Amended in Senate May 4, 2016

Amended in Senate April 12, 2016

Senate Bill No. 1272

Introduced by Senator Runner

February 18, 2016

An act to add and repeal Sections 17053.50 and 23650 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

SB 1272, as amended, Runner. Income taxes: credit: small business employee savings plan.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill would allow, for taxable years beginning on or after January 1, 2016, and before January 1, 2021, a tax credit under both laws in an amount equal to 50% of the qualified taxpayer’s begin insert matching end insert contributions to begin delete an end delete begin insert the account of an eligible employee’s end insert Employee Savings Match Plan, as begin delete provided. end delete begin insert provided, not to exceed $1,000. 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 17053.50 is added to the Revenue and
Taxation Code, to read:

17053.50.  

(a) For begin insert each end insert taxable begin delete years end delete begin insert year end insert beginning on or
after January 1, 2016, and before January 1, 2021, there shall be
allowed to a qualified taxpayer a credit against the “net tax,” as
defined in Section 17039, in an amount equal to 50 percent of the
qualified taxpayer’s begin insert dollar-for-dollar matching end insert contributions to
begin delete an end delete begin insert the account of an eligible employee’s end insert Employee Savings Match
Plan begin delete not to exceed end delete begin insert up to end insert two thousand dollars ($2,000) per
employee per taxable year. begin insert The maximum amount of credit allowed
pursuant to this section is one thousand dollars ($1,000). end insert

(b) For purposes of this section:

(1) “Employee Savings Match Plan” means a savings plan
established by a qualified taxpayer that meets all of the following
conditions:

(A)  begin delete The employer may match end delete begin insert A qualified taxpayer may match,
on a dollar-for-dollar basis, the end insert voluntary contributions of
participating employees, described in subparagraph (B), without
limitation. begin insert Contributions in excess of two thousand dollars ($2,000)
per employee per taxable year shall not be eligible for a credit
pursuant to this section. end insert

(B) Any employee who has begin delete an annual salary of at least twelve
thousand dollars ($12,000) end delete begin insert California wages subject to Division
6 (commencing with Section 13000) of the Unemployment
Insurance Code end insert and has been continuously employed by the
qualified taxpayer for at least six months may participate in begin insert and
contribute to end insert an Employee Savings Match Plan.

(C) At least one-half of the participating employees, described
in subparagraph (B), earn less than forty thousand dollars ($40,000)
during the begin delete calendar end delete begin insert taxable end insert year in wages begin insert subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance
Code end insert for work performed for the employer contributing to the

begin delete plan. end delete begin insert Employee Savings Match Plan. end insert

(D)  begin delete Deposits end delete begin insert Contributions end insert are held in an insured bank or other
financial institution begin delete subject to withdrawal end delete begin insert in individual accounts
as separate property of each participating employee and may be
withdrawn end insert by employees, as provided in subparagraph (E). begin insert An
insured bank or financial institution maintaining the accounts of
employees participating in an Employee Savings Match Plan shall
provide to the qualified taxpayer and each participating employee
such information, at the time and in the manner as the Franchise
Tax Board may prescribe, to prepare a Form 1099 for each
employee. Upon request, the qualified taxpayer and participating
employee shall provide the information described in the preceding
sentence to the Franchise Tax Board. end insert

(E)  begin delete Any end delete begin insert (i) end insert begin insert   end insert begin insert If an end insert employee begin delete who end delete withdraws funds from an
Employee Savings Match Plan less than begin delete one year end delete begin insert 12 months end insert after
the employee’s first contribution, or less than begin delete one year end delete begin insert 12 months end insert
after a previous begin delete withdrawal shall not be eligible to participate in
that plan for the remainder of the year end delete begin insert withdrawal, other than a
qualified withdrawal, then a qualified taxpayer is not eligible for
a credit pursuant to this section for any matching contributions
made with respect to contributions made by that employee during
the remainder of the taxable year end insert in which that withdrawal was
made or begin delete during the next calendar year. A transfer of funds from
an Employee Savings Match Plan into an IRA or other deferred
compensation plan shall not be considered a withdrawal for
purposes of this subparagraph. end delete begin insert the next taxable year. end insert

begin insert

(ii) Clause (i) shall not apply if the total amount withdrawn in
a taxable year does not exceed the amount considered a qualified
withdrawal.

