BILL NUMBER: SB 235 AMENDED
BILL TEXT
AMENDED IN SENATE APRIL 1, 2013
INTRODUCED BY Senator Wyland
FEBRUARY 12, 2013
An act to amend Sections 17052.12, 17250, 17276.20, 23609,
24349, and 24416.20 of, to add Section
Sections 6377.1 , 17053.76, 18153, 23622.9, and 24996
to , and to repeal and amend Sections 17053.80 and 23623
of, the Revenue and Taxation Code, relating to taxation, to
take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 235, as amended, Wyland. Sales and use taxes:
exemption: manufacturing: research. income taxes.
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,
and law provides various exemptions from those taxes.
The bill would exempt from those taxes, on and after January 1,
2014, the gross receipts from the sale of, and the storage, use, or
other consumption of, qualified tangible personal property purchased
by a qualified person for use primarily in manufacturing, processing,
refining, fabricating, or recycling of property, as specified,
qualified tangible personal property purchased for use by a
contractor for specified purposes, as provided, and qualified
tangible personal property purchased for use by a qualified person to
be used primarily in research and development, as provided. The bill
would require the purchaser to furnish the retailer with an
exemption certificate, as specified. The bill would further limit the
exemption for leases that are continuing sales or purchases to a
six-year period.
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, transactions and use taxes, and specified
state taxes from which revenues are deposited into the Local Public
Safety Fund, the Education Protection Account, the Local Revenue
Fund, the Fiscal Recovery Fund, or the Local Revenue Fund 2011.
The Personal Income Tax Law and the Corporation Tax Law authorize
various credits against the taxes imposed by those laws. Both laws,
in specified conformity to federal income tax laws, allow a credit
for increasing research expenses, as defined. In general, the amount
of the credit under both laws is equal to 15% of the excess of the
qualified research expenses, as defined, for the taxable year over
the base amount, as defined, and, in addition, for purposes of the
Corporation Tax Law, 24% of the basic research payments, as defined.
The term "base amount" means the product of the average annual gross
receipts of the taxpayer for each of the specified years preceding
the taxable year and the fixed-base percentage, as defined, but in no
event less than 50% of the qualified research expenses for the
taxable year. A taxpayer may elect an alternative incremental credit
for increasing research expenses in modified conformity to federal
income tax laws.
This bill would increase the credit for increasing research
expenses to 20% of the excess of the qualified research expenses over
the base amount. This bill would also provide complete conformity to
the alternative incremental credit provided under those federal
income tax laws.
The Personal Income Tax Law and the Corporation Tax Law authorize
a credit for taxable years beginning on or after January 1, 2009, in
an amount equal to $3,000, prorated as provided, for each full-time
employee hired during the taxable year by an employer that employed a
specified number of employees. Those laws contain a cut-off date for
the credits based upon the estimated receipt of returns claiming
credits for all taxable years of $400 million, and require those
sections to be repealed as of a specified date.
This bill would delete the requirement related to the number of
employees employed by the employer and the specified cut-off date and
repeal date. This bill would, for taxable years beginning on or
after January 1, 2014, also allow a credit under both laws in an
amount equal to specified percentages of wages paid by a qualified
employer taxpayer to a qualified employee.
The Personal Income Tax Law and the Corporation Tax Law allow
individual and corporate taxpayers to utilize net operating losses
and carryovers and carrybacks of those losses for purposes of
offsetting their individual and corporate tax liabilities. Existing
law allows net operating losses attributable to taxable years
beginning on or after January 1, 2013, to be carrybacks to each of
the preceding 2 taxable years, as provided. Existing law provides
that for a net operating loss attributable to a taxable year
beginning on or after January 1, 2014, and before January 1, 2015,
the amount of carryback to any taxable year is not to exceed 75% of
the net operating loss.
This bill would instead provide that for a net operating loss
attributable to a taxable year beginning on or after January 1, 2014,
the amount of carryback to any taxable year is not to exceed 100% of
the net operating loss.
The Personal Income Tax Law and the Corporation Tax Law, in
modified conformity with federal income tax law, authorize a taxpayer
to depreciate property, determined by an applicable depreciation
method, an applicable recovery period, and an applicable convention.
This bill would reduce the applicable recovery period for property
placed into service on and after January 1, 2014, to 1/2 of the
applicable recovery period set forth in existing federal income tax
laws or state laws. This bill would, at the election of the taxpayer,
reduce the applicable recovery period for property placed into
service before January 1, 2014, to 1/2 of the applicable recovery
period set forth in existing federal income tax laws or state laws.
The Personal Income Tax Law and the Corporation Tax Law provide
that gain or loss upon the disposition of a capital asset is
determined by reference to the specified adjusted basis of that
asset.
This bill would provide under both laws that the gross income of a
taxpayer does not include any gain from the sale or exchange of any
capital asset.
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. (a) It is the intent of the Legislature to enact a
competitive tax policy for manufacturers by providing for an
exemption from state sales and use taxes for the sale of, or the
storage, use, or other consumption of, manufacturing equipment used
in the manufacturing process and property purchased for research.
(b) California businesses are at competitive disadvantages, as
California is only one of three states in the United States that
currently impose a sales tax on manufacturing equipment.
SEC. 2. Section 6377.1 is added to the Revenue and Taxation Code,
to read:
6377.1. (a) On or after January 1, 2014, 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) 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
contractor purchasing that property for use in the performance of a
construction contract for the qualified person, who will use that
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.
(3) Qualified tangible personal property purchased for use by a
qualified person to be used primarily in research and development.
(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 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 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 any of the following:
(A) A person who is engaged in those lines of business described
in Codes 3111 to 3399, inclusive, of the North American Industry
Classification System (NAICS) published by the United States Office
of Management and Budget (OMB), 2007 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 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 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, but not
limited to, computers, data-processing equipment, and computer
software, together with all repair and replacement parts with a
useful life of one or more years therefor, 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) Tangible personal 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, 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.
(v) Fuels used or consumed in the manufacturing, processing,
refining, fabricating, or recycling process.
(B) "Qualified tangible personal property" shall not include any
of the following:
(i) Consumables with a 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, 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 it to the board upon
request. The exemption certificate shall contain the sales price of
the tangible personal property that the sale of, or the storage, use,
or other consumption of, is exempt pursuant to subdivision (a).
(d) (1) Notwithstanding the Bradley-Burns Uniform Local Sales and
Use Tax Law (Part 1.5 (commencing with Section 7200)) and 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.
(2) Notwithstanding subdivision (a), the exemption established by
this section shall not apply with respect to any tax levied pursuant
to Section 6051.2, 6051.5, 6201.2, or 6201.5, pursuant to Sections 35
and 36 of Article XIII of the California Constitution, or any tax
levied pursuant to Sections 6051 or 6201 that is deposited in the
State Treasury to the credit of the Local Revenue Fund 2011 pursuant
to Sections 6051.15 or 6201.15.
(e) (1) Notwithstanding subdivision (a), the exemption provided by
this section shall not apply to any sale or storage, use, or other
consumption of property that, 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 exemption,
or used in a manner not qualifying for exemption.
(2) 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 from 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 applies to leases of qualified tangible personal
property classified as "continuing sales" and "continuing purchases"
in accordance with Sections 6006.1 and 6010.1. The exemption
established by this section shall apply to the rentals payable
pursuant to such a lease, provided the lessee is a qualified person
and the property is used in an activity described in subdivision (a).
Rentals that meet the foregoing requirements are eligible for the
exemption for a period of six years from the date of commencement of
the lease. At the close of the six-year period from the date of
commencement of the lease, lease receipts are subject to tax without
exemption.
