California Legislature—2015–16 Regular Session

Assembly Bill No. 931

Introduced by Assembly Member Irwin

February 26, 2015

An act to amend Sections 17053.73 and 23626 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 931, as introduced, Irwin. Taxation: credit: hiring.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws, including, for taxable years beginning on or after January 1, 2014, and before January 1, 2021, a credit for hiring qualified full-time employees within specified economic development areas. Existing law defines “qualified full-time employee” to include an individual who is a veteran who separated from service in the Armed Forces of the United States within the 12 months preceding commencement of employment with the qualified taxpayer.

This bill would, under both laws for taxable years beginning on or after January 1, 2015, revise this definition of a “qualified full-time employee” to include a person who, upon commencement of employment with the qualified taxpayer, is a veteran that separated from service in the Armed Forces of the United States within the 24 months preceding commencement of employment with the qualified taxpayer.

Existing law also allows a credit against tax under both laws for each taxable year beginning on or after January 1, 2014, and before January 1, 2025, in an amount as provided in a written agreement between the Governor’s Office of Business and Economic Development and the taxpayer, agreed upon by the California Competes Tax Credit Committee, and based on specified factors, including the number of jobs the taxpayer will create or retain in the state and the amount of investment in the state by the taxpayer. Existing law limits the aggregate amount of credits allocated to taxpayers to a specified sum per fiscal year and provides that the amount available for these credits will decrease based in part, on how much credit is allowed under the hiring credit that would be expanded by this bill.

This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2⁄3 of the membership of each house of the Legislature.

This bill would take effect immediately as a tax levy.

Vote: ²⁄₃. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

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

SECTION 1.  

Section 17053.73 of the Revenue and Taxation
Code is amended to read:

17053.73.  

(a) (1) For each taxable year beginning on or after
January 1, 2014, and before January 1, 2021, there shall be allowed
to a qualified taxpayer that hires a qualified full-time employee
and pays or incurs qualified wages attributable to work performed
by the qualified full-time employee in a designated census tract
or economic development area, and that receives a tentative credit
reservation for that qualified full-time employee, a credit against
the “net tax,” as defined in Section 17039, in an amount calculated
under this section.

(2) The amount of the credit allowable under this section for a
taxable year shall be equal to the product of the tentative credit
amount for the taxable year and the applicable percentage for that
taxable year.

(3) (A) If a qualified taxpayer relocates to a designated census
tract or economic development area, the qualified taxpayer shall
be allowed a credit with respect to qualified wages for each
qualified full-time employee employed within the new location
only if the qualified taxpayer provides each employee at the
previous location or locations a written offer of employment at the
new location in the designated census tract or economic
development area with comparable compensation.

(B) For purposes of this paragraph, “relocates to a designated
census tract or economic development area” means an increase in
the number of qualified full-time employees, employed by a
qualified taxpayer, within a designated census tract or tracts or
economic development areas within a 12-month period in which
there is a decrease in the number of full-time employees, employed
by the qualified taxpayer in this state, but outside of designated
census tracts or economic development areas.

(C) This paragraph shall not apply to a small business.

(4) The credit allowed by this section may be claimed only on
a timely filed original return of the qualified taxpayer and only
with respect to a qualified full-time employee for whom the
qualified taxpayer has received a tentative credit reservation.

(b) For purposes of this section:

(1) The “tentative credit amount” for a taxable year shall be
equal to the product of the applicable credit percentage for each
qualified full-time employee and the qualified wages paid by the
qualified taxpayer during the taxable year to that qualified full-time
employee.

(2) The “applicable percentage” for a taxable year shall be equal
to a fraction, the numerator of which is the net increase in the total
number of full-time employees employed in this state during the
taxable year, determined on an annual full-time equivalent basis,
as compared with the total number of full-time employees
employed in this state during the base year, determined on the
same basis, and the denominator of which shall be the total number
of qualified full-time employees employed in this state during the
taxable year. The applicable percentage shall not exceed 100
percent.

(3) The “applicable credit percentage” means the credit
percentage for the calendar year during which a qualified full-time
employee was first employed by the qualified taxpayer. The
applicable credit percentage for all calendar years shall be 35
percent.

(4) “Base year” means the 2013 taxable year, except in the case
of a qualified taxpayer who first hires a qualified full-time
employee in a taxable year beginning on or after January 1, 2015,
the base year means the taxable year immediately preceding the
taxable year in which a qualified full-time employee was first hired
by the qualified taxpayer.

(5) “Acquired” includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.

(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 qualified 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 qualified taxpayer by the employee divided by 52.

(7) “Designated census tract” means a census tract within the
state that is determined by the Department of Finance to have a
civilian unemployment rate that is within the top 25 percent of all
census tracts within the state and has a poverty rate within the top
25 percent of all census tracts within the state, as prescribed in
Section 13073.5 of the Government Code.

(8) “Economic development area” means either of the following:

(A) A former enterprise zone. For purposes of this section,
“former enterprise zone” means an enterprise zone designated and
in effect as of December 31, 2011, any enterprise zone designated
during 2012, and any revision of an enterprise zone prior to June
30, 2013, under former Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code, as in effect
on December 31, 2012, excluding any census tract within an
enterprise zone that is identified by the Department of Finance
pursuant to Section 13073.5 of the Government Code as a census
tract within the lowest quartile of census tracts with the lowest
civilian unemployment and poverty.

(B) A local agency military base recovery area designated as
of the effective date of the act adding this subparagraph, in
accordance with Section 7114 of the Government Code.

(9) “Minimum wage” means the wage established pursuant to
Chapter 1 (commencing with Section 1171) of Part 4 of Division
2 of the Labor Code.

