BILL NUMBER: AB 3	CHAPTERED
	BILL TEXT

	CHAPTER   1012
	FILED WITH SECRETARY OF STATE   SEPTEMBER 30, 1998
	APPROVED BY GOVERNOR   SEPTEMBER 29, 1998
	PASSED THE ASSEMBLY   AUGUST 27, 1998
	PASSED THE SENATE   AUGUST 25, 1998
	AMENDED IN SENATE   AUGUST 20, 1998
	AMENDED IN SENATE   APRIL 13, 1998
	AMENDED IN SENATE   JUNE 18, 1997
	AMENDED IN ASSEMBLY   JUNE 3, 1997
	AMENDED IN ASSEMBLY   MAY 15, 1997
	AMENDED IN ASSEMBLY   MARCH 20, 1997

INTRODUCED BY   Assembly Member Baca
   (Principal coauthor:  Assembly Member Granlund)
   (Coauthor:  Senator Ayala)

                        DECEMBER 2, 1996

   An act to amend Sections 7113.5 and 7114 of, and to add Sections
7117 and 7118 to, the Government Code, and to amend Sections
17053.45, 17053.46, 17268, 23645, 23646, and 24356.8 of the Revenue
and Taxation Code, relating to local agencies.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 3, Baca.  Local agency military base recovery areas.
   Under the Local Military Base Recovery Area Act, a local governing
body may propose to the Trade and Commerce Agency an eligible area
as the geographic area for a local agency military base recovery area
(LAMBRA).
   This bill would provide for specified loan priorities and contract
preference points for businesses located in, or contracts performed
at worksites within, a LAMBRA, as specified.
   Under the act, the agency is limited to designating 5 LAMBRAs.
   This bill would increase the number of LAMBRAs that may be
designated to 8. The bill would also provide that not less than one
LAMBRA shall be designated from each region.
   Under existing law, for each taxable or income year beginning on
or after January 1, 1995, and before January 1, 2003, a taxpayer
under the Personal Income Tax Law or the Bank and Corporation Tax Law
may claim certain tax incentives for activities conducted in a
LAMBRA, including, among others, a tax credit for a specified portion
of the wages paid to a qualified disadvantaged individual or a
qualified displaced employee on wages paid or incurred by the
taxpayer up to $2,000,000 during a 5-year period, and an expense
deduction for the costs of certain depreciable property, the minimum
amount of which begins at $5,000 and increases from year to year to
$10,000 in accordance with a specified schedule.
   This bill would delete the January 1, 2003, limitation, and, for
purposes of the tax credit for wages paid to a "qualified
disadvantaged individual," revise and recast, as provided, that
portion of the definition of a "qualified disadvantaged individual"
that pertains to an individual's status upon commencement of
employment.  This bill also would, for purposes of the expense
deduction for the costs of certain depreciable property, limit the
credit to 40 percent of those costs, and would replace the current
schedule setting forth the maximum amounts of the deduction with a
new schedule that provides for a maximum amount that begins at
$100,000 and decreases from year to year to $50,000.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 7113.5 of the Government Code is amended to
read:
   7113.5.  When selecting successful applicants for a local agency
military base recovery area, the agency shall limit the number of
local agency military base recovery areas to eight, which shall be
awarded by the following criteria, in addition to the criteria set
forth in Section 7111.
   (a) The agency shall designate at least one local agency military
base recovery area in each region.
   (b) If the agency finds that none of the applications in a
competition are satisfactory in meeting the selection criteria, the
agency shall inform all applicants on the deficiencies in their
application and shall reopen competition for a period not to exceed
six months.  Local governing bodies who originally applied, may
reapply in the new competition.
   (c) If, after following the procedures specified in (c), the
agency determines that there are no applications that are
satisfactory, the agency may not designate a local agency military
base recovery area.
   (d) Eligible bases shall compete for approval of a local agency
military base recovery area against other eligible bases.  In any
event, not less than one area shall be designated from each region.

