Amended in Senate May 4, 2016

Senate BillNo. 1216


Introduced by Senator Hueso

February 18, 2016


An act to add and repeal Sections 17053.75 and 23675 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

SB 1216, as amended, Hueso. Income taxes: credits: qualified employees.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws, including hiring credits within the specified economic development areas.

This bill would, under both laws for taxable years beginning on or after January 1,begin delete 2016,end deletebegin insert 2017,end insert and before January 1,begin delete 2021,end deletebegin insert 2022,end insert allow a credit against tax in an amount equal to 20% of qualified wages paid by a qualified taxpayer, as defined, to qualified employees, which includes persons between 18 and 25 years of age who complete a work readiness program, not to exceed $15,000 per qualified taxpayer per taxable year.

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:

P1    1

SECTION 1.  

Section 17053.75 is added to the Revenue and
2Taxation Code
, to read:

P2    1

17053.75.  

(a) (1) For each taxable year beginning on or after
2January 1,begin delete 2016,end deletebegin insert 2017,end insert and before January 1,begin delete 2021,end deletebegin insert 2022,end insert there
3shall be allowed to a qualified taxpayer that hires a qualified
4full-time employee and pays or incurs qualified wages attributable
5to work performed by the qualified full-time employee, and that
6receives a tentative credit reservation for that qualified full-time
7employee, a credit against the “net tax,” as defined in Section
817039, in an amount calculated under this section.

9(2) The amount of the credit allowable under this section for a
10taxable year shall be equal to 20 percent of all qualified wages
11paid or incurred to the qualified full-time employee, not to exceed
12begin delete $15,000end deletebegin insert fifteen thousand dollars ($15,000)end insert per qualified taxpayer
13per taxable year.

14(3) The credit allowed by this section may be claimed only on
15a timely filed original return of the qualified taxpayer and only
16with respect to a qualified full-time employee for whom the
17qualified taxpayer has received a tentative credit reservation.

begin insert

18
(4) If the taxpayer is allowed a credit pursuant to this section
19for qualified wages paid or incurred, another credit shall not be
20allowed to the taxpayer under this part with respect to any wage
21consisting in whole or in part of those qualified wages.

end insert

22(b) For purposes of this section:

23(1) “Acquire” includes any gift, inheritance, transfer incident
24to divorce, or any other transfer, whether or not for consideration.

25(2) “Job training provider” means an entity that delivers a
26combined job readiness and life-skills training program that, at a
27minimum, includes high school or continuing education courses.
28The entity’s program may also offer additional services like job
29placement, career and mental health counseling, prisoner reentry
30services, and relapse prevention and sober-living support.

31(3) “Minimum wage” means the wage established pursuant to
32Chapter 1 (commencing with Section 1171) of Part 4 of Division
332 of the Labor Code.

34(4) (A) “Qualified full-time employee” means an individual
35who meets all of the following requirements:

36(i) Receives starting wages that are at least 150 percent of the
37minimum wage.

38(ii) Is hired by the qualified taxpayer on or after January 1,begin delete 2016.end delete
39
begin insert 2017.end insert

40(iii) Satisfies either of the following conditions:

P3    1(I) Is paid qualified wages by the qualified taxpayer for services
2not less than an average of 35 hours per week.

3(II) Is a salaried employee and was paid compensation during
4the taxable year for full-time employment, within the meaning of
5Section 515 of the Labor Code, by the qualified taxpayer.

6(iv) Is an ex-offender previously convicted of a felony who is,
7at the time of hiring, between 18 and 25 years of age and who
8demonstrates documented completion of a work readiness program.

9(B) An individual may be considered a qualified full-time
10employee only for the period of time commencing with the date
11the individual is first employed by the qualified taxpayer and
12ending 60 months thereafter.

13(5) (A) “Qualified taxpayer” means a person or entity engaged
14in a trade or business within the state that, during the taxable year,
15pays or incurs qualified wages.

16(B) In the case of any pass-thru entity, the determination of
17whether a taxpayer is a qualified taxpayer under this section shall
18be made at the entity level and any credit under this section or
19Section 23675 shall be allowed to the pass-thru entity and passed
20through to the partners and shareholders in accordance with
21applicable provisions of this part or Part 11 (commencing with
22Section 23001). For purposes of this subdivision, the term
23“pass-thru entity” means any partnership or “S” corporation.