(10) (A) “Qualified full-time employee” means an individual
who meets all of the following requirements:

(i) Performs at least 50 percent of his or her services for the
qualified taxpayer during the taxable year in a designated census
tract or economic development area.

(ii) Receives starting wages that are at least 150 percent of the
minimum wage.

(iii) Is hired by the qualified taxpayer on or after January 1,
2014.

(iv) Is hired by the qualified taxpayer after the date the
Department of Finance determines that the census tract referred
to in clause (i) is a designated census tract or that the census tracts
within a former enterprise zone are not census tracts with the lowest
civilian unemployment and poverty.

(v) Satisfies either of the following conditions:

(I) Is paid qualified wages by the qualified taxpayer for services
not less than an average of 35 hours per week.

(II) Is 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 taxpayer.

(vi) Upon commencement of employment with the qualified
taxpayer, satisfies any of the following conditions:

(I) Was unemployed for the six months immediately preceding
employment with the qualified taxpayer. In the case of an
individual that completed a program of study at a college,
university, or other postsecondary educational institution, received
a baccalaureate, postgraduate, or professional degree, and was
unemployed for the six months immediately preceding employment
with the qualified taxpayer, that individual must have completed
that program of study at least 12 months prior to the individual’s
commencement of employment with the qualified taxpayer.

(II)  begin delete Is end delete begin insert (ia) end insert begin insert   end insert begin insert For taxable years beginning on or after January 1,
2014, and before January 1, 2015, is end insert a veteran who separated from
service in the Armed Forces of the United States within the 12
months preceding commencement of employment with the
qualified taxpayer.

begin insert

(ib) For taxable years beginning on or after January 1, 2015,
is a veteran who separated from service in the Armed Forces of
the United States within the 24 months preceding commencement
of employment with the qualified taxpayer.

end insert

(III) Was a recipient of the credit allowed under Section 32 of
the Internal Revenue Code, relating to earned income, as applicable
for federal purposes, for the previous taxable year.

(IV) Is an ex-offender previously convicted of a felony.

(V) Is a recipient of either CalWORKs, in accordance with
Article 2 (commencing with Section 11250) of Chapter 2 of Part
3 of Division 9 of the Welfare and Institutions Code, or general
assistance, in accordance with Section 17000.5 of the Welfare and
Institutions Code.

(B) An individual may be considered a qualified full-time
employee only for the period of time commencing with the date
the individual is first employed by the qualified taxpayer and
ending 60 months thereafter.

(11) (A) “Qualified taxpayer” means a person or entity engaged
in a trade or business within a designated census tract or economic
development area that, during the taxable year, pays or incurs
qualified wages.

(B) In the case of any pass-thru entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section or
Section 23626 shall be allowed to the pass-thru entity and passed
through to the partners and shareholders in accordance with
applicable provisions of this part or Part 11 (commencing with
Section 23001). For purposes of this subdivision, the term
“pass-thru entity” means any partnership or “S” corporation.

(C) “Qualified taxpayers” shall not include any of the following:

(i) Employers that provide temporary help services, as described
in Code 561320 of the North American Industry Classification
System (NAICS) published by the United States Office of
Management and Budget, 2012 edition.

(ii) Employers that provide retail trade services, as described
in Sector 44-45 of the North American Industry Classification
System (NAICS) published by the United States Office of
Management and Budget, 2012 edition.

(iii) Employers that are primarily engaged in providing food
services, as described in Code 711110, 722511, 722513, 722514,
or 722515 of the North American Industry Classification System
(NAICS) published by the United States Office of Management
and Budget, 2012 edition.

(iv) Employers that are primarily engaged in services as
described in Code 713210, 721120, or 722410 of the North
American Industry Classification System (NAICS) published by
the United States Office of Management and Budget, 2012 edition.

(v) (I) An employer that is a sexually oriented business.

(II) For purposes of this clause:

(aa) “Sexually oriented business” means a nightclub, bar,
restaurant, or similar commercial enterprise that provides for an
audience of two or more individuals live nude entertainment or
live nude performances where the nudity is a function of everyday
business operations and where nudity is a planned and intentional
part of the entertainment or performance.

(ab) “Nude” means clothed in a manner that leaves uncovered
or visible, through less than fully opaque clothing, any portion of
the genitals or, in the case of a female, any portion of the breasts
below the top of the areola of the breasts.

(D) Subparagraph (C) shall not apply to a taxpayer that is a
“small business.”

(12) “Qualified wages” means those wages that meet all of the
following requirements:

(A) (i) Except as provided in clause (ii), that portion of wages
paid or incurred by the qualified taxpayer during the taxable year
to each qualified full-time employee that exceeds 150 percent of
minimum wage, but does not exceed 350 percent of minimum
wage.

(ii) (I) In the case of a qualified full-time employee employed
in a designated pilot area, that portion of wages paid or incurred
by the qualified taxpayer during the taxable year to each qualified
full-time employee that exceeds ten dollars ($10) per hour or an
equivalent amount for salaried employees, but does not exceed
350 percent of minimum wage. For qualified full-time employees
described in the preceding sentence, clause (ii) of subparagraph
(A) of paragraph (10) is modified by substituting “ten dollars ($10)
per hour or an equivalent amount for salaried employees” for “150
percent of the minimum wage.”

(II) For purposes of this clause:

(aa) “Designated pilot area” means an area designated as a
designated pilot area by the Governor’s Office of Business and
Economic Development.

(ab) Areas that may be designated as a designated pilot area are
limited to areas within a designated census tract or an economic
development area with average wages less than the statewide
average wages, based on information from the Labor Market
Division of the Employment Development Department, and areas
within a designated census tract or an economic development area
based on high poverty or high unemployment.

