Amended in Assembly April 1, 2013

California Legislature—2013–14 Regular Session

Assembly Bill No. 927

Introduced by Assembly Member Muratsuchi

February 22, 2013

An act to add and repeal begin delete Section end delete begin insert Sections end insert 6377.6 begin insert , 17053.81, and 23623.1 end insert of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 927, as amended, Muratsuchi. begin delete Sales end delete begin insert Income taxes: credits: hiring: sales end insert and use taxes: exemption: manufacturing: research and development.

Existing sales and use tax laws impose 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. Those laws provides various exemptions from those taxes.

This bill would exempt from those taxes, on and after January 1, 2014, and before January 1, 2018, the gross receipts from the sale of, and the storage, use, or other consumption of, qualified tangible personal property purchased for use by a qualified person, as defined, for use primarily in any stage of manufacturing, processing, refining, fabricating, or recycling of property, as specified, or for use primarily in research and development, as specified, or to maintain, repair, measure, or test that property. The bill would also exempt from those taxes the gross receipts from the sale of, and the storage, use, or other consumption of, tangible personal property purchased for use by a contractor, as specified, for a qualified person. The bill would require the purchaser to furnish the retailer with an exemption certificate, as specified.

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 existing law authorizes districts, as specified, to impose transactions and use taxes in conformity with the Transactions and Use Tax Law, which conforms to the Sales and Use Tax Law. Exemptions from state sales and use taxes are incorporated into these laws.

This bill would specify that this exemption does not apply to local sales and use taxes and transactions and use taxes.

begin insert

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

end insert begin insert

This bill would, under both laws, for taxable years beginning on or after January 1, 2014, allow a credit to a qualified employer, as defined, in an amount equal to $3,000 for each net increase in qualified full-time employee hired during the taxable year by a qualified employer, and an additional $1,000 per qualified full-time employee hired during the taxable year by a qualified employer if the qualified full-time employee is a veteran or an additional $2,000 per qualified full-time employee hired during the taxable year by a qualified employer if the qualified full-time employee is a service-connected disabled veteran, as provided. This bill would cap the total amount of credit which may be allocated under those provisions to $____.

end insert

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.  

It is the intent of the Legislature to create a
competitive tax policy for businesses involved with research,
development, and manufacturing.

SEC. 2.  

Section 6377.6 is added to the Revenue and Taxation
Code, to read:

6377.6.  

(a) Beginning January 1, 2014, and before January 1,
2018, 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, all of the following:

(1) Qualified 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
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 property to its completed form,
including packaging, if required.

(2) Qualified tangible personal property purchased for use by
a qualified person to be used primarily in research and
development.

(3) Qualified tangible personal property purchased for use by
a qualified person to be used primarily to maintain, repair, measure,
or test any qualified tangible personal property described in
paragraph (1) or (2).

(4) Qualified tangible personal property purchased for use by
a contractor purchasing that property for use in the performance
of a construction contract for the qualified person, who will use
the property as an integral part of the manufacturing, processing,
refining, fabricating, or recycling process, or as a storage facility
for use in connection with those processes.

(b) For purposes of this section:

(1) “Fabricating” means to make, build, create, produce, or
assemble components or property to work in a new or different
manner.

(2) “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.

(3) “Primarily” means 50 percent or more of the time.

(4) “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.

(5) “Processing” means the physical application of the materials
and labor necessary to modify or change the characteristics of
tangible personal property.

(6) “Qualified person” means either of the following:

(A) A person who is primarily engaged in those lines of business
classified in Industry Groups 3111 to 3399, inclusive, Industry
Group 5112, NAICS Industry 22111, or NAICS Industry 541711
of the North American Industry Classification System (NAICS)
published by the United States Office of Management and Budget,
2012 edition.

(B) An affiliate of a person who is a qualified person pursuant
to subparagraph (A) if the affiliate is included as a member of the
qualified person’s unitary group for which a combined report is
required to be filed under Article 1 (commencing with Section
25101) of Chapter 17 of Part 11.

(7) (A) “Qualified tangible personal property” includes, but is
not limited to, all of the following:

(i) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.

(ii) Equipment or devices used or required to operate, control,
regulate, or maintain the machinery and equipment, 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, 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.

(iii) Qualified tangible personal property used in pollution
control that exceeds standards established by this state or any local
or regional governmental agency within this state.

(iv) Special purpose buildings and foundations used as an
integral part of the manufacturing, processing, refining, fabricating,
or recycling process, or that constitute a research or storage facility
used during those processes. Buildings used solely for warehousing
purposes after completion of those processes are not included.

(B) “Qualified tangible personal property” does not include any
of the following:

(i) Consumables with a useful life of less than one year.

(ii) Furniture, inventory, and equipment used in the extraction
process, or equipment used to store finished products that have
completed the manufacturing, processing, refining, fabricating, or
recycling process.

(iii) Tangible personal property used primarily in administration,
general management, or marketing.

(8) “Refining” means the process of converting a natural
resource to an intermediate or finished product.

(9) “Research and development” means those activities defined
in Section 174 of the Internal Revenue Code or in any regulations
thereunder.

(10) “Useful life” for tangible personal property that is treated
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 is treated 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 the exemption
certificate in its records and furnishes the exemption certificate to
the board upon request. The exemption certificate shall contain
the sales price of the qualified tangible personal property.

(d) Notwithstanding any provision of 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)), the exemption established
by this section shall not apply with respect to any tax levied by a
county, city, or district pursuant to, or in accordance with, either
of those laws.