SEC. 3. Section 17052.12 of the Revenue
and Taxation Code is amended to read:
17052.12. For each taxable year beginning on or after January 1,
1987, there shall be allowed as a credit against the "net tax" (as
defined by Section 17039) for the taxable year an amount determined
in accordance with Section 41 of the Internal Revenue Code, except as
follows:
(a) For each taxable year beginning before January 1, 1997, the
reference to "20 percent" in Section 41(a)(1) of the Internal Revenue
Code is modified to read "8 percent."
(b) (1) For each taxable year beginning on or after January 1,
1997, and before January 1, 1999, the reference to "20 percent" in
Section 41(a)(1) of the Internal Revenue Code is modified to read "11
percent."
(2) For each taxable year beginning on or after January 1, 1999,
and before January 1, 2000, the reference to "20 percent" in Section
41(a)(1) of the Internal Revenue Code is modified to read "12
percent."
(3) For each taxable year beginning on or after January 1, 2000,
and before January 1, 2014, the reference to "20 percent"
in Section 41(a)(1) of the Internal Revenue Code is modified to read
"15 percent."
(4) For each taxable year beginning on or after January 1, 2014,
the reference to "20 percent" in Section 41(a)(1) of the Internal
Revenue Code shall apply.
(c) Section 41(a)(2) of the Internal Revenue Code shall not apply.
(d) "Qualified research" shall include only research conducted in
California.
(e) In the case where the credit allowed under 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 has been exhausted.
(f) (1) With respect to any expense paid or incurred after the
operative date of Section 6378, Section 41(b)(1) of the Internal
Revenue Code is modified to exclude from the definition of "qualified
research expense" any amount paid or incurred for tangible personal
property that is eligible for the exemption from sales or use tax
provided by under Section 6378.
(2) For each taxable year beginning on or after January 1, 1998,
the reference to "Section 501(a)" in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read "this part or Part 11 (commencing with Section
23001)."
(g) (1) For each taxable year beginning on or after January 1,
2000 , and before January 1, 2010 :
(A) The reference to "3 percent" in Section 41(c)(4)(A)(i) of the
Internal Revenue Code is modified to read "one and forty-nine
hundredths of one percent."
(B) The reference to "4 percent" in Section 41(c)(4)(A)(ii) of the
Internal Revenue Code is modified to read "one and ninety-eight
hundredths of one percent."
(C) The reference to "5 percent" in Section 41(c)(4)(A)(iii) of
the Internal Revenue Code is modified to read "two and forty-eight
hundredths of one percent."
(2) For each taxable year beginning on or after January 1, 2014,
Section 41(c)(4)(A) of the Internal Revenue Code, relating to the
election of the alternative incremental credit, shall apply.
(2)
(3) Section 41(c)(4)(B) shall not apply and in lieu
thereof an election under Section 41(c)(4)(A) of the Internal Revenue
Code may be made for any taxable year of the taxpayer beginning on
or after January 1, 1998. That election shall apply to the taxable
year for which made and all succeeding taxable years unless revoked
with the consent of the Franchise Tax Board.
(3)
(4) Section 41(c)(7) of the Internal Revenue Code,
relating to gross receipts, is modified to take into account only
those gross receipts from the sale of property held primarily for
sale to customers in the ordinary course of the taxpayer's trade or
business that is delivered or shipped to a purchaser within this
state, regardless of f.o.b. point or any other condition of the sale.
(4)
(5) Section 41(c)(5) of the Internal Revenue Code,
relating to election of alternative simplified credit, shall not
apply.
(h) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.
(i) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough of credit, is modified by each of the
following:
(1) The last sentence shall not apply.
(2) If the amount determined under Section 41(a) of the Internal
Revenue Code for any taxable year exceeds the limitation of Section
41(g) of the Internal Revenue Code, that amount may be carried over
to other taxable years under the rules of subdivision (e); except
that the limitation of Section 41(g) of the Internal Revenue Code
shall be taken into account in each subsequent taxable year.
(j) Section 41(a)(3) of the Internal Revenue Code shall not apply.
(k) Section 41(b)(3)(D) of the Internal Revenue Code, relating to
amounts paid to eligible small businesses, universities, and federal
laboratories, shall not apply.
(l) Section 41(f)(6), relating to energy research consortium,
shall not apply.
SEC. 4. Section 17053.76 is added to the
Revenue and Taxation Code , to read:
17053.76. (a) For each taxable year beginning on or after January
1, 2014, there shall be allowed a credit against the "net tax," as
defined in Section 17039, an amount equal to the sum of the following
percentages of wages paid or incurred by the qualified taxpayer
during the taxable year to each qualified employee of the qualified
taxpayer:
(1) Twenty-five percent for each qualified employee employed by
the qualified taxpayer for at least 120 hours, but less than 400
hours, during the taxable year.
(2) Forty percent for each qualified employee employed by the
qualified taxpayer for at least 400 hours during the taxable year.
(b) The credit under subdivision (a) shall be allowed only with
respect to the first six thousand dollars ($6,000) of wages paid or
incurred during the taxable year to each qualified employee.
(c) For purposes of this section, all of the following definitions
shall apply:
(1) "Qualified employee" means an individual who is any of the
following, as documented by the Employment Development Department:
(A) A recipient of CalWORKs benefits.
(B) A parolee.
(C) A veteran, as defined in Section 980 of the Military and
Veterans Code.
(D) Eligible for receipt of unemployment insurance benefits or
currently receiving unemployment insurance benefits.
(E) A person on probation.
(2) "Qualified taxpayer" means a taxpayer that is a person or
entity engaged in a trade or business within California.
(d) For purposes of this section, the qualified taxpayer shall do
both of the following:
(1) Obtain a certificate from the Employment Development
Department certifying that a qualified employee is employed by the
qualified taxpayer.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(e) (1) For purposes of this section:
(A) All employees of trades or businesses, which are not
incorporated, that are under common control shall be treated as
employed by a single qualified taxpayer.
(B) The credit, if any, allowable by this section with respect to
each trade or business shall be determined by reference to its
proportionate share of the expense of the qualified wages giving rise
to the credit, and shall be allocated in that manner.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereafter in this paragraph referred to
as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section for any calendar year ending after that acquisition, the
employment relationship between a qualified employee and an employer
shall not be treated as terminated if the employee continues to be
employed in that trade or business.
(f) A credit shall not be allowed under this section for any wages
for which any other credit or deduction has been claimed under this
part.
(g) In the case where the credit otherwise allowed under this
section exceeds the "net tax" for the taxable year, that portion of
the credit that exceeds the "net tax" may be carried over and added
to the credit, if any, in succeeding taxable years, until the credit
is exhausted. The credit shall be applied first to the earliest
taxable years possible.
SEC. 5. Section 17053.80 of the Revenue
and Taxation Code , as added by Section 3 of Chapter 10
of the Third Extraordinary Session of the Statutes of
2009, is repealed.
17053.80. (a) For each taxable year beginning on or after January
1, 2009, there shall be allowed as a credit against the "net tax,"
as defined in Section 17039, three thousand dollars ($3,000) for each
net increase in qualified full-time employees, as specified in
subdivision (c), hired during the taxable year by a qualified
employer.
(b) For purposes of this section:
(1) "Acquired" includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.
(2) "Qualified full-time employee" means:
(A) A qualified employee who was paid qualified wages by the
qualified employer for services of not less than an average of 35
hours per week.
(B) A qualified 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) A "qualified employee" shall not include any of the following:
(A) An employee certified as a qualified employee in an enterprise
zone designated in accordance with Chapter 12.8 (commencing with
Section 7070) of Division 7 of Title 1 of the Government Code.
(B) An employee certified as a qualified disadvantaged individual
in a manufacturing enhancement area designated in accordance with
Section 7073.8 of the Government Code.
