Amended in Assembly April 29, 2013

California Legislature—2013–14 Regular Session

Assembly Bill No. 1326

Introduced by Assembly Members Gorell and Bradford

February 22, 2013

An act to add and repeal Sections 6376.6, 17053.83, and 23623.3 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 1326, as amended, Gorell. Sales and use taxes: exemptions: unmanned aerial vehicle manufacturing: income taxes: credits: hiring.

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, and provides various exemptions from the taxes imposed by that law.

This bill begin delete would end delete begin insert end insert begin insert would, for taxable years beginning on or after January 1, 2014, and before January 1, 2024, end insert provide an exemption from those taxes for the gross receipts from the sale of, and the storage, use, or other consumption of, tangible personal property, as defined, purchased for use in unmanned aerial vehicle manufacturing by a qualified person, as defined. 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.

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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 to impose transactions and use taxes in accordance 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. Section 2230 of the Revenue and Taxation Code provides that the state will reimburse counties and cities for revenue losses caused by the enactment of sales and use tax exemptions.

end delete begin delete

This bill would provide that, notwithstanding Section 2230 of the Revenue and Taxation Code, no appropriation is made and the state shall not reimburse local agencies for sales and use tax revenues lost by them pursuant to this bill.

end delete begin insert

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 accordance with the Transactions and Use Tax Law, which conforms to the Sales and Use Tax Law. Amendments to state sales and use taxes are incorporated into these laws.

end insert begin insert

Section 2230 of the Revenue and Taxation Code provides that the state will reimburse counties and cities for revenue losses caused by the enactment of sales and use tax exemptions.

end insert begin insert

This bill would provide that, notwithstanding Section 2230 of the Revenue and Taxation Code, no appropriation is made and the state shall not reimburse any local agencies for sales and use tax revenues lost by them pursuant to this bill.

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

This bill would, under both laws, for taxable years beginning on or after January 1, 2014, and before January 1, 2024, allow a credit in an amount equal to a specified percentage of the qualified wages, as defined, paid or incurred by a taxpayer that manufactures unmanned aerial vehicles with respect to qualified employees, as defined, during the taxable year, not to exceed $20,000 per year, per qualified employee.

 This bill would take effect immediately as a tax levy.

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

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

SECTION 1.  

Section 6376.6 is added to the Revenue and
Taxation Code, to read:

6376.6.  

(a) On and after January 1, 2014, and before January
1, 2024, 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:

(1) Tangible personal property purchased for use in unmanned
aerial vehicle manufacturing by a qualified person to be used
primarily in any stage of the manufacturing 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 has altered property to its completed form,
including packaging, if required.

(2) Tangible personal property purchased by a contractor for
use in the performance of a construction contract for the qualified
person that will use the qualified tangible personal property as an
integral part of the manufacturing process, or as a facility for use
in connection with the manufacturing process.

(b) For purposes of this section:

(1) “Manufacturing” means the activity of converting or
conditioning 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.

(2) “Primarily” means tangible personal property used 50 percent
or more of the time in an activity described in subdivision (a).

(3) “Process” means the period beginning at the point at which
any raw materials are received by the qualified person and
introduced into the manufacturing activity of the qualified person
and ending at the point at which the manufacturing 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 activity is conducted. Raw
materials that are stored on premises, other than where the qualified
person’s manufacturing activity is conducted, shall not be
considered to have been introduced into the manufacturing process.

(4) (A) “Qualified person” means a person who is engaged in
the line of business described in Industry Group 336411 of the
North American Industry Classification System (NAICS) published
by the United States Office of Management and Budget (OMB),
2012 edition, that manufactures unmanned aerial vehicles.

(B) An affiliate of a person qualified pursuant to subparagraph
(A) shall also be considered a qualified person as long as the
affiliate is included as a member of that 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 begin delete Part” end delete begin insert Part 11 end insert .

(5) (A) “Tangible personal property,” as used in this section,
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) 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, 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) Property used in pollution control that meets 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 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.

(v) Fuels used or consumed in the manufacturing process.

(B) “Tangible personal property” shall not include any of the
following:

(i) Consumables with a normal useful life of less than one year,
except as provided in clause (v) of subparagraph (A).

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

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

(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 subsequently furnishes
the board with a copy of the exemption certificate. The exemption
certificate shall contain the sales price of the machinery or
equipment, the sale of, or the storage, use, or other consumption
of which is exempt pursuant to subdivision (a).

(d) 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 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.

(e) 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, and within one year from the
date of purchase, the purchaser removes that property outside
California, converts that property for use in a manner not qualifying
for the exemption, or 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) This section shall remain in effect only through and including
December 31, 2023, and is repealed on January 1, 2024.

SEC. 2.  

Section 17053.83 is added to the Revenue and Taxation
Code, to read:

17053.83.  

(a) For each taxable year beginning on or after
January 1, 2014, and before January 1, 2024, there shall be allowed
as a credit against the “net tax,” as defined in Section 17039, an
amount equal to the following:

(1) Fifty percent of qualified wages paid or incurred during any
taxable year beginning on or after January 1, 2014, and before
January 1, 2016.

