BILL NUMBER: AB 1040 CHAPTERED
BILL TEXT
CHAPTER 605
FILED WITH SECRETARY OF STATE OCTOBER 3, 1997
APPROVED BY GOVERNOR OCTOBER 1, 1997
PASSED THE ASSEMBLY SEPTEMBER 10, 1997
PASSED THE SENATE SEPTEMBER 4, 1997
AMENDED IN SENATE SEPTEMBER 2, 1997
AMENDED IN SENATE JUNE 30, 1997
AMENDED IN ASSEMBLY MAY 23, 1997
AMENDED IN ASSEMBLY MAY 7, 1997
AMENDED IN ASSEMBLY MAY 1, 1997
AMENDED IN ASSEMBLY APRIL 21, 1997
AMENDED IN ASSEMBLY MARCH 31, 1997
INTRODUCED BY Committee on Revenue and Taxation (Caldera (Chair),
Alquist, Aroner, Knox, Machado, and Papan)
FEBRUARY 27, 1997
An act to amend Section 30 of the Business and Professions Code,
to amend Section 1666.5 of the Insurance Code, to amend Sections
17052.15, 17053.45, 17053.46, 17220, 18402, 18604, 18606, 18621.5,
18637, 18638, 18639, 18645, 18662, 18670, 19009, 19011, 19021, 19023,
19024, 19058, 19132.5, 19141.5, 19141.6, 19147, 19164, 19192, 19254,
19263, 19301, 19340, 19392, 19411, 19542, 19563, 19701, 19705,
19706, 19719, 23037, 23038, 23040.1, 23095, 23098, 23151, 23151.1,
23151.2, 23153, 23183.1, 23183.2, 23186, 23303, 23305.2, 23332,
23332.5, 23334, 23455, 23501, 23610.5, 23612.6, 23623.5, 23625,
23645, 23646, 23731, 23802, 23809, 23811, 24346, 24356.4, 24356.8,
24357, 24358, 24359, 24402, 24407, 24408, 24409, 24411, 24416,
24416.2, 24677, 24678, 24901, 24912, 24916, 24917, 24942, 25105,
25110, 25111, 25112, and 25128 of, and to repeal Sections 23184,
23184.5, 23185, 23185a, 23185b, 23186.1, 23186.2, and 23186.5 of, the
Revenue and Taxation Code, and to amend Section 56 of Chapter 952 of
the Statutes of 1996, relating to taxation.
LEGISLATIVE COUNSEL'S DIGEST
AB 1040, Committee on Revenue and Taxation. Personal income and
bank and corporation taxes.
(1) Existing law requires any board, as defined under the Business
and Professions Code, including the State Bar and the Department of
Real Estate, and the Insurance Commissioner to require that any
licensee at the time of issuance or renewal of a license provide its
federal employer identification number if the licensee is a
partnership or his or her social security number for all others.
Existing law also provides that any licensee failing to provide this
information shall be reported by the licensing entity to the
Franchise Tax Board, as specified, and shall be subject to a penalty
if the licensee fails to provide the required information after
notification by the Franchise Tax Board.
This bill would make technical clarifying changes in those
provisions.
(2) The Personal Income Tax Law and the Bank and Corporation Tax
Law authorize various credits against the taxes imposed by those
laws, including credits for the amount of sales or use tax paid or
incurred in connection with the purchase of qualified property in the
Los Angeles Revitalization Zone (LARZ), for the amount of sales or
use tax paid or incurred in connection with the purchase of qualified
property for exclusive use in a local agency military base recovery
area, and for certain wages paid to specified employees employed in a
local agency military base recovery area. Existing law requires a
taxpayer whose expenses may qualify for more than one credit to elect
which credit to claim among all the credits allowed under those
laws.
This bill would instead provide that only one applicable credit is
allowed with respect to the amount of the expenditure claimed.
(3) The Personal Income Tax Law provides that no deduction shall
be allowed for any tax imposed under the Bank and Corporation Tax
Law.
This bill would make a technical nonsubstantive change to those
provisions by deleting a confusing and unnecessary reference.
(4) Existing law relating to the administration of franchise and
income taxes and the Bank and Corporation Tax Law contain various tax
and tax administration provisions that are specifically applicable
to both banks and corporations, various provisions that are
specifically applicable either to banks or to corporations generally,
but not both, and various provisions which are specifically
applicable to corporations, but are administratively applied also to
banks.
This bill would modify the definition of "corporation" to include
banks, unless specifically provided otherwise, would provide specific
language to exempt banks from certain existing provisions of the
above tax and tax administration laws where intentional differences
between the treatment of banks and corporations are clear, and would
replace the phrase "bank or corporation" with the term "corporation"
throughout the remaining provisions of those laws.
(5) Existing laws relating to the administration of personal
income and bank and corporation taxes provide for the allowance and
payment of interest on any overpayment in respect of any tax, as
specified, and require that any credit first be credited on any taxes
due from the taxpayer under the Personal Income Tax Law or the Bank
and Corporation Tax Law.
This bill would instead require that any credit first be credited
on any amounts due from the taxpayer under those laws or the laws
relating to the administration of those laws.
(6) Existing law relating to the administration of income and
franchise taxes requires any person required to file an information
return under specified provisions of federal law to report that
information to the Franchise Tax Board.
This bill would additionally require, with certain exceptions,
that any person who makes specified payments of exempt-interest
dividends aggregating $10 or more, as specified, file an information
return with the Franchise Tax Board. The bill would also require,
with certain exceptions, that any person who receives certain
interest that is exempt from federal tax, as specified, as a nominee
and who makes payments to any other person aggregating $10 or more,
as specified, file an information return with the Franchise Tax
Board.
(7) Existing law permits the Franchise Tax Board to obtain a copy
of the federal information return of any person if a return was
required in specified circumstances.
This bill would additionally permit the Franchise Tax Board to
obtain a copy of the federal information return of any person if a
return was required to be filed regarding the cancellation of
indebtedness by certain financial entities.
(8) Existing law relating to the administration of franchise and
income taxes requires all apportioning taxpayers to maintain
specified information.
This bill would make a technical, nonsubstantive change to those
provisions by deleting an obsolete reference.
(9) The Bank and Corporation Tax Law imposes a franchise tax on
banks and financial corporations that is in lieu of all other state,
county, and municipal taxes and licenses, except as specified. The
in-lieu tax is imposed on banks because national banks are exempt
from most local taxes. The "in-lieu" tax was extended to financial
corporations for income years beginning on or after January 1, 1981.
Existing law, for income years beginning on or after January 1,
1981, allows financial corporations to offset specified local taxes
against the franchise tax and provides that the intent of those
provisions is to minimize the difference between banks and financial
corporations. Existing law provides that final action on the
allowance of an offset under those provisions is deferred until a
final court determination of whether charter cities may impose local
taxes on financial corporations.
This bill would repeal those offset provisions as obsolete on the
basis that financial corporations are exempt from local taxation to
the same degree as banks. The bill would also make related and
conforming changes.
(10) Existing law defines the term "taxable year" for purposes of
the Personal Income Tax Law, and also defines the term "income year"
for purposes of the Bank and Corporation Tax Law. Existing law also
specifies that the provisions of Chapter 952 of the Statutes of 1996,
which contains various provisions in both the Personal Income Tax
Law and the Bank and Corporation Tax Law, shall be applied to taxable
years beginning on or after January 1, 1997.
This bill would instead specify that the provisions of Chapter 952
of the Statutes of 1996 shall be applied to both taxable and income
years beginning on or after January 1, 1997.
(11) The Personal Income Tax Law and the Bank and Corporation Tax
Law allow to qualified taxpayers, as defined, a credit against taxes
imposed by those laws in an amount equal to 6% of the amount paid or
incurred during the taxable or income year for qualified property, as
defined, that is placed in service in this state. Existing law
provides that qualified property includes tangible personal property
for use by a qualified taxpayer, as defined, primarily for the
manufacturing, processing, refining, fabricating, or recycling of
property, as specified. Existing law provides that a qualified
taxpayer is a taxpayer engaged in those lines of business described
in specified code sections of the Standard Industrial Classification
Manual published by the United States Office of Management and
Budget, 1987 edition.
This bill would state the intent of the Legislature to replace
those code section references with code section references to the
North American Industry Classification System (NAICS), expected to be
published in 1997.