(C) An employee certified as a qualified employee in a targeted
tax area designated in accordance with Section 7097 of the Government
Code.
(D) An employee certified as a qualified disadvantaged individual
or a qualified displaced employee in a local agency military base
recovery area (LAMBRA) designated in accordance with Chapter 12.97
(commencing with Section 7105) of Division 7 of Title 1 of the
Government Code.
(E) An employee whose wages are included in calculating any other
credit allowed under this part.
(4) "Qualified employer" means a taxpayer that, as of the last day
of the preceding taxable year, employed a total of 20 or fewer
employees.
(5) "Qualified wages" means wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance Code.
(6) "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.
(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 current 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) 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 seven years if necessary,
until the credit is exhausted.
(e) Any deduction otherwise allowed under this part for qualified
wages shall not be reduced by the amount of the credit allowed under
this section.
(f) 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.
(g) (1) (A) Credit under this section and Section 23623 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 that
cumulatively total four hundred million dollars ($400,000,000) 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 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 claimed on timely filed original returns received
by the Franchise Tax Board.
(h) (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 23623 and
guidelines necessary to avoid the application of paragraph (2) of
subdivision (f) through split-ups, shell corporations, partnerships,
tiered ownership structures, or otherwise.
(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.
(i) 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.
SEC. 6. Section 17053.80 of the Revenue
and Taxation Code , as added by Section 3 of Chapter 17 of
the Third Extraordinary Session of the Statutes of 2009,
is amended to read:
17053.80. (a) For each taxable year beginning on or after January
1, 2009, there shall be allowed as a credit against the "net tax,"
as defined in Section 17039, three thousand dollars ($3,000) for each
net increase in qualified full-time employees, as specified in
subdivision (c), hired during the taxable year by a
qualified employer taxpayer .
(b) For purposes of this section:
(1) "Acquired" includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.
(2) "Qualified full-time employee" means:
(A) A qualified employee who was paid qualified wages by the
qualified employer taxpayer for
services of not less than an average of 35 hours per week.
(B) A qualified employee taxpayer
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) A "qualified employee" shall not include any of the following:
(A) An employee certified as a qualified employee in an enterprise
zone designated in accordance with Chapter 12.8 (commencing with
Section 7070) of Division 7 of Title 1 of the Government Code.
(B) An employee certified as a qualified disadvantaged individual
in a manufacturing enhancement area designated in accordance with
Section 7073.8 of the Government Code.
(C) An employee certified as a qualified employee in a targeted
tax area designated in accordance with Section 7097 of the Government
Code.
(D) An employee certified as a qualified disadvantaged individual
or a qualified displaced employee in a local agency military base
recovery area (LAMBRA) designated in accordance with Chapter 12.97
(commencing with Section 7105) of Division 7 of Title 1 of the
Government Code.
(E) An employee whose wages are included in calculating any other
credit allowed under this part.
(4) "Qualified employer" means a taxpayer that, as of the last day
of the preceding taxable year, employed a total of 20 or fewer
employees.
(5)
(4) "Qualified wages" means wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance Code.
(6)
(5) "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.
(c) The net increase in qualified full-time employees of a
qualified employer taxpayer 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 current
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) 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 seven years if necessary,
until the credit is exhausted.
(e) Any deduction otherwise allowed under this part for qualified
wages shall not be reduced by the amount of the credit allowed under
this section.
(f) 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.
(g) (1) (A) Credit under this section and Section 23623 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 that
cumulatively total four hundred million dollars ($400,000,000) 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 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 claimed on timely filed original returns received
by the Franchise Tax Board.
(h)
(g) (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 23623 and guidelines necessary to avoid the
application of paragraph (2) of subdivision (f) through split-ups,
shell corporations, partnerships, tiered ownership structures, or
otherwise.
(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.
(i) 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.
(h) The amendments made to this section by the act adding this
subdivision shall apply only to taxable years beginning on or after
January 1, 2014.
SEC. 7. Section 17250 of the Revenue
and Taxation Code is amended to read:
17250. (a) Section 168 of the Internal Revenue Code is modified
as follows:
(1) Any reference to "tax imposed by this chapter" in Section 168
of the Internal Revenue Code means "net tax," as defined in Section
17039.
(2) (A) Section 168(e)(3) is modified to provide that any
grapevine, replaced in a vineyard in California in any taxable year
beginning on or after January 1, 1992, as a direct result of a
phylloxera infestation in that vineyard, or replaced in a vineyard in
California in any taxable year beginning on or after January 1,
1997, as a direct result of Pierce's disease in that vineyard, shall
be "five-year property," rather than "10-year property."
(B) Section 168(g)(3) of the Internal Revenue Code is modified to
provide that any grapevine, replaced in a vineyard in California in
any taxable year beginning on or after January 1, 1992, as a direct
result of a phylloxera infestation in that vineyard, or replaced in a
vineyard in California in any taxable year beginning on or after
January 1, 1997, as a direct result of Pierce's disease in that
vineyard, shall have a class life of 10 years.
(C) Every taxpayer claiming a depreciation deduction with respect
to grapevines as described in this paragraph shall obtain a written
certification from an independent state-certified integrated pest
management adviser, or a state agricultural commissioner or adviser,
that specifies that the replanting was necessary to restore a
vineyard infested with phylloxera or Pierce's disease. The taxpayer
shall retain the certification for future audit purposes.
(3) Section 168(j) of the Internal Revenue Code, relating to
property on Indian reservations, shall not apply.
(4) Section 168(k) of the Internal Revenue Code, relating to
special allowance for certain property acquired after December 31,
2007, and before January 1, 2009, shall not apply.
(5) Sections 168(b)(3)(G) and 168(b)(3)(H) of the Internal Revenue
Code shall not apply.
(6) Sections 168(e)(3)(E)(iv), 168(e)(3)(E)(v), and 168(e)(3)(E)
(ix) of the Internal Revenue Code shall not apply.
(7) Sections 168(e)(6), 168(e)(7), and 168(e)(8) of the Internal
Revenue Code, relating to qualified leasehold improvement property,
qualified restaurant property, and qualified retail improvement
property, respectively, shall not apply.
(8) Section 168(l) of the Internal Revenue Code, relating to
special allowance for cellulosic biofuel plant property, shall not
apply.
(9) Section 168(m) of the Internal Revenue Code, relating to
special allowance for certain reuse and recycling property, shall not
apply.
(10) Section 168(n) of the Internal Revenue Code, relating to
special allowance for qualified disaster assistance property, shall
not apply.
(11) Section 168(i)(15)(D) of the Internal Revenue Code, relating
to termination, is modified by substituting the phrase "December 31,
2007" for the phrase "December 31, 2009."
(12) Section 168(e)(3)(B)(vii) of the Internal Revenue Code shall
not apply.
(b) Section 169 of the Internal Revenue Code, relating to
amortization of pollution control facilities, is modified as follows:
(1) The deduction allowed by Section 169 of the Internal Revenue
Code shall be allowed only with respect to facilities located in this
state.
(2) The "state certifying authority," as defined in Section 169(d)
(2) of the Internal Revenue Code, means the State Air Resources
Board, in the case of air pollution, and the State Water Resources
Control Board, in the case of water pollution.
(c) Notwithstanding any other law to the contrary, for property
placed in service on and after January 1, 2014, the applicable
recovery period shall be one-half of the applicable recovery period
set forth in the Internal Revenue Code provision 167 or 168 or
one-half of the recovery period described in this code.
(d) Notwithstanding any other law to the contrary, for property
placed in service before January 1, 2014, the remaining applicable
recovery period shall, at the election of the taxpayer, be one-half
of the applicable recovery period set forth in the Internal Revenue
Code provision 167 or 168 or one-half of the recovery period
described in this code.