end insert begin insert

(2) “Matching contributions” means any contributions made
by a qualified taxpayer for the benefit of employees which are
eligible to be taken into account for purposes of computing the
credit allowed pursuant to this section.

end insert begin delete

(2)

end delete

begin insert (3) end insert  “Qualified taxpayer” means a taxpayer begin delete that is a small
business as defined in Section 14837 of the Government Code. end delete

begin insert that, for the taxable year for which a credit is allowed pursuant
to this section, satisfies both of the following conditions: end insert

begin insert

(A) Has gross receipts, less returns and allowances, derived
from or attributable to this state for the taxable year of ten million
dollars ($10,000,000) or less.

end insert begin insert

(i) “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.

end insert begin insert

(ii) “Gross receipts, less returns and allowances reportable to
this state,” shall be determined using the rules for assigning sales
under Sections 25135 and 25136, and the regulations thereunder,
as modified by the regulations under Section 25137, other than
those provisions that exclude receipts from the sales factor.

end insert begin insert

(iii) In determining the gross receipts derived from or
attributable to the state of any other business, in whatever form
conducted, that is owned, directly or indirectly, by persons, within
the meaning of Section 17007, that are treated as related, within
the meaning of Section 267, 318, or 707 of the Internal Revenue
Code, to the small business, shall be aggregated with the gross
receipts derived from or attributable to the state of the small
business to determine whether the small business qualifies for the
credit pursuant to this section.

end insert begin insert

(B) Has fewer than 100 employees at any time during the taxable
year. In determining the number of employees of the taxpayer, all
employees of any trades or businesses, in whatever form conducted
or organized, that are treated as related, within the meaning of
Section 267, 318, or 707 of the Internal Revenue Code, shall be
treated as employed by the taxpayer for purposes of determining
the 100-employee limitation applicable to the taxpayer.

end insert begin insert

(4) “Qualified withdrawal” means a withdrawal from an
Employee Savings Match Plan during a taxable year which does
not exceed the amount the employee contributed to a qualified
retirement plan under Section 408 of the Internal Revenue Code,
relating to individual retirement accounts, or a Secure Choice
account established pursuant to Section 100012 of the Government
Code, during the same taxable year.

end insert begin insert

(c) (1) The credit allowed by this section must be claimed on
a timely filed original return.

end insert begin insert

(2) The qualified taxpayer shall annually report the social
security number and account information for each employee
participating in and contributing to the Employee Savings Match
Plan in the form and manner prescribed by the Franchise Tax
Board.

end insert begin insert

(3) No other credit or deduction shall be allowed under this
part with respect to matching contributions of a qualified taxpayer
that are taken into account in computing the credit allowed by this
section.

end insert begin delete

(c)

end delete

begin insert (d) end insert  In the case where the credit allowed by this section exceeds
the “net begin delete tax” end delete begin insert tax,” end insert the excess may be carried over to reduce the
“net begin delete tax,” end delete begin insert tax” end insert in the following year, and succeeding three years
if necessary, until the credit is exhausted.

begin delete

(d) Contributions to, and income from, an Employee Savings
Match Plan shall be treated as ordinary income.

end delete begin insert

(e) (1) Any matching contributions made by a qualified taxpayer
to an employee’s account shall remain the property of the
employee.

end insert begin insert

(2) A credit shall not be allowed pursuant to this section for
any contribution made by a qualified taxpayer to the account of
an employee who is not eligible under subparagraph (B) or (E) of
paragraph (1) of subdivision (b).

end insert begin insert

(f) (1) The Franchise Tax Board may prescribe rules,
guidelines, procedures, or regulations necessary or appropriate
to carry out the purposes of this section.

end insert begin insert

(2) 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 standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board
pursuant to this section.

end insert begin delete

(e)

end delete

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

SEC. 2.  

Section 23650 is added to the Revenue and Taxation
Code, to read:

23650.  

