Senate Bill No. 684

Introduced by Senator Hancock

(Principal coauthor: Senator Leno)

February 27, 2015

An act to amend Section 23151 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

SB 684, as introduced, Hancock. Corporation taxes: tax rates: publicly held corporations.

The Corporation Tax Law imposes taxes according to or measured by net income at a rate of 8.84%, or for financial institutions, at a rate of 10.84%, as specified.

This bill would, for taxable years beginning on and after January 1, 2015, revise that rate for taxpayers that are publicly held corporations, as defined, and instead impose an applicable tax rate from 7% to 13%, or for financial institutions, from 9% to 15%, based on the compensation ratio, as defined, of the corporation. This bill would increase the applicable tax rate by 50% for those taxpayers that have a specified decrease in full-time employees employed in the United States as compared to an increase in contracted and foreign full-time employees, as described.

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

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 23151 of the Revenue and Taxation Code
is amended to read:

23151.  

(a) With the exception of banks and financial
corporations, every corporation doing business within the limits
of this state and not expressly exempted from taxation by the
provisions of the Constitution of this state or by this part, shall
annually pay to the state, for the privilege of exercising its
corporate franchises within this state, a tax according to or
measured by its net income, to be computed at the rate of 7.6
percent upon the basis of its net income for the next preceding
income year, or if greater, the minimum tax specified in Section
23153.

(b) For calendar or fiscal years ending after June 30, 1973, the
rate of tax shall be 9 percent instead of 7.6 percent as provided by
subdivision (a).

(c) For calendar or fiscal years ending in 1980 to 1986, inclusive,
the rate of tax shall be 9.6 percent.

(d) For calendar or fiscal years ending in 1987 to 1996,
inclusive, and for any income year beginning before January 1,
1997, the tax rate shall be 9.3 percent.

(e) For any income year beginning on or after January 1, 1997,
the tax rate shall be 8.84 percent. The change in rate provided in
this subdivision shall be made without proration otherwise required
by Section 24251.

(f) (1) For the first taxable year beginning on or after January
1, 2000, the tax imposed under this section shall be the sum of
both of the following:

(A) A tax according to or measured by net income, to be
computed at the rate of 8.84 percent upon the basis of the net
income for the next preceding income year, but not less than the
minimum tax specified in Section 23153.

(B) A tax according to or measured by net income, to be
computed at the rate of 8.84 percent upon the basis of the net
income for the first taxable year beginning on or after January 1,
2000, but not less than the minimum tax specified in Section 23153.

(2) Except as provided in paragraph begin delete (1), end delete begin insert (1) and subdivision
(g), end insert for taxable years beginning on or after January 1, 2000, the
tax imposed under this section shall be a tax according to or
measured by net income, to be computed at the rate of 8.84 percent
upon the basis of the net income for that taxable year, but not less
than the minimum tax specified in Section 23153.

begin insert

(g) (1) For taxable years beginning on or after January 1, 2015,
the tax imposed under this section upon a publicly held
corporation, as defined in Section 162(m)(2) of the Internal
Revenue Code, relating to publicly held corporation, shall be a
tax according to or measured by net income, to be computed at
the applicable tax rate upon the basis of the net income for that
taxable year, as determined by paragraph (2), but not less than
the minimum tax specified in Section 23153.

end insert begin insert

(2) The applicable tax rate shall be determined as follows:

end insert begin insert

 

begin insert If the compensation ratio is: end insert	begin insert The applicable tax rate is: end insert
begin insert Over zero but not over 25 end insert	begin insert 7% upon the basis of net income end insert
begin insert Over 25 but not over 50 end insert	begin insert 7.5% upon the basis of net income end insert
begin insert Over 50 but not over 100 end insert	begin insert 8% upon the basis of net income end insert
begin insert Over 100 but not over 150 end insert	begin insert 9% upon the basis of net income end insert
begin insert Over 150 but not over 200 end insert	begin insert 9.5% upon the basis of net income end insert
begin insert Over 200 but not over 250 end insert	begin insert 10% upon the basis of net income end insert
begin insert Over 250 but not over 300 end insert	begin insert 11% upon the basis of net income end insert
begin insert Over 300 but not over 400 end insert	begin insert 12% upon the basis of net income end insert
begin insert Over 400 end insert	begin insert 13% upon the basis of net income end insert