SEC. 8. Section 17276.20 of the Revenue
and Taxation Code is amended to read:
17276.20. Except as provided in Sections 17276.1, 17276.2,
17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by
Section 172 of the Internal Revenue Code, relating to net operating
loss deduction, shall be modified as follows:
(a) (1) Net operating losses attributable to taxable years
beginning before January 1, 1987, shall not be allowed.
(2) A net operating loss shall not be carried forward to any
taxable year beginning before January 1, 1987.
(b) (1) Except as provided in paragraphs (2) and (3), the
provisions of Section 172(b)(2) of the Internal Revenue Code,
relating to amount of carrybacks and carryovers, shall be modified so
that the applicable percentage of the entire amount of the net
operating loss for any taxable year shall be eligible for carryover
to any subsequent taxable year. For purposes of this subdivision, the
applicable percentage shall be:
(A) Fifty percent for any taxable year beginning before January 1,
2000.
(B) Fifty-five percent for any taxable year beginning on or after
January 1, 2000, and before January 1, 2002.
(C) Sixty percent for any taxable year beginning on or after
January 1, 2002, and before January 1, 2004.
(D) One hundred percent for any taxable year beginning on or after
January 1, 2004.
(2) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
a new business during that taxable year, each of the following shall
apply to each loss incurred during the first three taxable years of
operating the new business:
(A) If the net operating loss is equal to or less than the net
loss from the new business, 100 percent of the net operating loss
shall be carried forward as provided in subdivision (d).
(B) If the net operating loss is greater than the net loss from
the new business, the net operating loss shall be carried over as
follows:
(i) With respect to an amount equal to the net loss from the new
business, 100 percent of that amount shall be carried forward as
provided in subdivision (d).
(ii) With respect to the portion of the net operating loss that
exceeds the net loss from the new business, the applicable percentage
of that amount shall be carried forward as provided in subdivision
(d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(3) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
an eligible small business during that taxable year, each of the
following shall apply:
(A) If the net operating loss is equal to or less than the net
loss from the eligible small business, 100 percent of the net
operating loss shall be carried forward to the taxable years
specified in subdivision (d).
(B) If the net operating loss is greater than the net loss from
the eligible small business, the net operating loss shall be carried
over as follows:
(i) With respect to an amount equal to the net loss from the
eligible small business, 100 percent of that amount shall be carried
forward as provided in subdivision (d).
(ii) With respect to that portion of the net operating loss that
exceeds the net loss from the eligible small business, the applicable
percentage of that amount shall be carried forward as provided in
subdivision (d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(4) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
a business that qualifies as both a new business and an eligible
small business under this section, that business shall be treated as
a new business for the first three taxable years of the new business.
(5) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
more than one business, and more than one of those businesses
qualifies as either a new business or an eligible small business
under this section, paragraph (2) shall be applied first, except that
if there is any remaining portion of the net operating loss after
application of clause (i) of subparagraph (B) of that paragraph,
paragraph (3) shall be applied to the remaining portion of the net
operating loss as though that remaining portion of the net operating
loss constituted the entire net operating loss.
(6) For purposes of this section, the term "net loss" means the
amount of net loss after application of Sections 465 and 469 of the
Internal Revenue Code.
(c) Section 172(b)(1) of the Internal Revenue Code, relating to
years to which the loss may be carried, is modified as follows:
(1) Net operating loss carrybacks shall not be allowed for any net
operating losses attributable to taxable years beginning before
January 1, 2013.
(2) A net operating loss attributable to taxable years beginning
on or after January 1, 2013, shall be a net operating loss carryback
to each of the two taxable years preceding the taxable year of the
loss in lieu of the number of years provided therein.
(A) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2013, and before January 1, 2014,
the amount of carryback to any taxable year shall not exceed 50
percent of the net operating loss.
(B) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2014, and before January 1,
2015, the amount of carryback to any taxable year shall
not exceed 75 100 percent of the net
operating loss.
(C) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2015, the amount of carryback to any
taxable year shall not exceed 100 percent of the net operating loss.
(3) Notwithstanding paragraph (2), Section 172(b)(1)(B) of the
Internal Revenue Code, relating to special rules for REITs, and
Section 172(b)(1)(E) of the Internal Revenue Code, relating to excess
interest loss, and Section 172(h) of the Internal Revenue Code,
relating to corporate equity reduction interest losses, shall apply
as provided.
(4) A net operating loss carryback shall not be carried back to
any taxable year beginning before January 1, 2011.
(d) (1) (A) For a net operating loss for any taxable year
beginning on or after January 1, 1987, and before January 1, 2000,
Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to
substitute "five taxable years" in lieu of "20 taxable years" except
as otherwise provided in paragraphs (2) and (3).
(B) For a net operating loss for any taxable year beginning on or
after January 1, 2000, and before January 1, 2008, Section 172(b)(1)
(A)(ii) of the Internal Revenue Code is modified to substitute "10
taxable years" in lieu of "20 taxable years."
(2) For any taxable year beginning before January 1, 2000, in the
case of a "new business," the "five taxable years" in paragraph (1)
shall be modified to read as follows:
(A) "Eight taxable years" for a net operating loss attributable to
the first taxable year of that new business.
(B) "Seven taxable years" for a net operating loss attributable to
the second taxable year of that new business.
(C) "Six taxable years" for a net operating loss attributable to
the third taxable year of that new business.
(3) For any carryover of a net operating loss for which a
deduction is denied by Section 17276.3, the carryover period
specified in this subdivision shall be extended as follows:
(A) By one year for a net operating loss attributable to taxable
years beginning in 1991.
(B) By two years for a net operating loss attributable to taxable
years beginning prior to January 1, 1991.
(4) The net operating loss attributable to taxable years beginning
on or after January 1, 1987, and before January 1, 1994, shall be a
net operating loss carryover to each of the 10 taxable years
following the year of the loss if it is incurred by a taxpayer that
is under the jurisdiction of the court in a Title 11 or similar case
at any time during the income year. The loss carryover provided in
the preceding sentence shall not apply to any loss incurred after the
date the taxpayer is no longer under the jurisdiction of the court
in a Title 11 or similar case.
(e) For purposes of this section:
(1) "Eligible small business" means any trade or business that has
gross receipts, less returns and allowances, of less than one
million dollars ($1,000,000) during the taxable year.
(2) Except as provided in subdivision (f), "new business" means
any trade or business activity that is first commenced in this state
on or after January 1, 1994.
(3) "Title 11 or similar case" shall have the same meaning as in
Section 368(a)(3) of the Internal Revenue Code.
(4) In the case of any trade or business activity conducted by a
partnership or "S" corporation paragraphs (1) and (2) shall be
applied to the partnership or "S" corporation.
(f) For purposes of this section, in determining whether a trade
or business activity qualifies as a new business under paragraph (2)
of subdivision (e), the following rules shall apply:
(1) In any 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 new business 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). For
purposes of this paragraph only, the following rules shall apply:
(A) 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.
(B) 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 a taxpayer (or any related person) is
engaged in one or more trade or business activities in this state, or
has been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, than are
any of the taxpayer's (or any related person's) current or prior
trade or business activities.
(3) In any case where a taxpayer, including all related persons,
is engaged in trade or business activities wholly outside of this
state and the taxpayer first commences doing business in this state
(within the meaning of Section 23101) after December 31, 1993 (other
than by purchase or other acquisition described in paragraph (1)),
the trade or business activity shall be treated as a new business
under paragraph (2) of subdivision (e).
(4) 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 the rules of
paragraph (1) of this subdivision.