  SEC. 2.  Section 7114 of the Government Code is amended to read:
   7114.  (a) The agency shall design, develop, and make available
the applications and the criteria for selection of a local agency
military base recovery area, and shall adopt all regulations
necessary to carry out this chapter.
   (b) The applications, selection criteria, and all necessary
regulations for designation shall be adopted by the agency and made
available not later than 120 days following the effective date of
this chapter.
   (c) The agency shall adopt regulations concerning the designation
procedures and application process as emergency regulations in
accordance with Chapter 3.5 (commencing with Section 11340) of Part 1
of Division 3 of Title 2.  For the purpose of that chapter, the
adoption of the regulations shall be deemed to be an emergency and
necessary for the immediate preservation of the public peace, health,
and safety, or general welfare, notwithstanding subdivision (f) of
Section 11346.1.  Notwithstanding subdivision (e) of Section 11346.1,
the regulations shall not remain in effect more than 180 days unless
the agency complies with all provisions of Chapter 3.5 (commencing
with Section 11340) of Part 1 of Division 3 of Title 2 as required by
subdivision (e) of Section 11346.1.
  SEC. 3.  Section 7117 is added to the Government Code, to read:
   7117.  Notwithstanding any other provision of law, the Office of
Small Business shall establish regulations for loans and loan
guarantees administered by the office that give high priority to
businesses in a local agency military base recovery area.
  SEC. 4.  Section 7118 is added to the Government Code, to read:
   7118.  (a) Whenever the state prepares an invitation for bid for a
contract for goods in excess of one hundred thousand dollars
($100,000), except a contract in which the worksite is fixed by the
provisions of the contract, the state shall award a 5-percent
preference to California-based companies who certify under penalty of
perjury that no less than 50 percent of the labor required to
perform the contract shall be accomplished at a worksite or worksites
located in a local agency military base recovery area.
   (b) In evaluating proposals for contracts for services in excess
of one hundred thousand dollars ($100,000), except a contract in
which the worksite is fixed by the provisions of the contract, the
state shall award a 5-percent preference on the price submitted by
California-based companies who certify under penalty of perjury that
they shall perform the contract at a worksite or worksites located in
a local agency military base recovery area.
   (c) Where a bidder complies with subdivision (a) or (b), the state
shall award a 1-percent preference for bidders who shall agree to
hire persons living within a local agency military base recovery area
equal to 5 to 9 percent of its work force during the period of
contract performance; a 2-percent preference for bidders who shall
agree to hire persons living within a local agency military base
recovery area equal to 10 to 14 percent of its work force during the
period of contract performance; a 3-percent preference for bidders
who shall agree to hire persons living within a local agency military
base recovery area equal to 15 to 19 percent of its work force
during the period of contract performance; and a 4-percent preference
for bidders who shall agree to hire persons living within a local
agency military base recovery area equal to 20 or more percent of its
work force during the period of contract performance.
   (d) The maximum preference a bidder may be awarded pursuant to
this chapter and any other provision of law shall be 15 percent.
However, in no case shall the maximum preference cost under this
section exceed fifty thousand dollars ($50,000) for any bid, nor
shall the combined cost of preferences granted pursuant to this
section and any other provision of law exceed one hundred thousand
dollars ($100,000).  In those cases where the 15-percent cumulated
preference cost would exceed the one hundred thousand dollar
($100,000) maximum preference cost limit, the one hundred thousand
dollar ($100,000) maximum preference cost limit shall apply.
   (e) Notwithstanding any other provision of this section, small
business bidders qualified in accordance with Section 14838 shall
have precedence over nonsmall business bidders in that the
application of any bidder preference for which nonsmall business
bidders may be eligible, including the preference contained in this
section, shall not result in the denial of the award to a small
business bidder.  This subdivision shall apply to those cases where
the small business bidder is the lowest responsible bidder, as well
as to those cases where the small business bidder is eligible for
award as the result of application of the 5-percent small business
bidder preference.
   (f) All state contracts issued to bidders who are awarded
preferences under this section shall contain conditions to ensure
that the contractor performs the contract at the location specified
and meets any commitment to employ persons with high risk of
unemployment.
   (g) (1) A business that requests and is given the preference
provided for in subdivision (a) or (b) by reason of having furnished
a false certification, and that by reason of this certification has
been awarded a contract to which it would not otherwise have been
entitled, shall be subject to all of the following:
   (A) Pay to the state any difference between the contract amount
and what the state's cost would have been if the contract had been
properly awarded.
   (B) In addition to the amount specified in subparagraph (A), be
assessed a penalty in an amount of not more than 10 percent of the
amount of the contract involved.
   (C) Be ineligible to transact any business with the state for a
period of not less than three months and not more than 24 months.
   (2) Prior to the imposition of any sanction under this
subdivision, the business shall be entitled to a public hearing and
to five days' notice of the time and place thereof.  The notice shall
state the reasons for the hearing.
   (h) In each instance in this section, a local agency military base
recovery area shall also mean any local agency military base
recovery area previously authorized under any other provision of
state law.
  SEC. 5.  Section 17053.45 of the Revenue and Taxation Code is
amended to read:
   17053.45.  (a) For each taxable year beginning on or after January
1, 1995, there shall be allowed as a credit against the "net tax"
(as defined by Section 17039) an amount equal to the sales or use tax
paid or incurred by the taxpayer in connection with the purchase of
qualified property to the extent that the qualified property does not
exceed a value of one million dollars ($1,000,000).
   (b) For purposes of this section:
   (1) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
   (2) "Taxpayer" means a taxpayer that conducts a trade or business
within a LAMBRA and, for the first two taxable years, has a net
increase in jobs (defined as 2,000 paid hours per employee per year)
of one or more employees in the LAMBRA.
   (A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA.  For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero.  If the
taxpayer has a net increase in jobs in the state, the credit shall be
allowed only if one or more full-time employees is employed within
the LAMBRA.
   (B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
   (i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
   (ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
   (C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B), the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is
the number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
   (3) "Qualified property" means property that is each of the
following:
   (A) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA.
   (B) Purchased before the date the LAMBRA designation expires, is
no longer binding, or becomes inoperative.
   (C) Any of the following:
   (i) High technology equipment, including, but not limited to,
computers and electronic processing equipment.
   (ii) Aircraft maintenance equipment, including, but not limited
to, engine stands, hydraulic mules, power carts, test equipment,
handtools, aircraft start carts, and tugs.
   (iii) Aircraft components, including, but not limited to, engines,
fuel control units, hydraulic pumps, avionics, starts, wheels, and
tires.
   (iv) Section 1245 property, as defined in Section 1245(a)(3) of
the Internal Revenue Code.
   (c) The credit provided under subdivision (a) shall be allowed
only for qualified property manufactured in California unless
qualified property of a comparable quality and price is not available
for timely purchase and delivery from a California manufacturer.
   (d) In the case where the credit otherwise allowed under this
section exceeds the "net tax" for the taxable year, that portion of
the credit which exceeds the "net tax" may be carried over and added
to the credit, if any, in succeeding years, until the credit is
exhausted.  The credit shall be applied first to the earliest taxable
years possible.
   (e) Any taxpayer who elects to be subject to this section shall
not be entitled to increase the basis of the property as otherwise
required by Section 164(a) of the Internal Revenue Code with respect
to sales or use tax paid or incurred in connection with the purchase
of qualified property.
   (f) (1) The amount of credit otherwise allowed under this section
and Section 17053.46, including any credit carryover from prior
years, that may reduce the "net tax" for the taxable year shall not
exceed the amount of tax that would be imposed on the taxpayer's
business income attributed to a LAMBRA determined as if that
attributable income represented all the income of the taxpayer
subject to tax under this part.
   (2) The amount of attributed income described in paragraph (1)
shall be determined in accordance with the provisions of Chapter 17
(commencing with Section 25101) of Part 11, modified for purposes of
this section as follows:
   (A) Income shall be apportioned to a LAMBRA by multiplying total
business income by a fraction, the numerator of which is the property
factor, plus the payroll factor, and the denominator of which is
two.
   (B) "The LAMBRA" shall be substituted for "this state."
   (3) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, as if it were an amount exceeding the "net tax" for the
taxable year, as provided in subdivision (d).
   (g) (1) If the qualified property is disposed of or no longer used
by the taxpayer in the LAMBRA, at any time before the close of the
second taxable year after the property is placed in service, the
amount of the credit previously claimed, with respect to that
property, shall be added to the taxpayer's tax liability in the
taxable year of that disposition or nonuse.
   (2) At the close of the second taxable year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(2) of subdivision (b), then the amount of the credit previously
claimed shall be added to the taxpayer's net tax for the taxpayer's
second taxable year.
   (h) If the taxpayer is allowed a credit for qualified property
pursuant to this section, only one credit shall be allowed to the
taxpayer under this part with respect to that qualified property.
  SEC. 6.  Section 17053.46 of the Revenue and Taxation Code is
amended to read:
   17053.46.  (a) For each taxable year beginning on or after January
1, 1995, there shall be allowed as a credit against the "net tax"
(as defined in Section 17039) to a qualified taxpayer for hiring a
qualified disadvantaged individual or a qualified displaced employee
during the taxable year for employment in the LAMBRA.  The credit
shall be equal to the sum of each of the following:
   (1) Fifty percent of the qualified wages in the first year of
employment.
   (2) Forty percent of the qualified wages in the second year of
employment.
   (3) Thirty percent of the qualified wages in the third year of
employment.
   (4) Twenty percent of the qualified wages in the fourth year of
employment.
   (5) Ten percent of the qualified wages in the fifth year of
employment.
   (b) For purposes of this section:
   (1) "Qualified wages" means:
   (A) That portion of wages paid or incurred by the employer during
the taxable year to qualified disadvantaged individuals or qualified
displaced employees that does not exceed 150 percent of the minimum
wage.
   (B) The total amount of qualified wages which may be taken into
account for purposes of claiming the credit allowed under this
section shall not exceed two million dollars ($2,000,000) per taxable
year.
   (C) Wages received during the 60-month period beginning with the
day the individual commences employment with the taxpayer.
   (D) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the LAMBRA expiration date.
However, wages paid or incurred with respect to qualified
disadvantaged individuals or qualified displaced employees who are
employed by the qualified taxpayer within the LAMBRA within the
60-month period prior to the LAMBRA expiration date shall continue to
qualify for the credit under this section after the LAMBRA
expiration date, in accordance with all provisions of this section
applied as if the LAMBRA designation were still in existence and
binding.
   (2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
   (3) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
   (4) "Qualified disadvantaged individual" means an individual who
satisfies all of the following requirements:
   (A) (i) At least 90 percent of whose services for the taxpayer
during the taxable year are directly related to the conduct of the
taxpayer's trade or business located in a LAMBRA.
   (ii) Who performs at least 50 percent of his or her services for
the taxpayer during the taxable year in the LAMBRA.
   (B) Who is hired by the employer after the designation of the area
as a LAMBRA in which the individual's services were primarily
performed.
   (C) Who is any of the following immediately preceding the
individual's commencement of employment with the taxpayer:
   (i) An individual who has been determined eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.).
   (ii) Any voluntary or mandatory registrant under the Greater
Avenues for Independence Act of 1985 as provided pursuant to Article
3.2 (commencing with Section 11320) of Chapter 2 of Part 3 of
Division 9 of the Welfare and Institutions Code.
   (iii) An economically disadvantaged individual age 16 years or
older.
   (iv) A dislocated worker who meets any of the following
conditions:
   (I) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
   (II) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of such a closure or layoff.
   (III) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
   (IV) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.