(12) This bill would incorporate additional changes in Section
23038 of the Revenue and Taxation Code, proposed by SB 1234, to be
operative only if SB 1234 and this bill are both chaptered and become
effective on or before January 1, 1998, and this bill is chaptered
last.
(13) This bill would incorporate additional changes in Section
24416.2 of the Revenue and Taxation Code, proposed by SB 1106, to be
operative only if SB 1106 and this bill are both chaptered and become
effective on or before January 1, 1998, and this bill is chaptered
last.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 30 of the Business and Professions Code is
amended to read:
30. (a) Notwithstanding any other provision of law, any board, as
defined in Section 22, and the State Bar and the Department of Real
Estate shall at the time of issuance or renewal of the license
require that any licensee provide its federal employer identification
number if the licensee is a partnership or his or her social
security number for all others.
(b) Any licensee failing to provide the federal identification
number or social security number shall be reported by the licensing
board to the Franchise Tax Board and, if failing to provide after
notification pursuant to paragraph (1) of subdivision (b) of Section
19528 of the Revenue and Taxation Code, shall be subject to the
penalty provided in paragraph (2) of subdivision (b) of Section 19528
of the Revenue and Taxation Code.
(c) In addition to the penalty specified in subdivision (b), a
licensing board may not process any application for an original
license or for renewal of a license unless the applicant or licensee
provides its federal employer identification number or social
security number where requested on the application.
(d) A licensing board shall, upon request of the Franchise Tax
Board, furnish to the Franchise Tax Board the following information
with respect to every licensee:
(1) Name.
(2) Address or addresses of record.
(3) Federal employer identification number if the entity is a
partnership or social security number for all others.
(4) Type of license.
(5) Effective date of license or a renewal.
(6) Expiration date of license.
(7) Whether license is active or inactive, if known.
(8) Whether license is new or a renewal.
(e) For the purposes of this section:
(1) "Licensee" means any entity, other than a corporation,
authorized by a license, certificate, registration, or other means to
engage in a business or profession regulated by this code or
referred to in Section 1000 or 3600.
(2) "License" includes a certificate, registration, or any other
authorization needed to engage in a business or profession regulated
by this code or referred to in Section 1000 or 3600.
(3) "Licensing board" means any board, as defined in Section 22,
the State Bar, and the Department of Real Estate.
(f) The reports required under this section shall be filed on
magnetic media or in other machine-readable form, according to
standards furnished by the Franchise Tax Board.
(g) Licensing boards shall provide to the Franchise Tax Board the
information required by this section at a time that the Franchise Tax
Board may require.
(h) Notwithstanding Chapter 3.5 (commencing with Section 6250) of
Division 7 of Title 1 of the Government Code, the social security
number and federal employer identification number furnished pursuant
to this section shall not be deemed to be a public record and shall
not be open to the public for inspection.
(i) Any deputy, agent, clerk, officer, or employee of any
licensing board described in subdivision (a), or any former officer
or employee or other individual who in the course of his or her
employment or duty has or has had access to the information required
to be furnished under this section, may not disclose or make known in
any manner that information, except as provided in this section to
the Franchise Tax Board or as provided in subdivision (k).
(j) It is the intent of the Legislature in enacting this section
to utilize the social security account number or federal employer
identification number for the purpose of establishing the
identification of persons affected by state tax laws and for purposes
of compliance with Section 11350.6 of the Welfare and Institutions
Code and, to that end, the information furnished pursuant to this
section shall be used exclusively for those purposes.
(k) If the board utilizes a national examination to issue a
license, and if a reciprocity agreement or comity exists between the
State of California and the state requesting release of the social
security number, any deputy, agent, clerk, officer, or employee of
any licensing board described in subdivision (a) may release a social
security number to an examination or licensing entity, only for the
purpose of verification of licensure or examination status.
SEC. 2. Section 1666.5 of the Insurance Code is amended to read:
1666.5. (a) Notwithstanding any other provision of law, the
commissioner shall at the time of issuance or renewal of any license
under this chapter or Chapter 6 (commencing with Section 1760),
Chapter 7 (commencing with Section 1800), or Chapter 8 (commencing
with Section 1831) require that any licensee provide its federal
employer identification number if the licensee is a partnership or
his or her social security number for all others.
(b) Any licensee failing to provide the federal identification
number or social security number shall be reported by the
commissioner to the Franchise Tax Board and, if failing to provide
after notification pursuant to paragraph (1) of subdivision (b) of
Section 19528 of the Revenue and Taxation Code, shall be subject to
the penalty provided in paragraph (2) of subdivision (b) of Section
19528 of the Revenue and Taxation Code.
(c) The commissioner shall, upon request of the Franchise Tax
Board, furnish to the board all of the following information with
respect to every licensee:
(1) Licensee's name.
(2) Address or addresses of record.
(3) Federal employer identification number if the entity is a
partnership or owner's name and social security number for all
others.
(4) Type of license.
(5) Effective date of license or a renewal.
(6) Expiration date of license.
(7) Whether license is active or inactive, if known.
(8) Whether license is new or a renewal.
(d) For the purposes of this section:
(1) "Licensee" means any entity, other than a corporation,
authorized by a license, certificate, registration, or other means to
engage in the insurance business regulated by this code.
(2) "License" includes a certificate, registration, or any other
authorization needed to engage in the insurance business regulated by
this code.
(e) The reports required under this section shall be filed on
magnetic media or in other machine-readable form, according to
standards furnished by the Franchise Tax Board.
(f) The commissioner shall begin providing to the Franchise Tax
Board the information required by this section as soon as
economically feasible, but no later than July 1, 1987. The
information shall be furnished at a time that the Franchise Tax Board
may require.
(g) Notwithstanding Chapter 3.5 (commencing with Section 6250) of
Division 7 of Title 1 of the Government Code, the information
furnished pursuant to this section shall not be deemed to be a public
record and shall not be open to the public for inspection.
(h) Any deputy, agent, clerk, officer, or employee of the
commissioner, or any former officer or employee or other individual
who in the course of his or her employment or duty has or has had
access to the information required to be furnished under this
section, shall not disclose or make known in any manner that
information, except as provided in this section to the Franchise Tax
Board.
(i) It is the intent of the Legislature in enacting this section
to utilize the social security account number or federal employer
identification number for the purpose of establishing the
identification of persons affected by state tax laws and, to that
end, the information furnished pursuant to this section shall be used
exclusively for tax enforcement purposes.
SEC. 3. Section 17052.15 of the Revenue and Taxation Code is
amended to read:
17052.15. (a) For each taxable year beginning on or after January
1, 1992, and before January 1, 1998, there shall be allowed a credit
against the "net tax," as defined in Section 17039, an amount equal
to the sales or use tax paid or incurred during the taxable year by
the taxpayer in connection with the taxpayer's purchase of qualified
property.
(b) For purposes of this section:
(1) "Taxpayer" means a person or entity engaged in a trade or
business within the Los Angeles Revitalization Zone designated
pursuant to Section 7102 of the Government Code.
(2) "Qualified property" means the purchase on or after May 1,
1992, and before the zone expiration date, of either or both of the
following:
(A) Building materials to replace or repair the taxpayer's
building and fixtures.
(B) Machinery or equipment, excluding inventory, to be used by the
taxpayer exclusively in the Los Angeles Revitalization Zone.
(3) "Zone expiration date" means the date the Los Angeles
Revitalization Zone designation expires, is repealed, or becomes
inoperative pursuant to Section 7102, 7103, or 7104 of the Government
Code.
(c) 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.
(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 that exceeds the net tax may be carried over and added to the
credit, if any, in succeeding taxable years for the number of
taxable years in which the designation of the Los Angeles
Revitalization Zone under Section 7102 of the Government Code is
operative, or 15 taxable years, if longer, 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 the sales and use tax paid or incurred in connection with the
taxpayer's purchase of qualified property.
(f) (1) The amount of credit otherwise allowed under this section
and Sections 17053.10 and 17053.17, 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 attributable to the Los Angeles
Revitalization Zone (designated pursuant to Section 7102 of the
Government Code) determined as if that attributable income
represented all of the income of the taxpayer subject to tax under
this part.