(e) (1) Notwithstanding subdivision (a), the exemption provided
by this section shall not apply to any sale or use of tangible
personal property that, within one year from the date of purchase,
is either removed from California, converted from an exempt use
under subdivision (a) to some other use not qualifying for the
exemption, or used in a manner not qualifying for the exemption.
The taxpayer that has received the exemption under this section
for purchasing qualifying tangible personal property shall notify
the board if the property is either removed from California,
converted from an exempt use under subdivision (a) within one
year from the date of purchase, or used in a manner not qualifying
for the exemption.

(2) If a purchaser certifies in writing to the seller that the tangible
personal 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, 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.

(f) 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, a form
of exemption certificate that contains information that would assist
them in complying with this part with respect to the exemption
established by this section.

(g) This section shall remain in effect only until January 1, 2018,
and as of that date is repealed.

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 17053.81 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 17053.81. end insert   

(a) (1) For each taxable year beginning on or after
January 1, 2014, there shall be allowed to a qualified employer a
credit against the “net tax,” as defined in Section 17039, in an
amount described in paragraph (2).

(2) The amount of credit allowed under this section is as follows:

(A) Three thousand dollars ($3,000) for each net increase in
qualified full-time employee hired during the taxable year by a
qualified employer.

(B) An additional one thousand dollars ($1,000) per qualified
full-time employee hired during the taxable year by a qualified
employer if the qualified full-time employee is a veteran or an
additional two thousand dollars ($2,000) per qualified full-time
employee hired during the taxable year by a qualified employer if
the qualified full-time employee is a service-connected disabled
veteran.

(b) For purposes of this section:

(1) “Annual full-time equivalent” means either of the following:

(A) 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) 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.

(2) “Qualified full-time employee” means either of the
following:

(A) An employee who was paid wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance
Code by the qualified employer for services of not less than an
average of 35 hours per week.

(B) An 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) “Qualified employer” means a taxpayer who employed
qualified full-time employees who are located in this state and
meets any of the following:

(A) The taxpayer manufactures, assembles, tests, renovates, or
converts aircraft and spacecraft.

(B) The taxpayer manufactures or designs aircraft or spacecraft
engines and engine parts.

(C) The taxpayer manufactures or designs aircraft and
spacecraft auxiliary components, including detection equipment,
navigation, and guidance systems.

(D) The taxpayer provides aircraft and spacecraft support
services, including launching, operating, and retrieving air and
space vehicles.

(E) The taxpayer is a military contractor that is involved with
aerospace defense, including the manufacturing of missiles and
military airplanes.

(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 preceding 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) 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, without application of
paragraph (7) of that subdivision, shall apply.

(e) (1) (A) Credit under this section and Section 23623.1 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 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 23623.1
that cumulatively total ____ dollars ($____) 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 cut-off 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 Web site with respect to the amount of credit under this
section and Section 23623.1 claimed on timely filed original returns
received by the Franchise Tax Board.

(f) 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 years if necessary, until
the credit is exhausted.

(g) (1) The Franchise Tax Board may prescribe rules,
guidelines, or procedures necessary or appropriate to carry out
the purposes of this section.

(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.

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

end insert

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 23623.1 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 23623.1. end insert   

(a) (1) For each taxable year beginning on or after
January 1, 2014, there shall be allowed to a qualified employer a
credit against the “tax,” as defined in Section 23036, in an amount
described in paragraph (2).

(2) The amount of credit allowed under this section is as follows:

(A) Three thousand dollars ($3,000) for each net increase in
qualified full-time employee hired during the taxable year by a
qualified employer.

(B) An additional one thousand dollars ($1,000) per qualified
full-time employee hired during the taxable year by a qualified
employer if the qualified full-time employee is a veteran or an
additional two thousand dollars ($2,000) per qualified full-time
employee hired during the taxable year by a qualified employer if
the qualified full-time employee is a service-connected disabled
veteran.

(b) For purposes of this section:

(1) “Annual full-time equivalent” means either of the following:

(A) 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) 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.

(2) “Qualified full-time employee” means either of the
following:

(A) An employee who was paid wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance
Code by the qualified employer for services of not less than an
average of 35 hours per week.

(B) An 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) “Qualified employer” means a taxpayer who employed
qualified full-time employees who are located in this state and
meets any of the following:

(A) The taxpayer manufactures, assembles, tests, renovates, or
converts aircraft and spacecraft.

(B) The taxpayer manufactures or designs aircraft or spacecraft
engines and engine parts.

(C) The taxpayer manufactures or designs aircraft and
spacecraft auxiliary components, including detection equipment,
navigation, and guidance systems.

(D) The taxpayer provides aircraft and spacecraft support
services, including launching, operating, and retrieving air and
space vehicles.

(E) The taxpayer is a military contractor that is involved with
aerospace defense, including the manufacturing of missiles and
military airplanes.

(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 preceding 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) 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, without application of
paragraph (7) of that subdivision, shall apply.

(e) (1) (A) Credit under this section and Section 17053.81 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 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 17053.81
that cumulatively total ____ dollars ($____) 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 cut-off 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 Web site with respect to the amount of credit under this
section and Section 17053.81 claimed on timely filed original
returns received by the Franchise Tax Board.

(f) 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 years if necessary, until the
credit is exhausted.

(g) (1) The Franchise Tax Board may prescribe rules,
guidelines, or procedures necessary or appropriate to carry out
the purposes of this section.

(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.

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

end insert

begin delete SEC. 3. end delete
begin insert SEC. 5. end insert   

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