(ac) The total number of designated pilot areas that may be
designated is limited to five, one or more of which must be an area
within five or fewer designated census tracts within a single county
based on high poverty or high unemployment or an area within an
economic development area based on high poverty or high
unemployment.

(ad) The designation of a designated pilot area shall be
applicable for a period of four calendar years, commencing with
the first calendar year for which the designation of a designated
pilot area is effective. The applicable period of a designated pilot
area may be extended, in the sole discretion of the Governor’s
Office of Business and Economic Development, for an additional
period of up to three calendar years. The applicable period, and
any extended period, shall not extend beyond December 31, 2020.

(III) The designation of an area as a designated pilot area and
the extension of the applicable period of a designated pilot area
shall be at the sole discretion of the Governor’s Office of Business
and Economic Development and shall not be subject to
administrative appeal or judicial review.

(B) Wages paid or incurred during the 60-month period
beginning with the first day the qualified full-time employee
commences employment with the qualified taxpayer. In the case
of any employee who is reemployed, including a regularly
occurring seasonal increase, in the trade or business operations of
the qualified taxpayer, this reemployment shall not be treated as
constituting commencement of employment for purposes of this
section.

(C) Except as provided in paragraph (3) of subdivision (n),
qualified wages shall not include any wages paid or incurred by
the qualified taxpayer on or after the date that the Department of
Finance’s redesignation of designated census tracts is effective,
as provided in paragraph (2) of subdivision (g), so that a census
tract is no longer a designated census tract.

(13) “Seasonal employment” means employment by a qualified
taxpayer that has regular and predictable substantial reductions in
trade or business operations.

(14) (A) “Small business” means a trade or business that has
aggregate gross receipts, less returns and allowances reportable to
this state, of less than two million dollars ($2,000,000) during the
previous taxable year.

(B) (i) For purposes of this paragraph, “gross receipts, less
returns and allowances reportable to this state,” means the sum of
the gross receipts from the production of business income, as
defined in subdivision (a) of Section 25120, and the gross receipts
from the production of nonbusiness income, as defined in
subdivision (d) of Section 25120.

(ii) In the case of any trade or business activity conducted by a
partnership or an “S” corporation, the limitations set forth in
subparagraph (A) shall be applied to the partnership or “S”
corporation and to each partner or shareholder.

(C) (i) “Small business” shall not include a sexually oriented
business.

(ii) For purposes of this subparagraph:

(I) “Sexually oriented business” means a nightclub, bar,
restaurant, or similar commercial enterprise that provides for an
audience of two or more individuals live nude entertainment or
live nude performances where the nudity is a function of everyday
business operations and where nudity is a planned and intentional
part of the entertainment or performance.

(II) “Nude” means clothed in a manner that leaves uncovered
or visible, through less than fully opaque clothing, any portion of
the genitals or, in the case of a female, any portion of the breasts
below the top of the areola of the breasts.

(15) An individual is “unemployed” for any period for which
the individual is all of the following:

(A) Not in receipt of wages subject to withholding under Section
13020 of the Unemployment Insurance Code for that period.

(B) Not a self-employed individual (within the meaning of
Section 401(c)(1)(B) of the Internal Revenue Code, relating to
self-employed individual) for that period.

(C) Not a registered full-time student at a high school, college,
university, or other postsecondary educational institution for that
period.

(c) The net increase in full-time employees of a qualified
taxpayer shall be determined as provided by this subdivision:

(1) (A) The net increase in 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 full-time employees employed in the
base 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 base year shall be zero.

(d) For purposes of this section:

(1) All employees of the trades or businesses that are treated as
related under 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 17276.20, without application of
paragraph (7) of that subdivision, shall apply.

(e) (1) To be eligible for the credit allowed by this section, a
qualified taxpayer shall, upon hiring a qualified full-time employee,
request a tentative credit reservation from the Franchise Tax Board
within 30 days of complying with the Employment Development
Department’s new hire reporting requirements as provided in
Section 1088.5 of the Unemployment Insurance Code, in the form
and manner prescribed by the Franchise Tax Board.

(2) To obtain a tentative credit reservation with respect to a
qualified full-time employee, the qualified taxpayer shall provide
necessary information, as determined by the Franchise Tax Board,
including the name, social security number, the start date of
employment, the rate of pay of the qualified full-time employee,
the qualified taxpayer’s gross receipts, less returns and allowances,
for the previous taxable year, and whether the qualified full-time
employee is a resident of a targeted employment area, as defined
in former Section 7072 of the Government Code, as in effect on
December 31, 2013.

(3) The qualified taxpayer shall provide the Franchise Tax Board
an annual certification of employment with respect to each
qualified full-time employee hired in a previous taxable year, on
or before, the 15th day of the third month of the taxable year. The
certification shall include necessary information, as determined
by the Franchise Tax Board, including the name, social security
number, start date of employment, and rate of pay for each qualified
full-time employee employed by the qualified taxpayer.

(4) A tentative credit reservation provided to a taxpayer with
respect to an employee of that taxpayer shall not constitute a
determination by the Franchise Tax Board with respect to any of
the requirements of this section regarding a taxpayer’s eligibility
for the credit authorized by this section.

(f) The Franchise Tax Board shall do all of the following:

(1) Approve a tentative credit reservation with respect to a
qualified full-time employee hired during a calendar year.

(2) Determine the aggregate tentative reservation amount and
the aggregate small business tentative reservation amount for a
calendar year.