(5) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
(6) "Acquire" shall include any gift, inheritance, transfer
incident to divorce, or any other transfer, whether or not for
consideration.
(7) (A) For taxable years beginning on or after January 1, 1997,
the term "new business" shall include any taxpayer that is engaged in
biopharmaceutical activities or other biotechnology activities that
are described in Codes 2833 to 2836, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, and as further
amended, and that has not received regulatory approval for any
product from the United States Food and Drug Administration.
(B) For purposes of this paragraph:
(i) "Biopharmaceutical activities" means those activities that use
organisms or materials derived from organisms, and their cellular,
subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities that make use of chemical compounds to produce commercial
products.
(ii) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
(g) In computing the modifications
under Section 172(d)(2) of the Internal Revenue Code, relating to
capital gains and losses of taxpayers other than corporations, the
exclusion provided by Section 18152.5 shall not be allowed.
(h) Notwithstanding any provisions of this section to the
contrary, a deduction shall be allowed to a "qualified taxpayer" as
provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and
17276.7.
(i) The Franchise Tax Board may prescribe appropriate regulations
to carry out the purposes of this section, including any regulations
necessary to prevent the avoidance of the purposes of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, or otherwise.
(j) The Franchise Tax Board may reclassify any net operating loss
carryover determined under either paragraph (2) or (3) of subdivision
(b) as a net operating loss carryover under paragraph (1) of
subdivision (b) upon a showing that the reclassification is necessary
to prevent evasion of the purposes of this section.
(k) Except as otherwise provided, the amendments made by Chapter
107 of the Statutes of 2000 shall apply to net operating losses for
taxable years beginning on or after January 1, 2000.
SEC. 9. Section 18153 is added to the
Revenue and Taxation Code , to read:
18153. Notwithstanding any other law, gross income shall not
include any gain from the sale or exchange of any capital asset. For
purposes of this section, "capital asset" means a capital asset as
defined by Section 1221 of the Internal Revenue Code.
SEC. 10. Section 23609 of the Revenue
and Taxation Code is amended to read:
23609. For each taxable year beginning on or after January 1,
1987, there shall be allowed as a credit against the "tax" (as
defined by Section 23036) an amount determined in accordance with
Section 41 of the Internal Revenue Code, except as follows:
(a) For each taxable year beginning before January 1, 1997, both
of the following modifications shall apply:
(1) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "8 percent."
(2) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "12 percent."
(b) (1) For each taxable year beginning on or after January 1,
1997, and before January 1, 1999, both of the following modifications
shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "11 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(2) For each taxable year beginning on or after January 1, 1999,
and before January 1, 2000, both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "12 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(3) For each taxable year beginning on or after January 1, 2000,
and before January 1, 2014, both of the following shall
apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "15 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(4) For each taxable year beginning on or after January 1, 2014,
both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code shall apply.
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(c) (1) With respect to any expense paid or incurred after the
operative date of Section 6378, Section 41(b)(1) of the Internal
Revenue Code is modified to exclude from the definition of "qualified
research expense" any amount paid or incurred for tangible personal
property that is eligible for the exemption from sales or use tax
provided by under Section 6378.
(2) "Qualified research" and "basic research" shall include only
research conducted in California.
(d) The provisions of Section 41(e)(7)(A) of the Internal Revenue
Code, shall be modified so that "basic research," for purposes of
this section, includes any basic or applied research including
scientific inquiry or original investigation for the advancement of
scientific or engineering knowledge or the improved effectiveness of
commercial products, except that the term does not include any of the
following:
(1) Basic research conducted outside California.
(2) Basic research in the social sciences, arts, or humanities.
(3) Basic research for the purpose of improving a commercial
product if the improvements relate to style, taste, cosmetic, or
seasonal design factors.
(4) Any expenditure paid or incurred for the purpose of
ascertaining the existence, location, extent, or quality of any
deposit of ore or other mineral (including oil and gas).
(e) (1) In the case of a taxpayer engaged in any biopharmaceutical
research activities that are described in codes 2833 to 2836,
inclusive, or any research activities that are described in codes
3826, 3829, or 3841 to 3845, inclusive, of the Standard Industrial
Classification (SIC) Manual published by the United States Office of
Management and Budget, 1987 edition, or any other biotechnology
research and development activities, the provisions of Section 41(e)
(6) of the Internal Revenue Code shall be modified to include both of
the following:
(A) A qualified organization as described in Section 170(b)(1)(A)
(iii) of the Internal Revenue Code and owned by an institution of
higher education as described in Section 3304(f) of the Internal
Revenue Code.
(B) A charitable research hospital owned by an organization that
is described in Section 501(c)(3) of the Internal Revenue Code, is
exempt from taxation under Section 501(a) of the Internal Revenue
Code, is not a private foundation, is designated a "specialized
laboratory cancer center," and has received Clinical Cancer Research
Center status from the National Cancer Institute.
(2) For purposes of this subdivision:
(A) "Biopharmaceutical research activities" means those activities
that use organisms or materials derived from organisms, and their
cellular, subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities that make use of chemical compounds to produce commercial
products.
(B) "Other biotechnology research and development activities"
means research and development activities consisting of the
application of recombinant DNA technology to produce commercial
products, as well as research and development activities regarding
pharmaceutical delivery systems designed to provide a measure of
control over the rate, duration, and site of pharmaceutical delivery.
(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
has been exhausted.
(g) For each taxable year beginning on or after January 1, 1998,
the reference to "Section 501(a)" in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read "this part or Part 10 (commencing with Section
17001)."
(h) (1) For each taxable year beginning on or after January 1,
2000 , and before January 1, 2014 :
(A) The reference to "3 percent" in Section 41(c)(4)(A)(i) of the
Internal Revenue Code is modified to read "one and forty-nine
hundredths of one percent."
(B) The reference to "4 percent" in Section 41(c)(4)(A)(ii) of the
Internal Revenue Code is modified to read "one and ninety-eight
hundredths of one percent."
(C) The reference to "5 percent" in Section 41(c)(4)(A)(iii) of
the Internal Revenue Code is modified to read "two and forty-eight
hundredths of one percent."
(D) For each taxable year beginning on or after January 1, 2014,
Section 41(c)(4)(A) of the Internal Revenue Code, relating to the
election of the alternative incremental credit, shall apply.
(2) Section 41(c)(4)(B) shall not apply and in lieu thereof an
election under Section 41(c)(4)(A) of the Internal Revenue Code may
be made for any taxable year of the taxpayer beginning on or after
January 1, 1998. That election shall apply to the taxable year for
which made and all succeeding taxable years unless revoked with the
consent of the Franchise Tax Board.
(3) Section 41(c)(7) of the Internal Revenue Code, relating to
gross receipts, is modified to take into account only those gross
receipts from the sale of property held primarily for sale to
customers in the ordinary course of the taxpayer's trade or business
that is delivered or shipped to a purchaser within this state,
regardless of f.o.b. point or any other condition of the sale.
(4) Section 41(c)(5) of the Internal Revenue Code, relating to
election of the alternative simplified credit, shall not apply.
(i) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.
(j) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough of credit, is modified by each of the
following:
(1) The last sentence shall not apply.
(2) If the amount determined under Section 41(a) of the Internal
Revenue Code for any taxable year exceeds the limitation of Section
41(g) of the Internal Revenue Code, that amount may be carried over
to other taxable years under the rules of subdivision (f), except
that the limitation of Section 41(g) of the Internal Revenue Code
shall be taken into account in each subsequent taxable year.
(k) Section 41(a)(3) of the Internal Revenue Code shall not apply.
(l) Section 41(b)(3)(D) of the Internal Revenue Code, relating to
amounts paid to eligible small businesses, universities, and federal
laboratories, shall not apply.