(2) The amount of attributable income described in paragraph (1)
shall be that portion of the taxpayer's California source business
income which is apportioned to the Los Angeles Revitalization Zone.
For that purpose, the taxpayer's business income attributable to
sources in this state first shall be determined in accordance with
the provisions of Chapter 17 (commencing with Section 25101) of Part
11. That business income shall be further apportioned to the Los
Angeles Revitalization Zone in accordance with the provisions of
Article 2 (commencing with Section 25120) of Chapter 17 of Part 11,
modified as follows:
(A) Business income shall be apportioned to the Los Angeles
Revitalization Zone by multiplying total California business income
of the taxpayer by a fraction, the numerator of which is the property
factor plus the payroll factor, and the denominator of which is two.
(B) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the Los Angeles Revitalization
Zone during the taxable year and the denominator of which is the
average value of all the taxpayer's real and tangible personal
property owned or rented and used in this state during the taxable
year.
(C) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the Los Angeles
Revitalization Zone during the taxable year for compensation, and the
denominator of which is the total compensation paid by the taxpayer
in this state during the taxable year.
(3) The portion of the 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) If the qualified property is disposed of or no longer used by
the taxpayer in the Los Angeles Revitalization Zone, 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 shall
be added to the taxpayer's tax liability in the taxable year of that
disposition or nonuse.
(h) This section shall be inoperative on the first day of the
taxable year beginning on or after the determination date, and each
taxable year thereafter, with respect to the taxpayer's business
activities within a geographic area that is excluded from the map
pursuant to Section 7102 of the Government Code, or an excluded area
determined pursuant to Section 7104 of the Government Code. The
determination date is the earlier of the first effective date of a
determination under subdivision (c) of Section 7102 of the Government
Code occurring after December 1, 1994, or the first effective date
of an exclusion of an area from the amended Los Angeles
Revitalization Zone under Section 7104 of the Government Code.
However, if the taxpayer has any unused credit amount as of the date
this section becomes inoperative, that unused credit amount may
continue to be carried forward as provided in subdivision (d).
(i) This section shall remain in effect only until December 1,
1998, and as of that date is repealed. However, any unused credit
may continue to be carried forward, as provided in subdivision (d).
SEC. 4. 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, and before January 1, 2003, 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 or partnership 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 the purchase of any of the
following for exclusive use in a LAMBRA:
(A) High technology equipment, including, but not limited to,
computers and electronic processing equipment.
(B) Aircraft maintenance equipment, including, but not limited to,
engine stands, hydraulic mules, power carts, test equipment,
handtools, aircraft start carts, and tugs.
(C) Aircraft components, including, but not limited to, engines,
fuel control units, hydraulic pumps, avionics, starts, wheels, and
tires.
(D) Any property that is 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.
(i) This section shall remain in effect only until December 1,
2003, and as of that date is repealed. However, any unused credit
may continue to be carried forward as provided in subdivision (d),
until the credit is exhausted.
SEC. 5. 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, and before January 1, 2003, 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.
(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) Any individual who has been certified eligible by the
Employment Development Department under the federal Targeted Jobs Tax
Credit Program whether or not this program is in effect.
(5) "Qualified taxpayer" means a taxpayer or partnership 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.
(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.
(j) This section shall remain in effect only until December 1,
2003, and as of that date is repealed. However, any unused credit
may continue to be carried forward as provided in subdivision (g),
until the credit is exhausted.
SEC. 6. Section 17220 of the Revenue and Taxation Code is amended
to read:
17220. (a) Section 164(a)(3) of the Internal Revenue Code,
relating to the deductibility of state, local, and foreign income,
war profits, and excess profits taxes, shall not apply.
(b) In addition to the provisions of Section 164(c) of the
Internal Revenue Code, relating to deduction denied in case of
certain taxes, no deduction shall be allowed for any tax imposed
under Chapter 10.5 (commencing with Section 17935), Chapter 10.6
(commencing with Section 17941), or Chapter 10.7 (commencing with
Section 17951) of this part or under Part 11 (commencing with Section
23001).
SEC. 7. Section 18402 of the Revenue and Taxation Code is amended
to read:
18402. (a) Except where the context otherwise requires, the
general provisions and definitions provided in Chapter 1 (commencing
with Section 17001) of Part 10 and in Chapter 1 (commencing with
Section 23001) of Part 11 shall apply to this part.
(b) For purposes of this part, "person" includes an individual,
fiduciary, partnership, limited liability company, corporation, or
organization exempt from taxation under Section 23701.
(c) (1) Whenever provisions of this part are applied in connection
with Part 10 (commencing with Section 17001), the terms "taxpayer,"
"corporation" and "taxable year" have the same meaning as defined in
Chapter 1 (commencing with Section 17001) of Part 10.
(2) Whenever provisions of this part are applied in connection
with Part 11 (commencing with Section 23001), the terms "taxpayer,"
"corporation," "income year," and "taxable year" have the same
meaning as defined in Article 2 (commencing with Section 23030) of
Chapter 1 of Part 11.
SEC. 8. Section 18604 of the Revenue and Taxation Code is amended
to read:
18604. (a) The Franchise Tax Board may grant a reasonable
extension of time for filing any return, declaration, statement, or
other document required by Part 11 (commencing with Section 23001),
in the manner and form as the Franchise Tax Board may determine. No
extension or extensions shall aggregate more than seven months from
the due date for filing the return.
(b) An extension for the filing of the return of taxes imposed by
Part 11 (commencing with Section 23001) shall be allowed any
corporation if, in the manner and at the time as the Franchise Tax
Board may prescribe, that corporation pays, on or before the date
prescribed for payment of the tax, the amount properly estimated as
provided in Section 19023 or 19024.
(c) An extension of time granted pursuant to this section is not
an extension of time for payment of tax required to be paid on or
before the due date of the return without regard to extension.
Underpayment of tax penalties shall be imposed as provided by law
without regard to any extension granted under this section.
SEC. 9. Section 18606 of the Revenue and Taxation Code is amended
to read:
18606. (a) In cases where receivers, trustees in a case under
Title 11 of the United States Code, or assignees are operating the
property or business of a corporation those receivers, trustees, or
assignees shall make returns for that corporation in the same manner
and form as that corporation is required to make a return.
(b) Any tax due on the basis of returns made by receivers,
trustees, or assignees shall be collected in the same manner as if
collected from the corporation of whose business or property they
have custody and control.
SEC. 10. Section 18621.5 of the Revenue and Taxation Code is
amended to read:
18621.5. (a) Any return, declaration, statement, or other
document required to be made under this part that is filed using
electronic technology shall be in a form as the Franchise Tax Board
may prescribe and is not complete, and therefore not filed, unless an
electronic filing declaration is signed by the taxpayer, in
accordance with Section 18621 in the case of individuals, subdivision
(a) of Section 18505 in the case of estates or trusts, corporations,
or limited liability companies classified as corporations for
California income tax purposes, subdivision (a) of Section 18633 in
the case of a partnership, or Section 18633.5 in the case of limited
liability companies classified as partnerships for California income
tax purposes. The Franchise Tax Board may prescribe forms and
instructions for requiring the electronic filing declaration to be
retained by the preparer or taxpayer and may require the declaration
to be furnished to the Franchise Tax Board upon request.
(b) Notwithstanding any other provision of law, any return,
declaration, statement, or other document otherwise required to be
signed that is filed in a traditional medium and captured using
electronic imaging technology shall be deemed to be a valid original
document upon reproduction to paper form by the Franchise Tax Board.
(c) Notwithstanding any other law, any return, declaration,
statement, or other document otherwise required to be signed that is
filed by the taxpayer using electronic technology in a form as
required by the Franchise Tax Board shall be deemed to be a signed,
valid original document, including upon reproduction to paper form by
the Franchise Tax Board.
(d) "Electronic imaging technology" means a system of
microphotography, optical disk, or reproduction by other technique
that does not permit additions, deletions, or changes to the original
document. The system may include, but is not limited to, any
magnetic media or other machine readable form.
(e) "Traditional medium" means any return, declaration, statement,
or other document required to be made pursuant to this article other
than those made using electronic imaging technology.
(f) "Electronic technology" includes, but is not limited to,
computer modem, magnetic media, optical disk, facsimile machine, or
telephone.
