Amended in Assembly June 28, 2016

Amended in Senate May 4, 2016

Senate Bill No. 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. begin insert Existing law requires any bill authorizing a new personal income tax or corporation tax credit to contain, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements, as provided. end insert

This begin delete bill would, end delete begin insert bill, end insert under both laws for taxable years beginning on or after January 1, 2017, and before January 1, 2022, begin insert would end insert allow a credit against begin insert the net tax or end insert tax in an amount equal to begin delete 20% end delete begin insert 23.5% end insert of qualified wages paid by a qualified taxpayer, as defined, to qualified begin insert full-time end insert employees, begin insert as defined, end insert which begin delete includes end delete begin insert are end insert persons between 18 and 25 years of age who complete a work readiness program, begin insert and meet other specified requirements, end insert not to exceed $15,000 per qualified taxpayer per taxable begin delete year end delete begin insert year, as provided end insert . begin insert The bill would also include that additional information required for any bill authorizing a new income tax credit. end insert

This bill would take effect immediately as a tax levy.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

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

SECTION 1.  

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

17053.75.  

(a) (1) For each taxable year beginning on or after
January 1, 2017, and before January 1, 2022, 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, 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 begin delete 20 end delete begin insert 23.5 end insert percent of all qualified wages
paid or incurred to the qualified full-time employee, not to exceed
fifteen thousand dollars ($15,000) per qualified taxpayer per taxable
year.

(3) 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.

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

(b) For purposes of this section:

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

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

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

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

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

(ii) Is hired by the qualified taxpayer on or after January 1, 2017.

(iii) 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.

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

begin insert

(v) Performs at least 50 percent of his or her services for the
qualified taxpayer during the taxable year in the state.

end insert

(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.

(5) (A) “Qualified taxpayer” means a person or entity engaged
in a trade or business within the state 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 23675 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:

(ia) “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.

(ib) “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.

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

(A) (i) 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 begin delete employed end delete
begin insert who provides services only end insert 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 (i) of subparagraph (A) of paragraph (4) 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, “designated pilot area” means
an area designated as a designated pilot area by the Governor’s
Office of Business and Economic Development, pursuant to
Sections 17053.73 and 23626.

(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.

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

(8) “Work readiness program” means a program offered by a
job training provider that provides vocational job training,
educational opportunities, and life skills. A work readiness program
shall focus on skills acquisition and educational advancement and
shall foster behavioral changes that promote personal responsibility
and positive contributions to society. A work readiness program
shall include all of the following:

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

(B) The opportunity for academic advancement.

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

(D) A life-skills training component.

(c) 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.

(d) (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, and the rate of pay of the qualified full-time
employee.

(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.

(e) 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.

(3) Notwithstanding Section 19542, provide as a searchable
database on its Internet Web site, for each taxable year beginning
on or after January 1, 2017, and before January 1, 2022, the
employer names, amounts of tax credit claimed, and number of
new jobs created for each taxable year pursuant to this section and
Section 23675.

(f) For purposes of this section:

(1) 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.

(2) 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.

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

(4) 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 (g), 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.

(g) (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) does 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) An 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.

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

(1) The qualified wages for a 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) A 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.

(i) In the case in which 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.

(j) 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.

(k) The Franchise Tax Board shall annually provide to the Joint
Legislative Budget Committee, in compliance with Section 9795
of the Government Code, 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.

begin delete

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

end delete begin insert

(l) No deduction shall be allowed under this part for wages paid
or incurred in a taxable year to the extent that those wages are
qualified wages with respect to calculating a credit under this
section for that taxable year.

end insert

(m) This section shall remain in effect only until December 1,
2022, and as of that date is repealed.

SEC. 2.  

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

23675.  

(a) (1) For each taxable year beginning on or after
January 1, 2017, and before January 1, 2022, 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, and that receives a tentative
credit reservation for that qualified full-time employee, a credit
against the “tax,” as defined in 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 begin delete 20 end delete begin insert 23.5 end insert percent of all qualified wages
paid or incurred to the qualified full-time employee, not to exceed
fifteen thousand dollars ($15,000) per qualified taxpayer per taxable
year.

(3) 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.

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

(b) For purposes of this section:

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

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

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

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

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

(ii) Is hired by the qualified taxpayer on or after January 1, 2017.

(iii) 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.

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

begin insert

(v) Performs at least 50 percent of his or her services for the
qualified taxpayer during the taxable year in the state.

end insert

(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.

(5) (A) “Qualified taxpayer” means a corporation engaged in
a trade or business within the state 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 17053.75 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.

(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:

(ia) “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.

(ib) “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.

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

(A) (i) 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 begin delete employed end delete
begin insert who provides services only end insert 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 (i) of subparagraph (A) of paragraph (4) 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, “designated pilot area” means
an area designated as a designated pilot area by the Governor’s
Office of Business and Economic Development, pursuant to
Sections 17053.73 and 23626.

(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.

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

(8) “Work readiness program” means a program offered by a
job training provider that provides vocational job training,
educational opportunities, and life skills. A work readiness program
shall focus on skills acquisition and educational advancement and
shall foster behavioral changes that promote personal responsibility
and positive contributions to society. A work readiness program
shall include all of the following:

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

(B) The opportunity for academic advancement.

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

(D) A life-skills training component.

(c) 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.

(d) (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, and the rate of pay of the qualified full-time
employee.

(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.

(e) 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.

(3) Notwithstanding Section 19542, provide as a searchable
database on its Internet Web site, for each taxable year beginning
on or after January 1, 2017, and before January 1, 2022, the
employer names, amounts of tax credit claimed, and number of
new jobs created for each taxable year pursuant to this section and
Section 17053.75.

(f) (1) For purposes of this section:

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

(B) 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.

(C) 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 an 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.

(g) (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) does 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) An 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.

(h) In the case in which 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 the credit is exhausted.

(i) 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.

(j) The Franchise Tax Board shall annually provide to the Joint
Legislative Budget Committee, in compliance with Section 9795
of the Government Code, 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.

begin delete

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

end delete begin insert

(k) No deduction shall be allowed under this part for wages
paid or incurred in a taxable year to the extent that those wages
are qualified wages with respect to calculating a credit under this
section for that taxable year.

end insert

(l) This section shall remain in effect only until December 1,
2022, and as of that date is repealed.

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert For purposes of complying with Section 41 of the
Revenue and Taxation Code, relating to Sections 17053.75 and
23675 of the Revenue and Taxation Code, the Legislature finds
and declares as follows: end insert

begin insert

(a) Specific goals, purposes, and objectives: Provide an
economic incentive for qualified employers to hire qualified
employees, which includes persons between 18 and 25 years of
age who have felony convictions and have completed a work
readiness program, in an effort to help them overcome barriers
to employment and promote their successful transition back into
society.

end insert begin insert

(b) Performance indicators: The Franchise Tax Board shall
annually report to the Joint Legislative Budget Committee the total
dollar amount of the credits claimed under Sections 17053.75 and
23675 of the Revenue and Taxation Code with respect to the
relevant fiscal year, as well as the growth or decline of credits
claimed under these sections each successive fiscal year from
January 1, 2017, to January 1, 2022, so that the Legislature can
monitor the overall progress of the economic incentive.

end insert

begin delete SEC. 3. end delete

begin insert SEC. 4. end insert   

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