   (V) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
   (VI) Was an active member of the armed forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
   (VII) Experiences chronic seasonal unemployment and
underemployment in the agriculture industry, aggravated by continual
advancements in technology and mechanization.
   (VIII) Has been terminated or laid off or has received a notice of
termination or layoff as a consequence of compliance with the Clean
Air Act.
   (v) An individual who is enrolled in or has completed a state
rehabilitation plan or is a service-connected disabled veteran,
veteran of the Vietnam era, or veteran who is recently separated from
military service.
   (vi) An ex-offender.  An individual shall be treated as convicted
if he or she was placed on probation by a state court without a
finding of guilty.
   (vii) A recipient of:
   (I) Federal Supplemental Security Income benefits.
   (II) Aid to Families with Dependent Children.
   (III) Food stamps.
   (IV) State and local general assistance.
   (viii) Is a member of a federally recognized Indian tribe, band,
or other group of Native American descent.
   (5) "Qualified taxpayer" means a taxpayer that conducts a trade or
business within a LAMBRA and, for the first two taxable years, has a
net increase in jobs (defined as 2,000 paid hours per employee per
year) of one or more employees in the LAMBRA.
   (A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA.  For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero.  If the
taxpayer has a net increase in jobs in the state, the credit shall be
allowed only if one or more full-time employees is employed within
the LAMBRA.
   (B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
   (i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
   (ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
   (C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B), the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is
the number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
   (6) "Qualified displaced employee" means an individual who
satisfies all of the following requirements:
   (A) Any civilian or military employee of a base or former base who
has been displaced as a result of a federal base closure act.
   (B) (i) At least 90 percent of whose services for the taxpayer
during the taxable year are directly related to the conduct of the
taxpayer's trade or business located in a LAMBRA.
   (ii) Who performs at least 50 percent of his or her services for
the taxpayer during the taxable year in a LAMBRA.
   (C) Who is hired by the employer after the designation of the area
in which services were performed as a LAMBRA.
   (7) "LAMBRA expiration date" means the date the LAMBRA designation
expires, is no longer binding, or becomes inoperative.
   (c) (1) For purposes of this section, both of the following apply:

   (A) All employees of trades or businesses that are under common
control shall be treated as employed by a single employer.
   (B) 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 qualified wages giving rise to the credit.