 

end insert begin insert

(3) For purposes of this subdivision:

end insert begin insert

(A) “Client employer” means an individual or entity that
receives workers to perform labor or services within the usual
course of business of the individual or entity from a labor
contractor.

end insert begin insert

(B) (i) “Compensation,” in the case of employees of the
taxpayer, other than the chief operating officer or the highest paid
employee, means wages as defined in Section 3121(a) of the
Internal Revenue Code, relating to wages, paid by the taxpayer
during a calendar year to employees of the taxpayer.

end insert begin insert

(ii) “Compensation,” in the case of the chief operating officer
or the highest paid employee of the taxpayer, means total
compensation as reported in the Summary Compensation Table
reported to the United States Securities and Exchange Commission
pursuant to Item 402 of Regulation S-K of the Securities and
Exchange Commission.

end insert begin insert

(C) (i) “Compensation ratio” for a taxable year means a ratio
where the numerator is the amount equal to the greater of the
compensation of the chief operating officer or the highest paid
employee of the taxpayer for the calendar year preceding the
beginning of the taxable year and the denominator is the amount
equal to the median compensation of all employees employed by
the taxpayer, including all contracted employees under contract
with the taxpayer, in the United States for the calendar year
preceding the beginning of the taxable year.

end insert begin insert

(ii) 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 calculation of the
ratio in clause (i) shall be made by treating all taxpayers that are
required to be or authorized to be included in a combined report
as a single taxpayer.

end insert begin insert

(D) “Contracted employee” means an employee who works for
a labor contractor.

end insert begin insert

(E) “Labor contractor” means an individual or entity that
contracts with a client employer to supply workers to perform
labor or services or otherwise provides workers to perform labor
or services within the usual course of business for the client
employer.

end insert begin insert

(4) A taxpayer subject to this subdivision shall furnish a detailed
compensation report to the Franchise Tax Board with its timely
filed original return.

end insert begin insert

(5) (A) If the total number of full-time employees, determined
on an annual full-time equivalent basis, employed by the taxpayer
in the United States for a taxable year is reduced by more than 10
percent, as compared to the total number of full-time employees,
determined on an annual full-time equivalent basis, employed by
the taxpayer in the United States for the preceding taxable year
and the total number of contracted employees or foreign full-time
employees, determined on an annual full-time equivalent basis, of
the taxpayer for that taxable year has increased, as compared with
the total number of contracted employees or foreign full-time
employees, determined on an annual full-time equivalent basis, of
the taxpayer for the preceding taxable year, then the applicable
tax rate determined under paragraph (2) shall be increased by 50
percent. For taxpayers who first commence doing business in this
state during the taxable year, the number of full-time employees,
contracted employees, and foreign full-time employees for the
immediately preceding prior taxable year shall be zero.

end insert begin insert

(B) For purposes of this paragraph:

end insert begin insert

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

end insert begin insert

(I) 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.

end insert begin insert

(II) 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.

end insert begin insert

(ii) “Foreign full-time employee” means a full-time employee
of the taxpayer that is employed at a location other than the United
States.

end insert begin insert

(iii) “Full-time employee” means an employee of the taxpayer
that satisfies either of the following requirements:

end insert begin insert

(I) Is paid compensation by the taxpayer for services of not less
than an average of 30 hours per week.

end insert begin insert

(II) Is a salaried employee of the taxpayer and is paid
compensation during the taxable year for full-time employment,
within the meaning of Section 515 of the Labor Code.

end insert begin insert

(6) The Franchise Tax Board may prescribe rules, guidelines,
or procedures necessary or appropriate to carry out the purposes
of this subdivision, including any guidelines regarding the
determination of wages, average compensation, and compensation
ratio. 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 subdivision.

end insert

SEC. 2.  

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