SB 500, as introduced, Lieu. Income and corporation tax credits: research and development.
The Personal Income Tax Law and the Corporation Tax Law, by reference to a specified federal statute, allow a credit against taxes imposed by those laws 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. This bill would also provide complete conformity to the alternative incremental credit provided under those federal income tax laws.
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 17052.12 of the Revenue and Taxation
2Code is amended to read:
For each taxable year beginning on or after January
41, 1987, there shall be allowed as a credit against the “net tax” (as
5defined by Section 17039) for the taxable year an amount
6determined in accordance with Section 41 of the Internal Revenue
7Code, except as follows:
8(a) For each taxable year beginning before January 1, 1997, the
9reference to “20 percent” in Section 41(a)(1) of the Internal
10Revenue Code is modified to read “8 percent.”
11(b) (1) For each taxable year beginning on or after January 1,
121997, and before January 1, 1999, the reference to “20 percent”
13in Section 41(a)(1) of the Internal Revenue Code is modified to
14read “11 percent.”
15(2) For each taxable year beginning on or after January 1, 1999,
16and before January 1, 2000, the reference to “20 percent” in Section
1741(a)(1) of the Internal Revenue Code is modified to read “12
18percent.”
19(3) For each taxable year beginning on or after January 1, 2000,
20begin insert and before January 1, 2013,end insert the reference to “20 percent” in
21Section 41(a)(1) of the Internal Revenue Code is modified to read
22“15 percent.”
23(4) For each taxable year beginning on or after January 1,
242013, the reference to “20 percent” in Section 41(a)(1) of the
25Internal Revenue Code shall apply.
26(c) Section 41(a)(2) of the Internal Revenue Codebegin insert, relating to
27basic research payments,end insert shall not apply.
28(d) “Qualified research” shall include only research conducted
29in California.
30(e) In the case where the credit allowed under this section
31exceeds the “net tax,” the excess may be carried over to reduce
32the “net tax” in the following year, and succeeding years if
33necessary, until the credit has been exhausted.
34(f) (1) With respect to any expense paid or incurred after the
35operative date of Section 6378, Section 41(b)(1) of the Internal
36Revenue Code is modified to exclude from the definition of
37“qualified research expense” any
amount paid or incurred for
P3 1tangible personal property that is eligible for the exemption from
2sales or use tax provided by Section 6378.
3(2) For each taxable year beginning on or after January 1, 1998,
4the reference to “Section 501(a)” in Section 41(b)(3)(C) of the
5Internal Revenue Code, relating to contract research expenses, is
6modified to read “this part or Part 11 (commencing with Section
723001).”
8(g) (1) For each taxable year beginning on or after January 1,
92000begin insert, and before January 1, 2013end insert:
10(A) The reference to “3 percent” in Section 41(c)(4)(A)(i) of
11the Internal Revenue Code is modified to read “one and forty-nine
12hundredths of one percent.”
13(B) The reference to “4 percent” in Section 41(c)(4)(A)(ii) of
14the Internal Revenue Code is modified to read “one and
15ninety-eight hundredths of one percent.”
16(C) The reference to “5 percent” in Section 41(c)(4)(A)(iii) of
17the Internal Revenue Code is modified to read “two and forty-eight
18hundredths of one percent.”
19(2) Section 41(c)(4)(B) shall not apply and in lieu thereof an
20election under Section 41(c)(4)(A) of the Internal Revenue Code
21may be made for any taxable year of the taxpayer beginning on or
22after January 1, 1998. That election shall apply to the taxable year
23for which made andbegin delete allend deletebegin insert eachend insert succeeding taxablebegin delete yearsend deletebegin insert
yearend insert unless
24revoked with the consent of the Franchise Tax Board.
25(3) Section 41(c)(7) of the Internal Revenue Code, relating to
26gross receipts, is modified to take into account only those gross
27receipts from the sale of property held primarily for sale to
28customers in the ordinary course of the taxpayer’s trade or business
29that is delivered or shipped to a purchaser within this state,
30regardless of f.o.b. point or any other condition of the sale.
31(4) Section 41(c)(5) of the Internal Revenue Code, relating to
32
election of alternative simplified credit, shall not apply.
33(h) Section 41(h) of the Internal Revenue Code, relating to
34termination, shall not apply.
35(i) Section 41(g) of the Internal Revenue Code, relating to
36special rule for passthrough of credit, is modified by each of the
37following:
38(1) The last sentence shall not apply.