   The regulations prescribed under this paragraph shall be based on
principles similar to the principles that apply in the case of
controlled groups of corporations as specified in subdivision (e) of
Section 23622.
   (2) 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 (d)) for any calendar year
ending after that acquisition, the employment relationship between an
employee and an employer shall not be treated as terminated if the
employee continues to be employed in that trade or business.
   (d) (1) If the employment of any employee, with respect to whom
qualified wages are taken into account under subdivision (a) is
terminated by the taxpayer at any time during the first 270 days of
that employment (whether or not consecutive) or before the close of
the 270th calendar day after the day in which that employee completes
90 days of employment with the taxpayer, the tax imposed by this
part for the taxable year in which that employment is terminated
shall be increased by an amount (determined under those regulations)
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) (A) Paragraph (1) shall not apply to any of the following:
   (i) A termination of employment of an employee who voluntarily
leaves the employment of the taxpayer.
   (ii) A termination of employment of an individual who, before the
close of the period referred to in paragraph (1), becomes disabled to
perform the services of that employment, unless that disability is
removed before the close of that period and the taxpayer fails to
offer reemployment to that individual.
   (iii) A termination of employment of an individual, if it is
determined under the applicable employment compensation laws that the
termination was due to the misconduct of that individual.
   (iv) A termination of employment of an individual due to a
substantial reduction in the trade or business operations of the
taxpayer.
   (v) A termination of employment of an individual, if that
individual is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
   (B) For purposes of paragraph (1), the employment relationship
between the taxpayer and an employee shall not be treated as
terminated by reason of a mere change in the form of conducting the
trade or business of the taxpayer, if the employee continues to be
employed in that trade or business and the taxpayer retains a
substantial interest in that trade or business.
   (3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
   (4) At the close of the second taxable year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(5) of subdivision (b), then the amount of the credit previously
claimed shall be added to the taxpayer's net tax for the taxpayer's
second taxable year.
   (e) In the case of an estate or trust, both of the following
apply:
   (1) The qualified wages for any taxable year shall be apportioned
between the estate or trust and the beneficiaries on the basis of the
income of the estate or trust allocable to each.
   (2) Any beneficiary to whom any qualified wages have been
apportioned under paragraph (1) shall be treated (for purposes of
this part) as the employer with respect to those wages.
                                                     (f) The credit
shall be reduced by the credit allowed under Section 17053.7.  The
credit shall also be reduced by the federal credit allowed under
Section 51 of the Internal Revenue Code.
   In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the taxpayer upon which the
credit is based shall be reduced by the amount of the credit, prior
to any reduction required by subdivision (g) or (h).
   (g) In the case where the credit otherwise allowed under this
section exceeds the "net tax" for the taxable year, that portion of
the credit that exceeds the "net tax" may be carried over and added
to the credit, if any, in succeeding years, until the credit is
exhausted.  The credit shall be applied first to the earliest taxable
years possible.
   (h) (1) The amount of credit otherwise allowed under this section
and Section 17053.45, including prior year credit carryovers, that
may reduce the "net tax" for the taxable year shall not exceed the
amount of tax that would be imposed on the taxpayer's business income
attributed to a LAMBRA determined as if that attributed income
represented all of the net income of the taxpayer subject to tax
under this part.
   (2) The amount of attributed income described in paragraph (1)
shall be determined in accordance with the provisions of Chapter 17
(commencing with Section 25101) of Part 11, modified for purposes of
this section as follows:
   (A) Income shall be apportioned to a LAMBRA by multiplying total
business income by a fraction, the numerator of which is the property
factor plus the payroll factor, and the denominator of which is two.