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

25(i) Employers that provide temporary help services, as described
26in Code 561320 of the North American Industry Classification
27System (NAICS) published by the United States Office of
28Management and Budget, 2012 edition.

29(ii) Employers that provide retail trade services, as described
30in Sector 44-45 of the North American Industry Classification
31System (NAICS) published by the United States Office of
32Management and Budget, 2012 edition.

33(iii) Employers that are primarily engaged in providing food
34services, as described in Code 711110, 722511, 722513, 722514,
35or 722515 of the North American Industry Classification System
36(NAICS) published by the United States Office of Management
37and Budget, 2012 edition.

38(iv) Employers that are primarily engaged in services as
39described in Code 713210, 721120, or 722410 of the North
P4    1American Industry Classification System (NAICS) published by
2the United States Office of Management and Budget, 2012 edition.

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

4(II) For purposes of this clause:

5(ia) “Sexually oriented business” means a nightclub, bar,
6restaurant, or similar commercial enterprise that provides for an
7audience of two or more individuals live nude entertainment or
8live nude performances where the nudity is a function of everyday
9business operations and where nudity is a planned and intentional
10part of the entertainment or performance.

11(ib) “Nude” means clothed in a manner that leaves uncovered
12or visible, through less than fully opaque clothing, any portion of
13the genitals or, in the case of a female, any portion of the breasts
14 below the top of the areola of the breasts.

15(6) “Qualified wages” means those wages that meet all of the
16following requirements:

17(A) begin insert(i)end insertbegin insertend insertThat portion of wages paid or incurred by the qualified
18taxpayer during the taxable year to each qualified full-time
19employee that exceeds 150 percent of minimum wage, but does
20not exceed 350 percent of minimum wage.

begin insert

21
(ii) (I) In the case of a qualified full-time employee employed
22in a designated pilot area, that portion of wages paid or incurred
23by the qualified taxpayer during the taxable year to each qualified
24full-time employee that exceeds ten dollars ($10) per hour or an
25equivalent amount for salaried employees, but does not exceed
26350 percent of minimum wage. For qualified full-time employees
27described in the preceding sentence, clause (i) of subparagraph
28(A) of paragraph (4) is modified by substituting “ten dollars ($10)
29per hour or an equivalent amount for salaried employees” for
30“150 percent of the minimum wage.”

end insert
begin insert

31
(II) For purposes of this clause, “designated pilot area” means
32an area designated as a designated pilot area by the Governor’s
33Office of Business and Economic Development, pursuant to
34 Sections 17053.73 and 23626.

end insert

35(B) Wages paid or incurred during the 60-month period
36beginning with the first day the qualified full-time employee
37commences employment with the qualified taxpayer. In the case
38of any employee who is reemployed, including a regularly
39occurring seasonal increase, in the trade or business operations of
40the qualified taxpayer, this reemployment shall not be treated as
P5    1constituting commencement of employment for purposes of this
2section.

3(7) “Seasonal employment” means employment by a qualified
4taxpayer that has regular and predictable substantial reductions in
5trade or business operations.

6(8) “Work readiness program” means a program offered by a
7job training provider that provides vocational job training,
8educational opportunities, and life skills. A work readiness program
9shall focus on skills acquisition and educational advancement and
10shall foster behavioral changes that promotebegin delete personend deletebegin insert personalend insert
11 responsibility and positive contributions to society. A work
12readiness program shall include all of the following:

13(A) Paid or unpaid on-the-job training opportunities,
14preapprenticeship programs, vocational instruction, or internship
15placement.

16(B) The opportunity for academic advancement.

17(C) The opportunity to earn at least one industry recognized
18 certification.

19(D) A life-skills training component.

20(c) All employees of the trades or businesses that are treated as
21related under Section 267, 318, or 707 of the Internal Revenue
22Code shall be treated as employed by a single taxpayer.

23(d) (1) To be eligible for the credit allowed by this section, a
24qualified taxpayer shall, upon hiring a qualified full-time employee,
25request a tentative credit reservation from the Franchise Tax Board
26within 30 days of complying with the Employment Development
27Department’s new hire reporting requirements as provided in
28Section 1088.5 of the Unemployment Insurance Code, in the form
29and manner prescribed by the Franchise Tax Board.