39(2) If the amount determined under Section 41(a) of the Internal
40Revenue Code for any taxable year exceeds the limitation of
P4 1Section 41(g) of the Internal Revenue Code, that amount may be
2carried over to other taxable years under the rules of subdivision
3(e); except that the limitation of Section 41(g) of the Internal
4Revenue Code shall be taken into account in each subsequent
5taxable year.
6(j) Section 41(a)(3) of the Internal Revenue Code shall not apply.
end delete
7(k) Section 41(b)(3)(D) of the Internal Revenue Code, relating
8to amounts paid to eligible small businesses, universities, and
9federal laboratories, shall not apply.
10(l) Section 41(f)(6), relating to energy research consortium,
11shall not apply.
Section 23609 of the Revenue and Taxation Code is
13amended to read:
For each taxable year beginning on or after January 1,
151987, there shall be allowed as a credit against the “tax” (as defined
16by Section 23036) an amount determined in accordance with
17Section 41 of the Internal Revenue Code, except as follows:
18(a) For each taxable year beginning before January 1, 1997,
19both of the following modifications shall apply:
20(1) The reference to “20 percent” in Section 41(a)(1) of the
21Internal Revenue Code is modified to read “8 percent.”
22(2) The reference to “20 percent” in Section 41(a)(2) of the
23Internal Revenue Code is modified to read “12 percent.”
24(b) (1) For each taxable year beginning on or after January 1,
251997, and before January 1, 1999, both of the following
26modifications shall apply:
27(A) The reference to “20 percent” in Section 41(a)(1) of the
28Internal Revenue Code is modified to read “11 percent.”
29(B) The reference to “20 percent” in Section 41(a)(2) of the
30Internal Revenue Code is modified to read “24 percent.”
31(2) For each taxable year beginning on or after January 1, 1999,
32and before January 1, 2000, both of the following shall apply:
33(A) The reference to “20 percent” in Section 41(a)(1) of the
34Internal Revenue Code is modified to read “12 percent.”
35(B) The reference to “20 percent” in Section 41(a)(2) of the
36
Internal Revenue Code is modified to read “24 percent.”
37(3) For each taxable year beginning on or after January 1, 2000,
38begin insert and before January 1, 2013,end insert both of the following shall apply:
39(A) The reference to “20 percent” in Section 41(a)(1) of the
40Internal Revenue Code is modified to read “15 percent.”
P5 1(B) The reference to “20 percent” in Section 41(a)(2) of the
2Internal Revenue Code is modified to read “24 percent.”
3(4) For each taxable year beginning on or after January 1,
42013, both of the following shall apply:
5(A) The reference to “20 percent” in Section 41(a)(1) of the
6Internal Revenue Code shall apply.
7(B) The reference to “20 percent” in Section 41(a)(2) of the
8Internal Revenue Code is modified to read “24 percent.”
9(c) (1) With respect to any expense paid or incurred after the
10operative date of Section 6378, Section 41(b)(1) of the Internal
11Revenue Code is modified to exclude from the definition of
12“qualified research expense” any amount paid or incurred for
13tangible personal property that is eligible for the exemption from
14sales or use tax provided by Section
6378.
15(2) “Qualified research” and “basic research” shall include only
16research conducted in California.
17(d) The provisions of Section 41(e)(7)(A) of the Internal
18Revenue Code, shall be modified so that “basic research,” for
19purposes of this section, includes any basic or applied research
20including scientific inquiry or original investigation for the
21advancement of scientific or engineering knowledge or the
22improved effectiveness of commercial products, except that the
23term does not include any of the following:
24(1) Basic research conducted outside California.
25(2) Basic research in the social sciences, arts, or humanities.
26(3) Basic research for the purpose of improving a commercial
27
product if the improvements relate to style, taste, cosmetic, or
28seasonal design factors.
29(4) Any expenditure paid or incurred for the purpose of
30ascertaining the existence, location, extent, or quality of any deposit
31of ore or other mineral (including oil and gas).
32(e) (1) In the case of a taxpayer engaged in any
33biopharmaceutical research activities that are described in codes
342833 to 2836, inclusive, or any research activities that are described
35in codes 3826, 3829, or 3841 to 3845, inclusive, of the Standard
36Industrial Classification (SIC) Manual published by the United
37States Office of Management and Budget, 1987 edition, or any
38other biotechnology research and development activities, the
39provisions of Section 41(e)(6) of the Internal Revenue Code shall
40be modified to include both of the following:
P6 1(A) A qualified organization as described in Section
2170(b)(1)(A)(iii) of the Internal Revenue Code and owned by an
3institution of higher education as described in Section 3304(f) of
4the Internal Revenue Code.