SEC. 11. Section 18637 of the Revenue and Taxation Code is amended
to read:
18637. (a) Every individual, partnership, limited liability
company, corporation, joint stock company or association, insurance
company, business trust, or so-called Massachusetts trust, engaged in
a trade or business in this state and making payment in the course
of the trade or business to another person, including lessees or
mortgagors of real or personal property, fiduciaries, employers, and
all officers and employees of this state or any political subdivision
of this state, or any city organized under a freeholder's charter,
or any political body not a subdivision or agency of the state,
having the control, receipt, custody, disposal, or payment of
interest (other than interest coupons payable to bearer), dividends,
rents, salaries, wages, premiums, annuities, compensations,
remunerations, emoluments, or other fixed or determinable annual or
periodical gains, profits, and income amounting to six hundred
dollars ($600) or over, paid or payable during any year to any
taxpayer, shall make a complete return to the Franchise Tax Board,
which shall contain or be verified by a written declaration that it
is made under the penalties of perjury, under the regulations and in
the form and manner and to the extent as may be prescribed by it.
(b) For purposes of subdivision (a), "trade or business" includes
the activities of nonprofit organizations.
(c) In lieu of an information return required by subdivision (a),
the Franchise Tax Board may require that a copy of the federal
information return be filed with the Franchise Tax Board.
(d) Every entity required to make a return under subdivision (a)
shall furnish to each person whose name is required to be set forth
in the return a written statement showing both of the following:
(1) The name, address, and identification number of the entity
required to make the return.
(2) The aggregate amount of payments to the person required to be
shown on the return.
The written statement required under this subdivision shall be
furnished to the person on or before January 31 of the year following
the calendar year for which the return under subdivision (a) was
required to be made.
(e) This section shall not apply to tips with respect to which
Section 13055 of the Unemployment Insurance Code applies. The only
records which an employer shall be required to keep under this
section in connection with charged tips shall be charge receipts and
copies of statements furnished by employees under Section 13055 of
the Unemployment Insurance Code.
SEC. 12. Section 18638 of the Revenue and Taxation Code is amended
to read:
18638. Every individual, partnership, limited liability company,
corporation, joint stock company or association, insurance company,
business trust, or so-called Massachusetts trust, shall be required
to file a return for certain payments of remuneration for services
and furnish a written statement to the person whose name is required
to be set forth on the return in accordance with the provisions of
Section 6041A of the Internal Revenue Code, except that no return or
statement shall be required if a statement with respect to the
services is required to be furnished under Division 6 (commencing
with Section 13000) of the Unemployment Insurance Code (relating to
withholding tax on wages) or Section 18647, and no return or
statement shall be required with respect to direct sales pursuant to
Section 6041A(b) of the Internal Revenue Code.
SEC. 13. Section 18639 of the Revenue and Taxation Code is amended
to read:
18639. (a) Any person required to file an information return with
the Internal Revenue Service under Section 6049 of the Internal
Revenue Code (relating to payment of interest) or Section 6042 of the
Internal Revenue Code (relating to payment of dividends) shall be
required to report that information to the Franchise Tax Board.
(b) (1) In addition to those reports required under subdivision
(a), information returns shall be required, at the time and in the
form and manner and to the extent that the Franchise Tax Board may
prescribe, from both of the following:
(A) Every person who makes payments of exempt-interest dividends,
as described in Section 852(b)(5) of the Internal Revenue Code, that
are not exempt-interest dividends, as described in Section 17145 of
the Revenue and Taxation Code, aggregating ten dollars ($10) or more
to any person, other than to any person described in paragraph (2),
during any calendar year.
(B) Every person who receives payments of interest as a nominee
and who makes payments aggregating ten dollars ($10) or more during
any calendar year to any other person, other than to any person
described in paragraph (2), with respect to the interest so received.
For purposes of this paragraph, "interest" is limited to interest
on any obligation if the interest is exempt from tax under Section
103(a) of the Internal Revenue Code or if the interest is exempt from
tax, without regard to the identity of the holder, under any other
provision of Title 26 of the United States Code, but which is not
exempt from income tax under Part 10 (commencing with Section 17001).
(2) For purposes of this subdivision, a person shall not be
required to make a report pursuant to paragraph (1) if the person
receiving the payment is any of the following:
(A) A corporation.
(B) An organization exempt from taxation under Section 23701 or an
individual retirement plan.
(C) The United States or any wholly owned agency or
instrumentality thereof.
(D) A state, the District of Columbia, a possession of the United
States, any political subdivision of any of the foregoing, or any
wholly owned agency or instrumentality of any one or more of the
foregoing.
(E) A foreign government, a political subdivision of a foreign
government, or any wholly owned agency or instrumentality of any one
or more of the foregoing.
(F) An international organization or any wholly owned agency or
instrumentality thereof.
(G) A foreign central bank of issue.
(H) A dealer in securities or commodities required to register
under the laws of the United States or a state, the District of
Columbia, or possession of the United States.
(I) A real estate investment trust, as defined in Section 856 of
the Internal Revenue Code.
(J) An investment company, as defined in Section 80a-3 of the
United States Code, registered at all times during the taxable year
under the Investment Company Act of 1940.
(K) A common trust fund, as defined in Section 17671.
(L) Any trust that is exempt from tax under Section 664(c) of
Title 15 of the Internal Revenue Code.
(c) Every person required to make a return under this section
shall also furnish a statement to each person whose name is set forth
in the return, as required to do so by the Internal Revenue Code.
SEC. 14. Section 18645 of the Revenue and Taxation Code is amended
to read:
18645. (a) The Franchise Tax Board may require a copy of the
federal information return to be filed with the Franchise Tax Board
if a federal information return was required under any of the
following:
(1) Section 6039C of the Internal Revenue Code, relating to
returns with respect to foreign persons holding direct investments in
United States real property interests, if that person holds a direct
investment in a California real property interest as defined in
Section 18662.
(2) Section 6050H of the Internal Revenue Code, relating to
mortgage interest received in trade or business from individuals.
(3) Section 6050J of the Internal Revenue Code, relating to
foreclosures and abandonments of security.
(4) Section 6050K of the Internal Revenue Code, relating to
exchanges of certain partnership interests.
(5) Section 6050L of the Internal Revenue Code, relating to
certain dispositions of donated property.
(6) Section 6050N of the Internal Revenue Code, relating to
returns regarding payments of royalties.
(7) Section 6050P of the Internal Revenue Code, relating to
returns regarding the cancellation of indebtedness by certain
financial entities.
(b) Every person required to make a return under subdivision (a)
shall also furnish a statement to each person whose name is required
to be set forth in the return, as required to do so by the Internal
Revenue Code.
(c) A transferor of a partnership interest shall be required to
notify the partnership of that exchange in accordance with Section
6050K(c) of the Internal Revenue Code.
(d) The Franchise Tax Board shall require a copy of the federal
information return to be filed with the Franchise Tax Board if a
federal information return was required under Section 6050I of the
Internal Revenue Code, relating to cash received in trade or
business.
(e) (1) The Attorney General shall, upon court order following a
showing ex parte to a magistrate of an articulable suspicion that an
individual or entity has committed a felony offense to which a
federal information return is related, be provided a copy of a
federal information return filed with the Franchise Tax Board under
subdivision (d). The Attorney General may make a return or
information therefrom available to a district attorney subject to
regulations promulgated by the Attorney General. The regulations
shall require the district attorney seeking the return or information
to specify in writing the specific reasons for believing that a
felony offense has been committed to which the return or information
is related.
(2) Any information or return obtained by the Attorney General or
a district attorney pursuant to this section shall be confidential
and used only for investigative or prosecutorial purposes.
SEC. 15. Section 18662 of the Revenue and Taxation Code is amended
to read:
18662. (a) The Franchise Tax Board may, by regulation, require
any person, in whatever capacity acting (including lessees or
mortgagors of real or personal property, fiduciaries, employers, and
any officer or department of the state or any political subdivision
or agency of the state, or any city organized under a freeholder's
charter, or any political body not a subdivision or agency of the
state), having the control, receipt, custody, disposal, or payment of
items of income specified in subdivision (b), to withhold an amount,
determined by the Franchise Tax Board to reasonably represent the
amount of tax due when the items of income are included with other
income of the taxpayer, and to transmit the amount withheld to the
Franchise Tax Board at the time as it may designate.