30(2) To obtain a tentative credit reservation with respect to a
31qualified full-time employee, the qualified taxpayer shall provide
32necessary information, as determined by the Franchise Tax Board,
33including the name, social security number, the start date of
34employment, and the rate of pay of the qualified full-time
35employee.

36(3) The qualified taxpayer shall provide the Franchise Tax Board
37an annual certification of employment with respect to each
38qualified full-time employee hired in a previous taxable year, on
39or before, the 15th day of the third month of the taxable year. The
40certification shall include necessary information, as determined
P6    1by the Franchise Tax Board, including the name, social security
2number, start date of employment, and rate of pay for each qualified
3full-time employee employed by the qualified taxpayer.

4(4) A tentative credit reservation provided to a taxpayer with
5respect to an employee of that taxpayer shall not constitute a
6determination by the Franchise Tax Board with respect to any of
7the requirements of this section regarding a taxpayer’s eligibility
8for the credit authorized by this section.

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

10(1) Approve a tentative credit reservation with respect to a
11qualified full-time employee hired during a calendar year.

12(2) Determine the aggregate tentative reservation amount.

13(3) Notwithstanding Section 19542, provide as a searchable
14database on its Internet Web site, for each taxable year beginning
15on or after January 1,begin delete 2016,end deletebegin insert 2017,end insert and before January 1,begin delete 2021,end delete
16begin insert 2022,end insert the employer names, amounts of tax credit claimed, and
17number of new jobs created for each taxable year pursuant to this
18section and Section 23675.

19(f) For purposes of this section:

20(1) All employees of trades or businesses that are not
21incorporated, and that are under common control, shall be treated
22as employed by a single taxpayer.

23(2) The credit, if any, allowable by this section with respect to
24each trade or business shall be determined by reference to its
25proportionate share of the expense of the qualified wages giving
26rise to the credit and shall be allocated to that trade or business in
27that manner.

28(3) Principles that apply in the case of controlled groups of
29corporations, as specified in subdivision (f) of Section 23675, shall
30apply with respect to determining employment.

begin delete

9 31(5)

end delete

32begin insert(4)end insert If an employer acquires the major portion of a trade or
33business of another employer, hereinafter in this paragraph referred
34to as the predecessor, or the major portion of a separate unit of a
35trade or business of a predecessor, then, for purposes of applying
36this section, other than subdivision (g), for any taxable year ending
37after that acquisition, the employment relationship between a
38qualified full-time employee and an employer shall not be treated
39as terminated if the employee continues to be employed in that
40trade or business.

P7    1(g) (1) If the employment of any qualified full-time employee,
2with respect to whom qualified wages are taken into account under
3subdivision (a), is terminated by the qualified taxpayer at any time
4during the first 36 months after commencing employment with
5the qualified taxpayer, whether or not consecutive, the tax imposed
6by this part for the taxable year in which that employment is
7terminated shall be increased by an amount equal to the credit
8allowed under subdivision (a) for that taxable year and all prior
9taxable years attributable to qualified wages paid or incurred with
10respect to that employee.

11(2) Paragraph (1) does not apply to any of the following:

12(A) A termination of employment of a qualified full-time
13employee who voluntarily leaves the employment of the qualified
14taxpayer.

15(B) A termination of employment of a qualified full-time
16employee who, before the close of the period referred to in
17paragraph (1), becomes disabled and unable to perform the services
18of that employment, unless that disability is removed before the
19close of that period and the qualified taxpayer fails to offer
20reemployment to that employee.

21(C) A termination of employment of a qualified full-time
22employee if it is determined that the termination was due to the
23misconduct, as defined in Sections 1256-30 to 1256-43, inclusive,
24of Title 22 of the California Code of Regulations, of that employee.

25(D) A termination of employment of a qualified full-time
26employee due to a substantial reduction in the trade or business
27operations of the qualified taxpayer, including reductions due to
28seasonal employment.

29(E) A termination of employment of a qualified full-time
30employee if that employee is replaced by other qualified full-time
31employees so as to create a net increase in both the number of
32employees and the hours of employment.

33(F) A termination of employment of a qualified full-time
34employee when that employment is considered seasonal
35employment and the qualified employee is rehired on a seasonal
36basis.

