 2014, and before January 1, 2019, to allow a
qualified transferor, defined as a new or expanding emerging
technology and biotechnology company in this state with unused net
operating losses, to surrender those net operating losses for use by
a taxpayer subject to the Corporation Tax Law in this state in
exchange for private financial assistance a
cash payment to be provided by that taxpayer to assist in the
funding of costs incurred by the new or expanding emerging technology
and biotechnology company, as provided.
This bill would provide that any net operating losses that are
transferred pursuant to a corporation business tax benefit transfer
certificate issued to a taxpayer is allowed beginning on or after the
first day of the 4th taxable year after the date of issue of that
certificate.
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 24416.23 is added to the Revenue and Taxation
Code, to read:
24416.23. (a) For taxable years beginning on or after January 1,
2013 2014, and before January 1, 2019 ,
the Treasurer, in cooperation with the Franchise Tax Board, shall
establish a corporation business tax benefit certificate transfer
program to program. The corporation business
tax benefit certification transfer program shall allow a
qualified transferor with unused net operating losses, as described
in Section 24416.20, to surrender those net operating losses for use
by other taxpayers subject to tax under this part in exchange for
private financial assistance to be provided by
a cash payment from a qualified transferee that
is the recipient of receives the qualified
transferor's unused net operating loss, as evidenced by a corporation
business tax benefit certificate , to assist the qualified
transferor in the funding of costs incurred by the qualified
transferor .
(b) The transferred net operating losses may be used on the tax
return required to be filed pursuant to Part 10.2 (commencing with
Section 18401) by a taxpayer subject to tax under this part.
(c) (1) The Treasurer, in cooperation with the Franchise Tax
Board, shall review and approve applications by qualified transferors
with unused but otherwise allowable net operating losses to
surrender those net operating losses in exchange for private
financial assistance cash payment to be made by
the taxpayer that is the recipient of the corporation business tax
benefit certificate in an amount equal to at least 80 percent of the
amount of the surrendered tax net operating losses.
(2) For purposes of this subdivision, the amount of the tax
benefit of the surrendered net operating losses is an amount equal to
the amount face value of the net
operating loss that is surrendered multiplied by the rate of tax
, as of the date transferred, of the qualified transferee, as
imposed by Section 23151 or 23501.
(d) (1) The aggregate amount of the net operating losses that may
be surrendered in any fiscal year pursuant to this section shall be
an amount equal to the sum of sixty million dollars ($60,000,000)
plus the amount of previously surrendered net operating losses that
were recaptured under the provisions of this section.
(2) If the amount of net operating loss surrender applications for
any particular fiscal year exceeds the aggregate amount described in
paragraph (1), that excess shall be treated as having been applied
for on the first day of the subsequent fiscal year.
(3) The Treasurer shall set aside at least twenty-five million
dollars ($25,000,000) of the amount described in paragraph (1) for
unused net operating losses of small qualified transferors.
(e) For purposes of this section:
(1) "Acquire" includes any transfer, whether or not for
consideration.
(2) "Biotechnology" means the continually expanding body of
fundamental knowledge about the functioning of biological systems
from the macro level to the molecular and subatomic levels, as well
as novel products, services, technologies, and subtechnologies
developed as a result of insights gained from research advances that
add to that body of fundamental knowledge.
(3) "Biotechnology company" means a corporation that owns, has
filed for, or has a valid license to use protected, proprietary
intellectual property and that is engaged in the research,
development, production, or provision of biotechnology for the
purpose of developing or providing products or processes for specific
commercial or public purposes, including, but not limited to,
medical, pharmaceutical, nutritional, and other health-related
purposes, agricultural purposes, and environmental purposes.
(4) "Full-time employee" means a person employed by a qualified
transferor for consideration for at least 35 hours a week, or who
renders any other standard service generally accepted by custom or
practice as full-time employment and whose wages are subject to
withholding as required by Division 6 (commencing with Section 13000)
of the Unemployment Insurance Code. To qualify as a "full-time
employee," an employee must also receive from the qualified
transferor health benefits under a group health plan, a health
benefits plan, or a policy or contract of health insurance covering
more than one person issued pursuant to the Insurance Code.
"Full-time employee" shall not include any person who works as an
independent contractor or on a consulting basis for the qualified
transferor.
(5) "Group health plan" means an employee welfare benefit plan, as
defined in Title 1 of Section 3 of the Employee Retirement Income
Security Act of 1974 (Public Law 93-406; 29 U.S.C. Sec. 1002(1)), to
the extent that the plan provides medical care and including items
and services paid for as medical care to employees or their
dependents, as defined under the terms of the plan, directly or
through insurance, reimbursement, or otherwise.