(3) A tentative credit reservation request from a qualified
taxpayer with respect to a qualified full-time employee who is a
resident of a targeted employment area, as defined in former
Section 7072 of the Government Code, as in effect on December
31, 2013, shall be expeditiously processed by the Franchise Tax
Board. The residence of a qualified full-time employee in a targeted
employment area shall have no other effect on the eligibility of an
individual as a qualified full-time employee or the eligibility of a
qualified taxpayer for the credit authorized by this section.

(4) Notwithstanding Section 19542, provide as a searchable
database on its Internet Web site, for each taxable year beginning
on or after January 1, 2014, and before January 1, 2021, the
employer names, amounts of tax credit claimed, and number of
new jobs created for each taxable year pursuant to this section and
Section 23626.

(g) (1) The Department of Finance shall, by January 1, 2014,
and by January 1 of every fifth year thereafter, provide the
Franchise Tax Board with a list of the designated census tracts and
a list of census tracts with the lowest civilian unemployment rate.

(2) The redesignation of designated census tracts and lowest
civilian unemployment census tracts by the Department of Finance
as provided in Section 13073.5 of the Government Code shall be
effective, for purposes of this credit, one year after the date the
Department of Finance redesignates the designated census tracts.

(h) For purposes of this section:

(1) All employees of the trades or businesses that are treated as
related under Section 267, 318, or 707 of the Internal Revenue
Code shall be treated as employed by a single taxpayer.

(2) All employees of trades or businesses that are not
incorporated, and that are under common control, shall be treated
as employed by a single taxpayer.

(3) 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 to that trade or business in
that manner.

(4) Principles that apply in the case of controlled groups of
corporations, as specified in subdivision (h) of Section 23626,
shall apply with respect to determining employment.

(5) If an employer acquires the major portion of a trade or
business of another employer, hereinafter 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, other than subdivision (i), for any taxable year ending
after that acquisition, the employment relationship between a
qualified full-time employee and an employer shall not be treated
as terminated if the employee continues to be employed in that
trade or business.

(i) (1) If the employment of any qualified full-time employee,
with respect to whom qualified wages are taken into account under
subdivision (a), is terminated by the qualified taxpayer at any time
during the first 36 months after commencing employment with
the qualified taxpayer, whether or not consecutive, the tax imposed
by this part for the taxable year in which that employment is
terminated shall be increased by an amount equal to the credit
allowed under subdivision (a) for that taxable year and all prior
taxable years attributable to qualified wages paid or incurred with
respect to that employee.

(2) Paragraph (1) shall not apply to any of the following:

(A) A termination of employment of a qualified full-time
employee who voluntarily leaves the employment of the qualified
taxpayer.

(B) A termination of employment of a qualified full-time
employee who, before the close of the period referred to in
paragraph (1), becomes disabled and unable to perform the services
of that employment, unless that disability is removed before the
close of that period and the qualified taxpayer fails to offer
reemployment to that employee.

(C) A termination of employment of a qualified full-time
employee, if it is determined that the termination was due to the
misconduct, as defined in Sections 1256-30 to 1256-43, inclusive,
of Title 22 of the California Code of Regulations, of that employee.

(D) A termination of employment of a qualified full-time
employee due to a substantial reduction in the trade or business
operations of the qualified taxpayer, including reductions due to
seasonal employment.

(E) A termination of employment of a qualified full-time
employee, if that employee is replaced by other qualified full-time
employees so as to create a net increase in both the number of
employees and the hours of employment.

(F) A termination of employment of a qualified full-time
employee, when that employment is considered seasonal
employment and the qualified employee is rehired on a seasonal
basis.

(3) For purposes of paragraph (1), the employment relationship
between the qualified taxpayer and a qualified full-time employee
shall not be treated as terminated by reason of a mere change in
the form of conducting the trade or business of the qualified
taxpayer, if the qualified full-time employee continues to be
employed in that trade or business and the qualified taxpayer retains
a substantial interest in that trade or business.

(4) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount
of any credit allowable under this part.

(j) In the case of an estate or trust, both of the following apply:

(1) The qualified wages for any taxable year shall be apportioned
between the estate or trust and the beneficiaries on the basis of the
income of the estate or trust allocable to each.

(2) Any beneficiary to whom any qualified wages have been
apportioned under paragraph (1) shall be treated, for purposes of
this part, as the employer with respect to those wages.

(k) 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 the succeeding four years if
necessary, until the credit is exhausted.

(l) 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 allocation
of the credit allowed under this section. Chapter 3.5 (commencing
with Section 11340) of Part 1 of Division 3 of Title 2 of the
Government Code shall not apply to any rule, guideline, or
procedure prescribed by the Franchise Tax Board pursuant to this
section.

(m) (1) Upon the effective date of this section, the Department
of Finance shall estimate the total dollar amount of credits that
will be claimed under this section with respect to each fiscal year
from the 2013-14 fiscal year to the 2020- 21 fiscal year, inclusive.

(2) The Franchise Tax Board shall annually provide to the Joint
Legislative Budget Committee, by no later than March 1, a report
of the total dollar amount of the credits claimed under this section
with respect to the relevant fiscal year. The report shall compare
the total dollar amount of credits claimed under this section with
respect to that fiscal year with the department’s estimate with
respect to that same fiscal year. If the total dollar amount of credits
claimed for the fiscal year is less than the estimate for that fiscal
year, the report shall identify options for increasing annual claims
of the credit so as to meet estimated amounts.

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

(2) Notwithstanding paragraph (1) of subdivision (a), this section
shall continue to be operative for taxable years beginning on or
after January 1, 2021, but only with respect to qualified full-time
employees who commenced employment with a qualified taxpayer
in a designated census tract or economic development area in a
taxable year beginning before January 1, 2021.