37(3) For purposes of paragraph (1), the employment relationship
38between the qualified taxpayer and a qualified full-time employee
39shall not be treated as terminated by reason of a mere change in
40the form of conducting the trade or business of the qualified
P8    1taxpayer if the qualified full-time employee continues to be
2employed in that trade or business and the qualified taxpayer retains
3a substantial interest in that trade or business.

4(4) An increase in tax under paragraph (1) shall not be treated
5as tax imposed by this part for purposes of determining the amount
6of any credit allowable under this part.

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

8(1) The qualified wages for a taxable year shall be apportioned
9between the estate or trust and the beneficiaries on the basis of the
10income of the estate or trust allocable to each.

11(2) A beneficiary to whom any qualified wages have been
12apportioned under paragraph (1) shall be treated, for purposes of
13this part, as the employer with respect to those wages.

14(i) In the case in which the credit allowed by this section exceeds
15the “net tax,” the excess may be carried over to reduce the “net
16tax” in the following year, and the succeeding four years if
17necessary, until the credit is exhausted.

18(j) The Franchise Tax Board may prescribe rules, guidelines,
19or procedures necessary or appropriate to carry out the purposes
20of this section, including any guidelines regarding the allocation
21of the credit allowed under this section. Chapter 3.5 (commencing
22with Section 11340) of Part 1 of Division 3 of Title 2 of the
23Government Code shall not apply to any rule, guideline, or
24procedure prescribed by the Franchise Tax Board pursuant to this
25section.

26(k) The Franchise Tax Board shall annually provide to the Joint
27Legislative Budget Committee, in compliance with Section 9795
28of the Government Code, by no later than March 1, a report of the
29total dollar amount of the credits claimed under this section with
30respect to the relevant fiscal year. The report shall compare the
31total dollar amount of credits claimed under this section with
32respect to that fiscal year with the department’s estimate with
33respect to that same fiscal year. If the total dollar amount of credits
34claimed for the fiscal year is less than the estimate for that fiscal
35year, the report shall identify options for increasing annual claims
36of the credit so as to meet estimated amounts.

37(l) Section 41 shall not apply to the credit allowed by this
38section.

39(m) This section shall remain in effect only until December 1,
40begin delete 2021,end deletebegin insert 2022,end insert and as of that date is repealed.

P9    1

SEC. 2.  

Section 23675 is added to the Revenue and Taxation
2Code
, to read:

3

23675.  

(a) (1) For each taxable year beginning on or after
4January 1,begin delete 2016,end deletebegin insert 2017,end insert and before January 1,begin delete 2021,end deletebegin insert 2022,end insert there
5shall be allowed to a qualified taxpayer that hires a qualified
6full-time employee and pays or incurs qualified wages attributable
7to work performed by the qualified full-time employee, and that
8receives a tentative credit reservation for that qualified full-time
9employee, a credit against thebegin delete “net tax,”end deletebegin insert “tax,”end insert as defined in
10Section 23036, in an amount calculated under this section.

11(2) The amount of the credit allowable under this section for a
12taxable year shall be equal to 20 percent of all qualified wages
13paid or incurred to the qualified full-time employee, not to exceed
14begin delete $15,000end deletebegin insert fifteen thousand dollars ($15,000)end insert per qualified taxpayer
15per taxable year.

16(3) The credit allowed by this section may be claimed only on
17a timely filed original return of the qualified taxpayer and only
18with respect to a qualified full-time employee for whom the
19qualified taxpayer has received a tentative credit reservation.

begin insert

20
(4) If the taxpayer is allowed a credit pursuant to this section
21for qualified wages paid or incurred, another credit shall not be
22allowed to the taxpayer under this part with respect to any wage
23consisting in whole or in part of those qualified wages.

end insert

24(b) For purposes of this section:

25(1) “Acquire” includes any gift, inheritance, transfer incident
26to divorce, or any other transfer, whether or not for consideration.

27(2) “Job training provider” means an entity that delivers a
28combined job readiness and life-skills training program that, at a
29minimum, includes high school or continuing education courses.
30The entity’s program may also offer additional services like job
31placement, career and mental health counseling, prisoner reentry
32services, and relapse prevention and sober-living support.

33(3) “Minimum wage” means the wage established pursuant to
34Chapter 1 (commencing with Section 1171) of Part 4 of Division
352 of the Labor Code.