   (B) "The LAMBRA" shall be substituted for "this state."
   (3) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, as if it were an amount exceeding the "net tax" for the
taxable year, as provided in subdivision (g).
   (i) If the taxpayer is allowed a credit pursuant to this section
for qualified wages paid or incurred, only one credit shall be
allowed to the taxpayer under this part with respect to any wage
consisting in whole or in part of those qualified wages.
  SEC. 7.  Section 17268 of the Revenue and Taxation Code is amended
to read:
   17268.  (a) For each taxable year beginning on or after January 1,
1995, a taxpayer may elect to treat 40 percent of the cost of any
Section 17268 property as an expense that is not chargeable to the
capital account. Any cost so treated shall be allowed as a deduction
for the taxable year in which the taxpayer places the Section 17268
property in service.
   (b) In the case of a husband or wife filing separate returns for a
taxable year in which a spouse is entitled to the deduction under
subdivision (a), the applicable amount shall be equal to 50 percent
of the amount otherwise determined under subdivision (a).
   (c) (1) An election under this section for any taxable year shall
meet both of the following requirements:
   (A) Specify the items of Section 17268 property to which the
election applies and the portion of the cost of each of those items
that is to be taken into account under subdivision (a).
   (B) Be made on the taxpayer's return of the tax imposed by this
part for the taxable year.
   (2) Any election made under this section, and any specification
contained in that election, may not be revoked except with the
consent of the Franchise Tax Board.
   (d) (1) For purposes of this section, "Section 17268 property"
means any recovery property that is each of the following:
   (A) Section 1245 property (as defined in Section 1245(a)(3) of the
Internal Revenue Code).
   (B) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA.
   (C) Purchased before the date the LAMBRA designation expires, is
no longer binding, or becomes inoperative.
   (2) For purposes of paragraph (1), "purchase" means any
acquisition of property, but only if both of the following apply:
   (A) The property is not acquired from a person whose relationship
to the person acquiring it would result in the disallowance of losses
under Section 267 or 707(b) of the Internal Revenue Code (but, in
applying Section 267(b) and Section 267(c) of the Internal Revenue
Code for purposes of this section, Section 267(c)(4) of the Internal
Revenue Code shall be treated as providing that the family of an
individual shall include only his or her spouse, ancestors, and
lineal descendants).
   (B) The basis of the property in the hands of the person acquiring
it is not determined by either of the following:
   (i) In whole or in part by reference to the adjusted basis of the
property in the hands of the person from whom acquired.
   (ii) Under Section 1014 of the Internal Revenue Code, relating to
basis of property acquired from a decedent.
   (3) For purposes of this section, the cost of property does not
include that portion of the basis of the property that is determined
by reference to the basis of other property held at any time by the
person acquiring the property.
   (4) This section shall not apply to estates and trusts.
   (5) This section shall not apply to any property for which the
taxpayer may not make an election for the taxable year under Section
179 of the Internal Revenue Code because of the provisions of Section
179(d) of the Internal Revenue Code.
   (6) In the case of a partnership, the dollar limitation in
subdivision (f) shall apply at the partnership level and at the
partner level.
   (7) This section shall not apply to any property described in
Section 168(f) of the Internal Revenue Code, relating to property to
which Section 168 of the Internal Revenue Code does not apply.
   (e) For purposes of this section:
   (1) "LAMBRA" means a local agency military base recovery area
designated in accordance with the provisions of Section 7114 of the
Government Code.
   (2) "Taxpayer" means a taxpayer that conducts a trade or business
within a LAMBRA and, for the first two taxable years, has a net
increase in jobs (defined as 2,000 paid hours per employee per year)
of one or more employees in the LAMBRA.
   (A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA. For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero.  If the
taxpayer has a net increase in jobs in the state, the credit shall be
allowed only if one or more full-time employees is employed within
the LAMBRA.
   (B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
   (i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
   (ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
   (C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B) the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is the
number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
   (f) The aggregate cost of all Section 17268 property that may be
taken into account under subdivision (a) for any taxable year shall
not exceed the following applicable amounts for the taxable year of
the designation of the relevant LAMBRA and taxable years thereafter:



                                          The applicable
                                            amount is:
Taxable year of designation ............     $100,000
1st taxable year thereafter ............      100,000
2nd taxable year thereafter ............       75,000
3rd taxable year thereafter ............       75,000
Each taxable year thereafter ...........       50,000