(6) "New or expanding" means a technology or biotechnology company
that, at the end of the calendar year prior to the year in which the
company files an application for surrender of unused but otherwise
allowable net operating losses, on the date which the application is
submitted, and on the date on which the company received the
corporation business tax benefit certificate, has fewer than 225
employees in the United States, that has at least one full-time
employee working in this state if the company has been incorporated
for less than three years, that has at least five full-time employees
in this state if the company has been incorporated for more than
three years but less than five years, and that has at least 10
full-time employees working in this state if the company has been
incorporated for more than five years.
(7) "Qualified transferee" means a corporation subject to tax
imposed by Section 23151 or 23501.
(8) "Qualified transferor" means a new or expanding emerging
technology and biotechnology company in this state that either:
(A) Has not demonstrated positive net operating income in any of
the two previous taxable years consisting of 12 calendar months each
of ongoing operations as determined on its financial statements
issued according to generally accepted accounting standards endorsed
by the Financial Accounting Standards Board.
(B) Is not directly or indirectly at least 50 percent owned or
controlled by another corporation that has demonstrated positive net
operating income in any of two previous taxable years consisting of
12 calendar months each of ongoing operations as determined on its
financial statements issued according to generally accepted
accounting standards endorsed by the Financial Accounting Standards
Board, or is part of a consolidated group of affiliated corporations,
as filed for federal income tax purposes, that in the aggregate has
demonstrated positive net operating income in any of the two previous
full years of ongoing operations as determined on its combined
financial statements issued according to generally accepted
accounting standards endorsed by the Financial Accounting Standards
Board.
(9) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
(10) "Small qualified transferor" means a qualified transferor
with total unused net operating losses, prior to the transfer of any
unused net operating loss pursuant to this section, of less than two
hundred fifty thousand dollars ($250,000).
(11) "Technology company" means an emerging corporation that owns,
has filed for, or has a valid license to use protected, proprietary
intellectual property; and that employs some combination of the
following: highly educated or trained managers and workers, or both,
employed in this state who use sophisticated scientific research
service or production equipment, processes, or knowledge to discover,
develop, test, transfer, or manufacture a product or service.
(f) (1) The maximum lifetime amount, as limited by subdivision (h)
of this section, of net operating losses that a qualified
transferee transferor shall be permitted to
surrender pursuant to this section is fifteen million dollars
($15,000,000).
(2) Applications must be received on or after January 1 and
on or before June 30.
(3) A certificate shall not be issued pursuant to this section
unless the qualified transferor provides the Treasurer with the
identification of the specific net operating losses by taxable year
that are included in the application.
(4) A qualified transferor shall surrender unused net operating
losses at the moment the application is approved, as evidenced by the
corporation business tax benefit transfer certificate.
(g) For purposes of this section, the Treasurer shall:
(1) In consultation with the Franchise Tax Board, establish rules
for the recapture of all or a portion of the amount of a grant of a
corporation business tax benefit certificate from a qualified
transferee having surrendered tax benefits pursuant to this section,
in the event the qualified transferee fails to use the
private financial assistance cash payment
received for the surrender of tax benefits as required by this
section.
(2) In cooperation with the Franchise Tax Board, review and
approve applications by taxpayers subject to tax under this part to
acquire surrendered net operating losses pursuant to this section,
which shall be issued in the form of corporation business tax benefit
transfer certificates, in exchange for private financial
assistance a cash payment to be made by the
qualified transferee to the qualified transferor in an amount equal
to at least 80 percent of the amount of the tax benefit of the
surrendered net operating losses.
(3) In cooperation with the Franchise Tax Board, certify the
amount of surrendered net operating losses that a qualified
transferor is allowed to transfer, as evidenced by the corporation
business tax benefit transfer certificate.
(3)
(4) (A) Issue the corporation business tax benefit
transfer certificate on or before November 1 .
(B) A certificate shall not be issued unless the qualified
transferor certifies that as of the date of the exchange of the
corporation business tax benefit certificate it is operating as a new
or expanding emerging technology or biotechnology company and has no
current intention to cease operating as a new or expanding emerging
technology or biotechnology company.
(C) The private financial assistance cash
payment shall assist in funding expenses in connection with the
operation of the qualified transferor in the state, including, but
not limited to, the expenses of fixed assets, such as the
construction and acquisition and development of real estate,
materials, startup, tenant fitout, working capital, salaries,
research and development expenditures, and any other similar
expenses.
(D) Require a qualified transferee to enter into a written
agreement with the qualified transferor concerning the terms and
conditions of the private financial assistance
cash payment made in exchange for the certificate.