36(4) (A) “Qualified full-time employee” means an individual
37who meets all of the following requirements:

38(i) Receives starting wages that are at least 150 percent of the
39minimum wage.

P10   1(ii) Is hired by the qualified taxpayer on or after January 1,begin delete 2016.end delete
2
begin insert 2017.end insert

3(iii) Satisfies either of the following conditions:

4(I) Is paid qualified wages by the qualified taxpayer for services
5not less than an average of 35 hours per week.

6(II) Is a salaried employee and was paid compensation during
7the taxable year for full-time employment, within the meaning of
8Section 515 of the Labor Code, by the qualified taxpayer.

9(iv) Is an ex-offender previously convicted of a felony who is,
10at the time of hiring, between 18 and 25 years of age and who
11demonstrates documented completion of a work readiness program.

12(B) An individual may be considered a qualified full-time
13employee only for the period of time commencing with the date
14the individual is first employed by the qualified taxpayer and
15ending 60 months thereafter.

16(5) (A) “Qualified taxpayer” means a corporation engaged in
17a trade or business within the state that, during the taxable year,
18pays or incurs qualified wages.

19(B) In the case of any pass-thru entity, the determination of
20whether a taxpayer is a qualified taxpayer under this section shall
21be made at the entity level and any credit under this section or
22Section 17053.75 shall be allowed to the pass-thru entity and
23passed through to the partners and shareholders in accordance with
24applicable provisions of this part or Part 10 (commencing with
25Section 17001). For purposes of this subdivision, the term
26“pass-thru entity” means anybegin delete partnership or “S” corporation.end delete
27
begin insert partnership.end insert

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

29(i) Employers that provide temporary help services, as described
30in Code 561320 of the North American Industry Classification
31System (NAICS) published by the United States Office of
32Management and Budget, 2012 edition.

33(ii) Employers that provide retail trade services, as described
34in Sector 44-45 of the North American Industry Classification
35System (NAICS) published by the United States Office of
36Management and Budget, 2012 edition.

37(iii) Employers that are primarily engaged in providing food
38services, as described in Code 711110, 722511, 722513, 722514,
39or 722515 of the North American Industry Classification System
P11   1(NAICS) published by the United States Office of Management
2and Budget, 2012 edition.

3(iv) Employers that are primarily engaged in services as
4described in Code 713210, 721120, or 722410 of the North
5American Industry Classification System (NAICS) published by
6the United States Office of Management and Budget, 2012 edition.

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

8(II) For purposes of this clause:

9(ia) “Sexually oriented business” means a nightclub, bar,
10restaurant, or similar commercial enterprise that provides for an
11audience of two or more individuals live nude entertainment or
12live nude performances where the nudity is a function of everyday
13business operations and where nudity is a planned and intentional
14part of the entertainment or performance.

15(ib) “Nude” means clothed in a manner that leaves uncovered
16or visible, through less than fully opaque clothing, any portion of
17the genitals or, in the case of a female, any portion of the breasts
18below the top of the areola of the breasts.

19(6) “Qualified wages” means those wages that meet all of the
20following requirements:

21(A) begin insert(i)end insertbegin insertend insertThat portion of wages paid or incurred by the qualified
22taxpayer during the taxable year to each qualified full-time
23employee that exceeds 150 percent of minimum wage, but does
24not exceed 350 percent of minimum wage.

begin insert

25
(ii) (I) In the case of a qualified full-time employee employed
26in a designated pilot area, that portion of wages paid or incurred
27by the qualified taxpayer during the taxable year to each qualified
28full-time employee that exceeds ten dollars ($10) per hour or an
29equivalent amount for salaried employees, but does not exceed
30350 percent of minimum wage. For qualified full-time employees
31described in the preceding sentence, clause (i) of subparagraph
32(A) of paragraph (4) is modified by substituting “ten dollars ($10)
33per hour or an equivalent amount for salaried employees” for
34“150 percent of the minimum wage.”

end insert
begin insert

35
(II) For purposes of this clause, “designated pilot area” means
36an area designated as a designated pilot area by the Governor’s
37Office of Business and Economic Development, pursuant to
38Sections 17053.73 and 23626.

end insert

39(B) Wages paid or incurred during the 60-month period
40beginning with the first day the qualified full-time employee
P12   1commences employment with the qualified taxpayer. In the case
2of any employee who is reemployed, including a regularly
3occurring seasonal increase, in the trade or business operations of
4the qualified taxpayer, this reemployment shall not be treated as
5constituting commencement of employment for purposes of this
6section.