(m) Section 41(f)(6) of the Internal Revenue Code, relating to
energy research consortium, shall not apply.
SEC. 11. Section 23622.9 is added to the
Revenue and Taxation Code , to read:
23622.9. (a) For each taxable year beginning on or after January
1, 2014, there shall be allowed a credit against the "tax," as
defined in Section 23036, an amount equal to the sum of the following
percentages of wages paid or incurred by the taxpayer during the
taxable year to each qualified employee of the taxpayer.
(1) Twenty-five percent for each qualified employee employed by
the qualified taxpayer for at least 120 hours, but not less than 400
hours, during the taxable year.
(2) Forty percent for each qualified employee employed by the
qualified taxpayer for at least 400 hours during the taxable year.
(b) The credit under subdivision (a) shall be allowed only with
respect to the first six thousand dollars ($6,000) of wages paid or
incurred during the taxable year to each qualified employee.
(c) For purposes of this section, all of the following definitions
shall apply:
(1) "Qualified employee" means an individual who is any of the
following, as documented by the Employment Development Department:
(A) A recipient of CalWORKs benefits.
(B) A parolee.
(C) A veteran, as defined in Section 980 of the Military and
Veterans Code.
(D) Eligible for receipt of unemployment insurance benefits or
currently receiving unemployment insurance benefits.
(E) A person on probation.
(2) "Qualified taxpayer" means a taxpayer that is a person or
entity engaged in a trade or business within California.
(d) For purposes of this section the qualified taxpayer shall do
both of the following:
(1) Obtain a certificate from the Employment Development
Department certifying that a qualified employee is employed by the
qualified taxpayer.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(e) (1) For purposes of this section:
(A) All employees of trades or businesses, which are not
incorporated, that are under common control shall be treated as
employed by a single qualified taxpayer.
(B) The credit, if any, allowable by this section with respect to
each trade or business shall be determined by reference to its
proportionate share of the expense of the qualified wages giving rise
to the credit, and shall be allocated in that manner.
(C) Principles that apply in the case of controlled groups of
corporations, as specified in subdivision (e), shall apply with
respect to determining employment.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereafter in this paragraph referred to
as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section for any calendar year ending after that acquisition, the
employment relationship between a qualified employee and an employer
shall not be treated as terminated if the employee continues to be
employed in that trade or business.
(f) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the taxable year, that portion of the
credit that exceeds the "tax" may be carried over and added to the
credit, if any, in succeeding taxable years, until the credit is
exhausted. The credit shall be applied first to the earliest taxable
years possible.
SEC. 12. Section 23623 of the Revenue
and Taxation Code , as added by Section 8 of Chapter 10 of
the Third Extraordinary Session of the Statutes of 2009,
is repealed.
23623. (a) For each taxable year beginning on or after January 1,
2009, there shall be allowed as a credit against the "tax," as
defined in Section 23036, three thousand dollars ($3,000) for each
net increase in qualified full-time employees, as specified in
subdivision (c), hired during the taxable year by a qualified
employer.
(b) For purposes of this section:
(1) "Acquired" includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.
(2) "Qualified full-time employee" means:
(A) A qualified employee who was paid qualified wages during the
taxable year by the qualified employer for services of not less than
an average of 35 hours per week.
(B) A qualified 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) A "qualified employee" shall not include any of the following:
(A) An employee certified as a qualified employee in an enterprise
zone designated in accordance with Chapter 12.8 (commencing with
Section 7070) of Division 7 of Title 1 of the Government Code.
(B) An employee certified as a qualified disadvantaged individual
in a manufacturing enhancement area designated in accordance with
Section 7073.8 of the Government Code.
(C) An employee certified as a qualified employee in a targeted
tax area designated in accordance with Section 7097 of the Government
Code.
(D) An employee certified as a qualified disadvantaged individual
or a qualified displaced employee in a local agency military base
recovery area (LAMBRA) designated in accordance with Chapter 12.97
(commencing with Section 7105) of Division 7 of Title 1 of the
Government Code.
(E) An employee whose wages are included in calculating any other
credit allowed under this part.
(4) "Qualified employer" means a taxpayer that, as of the last day
of the preceding taxable year, employed a total of 20 or fewer
employees.
(5) "Qualified wages" means wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance Code.
(6) "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.
(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 current 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) 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 seven years if necessary, until the
credit is exhausted.
(e) Any deduction otherwise allowed under this part for qualified
wages shall not be reduced by the amount of the credit allowed under
this section.
(f) 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.
(g) (1) (A) Credit under this section and Section 17053.80 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 17053.80 that
cumulatively total four hundred million dollars ($400,000,000) 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 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 17053.80 claimed on timely filed original returns
received by the Franchise Tax Board.
(h) (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 17053.80 and
guidelines necessary to avoid the application of paragraph (2) of
subdivision (f) through split-ups, shell corporations, partnerships,
tiered ownership structures, or otherwise.
(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.
(i) 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.
SEC. 13. Section 23623 of the Revenue
and Taxation Code , as added by Section 8 of Chapter 17 of
the Third Extraordinary Session of the Statutes of 2009,
is amended to read:
23623. (a) For each taxable year beginning on or after January 1,
2009, there shall be allowed as a credit against the "tax," as
defined in Section 23036, three thousand dollars ($3,000) for each
net increase in qualified full-time employees, as specified in
subdivision (c), hired during the taxable year by a
qualified employer taxpayer .
(b) For purposes of this section:
(1) "Acquired" includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.
(2) "Qualified full-time employee" means:
(A) A qualified employee who was paid qualified wages during the
taxable year by the qualified employer
taxpayer for services of not less than an average of 35 hours
per week.
(B) A qualified 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 taxpayer .
(3) A "qualified employee" shall not include any of the following:
(A) An employee certified as a qualified employee in an enterprise
zone designated in accordance with Chapter 12.8 (commencing with
Section 7070) of Division 7 of Title 1 of the Government Code.
(B) An employee certified as a qualified disadvantaged individual
in a manufacturing enhancement area designated in accordance with
Section 7073.8 of the Government Code.
(C) An employee certified as a qualified employee in a targeted
tax area designated in accordance with Section 7097 of the Government
Code.
(D) An employee certified as a qualified disadvantaged individual
or a qualified displaced employee in a local agency military base
recovery area (LAMBRA) designated in accordance with Chapter 12.97
(commencing with Section 7105) of Division 7 of Title 1 of the
Government Code.
(E) An employee whose wages are included in calculating any other
credit allowed under this part.
(4) "Qualified employer" means a taxpayer that, as of the last day
of the preceding taxable year, employed a total of 20 or fewer
employees.
(5)
(4) "Qualified wages" means wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance Code.
(6)
(5) "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.
(c) The net increase in qualified full-time employees of a
qualified employer taxpayer 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 current
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) 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 seven years if necessary, until the
credit is exhausted.
(e) Any deduction otherwise allowed under this part for qualified
wages shall not be reduced by the amount of the credit allowed under
this section.
(f) 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.
(g) (1) (A) Credit under this section and Section 17053.80 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 17053.80 that
cumulatively total four hundred million dollars ($400,000,000) 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 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 17053.80 claimed on timely filed original returns
received by the Franchise Tax Board.
(h)
(g) (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 17053.80 and guidelines necessary to avoid the
application of paragraph (2) of subdivision (f) through split-ups,
shell corporations, partnerships, tiered ownership structures, or
otherwise.
(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.
(i) 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.
(h) The amendments made to this section by the act adding this
subdivision shall apply only to taxable years beginning on or after
January 1, 2014.