(3) This section shall remain operative for any qualified taxpayer
with respect to any qualified full-time employee after the
designated census tract is no longer designated or an economic
development area ceases to be an economic development area, as
defined in this section, for the remaining period, if any, of the
60-month period after the original date of hiring of an otherwise
qualified full-time employee and any wages paid or incurred with
respect to those qualified full-time employees after the designated
census tract is no longer designated or an economic development
area ceases to be an economic development area, as defined in this
section, shall be treated as qualified wages under this section,
provided the employee satisfies any other requirements of
paragraphs (10) and (12) of subdivision (b), as if the designated
census tract was still designated and binding or the economic
development area was still in existence.

SEC. 2.  

Section 23626 of the Revenue and Taxation Code is
amended to read:

23626.  

(a) (1) For each taxable year beginning on or after
January 1, 2014, and before January 1, 2021, there shall be allowed
to a qualified taxpayer that hires a qualified full-time employee
and pays or incurs qualified wages attributable to work performed
by the qualified full-time employee in a designated census tract
or economic development area, and that receives a tentative credit
reservation for that qualified full-time employee, a credit against
the “tax,” as defined by Section 23036, in an amount calculated
under this section.

(2) The amount of the credit allowable under this section for a
taxable year shall be equal to the product of the tentative credit
amount for the taxable year and the applicable percentage for the
taxable year.

(3) (A) If a qualified taxpayer relocates to a designated census
tract or economic development area, the qualified taxpayer shall
be allowed a credit with respect to qualified wages for each
qualified full-time employee who is employed within the new
location only if the qualified taxpayer provides each employee at
the previous location or locations a written offer of employment
at the new location in the designated census tract or economic
development area with comparable compensation.

(B) For purposes of this paragraph, “relocates to a designated
census tract or economic development area” means an increase in
the number of qualified full-time employees, employed by a
qualified taxpayer, within a designated census tract or tracts or
economic development areas within a 12-month period in which
there is a decrease in the number of full-time employees, employed
by the qualified taxpayer in this state, but outside of designated
census tracts or economic development areas.

(C) This paragraph shall not apply to a small business.

(4) The credit allowed by this section may only be claimed on
a timely filed original return of the qualified taxpayer and only
with respect to a qualified full-time employee for whom the
qualified taxpayer has received a tentative credit reservation.

(b) For purposes of this section:

(1) The “tentative credit amount” for a taxable year shall be
equal to the product of the applicable credit percentage for each
qualified full-time employee and the qualified wages paid by the
qualified taxpayer during the taxable year to that qualified full-time
employee.

(2) The “applicable percentage” for a taxable year shall be equal
to a fraction, the numerator of which is the net increase in the total
number of full-time employees employed in this state during the
taxable year, determined on an annual full-time equivalent basis,
as compared with the total number of full-time employees
employed in this state during the base year, determined on the
same basis, and the denominator of which shall be the total number
of qualified full-time employees employed in this state during the
taxable year. The applicable percentage shall not exceed 100
percent.

(3) The “applicable credit percentage” means the credit
percentage for the calendar year during which a qualified full-time
employee was first employed by the qualified taxpayer. The
applicable credit percentage for all calendar years shall be 35
percent.

(4) “Base year” means the 2013 taxable year, or in the case of
a qualified taxpayer who first hires a qualified full-time employee
in a taxable year beginning on or after January 2015, the taxable
year immediately preceding the taxable year in which the qualified
full-time employee was hired.

(5) “Acquired” includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.

(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 qualified 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 qualified taxpayer by the employee divided by 52.

(7) “Designated census tract” means a census tract within the
state that is determined by the Department of Finance to have a
civilian unemployment rate that is within the top 25 percent of all
census tracts within the state and has a poverty rate within the top
25 percent of all census tracts within the state, as prescribed in
Section 13073.5 of the Government Code.

(8) “Economic development area” means either of the following:

(A) A former enterprise zone. For purposes of this section,
“former enterprise zone” means an enterprise zone designated and
in effect as of December 31, 2011, any enterprise zone designated
during 2012, and any revision of an enterprise zone prior to June
30, 2013, under former Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code, as in effect
on December 31, 2012, excluding any census tract within an
enterprise zone that is identified by the Department of Finance
pursuant to Section 13073.5 of the Government Code as a census
tract within the lowest quartile of census tracts with the lowest
civilian unemployment and poverty.

(B) A local agency military base recovery area designated as
of the effective date of the act adding this subparagraph, in
accordance with Section 7114 of the Government Code.

(9) “Minimum wage” means the wage established pursuant to
Chapter 1 (commencing with Section 1171) of Part 4 of Division
2 of the Labor Code.

(10) (A) “Qualified full-time employee” means an individual
who meets all of the following requirements:

(i) Performs at least 50 percent of his or her services for the
qualified taxpayer during the taxable year in a designated census
tract or economic development area.

(ii) Receives starting wages that are at least 150 percent of the
minimum wage.

(iii) Is hired by the qualified taxpayer on or after January 1,
2014.

(iv) Is hired by the qualified taxpayer after the date the
Department of Finance determines that the census tract referred
to in clause (i) is a designated census tract or that the census tracts
within a former enterprise zone are not census tracts with the lowest
civilian unemployment and poverty.

(v) Satisfies either of the following conditions:

(I) Is paid qualified wages by the qualified taxpayer for services
not less than an average of 35 hours per week.

(II) Is 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 taxpayer.

(vi) Upon commencement of employment with the qualified
taxpayer, satisfies any of the following conditions:

(I) Was unemployed for the six months immediately preceding
employment with the qualified taxpayer. In the case of an
individual who completed a program of study at a college,
university, or other postsecondary educational institution, received
a baccalaureate, postgraduate, or professional degree, and was
unemployed for the six months immediately preceding employment
with the qualified taxpayer, that individual must have completed
that program of study at least 12 months prior to the individual’s
commencement of employment with the qualified taxpayer.