7(7) “Seasonal employment” means employment by a qualified
8taxpayer that has regular and predictable substantial reductions in
9trade or business operations.

10(8) “Work readiness program” means a program offered by a
11job training provider that provides vocational job training,
12educational opportunities, and life skills. A work readiness program
13shall focus on skills acquisition and educational advancement and
14shall foster behavioral changes that promotebegin delete personend deletebegin insert personalend insert
15 responsibility and positive contributions to society. A work
16readiness program shall include all of the following:

17(A) Paid or unpaid on-the-job training opportunities,
18preapprenticeship programs, vocational instruction, or internship
19placement.

20(B) The opportunity for academic advancement.

21(C) The opportunity to earn at least one industry recognized
22certification.

23(D) A life-skills training component.

24(c) All employees of the trades or businesses that are treated as
25related under Section 267, 318, or 707 of the Internal Revenue
26Code shall be treated as employed by a single taxpayer.

27(d) (1) To be eligible for the credit allowed by this section, a
28qualified taxpayer shall, upon hiring a qualified full-time employee,
29request a tentative credit reservation from the Franchise Tax Board
30within 30 days of complying with the Employment Development
31Department’s new hire reporting requirements as provided in
32Section 1088.5 of the Unemployment Insurance Code, in the form
33and manner prescribed by the Franchise Tax Board.

34(2) To obtain a tentative credit reservation with respect to a
35qualified full-time employee, the qualified taxpayer shall provide
36necessary information, as determined by the Franchise Tax Board,
37including the name, social security number, the start date of
38employment, and the rate of pay of the qualified full-time
39employee.

P13   1(3) The qualified taxpayer shall provide the Franchise Tax Board
2an annual certification of employment with respect to each
3qualified full-time employee hired in a previous taxable year, on
4or before, the 15th day of the third month of the taxable year. The
5certification shall include necessary information, as determined
6by the Franchise Tax Board, including the name, social security
7number, start date of employment, and rate of pay for each qualified
8full-time employee employed by the qualified taxpayer.

9(4) A tentative credit reservation provided to a taxpayer with
10respect to an employee of that taxpayer shall not constitute a
11determination by the Franchise Tax Board with respect to any of
12the requirements of this section regarding a taxpayer’s eligibility
13for the credit authorized by this section.

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

15(1) Approve a tentative credit reservation with respect to a
16qualified full-time employee hired during a calendar year.

17(2) Determine the aggregate tentative reservation amount.

18(3) Notwithstanding Section 19542, provide as a searchable
19database on its Internet Web site, for each taxable year beginning
20on or after January 1,begin delete 2016,end deletebegin insert 2017,end insert and before January 1,begin delete 2021,end delete
21begin insert 2022,end insert the employer names, amounts of tax credit claimed, and
22number of new jobs created for each taxable year pursuant to this
23section and Section 17053.75.

24(f) (1) For purposes of this section:

25(A) All employees of corporations that are members of the same
26controlled group of corporations shall be treated as employed by
27a single taxpayer.

28(B) The credit, if any, allowable by this section to each member
29shall be determined by reference to its proportionate share of the
30expense of the qualified wages giving rise to the credit and shall
31be allocated in that manner.

32(C) If a qualified taxpayer acquires the major portion of a trade
33or business of another taxpayer, hereinafter in this paragraph
34referred to as the predecessor, or the major portion of a separate
35unit of a trade or business of a predecessor, then, for purposes of
36applying this section, for any taxable year ending after that
37acquisition, the employment relationship between a qualified
38full-time employee and an qualified taxpayer shall not be treated
39as terminated if the employee continues to be employed in that
40trade or business.

P14   1(2) For purposes of this subdivision, “controlled group of
2corporations” means a controlled group of corporations as defined
3in Section 1563(a) of the Internal Revenue Code, except that:

4(A) “More than 50 percent” shall be substituted for “at least 80
5percent” each place it appears in Section 1563(a)(1) of the Internal
6Revenue Code.