(b) The items of income referred to in subdivision (a) are
interest, dividends, rents, prizes and winnings, premiums, annuities,
emoluments, compensation for services, including bonuses,
partnership income or gains, and other fixed or determinable annual
or periodical gains, profits, and income.
(c) The Franchise Tax Board may authorize the tax under
subdivision (a) to be deducted and withheld from the interest upon
any securities the owners of which are not known to the withholding
agent.
(d) Any person failing to withhold from any payments any amounts
required by subdivision (a) to be withheld is liable for the amount
withheld or the amount of taxes due from the person to whom the
payments are made to an extent not in excess of the amounts required
to be withheld, whichever is greater, unless it is shown that the
failure to withhold is due to reasonable cause.
(e) (1) In the case of any disposition of a California real
property interest by a person (but not a partnership as determined in
accordance with Subchapter K of Chapter 1 of Subtitle A of the
Internal Revenue Code, or a corporation), when the return required to
be filed with the Secretary of the Treasury under Section 6045(e) of
the Internal Revenue Code indicates, or the authorization for the
disbursement of the transaction's funds instructs, that the funds be
disbursed either to a transferor with a last known street address
outside the boundaries of this state at the time of the transfer of
the title to the California real property or to the financial
intermediary of the transferor, the transferee shall be required to
withhold an amount equal to 31/3 percent of the sales price of the
California real property conveyed.
(2) In the case of any disposition of a California real property
interest by a corporation, the transferee shall be required to
withhold an amount equal to 31/3 percent of the sales price of the
California real property conveyed, if the corporation immediately
after the transfer of the title to the California real property has
no permanent place of business in California. For purposes of this
subdivision, a corporation has no permanent place of business in
California if all of the following apply:
(A) It is not organized and existing under the laws of California.
(B) It does not qualify with the office of the Secretary of State
to transact business in California.
(C) It does not maintain and staff a permanent office in
California.
(3) Notwithstanding any other provision of this subdivision, all
of the following shall apply:
(A) No transferee shall be required to withhold any amount under
this subdivision if the sales price of the California real property
conveyed does not exceed one hundred thousand dollars ($100,000).
(B) No transferee shall be required to withhold any amount under
this subdivision unless written notification of the withholding
requirements of this subdivision has been provided by the real estate
escrow person.
(C) No transferee shall be required to withhold under this
subdivision when the transferor is a bank acting as trustee other
than a trustee of a deed of trust.
(D) No transferee shall be required to withhold under this
subdivision when the transferee is a corporate beneficiary under a
mortgage or beneficiary under a deed of trust and the California real
property is acquired in judicial or nonjudicial foreclosure or by a
deed in lieu of foreclosure.
(E) No transferee shall be required to withhold any amount under
this subdivision if the transferee, in good faith and based on all
the information of which he or she has knowledge, relies on a written
certificate executed by the transferor, certifying under penalty of
perjury, any of the following:
(i) That the transferor is a resident of California.
(ii) That the California real property being conveyed is the
principal residence of the transferor, within the meaning of Section
1034 of the Internal Revenue Code.
(iii) The transferor, if a corporation, has a permanent place of
business in California.
(4) (A) At the request of the transferor, the Franchise Tax Board
may authorize that a reduced amount or no amount be withheld under
this subdivision if the Franchise Tax Board determines that to
substitute a reduced amount or no amount shall not jeopardize the
collection of tax imposed by Part 10 (commencing with Section 17001)
or Part 11 (commencing with Section 23001). If the transferor
provides documentation sufficient for the Franchise Tax Board to
determine the actual gain required to be
recognized on the transaction, the Franchise Tax Board
may authorize a reduced amount based on the amount of the gain, as
determined, which will result in a sum which is substantially
equivalent to the amount of tax reasonably estimated to be due under
Part 10 (commencing with Section 17001) or Part 11 (commencing with
Section 23001) from the inclusion of the gain in the gross amount of
the transferor.
(B) Within 45 days after receiving a request that a reduced amount
or no amount be withheld, the Franchise Tax Board shall either
authorize a reduced amount or no amount, or deny the request.
(C) In the case where the parties to the transaction are
requesting that a reduced amount or no amount be withheld and the
response by the Franchise Tax Board to the request has not been
received at the time title to the California real property is
transferred, the parties may direct the real estate escrow person to
hold in trust for 45 days the amount required to be withheld under
this subdivision. The parties shall instruct the real estate escrow
person that at the end of 45 days the real estate escrow person shall
remit the amount withheld to the Franchise Tax Board in accordance
with this section, unless the Franchise Tax Board has authorized that
a reduced amount or no amount be withheld.
(5) Amounts withheld and payments made in accordance with this
subdivision shall be reported and remitted to the Franchise Tax Board
in the form and at the time as the Franchise Tax Board shall
determine.
(6) "California real property interest" means an interest in real
property located in California and defined in Section 897(c)(1)(A)(i)
of the Internal Revenue Code.
(7) For purposes of this subdivision, "financial intermediary"
means an agent for the purpose of receiving and transferring funds to
a principal.
(8) For purposes of this subdivision, "real estate escrow person"
means any of the following persons involved in the real estate
transaction:
(A) The person (including any attorney, escrow company, or title
company) responsible for closing the transaction.
(B) If no other person described in subparagraph (A) is
responsible for closing the transaction, then any other person who
receives and disburses the consideration or value for the interest or
property conveyed.
(9) (A) Unless the real estate escrow person provides "assistance,"
it shall be unlawful for any real estate escrow person to charge any
customer for complying with the requirements of this subdivision.
(B) For purposes of this paragraph, "assistance" includes, but is
not limited to, helping the parties clarify with the Franchise Tax
Board the issue of whether withholding is required under this
subdivision, helping the parties request that the Franchise Tax Board
authorize a reduced amount or no amount be withheld under this
subdivision, or, upon request of the parties, withholding an amount
under this subdivision and remitting the amount to the Franchise Tax
Board.
(C) For purposes of this paragraph, "assistance" does not include
providing the written notification of the withholding requirements of
this subdivision, or providing the certification that either:
(i) The transferor is a resident of California or that the
California real property being conveyed is the transferor's principal
residence.
(ii) The transferor, if a corporation, has a permanent place of
business in California.
(D) In a case where the real estate escrow person provides
"assistance" in complying with the withholding requirements of this
subdivision, it shall be unlawful for the real estate escrow person
to charge any customer a fee that exceeds forty-five dollars ($45).
(10) For purposes of this subdivision, "sales price" means the sum
of all of the following:
(A) The cash paid, or to be paid. The term "cash paid, or to be
paid" does not include stated or unstated interest or original issue
discount (as determined by Sections 1271 to 1275, inclusive, of the
Internal Revenue Code).
(B) The fair market value of other property transferred, or to be
transferred.
(C) The outstanding amount of any liability assumed by the
transferee or to which the California real property interest is
subject immediately before and after the transfer.
(f) Whenever any person has withheld any amount pursuant to this
section, the amount so withheld shall be held in trust for the State
of California. The amount of the fund shall be assessed, collected,
and paid in the same manner and subject to the same provisions and
limitations (including penalties) as are applicable with respect to
the taxes imposed by Part 10 (commencing with Section 17001), Part 11
(commencing with Section 23001), or this part.
(g) Withholding shall not be required under this section with
respect to wages, salaries, fees, or other compensation paid by a
corporation for services performed in California for that corporation
to a nonresident corporate director for director services, including
attendance at a board of directors' meeting.
(h) In the case of any payment described in subdivision (g), the
person making the payment shall do each of the following:
(1) File a return with the Franchise Tax Board at the time and in
the form and manner specified by the Franchise Tax Board.
(2) Provide the payee with a statement at the time and in the form
and manner specified by the Franchise Tax Board.
SEC. 16. Section 18670 of the Revenue and Taxation Code is amended
to read:
18670. (a) The Franchise Tax Board may by notice, served
personally or by first-class mail, require any employer, person,
officer or department of the state, political subdivision or agency
of the state, including the Regents of the University of California,
a city organized under a freeholders' charter, or a political body
not a subdivision or agency of the state, having in their possession,
or under their control, any credits or other personal property or
other things of value, belonging to a taxpayer or to an employer or
person who has failed to withhold and transmit amounts due pursuant
to this article, to withhold, from the credits or other personal
property or other things of value, the amount of any tax, interest,
or penalties due from the taxpayer or the amount of any liability
incurred by that employer or person for failure to withhold and
transmit amounts due from a taxpayer under this part and to transmit
the amount withheld to the Franchise Tax Board at the times that it
may designate. However, in the case of a depository institution, as
defined in Section 19(b) of the Federal Reserve Act (12 U.S.C.A. Sec.