(II)  begin delete Is end delete begin insert (ia) end insert begin insert   end insert begin insert For taxable years beginning on or after January 1,
2014, and before January 1, 2015, is end insert a veteran who separated from
service in the Armed Forces of the United States within the 12
months preceding commencement of employment with the
qualified taxpayer.

begin insert

(ib) For taxable years beginning on or after January 1, 2015,
is a veteran who separated from service in the Armed Forces of
the United States within the 24 months preceding commencement
of employment with the qualified taxpayer.

end insert

(III) Was a recipient of the credit allowed under Section 32 of
the Internal Revenue Code, relating to earned income, as applicable
for federal purposes, for the previous taxable year.

(IV) Is an ex-offender previously convicted of a felony.

(V) Is a recipient of either CalWORKs, in accordance with
Article 2 (commencing with Section 11250) of Chapter 2 of Part
3 of Division 9 of the Welfare and Institutions Code, or general
assistance, in accordance with Section 17000.5 of the Welfare and
Institutions Code.

(B) An individual may only be considered a qualified full-time
employee for the period of time commencing with the date the
individual is first employed by the qualified taxpayer and ending
60 months thereafter.

(11) (A) “Qualified taxpayer” means a corporation engaged in
a trade or business within designated census tract or economic
development area that, during the taxable year, pays or incurs
qualified wages.

(B) In the case of any pass-thru entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section or
Section 17053.73 shall be allowed to the pass-thru entity and
passed through to the partners and shareholders in accordance with
applicable provisions of this part or Part 10 (commencing with
Section 17001). For purposes of this subdivision, the term
“pass-thru entity” means any partnership or “S” corporation.

(C) “Qualified taxpayer” shall not include any of the following:

(i) Employers that provide temporary help services, as described
in Code 561320 of the North American Industry Classification
System (NAICS) published by the United States Office of
Management and Budget, 2012 edition.

(ii) Employers that provide retail trade services, as described
in Sector 44-45 of the North American Industry Classification
System (NAICS) published by the United States Office of
Management and Budget, 2012 edition.

(iii) Employers that are primarily engaged in providing food
services, as described in Code 711110, 722511, 722513, 722514,
or 722515 of the North American Industry Classification System
(NAICS) published by the United States Office of Management
and Budget, 2012 edition.

(iv) Employers that are primarily engaged in services as
described in Code 713210, 721120, or 722410 of the North
American Industry Classification System (NAICS) published by
the United States Office of Management and Budget, 2012 edition.

(v) (I) An employer that is a sexually oriented business.

(II) For purposes of this clause:

(aa) “Sexually oriented business” means a nightclub, bar,
restaurant, or similar commercial enterprise that provides for an
audience of two or more individuals live nude entertainment or
live nude performances where the nudity is a function of everyday
business operations and where nudity is a planned and intentional
part of the entertainment or performance.

(ab) “Nude” means clothed in a manner that leaves uncovered
or visible, through less than fully opaque clothing, any portion of
the genitals or, in the case of a female, any portion of the breasts
below the top of the areola of the breasts.

(D) Subparagraph (C) shall not apply to a taxpayer that is a
“small business.”

(12) “Qualified wages” means those wages that meet all of the
following requirements:

(A) (i) Except as provided in clause (ii), that portion of wages
paid or incurred by the qualified taxpayer during the taxable year
to each qualified full-time employee that exceeds 150 percent of
minimum wage, but does not exceed 350 percent of the minimum
wage.

(ii) (I) In the case of a qualified full-time employee employed
in a designated pilot area, that portion of wages paid or incurred
by the qualified taxpayer during the taxable year to each qualified
full-time employee that exceeds ten dollars ($10) per hour or an
equivalent amount for salaried employees, but does not exceed
350 percent of the minimum wage. For qualified full-time
employees described in the preceding sentence, clause (ii) of
subparagraph (A) of paragraph (10) is modified by substituting
“ten dollars ($10) per hour or an equivalent amount for salaried
employees” for “150 percent of the minimum wage.”

(II) For purposes of this clause:

(aa) “Designated pilot area” means an area designated as a
designated pilot area by the Governor’s Office of Business and
Economic Development.

(ab) Areas that may be designated as a designated pilot area are
limited to areas within a designated census tract or an economic
development area with average wages less than the statewide
average wages, based on information from the Labor Market
Division of the Employment Development Department, and areas
within a designated census tract or an economic development area
based on high poverty or high unemployment.

(ac) The total number of designated pilot areas that may be
designated is limited to five, one or more of which must be an area
within five or fewer designated census tracts within a single county
based on high poverty or high unemployment or an area within an
economic development area based on high poverty or high
unemployment.

(ad) The designation of a designated pilot area shall be
applicable for a period of four calendar years, commencing with
the first calendar year for which the designation of a designated
pilot area is effective. The applicable period of a designated pilot
area may be extended, in the sole discretion of the Governor’s
Office of Business and Economic Development, for an additional
period of up to three calendar years. The applicable period, and
any extended period, shall not extend beyond December 31, 2020.

(III) The designation of an area as a designated pilot area and
the extension of the applicable period of a designated pilot area
shall be at the sole discretion of the Governor’s Office of Business
and Economic Development and shall not be subject to
administrative appeal or judicial review.

(B) Wages paid or incurred during the 60-month period
beginning with the first day the qualified full-time employee
commences employment with the qualified taxpayer. In the case
of any employee who is reemployed, including regularly occurring
seasonal increase, in the trade or business operations of the
qualified taxpayer, this reemployment shall not be treated as
constituting commencement of employment for purposes of this
section.