5(B) A charitable research hospital owned by an organization
6that is described in Section 501(c)(3) of the Internal Revenue Code,
7is exempt from taxation under Section 501(a) of the Internal
8Revenue Code, is not a private foundation, is designated a
9“specialized laboratory cancer center,” and has received Clinical
10Cancer Research Center status from the National Cancer Institute.
11(2) For purposes of this subdivision:
12(A) “Biopharmaceutical research activities” means those
13activities that use organisms or materials derived from organisms,
14and their cellular, subcellular, or molecular components, in
order
15to provide pharmaceutical products for human or animal
16therapeutics and diagnostics. Biopharmaceutical activities make
17use of living organisms to make commercial products, as opposed
18to pharmaceutical activities that make use of chemical compounds
19to produce commercial products.
20(B) “Other biotechnology research and development activities”
21means research and development activities consisting of the
22application of recombinant DNA technology to produce
23commercial products, as well as research and development
24activities regarding pharmaceutical delivery systems designed to
25provide a measure of control over the rate, duration, and site of
26pharmaceutical delivery.
27(f) In the case where the credit allowed by this section exceeds
28the “tax,” the excess may be carried over to reduce the “tax” in
29the following year, and succeeding years if necessary, until the
30credit has been
exhausted.
31(g) For each taxable year beginning on or after January 1, 1998,
32the reference to “Section 501(a)” in Section 41(b)(3)(C) of the
33Internal Revenue Code, relating to contract research expenses, is
34modified to read “this part or Part 10 (commencing with Section
3517001).”
36(h) (1) For each taxable year beginning on or after January 1,
372000begin insert, and before January 1, 2013end insert:
38(A) The reference to “3 percent” in Section 41(c)(4)(A)(i) of
39the Internal Revenue Code is modified to read “one and forty-nine
40hundredths of one percent.”
P7 1(B) The reference to “4 percent” in Section 41(c)(4)(A)(ii) of
2the Internal Revenue Code is modified
to read “one and
3ninety-eight hundredths of one percent.”
4(C) The reference to “5 percent” in Section 41(c)(4)(A)(iii) of
5the Internal Revenue Code is modified to read “two and forty-eight
6hundredths of one percent.”
7(2) Section 41(c)(4)(B) shall not apply and in lieu thereof an
8election under Section 41(c)(4)(A) of the Internal Revenue Code
9may be made for any taxable year of the taxpayer beginning on or
10after January 1, 1998. That election shall apply to the taxable year
11for which made andbegin delete allend deletebegin insert eachend insert succeeding taxablebegin delete yearsend deletebegin insert
yearend insert unless
12revoked with the consent of the Franchise Tax Board.
13(3) Section 41(c)(7) of the Internal Revenue Code, relating to
14gross receipts, is modified to take into account only those gross
15receipts from the sale of property held primarily for sale to
16customers in the ordinary course of the taxpayer’s trade or business
17that is delivered or shipped to a purchaser within this state,
18regardless of f.o.b. point or any other condition of the sale.
19(4) Section 41(c)(5) of the Internal Revenue Code, relating to
20election of the alternative simplified credit, shall not apply.
21(i) Section 41(h) of the Internal Revenue Code, relating to
22termination, shall
not apply.
23(j) Section 41(g) of the Internal Revenue Code, relating to
24special rule for passthrough of credit, is modified by each of the
25following:
26(1) The last sentence shall not apply.
27(2) If the amount determined under Section 41(a) of the Internal
28Revenue Code for any taxable year exceeds the limitation of
29Section 41(g) of the Internal Revenue Code, that amount may be
30carried over to other taxable years under the rules of subdivision
31(f), except that the limitation of Section 41(g) of the Internal
32Revenue Code shall be taken into account in each subsequent
33taxable year.
34(k) Section 41(a)(3) of the Internal Revenue Code shall not
35apply.
36(l) Section 41(b)(3)(D) of the Internal Revenue Code, relating
37to amounts paid to eligible small businesses, universities, and
38federal laboratories, shall not apply.
39(m) Section 41(f)(6) of the Internal Revenue Code, relating to
40energy research consortium, shall not apply.
This act provides for a tax levy within the meaning of
2Article IV of the Constitution and shall go into immediate effect.
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