7(B) The determination shall be made without regard to
8subsections (a)(4) and (e)(3)(C) of Section 1563 of the Internal
9Revenue Code.

10(3) Rules similar to the rules provided in Sections 46(e) and
1146(h) of the Internal Revenue Code, as in effect on November 4,
121990, shall apply to both of the following:

13(A) An organization to which Section 593 of the Internal
14Revenue Code applies.

15(B) A regulated investment company or a real estate investment
16trust subject to taxation under this part.

17(g) (1) If the employment of any qualified full-time employee,
18with respect to whom qualified wages are taken into account under
19subdivision (a), is terminated by the qualified taxpayer at any time
20during the first 36 months after commencing employment with
21the qualified taxpayer, whether or not consecutive, the tax imposed
22by this part for the taxable year in which that employment is
23terminated shall be increased by an amount equal to the credit
24allowed under subdivision (a) for that taxable year and all prior
25taxable years attributable to qualified wages paid or incurred with
26respect to that employee.

27(2) Paragraph (1) does not apply to any of the following:

28(A) A termination of employment of a qualified full-time
29employee who voluntarily leaves the employment of the qualified
30taxpayer.

31(B) A termination of employment of a qualified full-time
32employee who, before the close of the period referred to in
33paragraph (1), becomes disabled and unable to perform the services
34of that employment, unless that disability is removed before the
35close of that period and the qualified taxpayer fails to offer
36reemployment to that employee.

37(C) A termination of employment of a qualified full-time
38employee if it is determined that the termination was due to the
39misconduct, as defined in Sections 1256-30 to 1256-43, inclusive,
40of Title 22 of the California Code of Regulations, of that employee.

P15   1(D) A termination of employment of a qualified full-time
2employee due to a substantial reduction in the trade or business
3operations of the qualified taxpayer, including reductions due to
4seasonal employment.

5(E) A termination of employment of a qualified full-time
6employee if that employee is replaced by other qualified full-time
7employees so as to create a net increase in both the number of
8employees and the hours of employment.

9(F) A termination of employment of a qualified full-time
10employee when that employment is considered seasonal
11employment and the qualified employee is rehired on a seasonal
12basis.

13(3) For purposes of paragraph (1), the employment relationship
14between the qualified taxpayer and a qualified full-time employee
15shall not be treated as terminated by reason of a mere change in
16the form of conducting the trade or business of the qualified
17taxpayer if the qualified full-time employee continues to be
18employed in that trade or business and the qualified taxpayer retains
19a substantial interest in that trade or business.

20(4) An increase in tax under paragraph (1) shall not be treated
21as tax imposed by this part for purposes of determining the amount
22of any credit allowable under this part.

23(h) In the case in which the credit allowed by this section
24exceeds the “tax,” the excess may be carried over to reduce the
25“tax” in the following year, and the succeeding four years if
26necessary, until the credit is exhausted.

27(i) The Franchise Tax Board may prescribe rules, guidelines,
28or procedures necessary or appropriate to carry out the purposes
29of this section, including any guidelines regarding the allocation
30of the credit allowed under this section. Chapter 3.5 (commencing
31with Section 11340) of Part 1 of Division 3 of Title 2 of the
32Government Code shall not apply to any rule, guideline, or
33procedure prescribed by the Franchise Tax Board pursuant to this
34section.

35(j) The Franchise Tax Board shall annually provide to the Joint
36Legislative Budget Committee, in compliance with Section 9795
37of the Government Code, by no later than March 1, a report of the
38total dollar amount of the credits claimed under this section with
39respect to the relevant fiscal year. The report shall compare the
40total dollar amount of credits claimed under this section with
P16   1respect to that fiscal year with the department’s estimate with
2respect to that same fiscal year. If the total dollar amount of credits
3claimed for the fiscal year is less than the estimate for that fiscal
4year, the report shall identify options for increasing annual claims
5of the credit so as to meet estimated amounts.

6(k) Section 41 shall not apply to the credit allowed by this
7section.

8(l) This section shall remain in effect only until December 1,
9begin delete 2021,end deletebegin insert 2022,end insert and as of that date is repealed.

10

SEC. 3.  

This act provides for a tax levy within the meaning of
11Article IV of thebegin insert Californiaend insert Constitution and shall go into
12immediate effect.



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