(C) Except as provided in paragraph (3) of subdivision (m),
qualified wages shall not include any wages paid or incurred by
the qualified taxpayer on or after the date that the Department of
Finance’s redesignation of designated census tracts is effective,
as provided in paragraph (2) of subdivision (g), so that a census
tract is no longer determined to be a designated census tract.

(13) “Seasonal employment” means employment by a qualified
taxpayer that has regular and predictable substantial reductions in
trade or business operations.

(14) (A) “Small business” means a trade or business that has
aggregate gross receipts, less returns and allowances reportable to
this state, of less than two million dollars ($2,000,000) during the
previous taxable year.

(B) (i) For purposes of this paragraph, “gross receipts, less
returns and allowances reportable to this state,” means the sum of
the gross receipts from the production of business income, as
defined in subdivision (a) of Section 25120, and the gross receipts
from the production of nonbusiness income, as defined in
subdivision (d) of Section 25120.

(ii) In the case of any trade or business activity conducted by a
partnership or an “S” corporation, the limitations set forth in
subparagraph (A) shall be applied to the partnership or “S”
corporation and to each partner or shareholder.

(iii) For taxpayers that are required to be included in a combined
report under Section 25101 or authorized to be included in a
combined report under Section 25101.15, the dollar amount
specified in subparagraph (A) shall apply to the aggregate gross
receipts of all taxpayers that are required to be or authorized to be
included in a combined report.

(C) (i) “Small business” shall not include a sexually oriented
business.

(ii) For purposes of this subparagraph:

(I) “Sexually oriented business” means a nightclub, bar,
restaurant, or similar commercial enterprise that provides for an
audience of two or more individuals live nude entertainment or
live nude performances where the nudity is a function of everyday
business operations and where nudity is a planned and intentional
part of the entertainment or performance.

(II) “Nude” means clothed in a manner that leaves uncovered
or visible, through less than fully opaque clothing, any portion of
the genitals or, in the case of a female, any portion of the breasts
below the top of the areola of the breasts.

(15) An individual is “unemployed” for any period for which
the individual is all of the following:

(A) Not in receipt of wages subject to withholding under Section
13020 of the Unemployment Insurance Code for that period.

(B) Not a self-employed individual (within the meaning of
Section 401(c)(1)(B) of the Internal Revenue Code, relating to
self-employed individual) for that period.

(C) Not a registered full-time student at a high school, college,
university, or other postsecondary educational institution for that
period.

(c) The net increase in full-time employees of a qualified
taxpayer shall be determined as provided by this subdivision:

(1) (A) The net increase in 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 full-time employees employed in the
base 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 base year shall be zero.

(d) For purposes of this section:

(1) All employees of the trades or businesses that are treated as
related under 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 (g) of Section 24416.20, without application of
paragraph (7) of that subdivision, shall apply.

(e) (1) To be eligible for the credit allowed by this section, a
qualified taxpayer shall, upon hiring a qualified full-time employee,
request a tentative credit reservation from the Franchise Tax Board
within 30 days of complying with the Employment Development
Department’s new hire reporting requirement as provided in
Section 1088.5 of the Unemployment Insurance Code, in the form
and manner prescribed by the Franchise Tax Board.

(2) To obtain a tentative credit reservation with respect to a
qualified full-time employee, the qualified taxpayer shall provide
necessary information, as determined by the Franchise Tax Board,
including the name, the social security number, the start date of
employment, the rate of pay of the qualified full-time employee,
the qualified taxpayer’s gross receipts, less returns and allowances,
for the previous taxable year, and whether the qualified full-time
employee is a resident of a targeted employment area, as defined
in former Section 7072 of the Government Code, as in effect on
December 31, 2013.

(3) The qualified taxpayer shall provide the Franchise Tax Board
an annual certification of employment with respect to each
qualified full-time employee hire in a previous taxable year, on or
before the 15th day of the third month of the taxable year. The
certification shall include necessary information, as determined
by the Franchise Tax Board, including the name, social security
number, start date of employment, and rate of pay for each qualified
full-time employee employed by the qualified taxpayer.

(4) A tentative credit reservation provided to a taxpayer with
respect to an employee of that taxpayer shall not constitute a
determination by the Franchise Tax Board with respect to any of
the requirements of this section regarding a taxpayer’s eligibility
for the credit authorized by this section.

(f) The Franchise Tax Board shall do all of the following:

(1) Approve a tentative credit reservation with respect to a
qualified full-time employee hired during a calendar year.

(2) Determine the aggregate tentative reservation amount and
the aggregate small business tentative reservation amount for a
calendar year.

(3) A tentative credit reservation request from a qualified
taxpayer with respect to a qualified full-time employee who is a
resident of a targeted employment area, as defined in former
Section 7072 of the Government Code, as in effect on December
31, 2013, shall be expeditiously processed by the Franchise Tax
Board. The residence of a qualified full-time employee in a targeted
employment area shall have no other effect on the eligibility of an
individual as a qualified full-time employee or the eligibility of a
qualified taxpayer for the credit authorized by this section.

(4) Notwithstanding Section 19542, provide as a searchable
database on its Internet Web site, for each taxable year beginning
on or after January 1, 2014, and before January 1, 2021, the
employer names, amounts of tax credit claimed, and number of
new jobs created for each taxable year pursuant to this section and
Section 17053.73.

(g) (1) The Department of Finance shall, by January 1, 2014,
and by January 1 of every fifth year thereafter, provide the
Franchise Tax Board with a list of the designated census tracts and
a list of census tracts with the lowest civilian unemployment rate.