461(b)(1)(A)), amounts due from a taxpayer under this part shall be
transmitted to the Franchise Tax Board not less than 10 business days
from receipt of the notice. To be effective, the notice shall state
the amount due from the taxpayer and shall be delivered or mailed to
the branch or office reported in information returns filed with the
Franchise Tax Board, or the branch or office where the credits or
other property is held, unless another branch or office is designated
by the employer, person, officer or department of the state,
political subdivision or agency of the state, including the Regents
of the University of California, a city organized under a freeholders'
charter or a political body not a subdivision or agency of the
state.
(b) (1) At least 45 days before sending a notice to withhold to
the address indicated on the information return, the Franchise Tax
Board shall request a depository institution to do either of the
following:
(A) Verify that the address on its information return is its
designated address for receiving notices to withhold.
(B) Provide the Franchise Tax Board with a designated address for
receiving notices to withhold.
(2) Once the depository institution has specified a designated
address pursuant to paragraph (1), the Franchise Tax Board shall send
all notices to that address unless the depository institution
provides notification of another address. The Franchise Tax Board
shall send all notices to withhold to a new designated address 30
days after notification.
(3) Failure to verify or provide a designated address within 30
days of receiving the request shall be deemed verification of the
address on the information return as the depository institution's
designated address.
(c) Any corporation or person failing to withhold the amounts due
from any taxpayer and transmit them to the Franchise Tax Board after
service of the notice shall be liable for those amounts. However, in
the case of a depository institution, if a notice to withhold is
mailed to the branch where the account is located or principal
banking office, the depository institution shall be liable for a
failure to withhold only to the extent that the accounts can be
identified in information normally maintained at that location in the
ordinary course of business.
SEC. 17. Section 19009 of the Revenue and Taxation Code is amended
to read:
19009. (a) Whenever any person or employer who is required to
collect, account for, and pay over any tax--
(1) At the time and in the manner prescribed by law or regulations
(A) fails to collect, truthfully account for, or pay over the tax,
or (B) fails to make deposits, payments, or returns of the tax, and
(2) Is notified, by notice delivered in hand or by registered mail
of the failure, then all the requirements of subdivision (b) shall
be complied with. In the case of a corporation, partnership, limited
liability company, or trust, notice to an officer, partner, manager,
member, or trustee, shall, for purposes of this section, be deemed
to be sufficient notice to the corporation, partnership, limited
liability company, or trust and to all officers, partners, managers,
members, trustees, and employees thereof.
(b) Any person or employer who is required to collect, account
for, and pay over any tax imposed by Part 10 (commencing with Section
17001) or Part 11 (commencing with Section 23001), if notice has
been delivered to that person or employer in accordance with
subdivision (a), shall collect the taxes, which become collectible
after delivery of the notice, shall (not later than the end of the
second banking day after any amount of the taxes is collected)
deposit that amount in a separate account in a bank located within
the limits of this state, and shall keep the amount of those taxes in
that account until payment over to the Franchise Tax Board. The
account shall be designated as a special fund in trust for the
Franchise Tax Board, payable to the Franchise Tax Board by that
person or employer as trustee.
(c) Whenever the Franchise Tax Board is satisfied, with respect to
any notification made under subdivision (a), that all requirements
of law and regulations with respect to the taxes, will henceforth be
complied with, it may cancel the notification. The cancellation
shall take effect at the time as is specified in the notice of the
cancellation.
SEC. 18. Section 19011 of the Revenue and Taxation Code is amended
to read:
19011. (a) All payments required under this part, regardless of
the income (or taxable) year to which the payments apply shall be
remitted to the Franchise Tax Board by electronic funds transfer
pursuant to Division 11 (commencing with Section 11101) of the
Commercial Code, once any of the following conditions are met:
(1) With respect to any corporation, any installment payment of
estimated tax made pursuant to Section 19025 or the payment made
pursuant to Section 18604 with regard to an extension of time to file
exceeds fifty thousand dollars ($50,000) in any income year
beginning on or after January 1, 1991, or exceeds twenty thousand
dollars ($20,000) in any income year beginning on or after January 1,
1995.
(2) With respect to any corporation, the total tax liability
exceeds two hundred thousand dollars ($200,000) in any income year
beginning on or after January 1, 1991, or exceeds eighty thousand
dollars ($80,000) in any income year beginning on or after January 1,
1995. For purposes of this section, total tax liability shall be
the total tax liability as shown on the original return, after any
adjustment made pursuant to Section 19051.
(3) A partnership or taxpayer (for purposes of this section,
"taxpayer") submits a request to the Franchise Tax Board and is
granted permission to make electronic funds transfers.
(b) A taxpayer required to remit payments to the Franchise Tax
Board by electronic funds transfer may elect to discontinue making
payments where the threshold requirements set forth in paragraphs (1)
and (2) of subdivision (a) were not met for the preceding income (or
taxable) year. The election shall be made in a form and manner
prescribed by the Franchise Tax Board.
(c) Any taxpayer required to remit payment by electronic funds
transfer pursuant to this section who makes payment by other means
shall pay a penalty of 10 percent of the amount paid, unless it is
shown that the failure to make payment as required was for reasonable
cause and was not the result of willful neglect.
(d) Any taxpayer required to remit payments by electronic funds
transfer pursuant to this section may request a waiver of those
requirements from the Franchise Tax Board. The Franchise Tax Board
may grant a waiver only if it determines that the particular amounts
paid in excess of the threshold amounts established in this section
were not representative of the taxpayer's tax liability. If a
taxpayer is granted a waiver, subsequent remittances by electronic
funds transfer shall be required only on those terms set forth in the
waiver.
(e) The Franchise Tax Board shall accept remittances by electronic
funds transfer pursuant to this section no later than January 1,
1993. Electronic funds transfer procedures, in addition to those
described in subdivision (f), shall be as prescribed by the Franchise
Tax Board. Payment is deemed complete on the date the electronic
funds transfer is initiated, if settlement to the state's demand
account occurs on or before the banking day following the date the
transfer is initiated. If settlement to the state's demand account
does not occur on or before the banking day following the date the
transfer is initiated, payment is deemed to occur on the date
settlement occurs.
(f) For purposes of this section:
(1) "Electronic funds transfer" means any transfer of funds, other
than a transaction originated by check, draft, or similar paper
instrument, that is initiated through an electronic terminal,
telephonic instrument, or computer or magnetic tape, so as to order,
instruct, or authorize a financial institution to debit or credit an
account. Electronic funds transfer shall be accomplished by an
automated clearinghouse debit, automated clearinghouse credit, a
Federal Reserve Wire Transfer (Fedwire), or by an international funds
transfer.
(2) "Automated clearinghouse" means any federal reserve bank, or
an organization established by agreement with the National Automated
Clearing House Association, that operates as a clearinghouse for
transmitting or receiving entries between banks or bank accounts and
that authorizes an electronic transfer of funds between those banks
or bank accounts.
(3) "Automated clearinghouse debit" means a transaction in which
any department of the state, through its designated depository bank,
originates an automated clearinghouse transaction debiting the
taxpayer's bank account and crediting the state's bank account for
the amount of tax. Banking costs incurred for the automated
clearinghouse debit transaction by the taxpayer shall be paid by the
state.
(4) "Automated clearinghouse credit" means an automated
clearinghouse transaction in which the taxpayer, through its own
bank, originates an entry crediting the state's bank account and
debiting its own bank account. Banking costs incurred by the state
for the automated clearinghouse credit transaction may be charged to
the taxpayer.
(5) "Fedwire" means any transaction originated by the taxpayer and
utilizing the national electronic payment system to transfer funds
through federal reserve banks, pursuant to which the taxpayer debits
its own bank account and credits the state's bank account.
Electronic funds transfers may be made by Fedwire only if prior
approval is obtained from the Franchise Tax Board and the taxpayer is
unable, for reasonable cause, to make payments pursuant to paragraph
(3) or (4). Banking costs charged to the taxpayer and to the state
may be charged to the taxpayer.