SEC. 14. Section 24349 of the Revenue
and Taxation Code is amended to read:
24349. (a) There shall be allowed as a depreciation deduction a
reasonable allowance for the exhaustion, wear and tear (including a
reasonable allowance for obsolescence)--
(1) Of property used in the trade or business; or
(2) Of property held for the production of income.
(b) Except as otherwise provided in subdivision (c), for taxable
years ending after December 31, 1958, the term "reasonable allowance"
as used in subdivision (a) shall include, but shall not be limited
to, an allowance computed in accordance with regulations prescribed
by the Franchise Tax Board, under any of the following methods:
(1) The straight-line method.
(2) The declining balance method, using a rate not exceeding twice
the rate that would have been used had the annual allowance been
computed under the method described in paragraph (1).
(3) The sum of the years-digits method.
(4) Any other consistent method productive of an annual allowance
that, when added to all allowances for the period commencing with the
taxpayer's use of the property and including the taxable year, does
not, during the first two-thirds of the useful life of the property,
exceed the total of those allowances that would have been used had
those allowances been computed under the method described in
paragraph (2).
Nothing in this subdivision shall be construed to limit or reduce
an allowance otherwise allowable under subdivision (a).
(c) Any grapevine replaced in a vineyard in California in a
taxable year beginning on or after January 1, 1992, as a direct
result of a phylloxera infestation in that vineyard, and any
grapevine replaced in a vineyard in California in a taxable year
beginning on or after January 1, 1997, as a direct result of Pierce's
disease in that vineyard, shall have a useful life of five years,
except that it shall have a class life of 10 years for purposes of
depreciation under Section 168(g)(2) of the Internal Revenue Code
where the taxpayer has made an election under Section 263A(d)(3) of
the Internal Revenue Code not to capitalize costs of the infested
vineyard. Every taxpayer claiming a deduction under this section with
respect to a grapevine as described in this subdivision shall obtain
a written certification from an independent state-certified
integrated pest management adviser, or a state agricultural
commissioner or adviser, that specifies that the replanting was
necessary to restore a vineyard infested with phylloxera or Pierce's
disease. The taxpayer shall retain the certification for future audit
purposes.
(d) For purposes of this part, the deduction for property leased
to governments and other tax-exempt entities, as defined in Section
168(h) of the Internal Revenue Code, shall be limited to the amount
determined under Section 168(g) of the Internal Revenue Code,
relating to alternative depreciation system for certain property.
(e) (1) In the case of any building erected or improvements made
on leased property, if the building or improvement is property to
which this section applies, the depreciation deduction shall be
determined under the provisions of this section.
(2) An improvement shall be treated for purposes of determining
gain or loss under this part as disposed of by the lessor when so
disposed of or abandoned if both of the following occur:
(A) The improvement is made by the lessor of leased property for
the lessee of that property.
(B) The improvement is irrevocably disposed of or abandoned by the
lessor at the termination of the lease by the lessee.
This subdivision shall not apply to any property to which Section
168 of the Internal Revenue Code does not apply for federal purposes
by reason of Section 168(f) of the Internal Revenue Code. Any
election made under Section 168(f)(1) of the Internal Revenue Code
for federal purposes with respect to that property shall be treated
as a binding election for state purposes under this subdivision with
respect to that same property and no separate election under
subdivision (e) of Section 23051.5 with respect to that property
shall be allowed.
(3) (A) In determining a lease term, both of the following shall
apply:
(i) There shall be taken into account options to renew.
(ii) Two or more successive leases which are part of the same
transaction (or a series of related transactions) with respect to the
same or substantially similar property shall be treated as one
lease.
(B) For purposes of clause (i) of subparagraph (A), in the case of
nonresidential real property or residential rental property, there
shall not be taken into account any option to renew at fair market
value determined at the time of renewal.
(f) (1) Section 167(g) of the Internal Revenue Code, relating to
depreciation under income forecast method, shall apply except as
otherwise provided.
(2) Section 167(g)(2)(C) of the Internal Revenue Code is modified
by substituting "Section 19521" in lieu of "Section 460(b)(7)" of the
Internal Revenue Code.
(3) Section 167(g)(5)(D) of the Internal Revenue Code is modified
by substituting "Part 10.2 (commencing with Section 18401) (other
than Article 2 (commencing with Section 19021) and Sections 19142 to
19150, inclusive)" in lieu of "Subtitle F (other than Sections 6654
and 6655)."
(4) Section 167(g)(5)(E) of the Internal Revenue Code, relating to
treatment of distribution costs, shall not apply.
(5) Section 167(g)(7) of the Internal Revenue Code, relating to
treatment of participations and residuals, shall not apply.
(g) Notwithstanding any other law to the contrary, for property
placed in service on and after January 1, 2014, the applicable
recovery period shall be one-half of the applicable recovery period
set forth in the Internal Revenue Code provision 167 or 168 or
one-half of the recovery period described in this code.
(h) Notwithstanding any other provision of law to the contrary,
for property placed in service before January 1, 2014, the remaining
applicable recovery period shall, at the election of the taxpayer, be
one-half of the applicable recovery period set forth in the Internal
Revenue Code provision 167 or 168 or one-half of the recovery period
described in this code.
SEC. 15. Section 24416.20 of the
Revenue and Taxation Code is amended to read:
24416.20. Except as provided in Sections 24416.1, 24416.2,
24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss
deduction shall be allowed in computing net income under Section
24341 and shall be determined in accordance with Section 172 of the
Internal Revenue Code, except as otherwise provided.
(a) (1) Net operating losses attributable to taxable years
beginning before January 1, 1987, shall not be allowed.
(2) A net operating loss shall not be carried forward to any
taxable year beginning before January 1, 1987.
(b) (1) Except as provided in paragraphs (2) and (3), the
provisions of Section 172(b)(2) of the Internal Revenue Code,
relating to amount of carrybacks and carryovers, shall be modified so
that the applicable percentage of the entire amount of the net
operating loss for any taxable year shall be eligible for carryover
to any subsequent taxable year. For purposes of this subdivision, the
applicable percentage shall be:
(A) Fifty percent for any taxable year beginning before January 1,
2000.
(B) Fifty-five percent for any taxable year beginning on or after
January 1, 2000, and before January 1, 2002.
(C) Sixty percent for any taxable year beginning on or after
January 1, 2002, and before January 1, 2004.
(D) One hundred percent for any taxable year beginning on or after
January 1, 2004.
(2) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
a new business during that taxable year, each of the following shall
apply to each loss incurred during the first three taxable years of
operating the new business:
(A) If the net operating loss is equal to or less than the net
loss from the new business, 100 percent of the net operating loss
shall be carried forward as provided in subdivision (e).
(B) If the net operating loss is greater than the net loss from
the new business, the net operating loss shall be carried over as
follows:
(i) With respect to an amount equal to the net loss from the new
business, 100 percent of that amount shall be carried forward as
provided in subdivision (e).
(ii) With respect to the portion of the net operating loss that
exceeds the net loss from the new business, the applicable percentage
of that amount shall be carried forward as provided in subdivision
(d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(3) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
an eligible small business during that taxable year, each of the
following shall apply:
(A) If the net operating loss is equal to or less than the net
loss from the eligible small business, 100 percent of the net
operating loss shall be carried forward to the taxable years
specified in paragraph (1) of subdivision (e).
(B) If the net operating loss is greater than the net loss from
the eligible small business, the net operating loss shall be carried
over as follows:
(i) With respect to an amount equal to the net loss from the
eligible small business, 100 percent of that amount shall be carried
forward as provided in subdivision (e).
(ii) With respect to that portion of the net operating loss that
exceeds the net loss from the eligible small business, the applicable
percentage of that amount shall be carried forward as provided in
subdivision (e).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(4) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
a business that qualifies as both a new business and an eligible
small business under this section, that business shall be treated as
a new business for the first three taxable years of the new business.