(2) The redesignation of designated census tracts and lowest
civilian unemployment census tracts by the Department of Finance
as provided in Section 13073.5 of the Government Code shall be
effective, for purposes of this credit, one year after the date that
the Department of Finance redesignates the designated census
tracts.

(h) (1) For purposes of this section:

(A) All employees of the trades or businesses that are treated
as related under Section 267, 318, or 707 of the Internal Revenue
Code shall be treated as employed by a single qualified taxpayer.

(B) All employees of all corporations that are members of the
same controlled group of corporations shall be treated as employed
by a single qualified taxpayer.

(C) The credit, if any, allowable by this section to each member
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.

(D) If a qualified taxpayer acquires the major portion of a trade
or business of another taxpayer, hereinafter 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 taxable year ending after that
acquisition, the employment relationship between a qualified
full-time employee and a qualified taxpayer shall not be treated
as terminated if the employee continues to be employed in that
trade or business.

(2) For purposes of this subdivision, “controlled group of
corporations” means a controlled group of corporations as defined
in Section 1563(a) of the Internal Revenue Code, except that:

(A) “More than 50 percent” shall be substituted for “at least 80
percent” each place it appears in Section 1563(a)(1) of the Internal
Revenue Code.

(B) The determination shall be made without regard to
subsections (a)(4) and (e)(3)(C) of Section 1563 of the Internal
Revenue Code.

(3) Rules similar to the rules provided in Sections 46(e) and
46(h) of the Internal Revenue Code, as in effect on November 4,
1990, shall apply to both of the following:

(A) An organization to which Section 593 of the Internal
Revenue Code applies.

(B) A regulated investment company or a real estate investment
trust subject to taxation under this part.

(i) (1) If the employment of any qualified full-time employee,
with respect to whom qualified wages are taken into account under
subdivision (a), is terminated by the qualified taxpayer at any time
during the first 36 months after commencing employment with
the qualified taxpayer, whether or not consecutive, the tax imposed
by this part for the taxable year in which that employment is
terminated shall be increased by an amount equal to the credit
allowed under subdivision (a) for that taxable year and all prior
taxable years attributable to qualified wages paid or incurred with
respect to that employee.

(2) Paragraph (1) shall not apply to any of the following:

(A) A termination of employment of a qualified full-time
employee who voluntarily leaves the employment of the qualified
taxpayer.

(B) A termination of employment of a qualified full-time
employee who, before the close of the period referred to in
paragraph (1), becomes disabled and unable to perform the services
of that employment, unless that disability is removed before the
close of that period and the qualified taxpayer fails to offer
reemployment to that employee.

(C) A termination of employment of a qualified full-time
employee, if it is determined that the termination was due to the
misconduct, as defined in Sections 1256-30 to 1256-43, inclusive,
of Title 22 of the California Code of Regulations, of that employee.

(D) A termination of employment of a qualified full-time
employee due to a substantial reduction in the trade or business
operations of the qualified taxpayer, including reductions due to
seasonal employment.

(E) A termination of employment of a qualified full-time
employee, if that employee is replaced by other qualified full-time
employees so as to create a net increase in both the number of
employees and the hours of employment.

(F) A termination of employment of a qualified full-time
employee, when that employment is considered seasonal
employment and the qualified employee is rehired on a seasonal
basis.

(3) For purposes of paragraph (1), the employment relationship
between the qualified taxpayer and a qualified full-time employee
shall not be treated as terminated by reason of a mere change in
the form of conducting the trade or business of the qualified
taxpayer, if the qualified full-time employee continues to be
employed in that trade or business and the qualified taxpayer retains
a substantial interest in that trade or business.

(4) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount
of any credit allowable under this part.

(j) 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 the succeeding four years if necessary,
until exhausted.

(k) 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 allocation
of the credit allowed under this section. Chapter 3.5 (commencing
with Section 11340) of Part 1 of Division 3 of Title 2 of the
Government Code shall not apply to any rule, guideline, or
procedure prescribed by the Franchise Tax Board pursuant to this
section.

(l) (1) Upon the effective date of this section, the Department
of Finance shall estimate the total dollar amount of credits that
will be claimed under this section with respect to each fiscal year
from the 2013-14 fiscal year to the 2020 -21 fiscal year, inclusive.

(2) The Franchise Tax Board shall annually provide to the Joint
Legislative Budget Committee, by no later than March 1, a report
of the total dollar amount of the credits claimed under this section
with respect to the relevant fiscal year. The report shall compare
the total dollar amount of credits claimed under this section with
respect to that fiscal year with the department’s estimate with
respect to that same fiscal year. If the total dollar amount of credits
claimed for the fiscal year is less than the estimate for that fiscal
year, the report shall identify options for increasing annual claims
of the credit so as to meet estimated amounts.

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

(2) Notwithstanding paragraph (1) of subdivision (a), this section
shall continue to be operative for taxable years beginning on or
after January 1, 2021, but only with respect to qualified full-time
employees who commenced employment with a qualified taxpayer
in a designated census tract or economic development area in a
taxable year beginning before January 1, 2021.

(3) This section shall remain operative for any qualified taxpayer
with respect to any qualified full-time employee after the
designated census tract is no longer designated or an economic
development area ceases to be an economic development area, as
defined in this section, for the remaining period, if any, of the
60-month period after the original date of hiring of an otherwise
qualified full-time employee and any wages paid or incurred with
respect to those qualified full-time employees after the designated
census tract is no longer designated or an economic development
area ceases to be an economic development area, as defined in this
section, shall be treated as qualified wages under this section,
provided the employee satisfies any other requirements of
paragraphs (10) and (12) of subdivision (b), as if the designated
census tract was still designated and binding or the economic
development area was still in existence.

SEC. 3.  

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