(6) "International funds transfer" means any transaction
originated by the taxpayer and utilizing the international electronic
payment system to transfer funds, pursuant to which the taxpayer
debits its own bank account and credits the state's bank account.
(7) In determining whether a payment or total tax liability
exceeds the amounts established in subdivision (a), the income of all
taxpayers whose income derived from, or attributable to, sources
within this state is required to be determined by a combined report
shall be aggregated and the total aggregate amount shall be
considered to be the income of a single taxpayer for purposes of
determining the payment or total tax liability of a single taxpayer.
SEC. 19. Section 19021 of the Revenue and Taxation Code is amended
to read:
19021. In the case of taxpayers subject to the tax imposed by
Article 3 (commencing with Section 23181) of Chapter 2 of Part 11,
there shall be due and payable on or before the 15th day of the third
month following the close of the preceding year from each taxpayer a
percentage of its net income as disclosed by its return which is
equal to the rate applicable to corporations subject to the tax
imposed by Article 2 (commencing with Section 23151) of Chapter 2 of
Part 11 plus the personal property tax rate equivalent included in
the bank and financial corporation tax rate determination by the
Franchise Tax Board pursuant to Sections 23186 and 23186.1. The
payment required by this section shall not be less than the minimum
tax specified in Section 23153.
SEC. 20. Section 19023 of the Revenue and Taxation Code is amended
to read:
19023. For purposes of this article, in the case of a
corporation, other than a bank or financial corporation, the term
"estimated tax" means the amount which the corporation estimates as
the amount of the tax imposed by Part 11 (commencing with Section
23001); but in no event shall the estimated tax of a corporation
subject to the tax imposed by Article 2 (commencing with Section
23151) of Chapter 2 of Part 11 be less than the minimum tax
prescribed in Section 23153.
SEC. 21. Section 19024 of the Revenue and Taxation Code is amended
to read:
19024. (a) In the case of banks and financial corporations,
"estimated tax" means the amount which the bank or financial
corporation estimates as the amount of the tax imposed by Part 11
(commencing with Section 23001) at the rate determined by the
Franchise Tax Board for the preceding year pursuant to Section
23186.1, but in no event shall the estimated tax of a bank or
financial corporation be less than the minimum tax prescribed in
Section 23153.
(b) In case of an increase or decrease in the rate of tax imposed
under Section 23151 (tax on general corporations), a bank or
financial corporation shall be required to increase or decrease the
rate determined by the Franchise Tax Board for the preceding year by
the same amount as the change in the rate imposed under Section 23151
determined in accordance with Section 24251 (relating to computation
of tax when law changed).
SEC. 23. Section 19058 of the Revenue and Taxation Code is amended
to read:
19058. (a) If the taxpayer omits from gross income an amount
properly includable therein which is in excess of 25 percent of the
amount of gross income stated in the return, a notice of a proposed
deficiency assessment may be mailed to the taxpayer within six years
after the return was filed. Additionally, in the case of a
corporation, a proceeding in court for the collection of the tax may
be commenced without assessment at any time within six years after
the return was filed.
(b) For purposes of this section both of the following shall
apply:
(1) In the case of a trade or business, the term "gross income"
means the total of the amounts received or accrued from the sale of
goods or services (if the amounts are required to be shown on the
return) prior to diminution by the cost of the sales or service.
(2) In determining the amount omitted from gross income, there
shall not be taken into account any amount which is omitted from
gross income stated in the return if the amount is disclosed in the
return, or in a statement attached to the return, in a manner
adequate to apprise the Franchise Tax Board of the nature and amount
of the item.
SEC. 24. Section 19132.5 of the Revenue and Taxation Code is
amended to read:
19132.5. (a) In the case of a qualified taxpayer, no penalty
shall be assessed under Section 19132 if the return is filed timely
(not later than the extended due date granted under Section 18567 or
18604) and the tax required to be paid on or before the due date of
the return, without regard to extension, is paid within the following
time:
(1) In the case of an individual, partnership, or fiduciary,
within six months of the original due date of the return.
(2) In the case of a corporation, within seven months of the
original due date of the return.
(b) Any penalty imposed under Section 19132 shall be assessed from
the original due date of the return if the taxpayer fails to pay the
tax within the time specified in this section.
(c) This section shall apply to payment of the amount shown as tax
on the original returns required to be filed during calendar year
1994.
(d) For purposes of this section, "qualified taxpayer" means any
corporation, fiduciary, partnership, or individual taxpayer to whom
one of the following applies as a result of the Northridge earthquake
of January 1994, any related aftershock, or any related casualty:
(1) The qualified taxpayer sustained any significant property
loss.
(2) The qualified taxpayer suffered a loss of employment due to
property damage suffered by his or her employer.
(3) The qualified taxpayer realized significant loss of business
income from a business located within the Northridge earthquake area.
SEC. 25. Section 19141.5 of the Revenue and Taxation Code is
amended to read:
19141.5. (a) (1) Section 6038A of the Internal Revenue Code,
relating to information with respect to certain foreign-owned
corporations, shall apply.
(2) A penalty shall be imposed under this part for failure to
furnish information or maintain records and that penalty shall be
determined in accordance with Section 6038A of the Internal Revenue
Code.
(3) Section 11314 of Public Law 101-508, relating to application
of amendments made by Section 7403 of the Revenue Reconciliation Act
of 1989 to taxable years beginning on or before July 10, 1989, shall
apply.
(4) Section 6038A(e) of the Internal Revenue Code, relating to
enforcement of requests for certain records, is modified as follows:
(A) Each reference to Section 7602, 7603, or 7604 of the Internal
Revenue Code shall instead refer to Section 19504.
(B) Each reference to "summons" shall instead refer to "subpoena
duces tecum."
(C) Section 6038A(e)(4)(C) of the Internal Revenue Code shall
refer to "superior courts of the State of California for the Counties
of Los Angeles, Sacramento, and San Diego, and for the City and
County of San Francisco," instead of "United States district court
for the district in which the person (to whom the summons is issued)
resides or is found."
(b) In the case of a corporation, each of the following shall
apply:
(1) Section 6038B of the Internal Revenue Code, relating to notice
of certain transfers to foreign persons, shall apply.
(2) A penalty shall be imposed under this part for failure to
furnish information or maintain records and that penalty shall be
determined in accordance with Section 6038B of the Internal Revenue
Code.
(c) (1) Section 6038C of the Internal Revenue Code, relating to
information with respect to foreign corporations engaged in United
States business, shall apply.
(2) A penalty shall be imposed under this part for failure to
furnish information or maintain records and that penalty shall be
determined in accordance with Section 6038C of the Internal Revenue
Code.
(3) Section 6038C(d) of the Internal Revenue Code, relating to
enforcement of requests for certain records, is modified as follows:
(A) Each reference to Section 7602, 7603, or 7604 of the Internal
Revenue Code shall instead refer to Section 19504.
(B) Each reference to "summons" shall instead refer to "subpoena
duces tecum."
(d) For purposes of this part, the information required to be
filed with the Franchise Tax Board pursuant to this section shall be
a copy of the information filed with the Internal Revenue Service.
(e) For purposes of this section, each of the following shall
apply:
(1) Section 7701(a)(4) of the Internal Revenue Code, relating to
the term "domestic," shall apply.
(2) Section 7701(a)(5) of the Internal Revenue Code, relating to
the term "foreign," shall apply.
(3) Section 7701(a)(30) of the Internal Revenue Code, relating to
the term "United States person," shall apply. However, the term
"United States person" shall not include any corporation that is not
subject to the tax imposed under Chapter 2 (commencing with Section
23101), Chapter 2.5 (commencing with Section 23400), or Chapter 3
(commencing with Section 23501), of Part 11.
SEC. 26. Section 19141.6 of the Revenue and Taxation Code is
amended to read:
19141.6. (a) Each taxpayer determining its income subject to tax
pursuant to Section 25101 or electing to file pursuant to Section
25110 shall, for income years beginning on or after January 1, 1994,
maintain (in the location, in the manner, and to the extent
prescribed in regulations which shall be promulgated by the Franchise
Tax Board on or before December 31, 1995) and make available upon
request all of the following:
(1) Any records as may be appropriate to determine the correct
treatment of the components that are a part of one or more unitary
businesses for purposes of determining the income derived from or
attributable to this state pursuant to Section 25101 or 25110.