(E) Require a qualified transferor to certify that the unused net
operating losses have been transferred, for immediate cash payment,
to a qualified transferee.
(h) For purposes of this section, in determining whether a company
is a qualified transferor, the following shall apply:
(1) (A) In a case where a taxpayer 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 Section 23101, the trade or business
thereafter conducted by the taxpayer or any related person shall not
be treated as a qualified transferor if the aggregate fair market
value of the acquired assets, including real, personal, tangible, and
intangible property, used by the taxpayer or any related person in
the conduct of its 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 taxpayer or any related person.
(B) For purposes of this paragraph:
(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 first taxable year in which the taxpayer or any related
person first uses any of the acquired trade or business assets in its
business activity.
(ii) Any acquired assets that constituted property described in
Section 1221(1) 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(1) of the Internal Revenue Code in the
hands of the acquiring taxpayer or related person.
(2) 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
taxpayer as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under paragraph (1).
(i) (1) Any net operating losses that are transferred pursuant to
a corporation business tax benefit transfer certificate issued to a
taxpayer under this section shall only be allowed beginning on or
after the first day of the fourth taxable year after the date of
issue of that certificate.
(2) The surrender of net operating losses under subdivision (c)
shall be irrevocable once made.
(3)
(2) A qualified transferor surrendering net operating
losses under this section shall reduce the amount of its unused net
operating loss by the amount of surrendered net operating losses, as
reflected on the certificate issued under this section , and
the amount of the surrendered net operating loss shall not be
available as a deduction by the qualified transferor in any taxable
year, nor shall it thereafter be included in the amount of any net
operating loss carryover of the qualified transferor .
(4)
(3) (A) A qualified transferee, as reflected on the
certificate under this section, may deduct all or any portion of the
net operating loss transferred against the taxable income of the
qualified transferee for the taxable year beginning on or after the
first day of the fourth taxable year after the issue date of the
certificate, or any subsequent taxable year, subject to any carryover
period limitations that apply to the surrendered net operating loss
in the hands of the qualified transferor.
(B) The carryover period under Section 172 of the Internal Revenue
Code, as modified for purposes of this part, for any net operating
loss received under the provisions of this section shall be extended
in the hands of the qualified transferee for three additional taxable
years, but the carryover period for any net operating losses
retained by the qualified transferor shall not be extended under the
rules of this subparagraph.
(5)
(4) A qualified transferee shall not sell, otherwise
transfer, or thereafter assign the certificate to any other taxpayer.
(j) If any consideration is paid a cash
payment is made by the qualified transferee to the qualified
transferor for a corporation business tax benefit certificate under
this section, then both of the following shall apply:
(1) A deduction shall not be allowed to the qualified transferee
under this part with respect to any amounts so paid.
(2) The amounts so received by the qualified transferor as
financial assistance cash payment shall
be includable in gross income subject to tax under this part.
(k) (1) Except as specifically provided in this section, following
a surrender of a net operating loss by a qualified transferor under
this section, the qualified transferee shall be treated as if it
originally generated the net operating loss.
(2) Any limitations on the allowance of any net operating loss
transferred under this section that would apply to the qualified
transferor in the absence of the transfer shall also apply to the
same extent to the allowance of that net operating loss to the
qualified transferee.
(l) Notwithstanding subdivision (d) of Section 24416.20, Section
172(b)(1) of the Internal Revenue Code, relating to years to which
the loss may be carried, is modified to provide that net operating
loss carrybacks shall not be allowed for any net operating losses
received by a qualified transferee pursuant to this section.
(m) (1) The Treasurer, in consultation with the Franchise Tax
Board, shall specify the form and manner in which the surrender
required under this section shall be made, as well as any necessary
information that shall be required to be provided by the qualified
transferor to the qualified transferee and the Franchise Tax Board.
(2) Any taxpayer that surrenders any net operating loss under this
section shall report any information, in the form and manner
specified by the Franchise Tax Board, necessary to substantiate any
net operating loss transferred under this section and verify the
transfer and subsequent application of any surrendered net operating
losses.
(3) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code shall not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to paragraphs (1) and (2).
(4) The Treasurer and the Franchise Tax Board may each issue
regulations necessary to implement the purposes of this section.
(n) (1) The qualified transferor and the qualified transferee
shall be jointly and severally liable for any tax, addition to tax,
or penalty that results from the disallowance, in whole or in part,
of any net operating loss surrendered under this section.
(2) This section shall not limit the authority of the Franchise
Tax Board to audit either the qualified transferor or the qualified
transferee with respect to any surrendered net operating loss under
this section.
(o) This section shall remain in effect only until December 31,
2019, and as of that date is repealed.