(a) For begin insert each end insert taxable begin delete years end delete begin insert year end insert beginning on or after
January 1, 2016, and before January 1, 2021, there shall be allowed
to a qualified taxpayer a credit against the “tax,” as defined in
Section 23036, in an amount equal to 50 percent of the qualified
taxpayer’s begin insert dollar-for-dollar matching end insert contributions to begin delete an end delete begin insert the
account of an eligible employee’s end insert Employee Savings Match begin delete Plan,
not to exceed end delete begin insert Plan up to end insert two thousand dollars ($2,000) per
employee per taxable year. begin insert The maximum amount of credit allowed
pursuant to this section is one thousand dollars ($1,000). end insert

(b) For purposes of this section:

(1) “Employee Savings Match Plan” means a savings plan
established by a qualified taxpayer that meets all of the following
conditions:

(A)  begin delete The employer may match end delete begin insert A qualified taxpayer may match,
on a dollar-for-dollar basis, the end insert voluntary contributions of
participating employees, described in subparagraph (B), without
limitation. begin insert Contributions in excess of two thousand dollars ($2,000)
per employee per taxable year shall not be eligible for a credit
pursuant to this section. end insert

(B) Any employee who has begin delete an annual salary of at least twelve
thousand dollars ($12,000) end delete begin insert California wages subject to Division
6 (commencing with Section 13000) of the Unemployment
Insurance Code end insert and has been continuously employed by the
qualified taxpayer for at least six months may participate in begin insert and
contribute to end insert an Employee Savings Match Plan.

(C) At least one-half of the participating employees, described
in subparagraph (B), earn less than forty thousand dollars ($40,000)
during the begin delete calendar end delete begin insert taxable end insert year in wages begin insert subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance
Code end insert for work performed for the employer contributing to the

begin delete plan. end delete begin insert Employee Savings Match Plan. end insert

(D)  begin delete Deposits end delete begin insert Contributions end insert are held in an insured bank or other
financial institution begin delete subject to withdrawal end delete begin insert in individual accounts
as separate property of each participating employee and may be
withdrawn end insert by employees, as provided in subparagraph (E). begin insert An
insured bank or financial institution maintaining the accounts of
employees participating in an Employee Savings Match Plan shall
provide to the qualified taxpayer and each participating employee
such information, at the time and in the manner as the Franchise
Tax Board may prescribe, to prepare a Form 1099 for each
employee. Upon request, the qualified taxpayer and participating
employee shall provide the information described in the preceding
sentence to the Franchise Tax Board. end insert

(E)  begin delete Any end delete begin insert (i) end insert begin insert   end insert begin insert If an end insert employee begin delete who end delete withdraws funds from an
Employee Savings Match Plan less than begin delete one year end delete begin insert 12 months end insert after
the employee’s first contribution, or less than begin delete one year end delete begin insert 12 months end insert
after a previous begin delete withdrawal shall not be eligible to participate in
that plan for the remainder of the year in which that withdrawal
was made or during the next calendar year. A transfer of funds
from an Employee Savings Match Plan into an IRA or other
deferred compensation plan shall not be considered a withdrawal
for purposes of this subparagraph. end delete begin insert withdrawal, other than a
qualified withdrawal, then a qualified taxpayer is not eligible for
a credit pursuant to this section for any matching contributions
made with respect to contributions made by that employee during
the remainder of the taxable year in which that withdrawal was
made or the next taxable year. end insert

begin insert

(ii) Clause (i) shall not apply if the total amount withdrawn in
a taxable year does not exceed the amount considered a qualified
withdrawal.

end insert begin insert

(2) “Matching contributions” means any contributions made
by a qualified taxpayer for the benefit of employees which are
eligible to be taken into account for purposes of computing the
credit allowed pursuant to this section.

end insert begin delete

(2)

end delete

begin insert (3) end insert  “Qualified taxpayer” means a taxpayer begin delete that is a small
business as defined in Section 14837 of the Government Code. end delete

begin insert that, for the taxable year for which a credit is allowed pursuant
to this section, satisfies both of the following conditions: end insert

begin insert

(A) Has gross receipts, less returns and allowances, derived
from or attributable to this state for the taxable year of ten million
dollars ($10,000,000) or less.