(2) Forty percent of qualified wages paid or incurred during any
taxable year beginning on or after January 1, 2016, and before
January 1, 2018.

(3) Thirty percent of qualified wages paid or incurred during
any taxable year beginning on or after January 1, 2018, and before
January 1, 2020.

(4) Twenty percent of qualified wages paid or incurred during
any taxable year beginning on or after January 1, 2020, and before
January 1, 2022.

(5) Ten percent of qualified wages paid or incurred during any
taxable year beginning on or after January 1, 2022, and before
January 1, 2024.

(b) For purposes of this section:

(1) “Qualified taxpayer” means any taxpayer who is engaged
in the line of business described in Industry Group 336411 of the
North American Industry Classification System (NAICS) published
by the United States Office of Management and Budget (OMB),
2012 edition, that manufactures unmanned aerial vehicles.

(2) “Qualified employee” means an individual whose services
for the qualified taxpayer are performed in this state and are at
least 90 percent directly related to the qualified taxpayer’s line of
business described in Industry Group 336411 of the North
American Industry Classification System (NAICS) published by
the United States Office of Management and Budget (OMB), 2012
edition, manufacturing unmanned aerial vehicles.

(3) “Qualified wages” means that portion of wages paid or
incurred by the qualified taxpayer during the taxable year with
respect to qualified employees that are direct costs as defined in
Section 263A of the Internal Revenue Code allocable to property
manufactured in this state by the qualified taxpayer.

(c) The credit allowed by this section shall not exceed twenty
thousand dollars ($20,000) per year, per qualified employee. For
employees that are qualified employees for part of a taxable year,
the credit shall not exceed twenty thousand dollars ($20,000)
multiplied by a fraction, the numerator of which is the number of
months of the taxable year that the employee is a qualified
employee and the denominator of which is 12.

(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 seven succeeding years if necessary,
until the credit is exhausted.

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

(f) This section shall remain in effect only until December 1,
2024, and as of that date is repealed.

SEC. 3.  

Section 23623.3 is added to the Revenue and Taxation
Code, to read:

23623.3.  

(a) For each taxable year beginning on or after
January 1, begin delete 2013, end delete begin insert 2014, end insert and before January 1, begin delete 2023, end delete begin insert 2024, end insert there
shall be allowed as a credit against “tax,” as defined in Section
23036, an amount equal to the following:

(1) Fifty percent of qualified wages paid or incurred during any
taxable year beginning on or after January 1, 2014, and before
January 1, 2016.

(2) Forty percent of qualified wages paid or incurred during any
taxable year beginning on or after January 1, 2016, and before
January 1, 2018.

(3) Thirty percent of qualified wages paid or incurred during
any taxable year beginning on or after January 1, 2018, and before
January 1, 2020.

(4) Twenty percent of qualified wages paid or incurred during
any taxable year beginning on or after January 1, 2020, and before
January 1, 2022.

(5) Ten percent of qualified wages paid or incurred during any
taxable year beginning on or after January 1, 2022, and before
January 1, 2024.

(b) For purposes of this section:

(1) “Qualified taxpayer” means any taxpayer who is engaged
in the line of business described in Industry Group 336411 of the
North American Industry Classification System (NAICS) published
by the United States Office of Management and Budget (OMB),
2012 edition, that manufactures unmanned aerial vehicles.

(2) “Qualified employee” means an individual whose services
for the qualified taxpayer are performed in this state and are at
least 90 percent directly related to the qualified taxpayer’s line of
business described in Industry Group 336411 of the North
American Industry Classification System (NAICS) published by
the United States Office of Management and Budget (OMB), 2012
edition, manufacturing unmanned aerial vehicles.

(3) “Qualified wages” means that portion of wages paid or
incurred by the qualified taxpayer during the taxable year with
respect to qualified employees that are direct costs as defined in
Section 263A of the Internal Revenue Code allocable to property
manufactured in this state by the qualified taxpayer.

(c) The credit allowed by this section shall not exceed twenty
thousand dollars ($20,000) per year, per qualified employee. For
employees that are qualified employees for part of a taxable year,
the credit shall not exceed twenty thousand dollars ($20,000)
multiplied by a fraction, the numerator of which is the number of
months of the taxable year that the employee is a qualified
employee and the denominator of which is 12.

(d) In the case where the credit allowed by this section exceeds
the begin delete “net tax,” end delete begin insert “tax, end insert begin insert ” end insert the excess may be carried over to reduce the
begin delete “net tax” end delete begin insert “tax end insert begin insert ” end insert in the following year, and seven succeeding years
if necessary, until the credit is exhausted.

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

(f) This section shall remain in effect only until December 1,
2024, and as of that date is repealed.

SEC. 4.  

Notwithstanding Section 2230 of the Revenue and
Taxation Code, no appropriation is made by this act and the state
shall not reimburse any local agency for any sales and use tax
revenues lost by it under this act.

SEC. 5.  

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