(5) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
more than one business, and more than one of those businesses
qualifies as either a new business or an eligible small business
under this section, paragraph (2) shall be applied first, except that
if there is any remaining portion of the net operating loss after
application of clause (i) of subparagraph (B) of paragraph (2),
paragraph (3) shall be applied to the remaining portion of the net
operating loss as though that remaining portion of the net operating
loss constituted the entire net operating loss.
(6) For purposes of this section, "net loss" means the amount of
net loss after application of Sections 465 and 469 of the Internal
Revenue Code.
(c) For any taxable year in which the taxpayer has in effect a
water's-edge election under Section 25110, the deduction of a net
operating loss carryover shall be denied to the extent that the net
operating loss carryover was determined by taking into account the
income and factors of an affiliated corporation in a combined report
whose income and apportionment factors would not have been taken into
account if a water's-edge election under Section 25110 had been in
effect for the taxable year in which the loss was incurred.
(d) Section 172(b)(1) of the Internal Revenue Code, relating to
years to which the loss may be carried, is modified as follows:
(1) Net operating loss carrybacks shall not be allowed for any net
operating losses attributable to taxable years beginning before
January 1, 2013.
(2) A net operating loss attributable to taxable years beginning
on or after January 1, 2013, shall be a net operating loss carryback
to each of the two taxable years preceding the taxable year of the
loss in lieu of the number of years provided therein.
(A) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2013, and before January 1, 2014,
the amount of carryback to any taxable year shall not exceed 50
percent of the net operating loss.
(B) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2014, and before January 1,
2015, the amount of carryback to any taxable year shall
not exceed 75 100 percent of the net
operating loss.
(C) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2015, the amount of carryback to any
taxable year shall not exceed 100 percent of the net operating loss.
(3) Notwithstanding paragraph (2), Section 172(b)(1)(B) of the
Internal Revenue Code, relating to special rules for REITs, and
Section 172(b)(1)(E) of the Internal Revenue Code, relating to excess
interest loss, and Section 172(h) of the Internal Revenue Code,
relating to corporate equity reduction interest losses, shall apply
as provided.
(4) A net operating loss carryback shall not be carried back to
any taxable year beginning before January 1, 2011.
(e) (1) (A) For a net operating loss for any taxable year
beginning on or after January 1, 1987, and before January 1, 2000,
Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to
substitute "five taxable years" in lieu of "20 years" except as
otherwise provided in paragraphs (2), (3), and (4).
(B) For a net operating loss for any income year beginning on or
after January 1, 2000, and before January 1, 2008, Section 172(b)(1)
(A)(ii) of the Internal Revenue Code is modified to substitute "10
taxable years" in lieu of "20 taxable years."
(2) For any income year beginning before January 1, 2000, in the
case of a "new business," the "five taxable years" referred to in
paragraph (1) shall be modified to read as follows:
(A) "Eight taxable years" for a net operating loss attributable to
the first taxable year of that new business.
(B) "Seven taxable years" for a net operating loss attributable to
the second taxable year of that new business.
(C) "Six taxable years" for a net operating loss attributable to
the third taxable year of that new business.
(3) For any carryover of a net operating loss for which a
deduction is denied by Section 24416.3, the carryover period
specified in this subdivision shall be extended as follows:
(A) By one year for a net operating loss attributable to taxable
years beginning in 1991.
(B) By two years for a net operating loss attributable to taxable
years beginning prior to January 1, 1991.
(4) The net operating loss attributable to taxable years beginning
on or after January 1, 1987, and before January 1, 1994, shall be a
net operating loss carryover to each of the 10 taxable years
following the year of the loss if it is incurred by a corporation
that was either of the following:
(A) Under the jurisdiction of the court in a Title 11 or similar
case at any time prior to January 1, 1994. The loss carryover
provided in the preceding sentence shall not apply to any loss
incurred in an income year after the taxable year during which the
corporation is no longer under the jurisdiction of the court in a
Title 11 or similar case.
(B) In receipt of assets acquired in a transaction that qualifies
as a tax-free reorganization under Section 368(a)(1)(G) of the
Internal Revenue Code.
(f) For purposes of this section:
(1) "Eligible small business" means any trade or business that has
gross receipts, less returns and allowances, of less than one
million dollars ($1,000,000) during the income year.
(2) Except as provided in subdivision (g), "new business" means
any trade or business activity that is first commenced in this state
on or after January 1, 1994.
(3) "Title 11 or similar case" shall have the same meaning as in
Section 368(a)(3) of the Internal Revenue Code.
(4) In the case of any trade or business activity conducted by a
partnership or an "S" corporation, paragraphs (1) and (2) shall be
applied to the partnership or "S" corporation.
(g) For purposes of this section, in determining whether a trade
or business activity qualifies as a new business under paragraph (2)
of subdivision (e), the following rules shall apply:
(1) In any 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 new business 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). For
purposes of this paragraph only, the following rules shall apply:
(A) 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.
(B) 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 a taxpayer (or any related person) is
engaged in one or more trade or business activities in this state, or
has been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, than are
any of the taxpayer's (or any related person's) current or prior
trade or business activities.
(3) In any case where a taxpayer, including all related persons,
is engaged in trade or business activities wholly outside of this
state and the taxpayer first commences doing business in this state
(within the meaning of Section 23101) after December 31, 1993 (other
than by purchase or other acquisition described in paragraph (1)),
the trade or business activity shall be treated as a new business
under paragraph (2) of subdivision (e).
(4) 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 the rules of
paragraph (1) of this subdivision.
(5) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
(6) "Acquire" shall include any transfer, whether or not for
consideration.
(7) (A) For taxable years beginning on or after January 1, 1997,
the term "new business" shall include any taxpayer that is engaged in
biopharmaceutical activities or other biotechnology activities that
are described in Codes 2833 to 2836, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, and as further
amended, and that has not received regulatory approval for any
product from the United States Food and Drug Administration.
(B) For purposes of this paragraph:
(i) "Biopharmaceutical activities" means those activities that use
organisms or materials derived from organisms, and their cellular,
subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities that make use of chemical compounds to produce commercial
products.
(ii) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
(h) For purposes of corporations whose net income is determined
under Chapter 17 (commencing with Section 25101), Section 25108 shall
apply to each of the following:
(1) The amount of net operating loss incurred in any taxable year
that may be carried forward to another taxable year.
(2) The amount of any loss carry forward that may be deducted in
any taxable year.
(i) The provisions of Section 172(b)(1)(D) of the Internal Revenue
Code, relating to bad debt losses of commercial banks, shall not be
applicable.
(j) The Franchise Tax Board may prescribe appropriate regulations
to carry out the purposes of this section, including any regulations
necessary to prevent the avoidance of the purposes of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, or otherwise.
(k) The Franchise Tax Board may reclassify any net operating loss
carryover determined under either paragraph (2) or (3) of subdivision
(b) as a net operating loss carryover under paragraph (1) of
subdivision (b) upon a showing that the reclassification is necessary
to prevent evasion of the purposes of this section.
(l) Except as otherwise provided, the amendments made by Chapter
107 of the Statutes of 2000 shall apply to net operating losses for
taxable years beginning on or after January 1, 2000.
SEC. 16. Section 24996 is added to the
Revenue and Taxation Code , to read:
24996. Notwithstanding any other law, gross income shall not
include any gain from the sale or exchange of any capital asset. For
purposes of this section, "capital asset" means a capital asset as
defined by Section 1221 of the Internal Revenue Code.
SEC. 3. SEC. 17. This act provides
for a tax levy within the meaning of Article IV of the Constitution
and shall go into immediate effect.