end insert begin insert

(i) “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.

end insert begin insert

(ii) “Gross receipts, less returns and allowances reportable to
this state,” shall be determined using the rules for assigning sales
under Sections 25135 and 25136, and the regulations thereunder,
as modified by the regulations under Section 25137, other than
those provisions that exclude receipts from the sales factor.

end insert begin insert

(iii) In determining the gross receipts derived from or
attributable to the state of any other business, in whatever form
conducted, that is owned, directly or indirectly, by persons, within
the meaning of Section 17007, that are treated as related, within
the meaning of Section 267, 318, or 707 of the Internal Revenue
Code, to the small business, shall be aggregated with the gross
receipts derived from or attributable to the state of the small
business to determine whether the small business qualifies for the
credit pursuant to this section.

end insert begin insert

(B) Has fewer than 100 employees at any time during the taxable
year. In determining the number of employees of the taxpayer, all
employees of any trades or businesses, in whatever form conducted
or organized, that are treated as related, within the meaning of
Section 267, 318, or 707 of the Internal Revenue Code, shall be
treated as employed by the taxpayer for purposes of determining
the 100-employee limitation applicable to the taxpayer.

end insert begin insert

(4) “Qualified withdrawal” means a withdrawal from an
Employee Savings Match Plan during a taxable year which does
not exceed the amount the employee contributed to a qualified
retirement plan under Section 408 of the Internal Revenue Code,
relating to individual retirement accounts, or a Secure Choice
account established pursuant to Section 100012 of the Government
Code, during the same taxable year.

end insert begin insert

(c) (1) The credit allowed by this section must be claimed on
a timely filed original return.

end insert begin insert

(2) The qualified taxpayer shall annually report the social
security number and account information for each employee
participating in and contributing to the Employee Savings Match
Plan in the form and manner prescribed by the Franchise Tax
Board.

end insert begin insert

(3) No other credit or deduction shall be allowed under this
part with respect to matching contributions of a qualified taxpayer
that are taken into account in computing the credit allowed by this
section.

end insert begin delete

(c)

end delete

begin insert (d) end insert  In the case where the credit allowed by this section exceeds
the begin delete “tax” end delete begin insert “tax,” end insert the excess may be carried over to reduce the begin delete “tax,” end delete
begin insert “tax” end insert in the following year, and succeeding three years if
necessary, until the credit is exhausted.

begin delete

(d) Contributions to, and income from, an Employee Savings
Match Plan shall be treated as ordinary income.

end delete begin insert

(e) (1) Any matching contributions made by a qualified taxpayer
to an employee’s account shall remain the property of the
employee.

end insert begin insert

(2) A credit shall not be allowed pursuant to this section for
any contribution made by a qualified taxpayer to the account of
an employee who is not eligible under subparagraph (B) or (E) of
paragraph (1) of subdivision (b).

end insert begin insert

(f) (1) The Franchise Tax Board may prescribe rules,
guidelines, procedures, or regulations necessary or appropriate
to carry out the purposes of this section.

end insert begin insert

(2) 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 standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board
pursuant to this section.

end insert begin delete

(e)

end delete

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

SEC. 3.  

(a) In accordance with Section 41 of the Revenue and
Taxation Code, the purpose of the credit allowed by Sections
17053.50 and 23650 of the Revenue and Taxation Code, as added
by Sections 1 and 2 of this act is to promote savings for employees,
especially young and low-income workers who have no savings
and no retirement options other than social security. To measure
whether the credit achieves its intended purpose, on or before
January 1, 2018, and each January 1 thereafter, the Franchise Tax
Board shall annually prepare a written report to the Legislature of
the following:

(1) The percentage of employees under 30 years of age who are
receiving matching begin delete funds. end delete begin insert contributions. end insert

(2) The percentage of employees earning less than forty
thousand dollars ($40,000) per begin delete annum end delete begin insert taxable year end insert who are
receiving matching begin delete funds. end delete begin insert contributions. end insert

(b) A report submitted pursuant to subdivision (a) shall be
submitted in compliance with Section 9795 of the Government
Code.

SEC. 4.  

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