   (g) This section shall apply only to property that is used
exclusively in a trade or business conducted within a LAMBRA.
   (h) (1) Any amounts deducted under subdivision (a) with respect to
property that ceases to be used in the trade or business within a
LAMBRA at any time before the close of the second taxable year after
the property was placed in service shall be included in income for
that year.
   (2) At the close of the second taxable year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(2) of subdivision (e), then the amount of the deduction previously
claimed shall be added to the taxpayer's taxable income for the
taxpayer's second taxable year.
   (i) Any taxpayer who elects to be subject to this section shall
not be entitled to claim for the same property the deduction under
Section 179 of the Internal Revenue Code, relating to an election to
expense certain depreciable business assets.
   (j) This section shall remain in effect only until December 1,
2003, and as of that date is repealed.
  SEC. 8.  Section 23645 of the Revenue and Taxation Code is amended
to read:
   23645.  (a) For each income year beginning on or after January 1,
1995, there shall be allowed as a credit against the "tax" (as
defined by Section 23036) for the income year an amount equal to the
sales or use tax paid or incurred by the taxpayer in connection with
the purchase of qualified property to the extent that the qualified
property does not exceed a value of twenty million dollars
($20,000,000).
   (b) For purposes of this section:
   (1) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
   (2) "Taxpayer" means a corporation that conducts a trade or
business within a LAMBRA and, for the first two income years, has a
net increase in jobs (defined as 2,000 paid hours per employee per
year) of one or more employees in the LAMBRA.
   (A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the income year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second income year after commencing
business operations in the LAMBRA.  For taxpayers who commence doing
business in this state with their LAMBRA business operation, the
number of employees for the income year prior to commencing business
operations in the LAMBRA shall be zero.  If the taxpayer has a net
increase in jobs in the state, the credit shall be allowed only if
one or more full-time employees is employed within the LAMBRA.
   (B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
   (i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
   (ii) The total number of months worked in the LAMBRA for the
taxpayer by employees that are salaried employees divided by 12.
   (C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the income year, for purposes of clauses (i) and
(ii), respectively, of subparagraph (B) the divisors "2,000" and "12"
shall be multiplied by a fraction, the numerator of which is the
number of months of the income year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
   (3) "Qualified property" means property that is each of the
following:
   (A) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA.
   (B) Purchased before the date the LAMBRA designation expires, is
no longer binding, or becomes inoperative.
   (C) Any of the following:
   (i) High technology equipment, including, but not limited to,
computers and electronic processing equipment.
   (ii) Aircraft maintenance equipment, including, but not limited
to, engine stands, hydraulic mules, power carts, test equipment,
handtools, aircraft start carts, and tugs.
   (iii) Aircraft components, including, but not limited to, engines,
fuel control units, hydraulic pumps, avionics, starts, wheels, and
tires.
   (iv) Section 1245 property, as defined in Section 1245(a)(3) of
the Internal Revenue Code.
   (c) The credit provided under subdivision (a) shall only be
allowed for qualified property manufactured in California unless
qualified property of a comparable quality and price is not available
for timely purchase and delivery from a California manufacturer.
   (d) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the income year, that portion of the
credit which exceeds the "tax" may be carried over and added to the
credit, if any, in succeeding years, until the credit is exhausted.
The credit shall be applied first to the earliest income years
possible.
   (e) Any taxpayer who elects to be subject to this section shall
not be entitled to increase the basis of the property as otherwise
required by Section 164(a) of the Internal Revenue Code with respect
to sales or use tax paid or incurred in connection with the purchase
of qualified property.
   (f) (1) The amount of the credit otherwise allowed under this
section and Section 23646, including any credit carryovers from prior
years, that may reduce the "tax" for the income year shall not
exceed the amount of tax that would be imposed on the taxpayer's
business income attributed to a LAMBRA determined as if that
attributable income represented all the income of the taxpayer
subject to tax under this part.
   (2) The amount of attributable income described in paragraph (1)
shall be determined in accordance with the provisions of Chapter 17
(commencing with Section 25101), modified for purposes of this
section as follows:
   (A) Income shall be apportioned to a LAMBRA by multiplying total
business income by a fraction, the numerator of which is the property
factor, plus the payroll factor, and the denominator of which is
two.
   (B) "The LAMBRA" shall be substituted for "this state."
   (3) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding income
years, as if it were an amount exceeding the "tax" for the income
year, as provided in subdivision (d).
   (g) (1) If the qualified property is disposed of or no longer used
by the taxpayer in the LAMBRA, at any time before the close of the
second taxable year after the property is placed in service, the
amount of the credit previously claimed, with respect to that
property, shall be added to the taxpayer's tax liability in the
taxable year of that disposition or nonuse.
   (2) At the close of the second income year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(2) of subdivision (b), then the amount of the credit previously
claimed shall be added to the taxpayer's tax for the taxpayer's
second income year.
   (h) If the taxpayer is allowed a credit for qualified property
pursuant to this section, only one credit shall be allowed to the
taxpayer under this part with respect to that qualified property.
  SEC. 9.  Section 23646 of the Revenue and Taxation Code is amended
to read:
   23646.  (a) For each income year beginning on or after January 1,
1995, there shall be allowed as a credit against the "tax" (as
defined in Section 23036) to a qualified taxpayer for hiring a
qualified disadvantaged individual or a qualified displaced employee
during the income year for employment in the LAMBRA.  The credit
shall be equal to the sum of each of the following:
   (1) Fifty percent of the qualified wages in the first year of
employment.
   (2) Forty percent of the qualified wages in the second year of
employment.
   (3) Thirty percent of the qualified wages in the third year of
employment.
   (4) Twenty percent of the qualified wages in the fourth year of
employment.
   (5) Ten percent of the qualified wages in the fifth year of
employment.
   (b) For purposes of this section:
   (1) "Qualified wages" means:
   (A) That portion of wages paid or incurred by the employer during
the income year to qualified disadvantaged individuals or qualified
displaced employees that does not exceed 150 percent of the minimum
wage.
   (B) The total amount of qualified wages which may be taken into
account for purposes of claiming the credit allowed under this
section shall not exceed two million dollars ($2,000,000) per income
year.
   (C) Wages received during the 60-month period beginning with the
day the individual commences employment with the taxpayer.
   (D) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the LAMBRA expiration date.
However, wages paid or incurred with respect to qualified
disadvantaged individuals or qualified displaced employees who are
employed by the qualified taxpayer within the LAMBRA within the
60-month period prior to the LAMBRA expiration date shall continue to
qualify for the credit under this section after the LAMBRA
expiration date, in accordance with all provisions of this section
applied as if the LAMBRA designation were still in existence and
binding.
   (2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
   (3) "LAMBRA" means a local agency military base recovery area
designated in accordance with the provisions of Section 7114 of the
Government Code.
   (4) "Qualified disadvantaged individual" means an individual who
satisfies all of the following requirements:
   (A) (i) At least 90 percent of whose services for the taxpayer
during the income year are directly related to the conduct of the
taxpayer's trade or business located in a LAMBRA.
   (ii) Who performs at least 50 percent of his or her services for
the taxpayer during the income year in the LAMBRA.
   (B) Who is hired by the employer after the designation of the area
as a LAMBRA in which the individual's services were primarily
performed.
   (C) Who is any of the following immediately preceding the
individual's commencement of employment with the taxpayer:
   (i) An individual who has been determined eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.).
   (ii) Any voluntary or mandatory registrant under the Greater
Avenues for Independence Act of 1985 provided for pursuant to Article
3.2 (commencing with Section 11320) of Chapter 2 of Part 3 of
Division 9 of the Welfare and Institutions Code.
   (iii) An economically disadvantaged individual age 16 years or
older.
   (iv) A dislocated worker who meets any of the following
conditions:
   (I) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
   (II) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of such a closure or layoff.
   (III) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
   (IV) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.

   (V) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
   (VI) Was an active member of the armed forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
   (VII) Experiences chronic seasonal unemployment and
underemployment in the agriculture industry, aggravated by continual
advancements in technology and mechanization.
   (VIII) Has been terminated or laid off or has received a notice of
termination or layoff as a consequence of compliance with the Clean
Air Act.
   (v) An individual who is enrolled in or has completed a state
rehabilitation plan or is a service-connected disabled veteran,
veteran of the Vietnam era, or veteran who is recently separated from
military service.
   (vi) An ex-offender.  An individual shall be treated as convicted
if he or she was placed on probation by a state court without a
finding of guilty.
   (vii) A recipient of:
   (I) Federal Supplemental Security Income benefits.
   (II) Aid to Families with Dependent Children.
   (III) Food stamps.
   (IV) State and local general assistance.
   (viii) Is a member of a federally recognized Indian tribe, band,
or other group of Native American descent.
   (5) "Qualified taxpayer" means a corporation that conducts a trade
or business within a LAMBRA and, for the first two income years, has
a net increase in jobs (defined as 2,000 paid hours per employee per
year) of one or more employees as determined below in the LAMBRA.
   (A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the income year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second income year after commencing
business operations in the LAMBRA.  For taxpayers who commence doing
business in this state with their LAMBRA business operation, the
number of employees for the income year prior to commencing business
operations in the LAMBRA shall be zero.  If the taxpayer has a net
increase in jobs in the state, the credit shall be allowed only if
one or more full-time employees is employed within the LAMBRA.
   (B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
   (i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
   (ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
   (C) In the case of a qualified taxpayer that first commences doing
business in the LAMBRA during the income year, for purposes of
clauses (i) and (ii), respectively, of subparagraph (B) the divisors
"2,000" and "12" shall be multiplied by a fraction, the numerator of
which is the number of months of the income year that the taxpayer
was doing business in the LAMBRA and the denominator of which is 12.

   (6) "Qualified displaced employee" means an individual who
satisfies all of the following requirements:
   (A) Any civilian or military employee of a base or former base
that has been displaced as a result of a federal base closure act.
   (B) (i) At least 90 percent of whose services for the taxpayer
during the income year are directly related to the conduct of the
taxpayer's trade or business located in a LAMBRA.
   (ii) Who performs at least 50 percent of his or her services for
the taxpayer during the income year in a LAMBRA.
   (C) Who is hired by the employer after the designation of the area
in which services were performed as a LAMBRA.
   (7) "LAMBRA expiration date" means the date the LAMBRA designation
expires, is no longer binding, or becomes inoperative.
   (c) (1) For purposes of this section, both of the following apply:

   (A) All employees of all corporations that are members of the same
controlled group of corporations shall be treated as employed by a
single employer.
   (B) The credit (if any) allowable by this section to each member
shall be determined by reference to its proportionate share of the
qualified wages giving rise to the credit.
   (2) For purposes of this subdivision, "controlled group of
corporations" has the meaning given to that term by Section 1563(a)
of the Internal Revenue Code, except that both of the following
apply:
   (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 Section 1563
(a)(4) and Section 1563(e)(3)(C) of the Internal Revenue Code.
   (3) 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 (d)) for any calendar year
ending after that acquisition, the employment relationship between an
employee and an employer shall not be treated as terminated if the
employee continues to be employed in that trade or business.
   (d) (1) If the employment of any employee with respect to whom
qualified wages are taken into account under subdivision (a) is
terminated by the taxpayer at any time during the first 270 days of
that employment (whether or not consecutive) or before the close of
the 270th calendar day after the day in which that employee completes
90 days of employment with the taxpayer, the tax imposed by this
part for the income year in which that employment is terminated shall
be increased by an amount equal to the credit allowed under
subdivision (a) for that income year and all prior income years
attributable to qualified wages paid or incurred with respect to that
employee.
   (2) (A) Paragraph (1) shall not apply to any of the following:
                                          (i) A termination of
employment of an employee who voluntarily leaves the employment of
the taxpayer.
   (ii) A termination of employment of an individual who, before the
close of the period referred to in paragraph (1), becomes disabled to
perform the services of that employment, unless that disability is
removed before the close of that period and the taxpayer fails to
offer reemployment to that individual.
   (iii) A termination of employment of an individual, if it is
determined under the applicable unemployment compensation laws that
the termination was due to the misconduct of that individual.
   (iv) A termination of employment of an individual due to a
substantial reduction in the trade or business operations of the
taxpayer.
   (v) A termination of employment of an individual, if that
individual is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
   (B) For purposes of paragraph (1), the employment relationship
between the taxpayer and an employee shall not be treated as
terminated by either of the following:
   (i) A transaction to which Section 381(a) of the Internal Revenue
Code applies, if the employee continues to be employed by the
acquiring corporation.
   (ii) A mere change in the form of conducting the trade or business
of the taxpayer, if the employee continues to be employed in that
trade or business and the taxpayer retains a substantial interest in
that trade or business.
   (3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
   (4) At the close of the second income year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(5) of subdivision (b), then the amount of the credit previously
claimed shall be added to the taxpayer's tax for the taxpayer's
second income year.
   (e) In the case of an organization to which Section 593 of the
Internal Revenue Code applies, and a regulated investment company or
a real estate investment trust subject to taxation under this part,
rules similar to the rules provided in Section 46(e) and Section 46
(h) of the Internal Revenue Code shall apply.
   (f) The credit shall be reduced by the credit allowed under
Section 23621.  The credit shall also be reduced by the federal
credit allowed under Section 51 of the Internal Revenue Code.
   In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the taxpayer upon which the
credit is based shall be reduced by the amount of the credit, prior
to any reduction required by subdivision (g) or (h).
   (g) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the income year, that portion of the
credit that exceeds the "tax" may be carried over and added to the
credit, if any, in succeeding years, until the credit is exhausted.
The credit shall be applied first to the earliest income years
possible.
   (h) (1) The amount of credit otherwise allowed under this section
and Section 23645, including any prior year carryovers, that may
reduce the "tax" for the income year shall not exceed the amount of
tax that would be imposed on the taxpayer's business income
attributed to a LAMBRA determined as if that attributed income
represented all of the income of the taxpayer subject to tax under
this part.
   (2) The amount of attributed income described in paragraph (1)
shall be determined in accordance with the provisions of Chapter 17
(commencing with Section 25101), modified for purposes of this
section as follows:
   (A) Income shall be apportioned to a LAMBRA by multiplying total
business income by a fraction, the numerator of which is the property
factor plus the payroll factor, and the denominator of which is two.

   (B) "The LAMBRA" shall be substituted for "this state."
   (3) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding income
years, as if it were an amount exceeding the "tax" for the income
year, as provided in subdivision (g).
   (i) If the taxpayer is allowed a credit pursuant to this section
for qualified wages paid or incurred, only one credit shall be
allowed to the taxpayer under this part with respect to any wage
consisting in whole or in part of those qualified wages.
  SEC. 10.  Section 24356.8 of the Revenue and Taxation Code is
amended to read:
   24356.8.  (a) For each income year beginning on or after January
1, 1995, a taxpayer may elect to treat 40 percent of the cost of any
Section 24356.8 property as an expense that is not chargeable to the
capital account. Any cost so treated shall be allowed as a deduction
for the income year in which the taxpayer places the Section 24356.8
property in service.
   (b) (1) An election under this section for any income year shall
meet both of the following requirements:
   (A) Specify the items of Section 24356.8 property to which the
election applies and the portion of the cost of each of those items
that is to be taken into account under subdivision (a).
   (B) Be made on the taxpayer's return of the tax imposed by this
part for the income year.
   (2) Any election made under this section, and any specification
contained in that election, may not be revoked except with the
consent of the Franchise Tax Board.
   (c) (1) For purposes of this section, "Section 24356.8 property"
means any recovery property that is:
   (A) Section 1245 property (as defined in Section 1245(a)(3) of the
Internal Revenue Code).
   (B) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA.
   (C) Purchased before the date the LAMBRA designation expires, is
no longer binding, or becomes inoperative.
   (2) For purposes of paragraph (1), "purchase" means any
acquisition of property, but only if all of the following apply:
   (A) The property is not acquired from a person whose relationship
to the person acquiring it would result in the disallowance of losses
under Section 267 or 707(b) of the Internal Revenue Code (but, in
applying Sections 267(b) and 267(c) of the Internal Revenue Code for
purposes of this section, Section 267(c)(4) of the Internal Revenue
Code shall be treated as providing that the family of an individual
shall include only his or her spouse, ancestors, and lineal
descendants).
   (B) The property is not acquired by one component member of an
affiliated group from another component member of the same affiliated
group.
   (C) The basis of the property in the hands of the person acquiring
it is not determined in whole or in part by reference to the
adjusted basis of that property in the hands of the person from whom
acquired.
   (3) For purposes of this section, the cost of property does not
include so much of the basis of that property as is determined by
reference to the basis of other property held at any time by the
person acquiring that property.
   (4) This section shall not apply to any property for which the
taxpayer may not make an election for the income year under Section
179 of the Internal Revenue Code because of the provisions of Section
179(d) of the Internal Revenue Code.
   (5) For purposes of subdivision (b), both of the following apply:

   (A) All members of an affiliated group shall be treated as one
taxpayer.
   (B) The taxpayer shall apportion the dollar limitation contained
in subdivision (f) among the component members of the affiliated
group in whatever manner the board shall by regulations prescribe.
   (6) For purposes of paragraphs (2) and (5), "affiliated group" has
the meaning assigned to it by Section 1504 of the Internal Revenue
Code, except that, for these purposes, the phrase "more than 50
percent" shall be substituted for the phrase "at least 80 percent"
each place it appears in Section 1504(a) of the Internal Revenue
Code.
   (7) This section shall not apply to any property described in
Section 168(f) of the Internal Revenue Code.
   (8) In the case of an S corporation, the dollar limitation
contained in subdivision (f) shall be applied at the entity level and
at the shareholder level.
   (d) For purposes of this section:
   (1) "LAMBRA" means a local agency military base recovery area
designated in accordance with the provisions of Section 7114 of the
Government Code.
   (2) "Taxpayer" means a corporation that conducts a trade or
business within a LAMBRA and, for the first two income years, has a
net increase in jobs (defined as 2,000 paid hours per employee per
year) of one or more employees in the LAMBRA.
   (A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the income year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second income year after commencing
business operations in the LAMBRA.  For taxpayers who commence doing
business in this state with their LAMBRA business operation, the
number of employees for the income year prior to commencing business
operations in the LAMBRA shall be zero.  If the taxpayer has a net
increase in jobs in the state, the credit shall be allowed only if
one or more full-time employees is employed within the LAMBRA.
   (B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
   (i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
   (ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
   (C) In the case of a taxpayer that first commences doing business
in the LAMBRA during the income year, for purposes of clauses (i) and
(ii), respectively, of subparagraph (B), the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is the
number of months of the income year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
   (e) Any taxpayer who elects to be subject to this section shall
not be entitled to claim additional depreciation pursuant to Section
24356 with respect to any property that constitutes Section 24356.8
property.
   (f) The aggregate cost of all Section 24356.8 property that may be
taken into account under subdivision (a) for any income year shall
not exceed the following applicable amounts for the income year of
the designation of the relevant LAMBRA and income years thereafter:



                                          The applicable
                                            amount is:

Income year of designation ..............
                                             $100,000
1st income year thereafter ..............
                                              100,000
2nd income year thereafter ..............
                                               75,000
3rd income year thereafter ..............
                                               75,000
Each income year thereafter .............
                                               50,000

   (g) This section shall apply only to property that is used
exclusively in a trade or business conducted within a LAMBRA.
   (h) (1) Any amounts deducted under subdivision (a) with respect to
property that ceases to be used in the trade or business within a
LAMBRA at any time before the close of the second income year after
the property was placed in service shall be included in income for
that year.
   (2) At the close of the second income year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(2) of subdivision (d), then the amount of the deduction previously
claimed shall be added to the taxpayer's net income for the taxpayer'
s second income year.
   (i) Any taxpayer who elects to be subject to this section shall
not be entitled to claim for the same property the deduction under
Section 179 of the Internal Revenue Code, relating to an election to
expense certain depreciable business assets.