(2) Any records as may be appropriate to determine the correct
treatment of amounts that are attributable to the classification of
an item as business or
nonbusiness income for purposes of Article 2 (commencing with Section
25120) of Chapter 17 of Part 11.
(3) Any records as may be appropriate to determine the correct
treatment of the apportionment factors for purposes of Article 2
(commencing with Section 25120) of Chapter 17 of Part 11.
(4) Documents and information, including any questionnaires
completed and submitted to the Internal Revenue Service that are
necessary to audit issues involving attribution of income to the
United States or foreign jurisdictions under Section 882 or Subpart F
of Part III of Subchapter N, or similar sections, of the Internal
Revenue Code.
(b) For purposes of this section:
(1) Information for any year shall be retained for that period of
time in which the taxpayers' income or franchise tax liability to
this state may be subject to adjustment, including all periods in
which additional income or franchise taxes may be assessed, not to
exceed eight years from the due date or extended due date of the
return, or during which a protest is pending before the Franchise Tax
Board, or an appeal is pending before the State Board of
Equalization or a lawsuit is pending in the courts of this state or
the United States with respect to California franchise or income tax.
(2) "Related party" means corporations that are related because
one owns or controls directly or indirectly more than 50 percent of
the stock of the other or because more than 50 percent of the voting
stock of each is owned or controlled, directly or indirectly, by the
same interests.
(3) "Records" includes any books, papers, or other data.
(c) (1) If a corporation subject to this section fails to maintain
or fails to cause another to maintain records as required by
subdivision (a), that corporation shall pay a penalty of ten thousand
dollars ($10,000) for each income year with respect to which the
failure occurs.
(2) If any failure described in paragraph (1) continues for more
than 90 days after the day on which the Franchise Tax Board mails
notice of the failure to the corporation, that corporation shall pay
a penalty (in addition to the amount required under paragraph (1)) of
ten thousand dollars ($10,000) for each 30-day period (or fraction
thereof) during which the failure continues after the expiration of
the 90-day period. The additional penalty imposed by this
subdivision shall not exceed a maximum of fifty thousand dollars
($50,000) if the failure to maintain or the failure to cause another
to maintain is not willful. This maximum shall apply with respect to
income years beginning on or after January 1, 1994, and before the
earlier of the first day of the month following the month in which
regulations are adopted pursuant to this section or December 31,
1995.
(3) For purposes of this section, the time prescribed by
regulations to maintain records (and the beginning of the 90-day
period after notice by the Franchise Tax Board) shall be treated as
not earlier than the last day on which (as shown to the satisfaction
of the Franchise Tax Board) reasonable cause existed for failure to
maintain the records.
(d) (1) The Franchise Tax Board may apply the rules of paragraph
(2) whether or not the board begins a proceeding to enforce a
subpoena, or subpoena duces tecum, if subparagraphs (A), (B), and (C)
apply:
(A) For purposes of determining the correct treatment under Part
11 (commencing with Section 23001) of the items described in
subdivision (a), the Franchise Tax Board issues a subpoena or
subpoena duces tecum to a corporation to produce (either directly or
as agent for the related party) any records or testimony.
(B) The subpoena or subpoena duces tecum is not quashed in a
proceeding begun under paragraph (3) and is not determined to be
invalid in a proceeding begun under Section 19504 to enforce the
subpoena or subpoena duces tecum.
(C) The corporation does not substantially comply in a timely
manner with the subpoena or subpoena duces tecum and the Franchise
Tax Board has sent by certified or registered mail a notice to that
corporation that it has not substantially complied.
(D) If the corporation fails to maintain or fails to cause another
to maintain records as required by subdivision (a), and by reason of
that failure, the subpoena, or subpoena duces tecum, is quashed in a
proceeding described in subparagraph (B) or the corporation is not
able to provide the records requested in the subpoena or subpoena
duces tecum, the Franchise Tax Board may apply the rules of paragraph
(2) to any of the items described in subdivision (a) to which the
records relate.
(2) (A) All of the following shall be determined by the Franchise
Tax Board in the Franchise Tax Board's sole discretion from the
Franchise Tax Board's own knowledge or from information the Franchise
Tax Board may obtain through testimony or otherwise:
(i) The components that are a part of one or more unitary
businesses for purposes of determining the income derived from or
attributable to this state pursuant to Section 25101 or 25110.
(ii) Amounts that are attributable to the classification of an
item as business or nonbusiness income for purposes of Article 2
(commencing with Section 25120) of Chapter 17 of Part 11.
(iii) The apportionment factors for purposes of Article 2
(commencing with Section 25120) of Chapter 17 of Part 11.
(iv) The correct amount of income under Section 882 of, or Subpart
F of Part III of, Subchapter N of, or similar sections of, the
Internal Revenue Code.
(B) This paragraph shall apply to determine the correct treatment
of the items described in subdivision (a) unless the corporation is
authorized by its related parties (in the manner and at the time as
the Franchise Tax Board shall prescribe) to act as the related
parties' limited agent solely for purposes of applying Section 19504
with respect to any request by the Franchise Tax Board to examine
records or produce testimony related to any item described in
subdivision (a) or with respect to any subpoena or subpoena duces
tecum for the records or testimony. The appearance of persons or the
production of records by reason of the corporation being an agent
shall not subject those persons or records to legal process for any
purpose other than determining the correct treatment under Part 11 of
the items described in subdivision (a).
(C) Determinations made in the sole discretion of the Franchise
Tax Board pursuant to this paragraph may be appealed to the State
Board of Equalization, in the manner and at a time, as provided by
Section 19045 or 19324, or may be the subject of an action to recover
tax, in the manner and at a time, as provided by Section 19382. The
review of determinations by the board or the court shall be limited
to whether the determinations were arbitrary or capricious, or are
not supported by substantial evidence.
(3) (A) Notwithstanding any other law or rule of law, any
reporting corporation to which the Franchise Tax Board issues a
subpoena or subpoena duces tecum referred to in subparagraph (A) of
paragraph (1) shall have the right to begin a proceeding to quash the
subpoena or subpoena duces tecum not later than the 90th day after
the subpoena or subpoena duces tecum was issued. In that proceeding,
the Franchise Tax Board may seek to compel compliance with the
subpoena or subpoena duces tecum.
(B) Notwithstanding any other law or rule of law, any reporting
bank or corporation that has been notified by the Franchise Tax Board
that it has determined that the corporation has not substantially
complied with a subpoena or subpoena duces tecum referred to in
paragraph (1) shall have the right to begin a proceeding to review
the determination not later than the 90th day after the day on which
the notice referred to in subparagraph (C) of paragraph (1) was
mailed. If the proceeding is not begun on or before the 90th day,
the determination by the Franchise Tax Board shall be binding and
shall not be reviewed by any court.
(C) The superior courts of the State of California for the
Counties of Los Angeles, Sacramento, and San Diego, and for the City
and County of San Francisco shall have jurisdiction to hear any
proceeding brought under subparagraphs (A) and (B). Any order or
other determination in the proceeding shall be treated as a final
order that may be appealed.
(D) If any corporation takes any action as provided in
subparagraphs (A) and (B), the running of any period of limitations
under Sections 19057 to 19064, inclusive (relating to the assessment
and collection of tax), or under Section 19704 (relating to criminal
prosecutions) with respect to that corporation shall be suspended for
the period during which the proceedings, and appeals therein, are
pending. In no event shall any period expire before the 90th day
after the day on which there is a final determination in the
proceeding.
SEC. 27. Section 19147 of the Revenue and Taxation Code is amended
to read:
19147. (a) Notwithstanding Sections 19142 to 19145, inclusive,
the addition to the tax with respect to any underpayment of any
installment shall not be imposed if the total amount of all payments
of estimated tax paid on or before the last date prescribed for the
payment of the installment equals or exceeds the amount which would
have been required to be paid on or before that date if the estimated
tax were whichever of the following is the lesser:
(1) (A) The tax shown on the return of the taxpayer for the
preceding income year if a return showing a liability for tax was
filed by the taxpayer for the preceding year and that preceding year
was a year of 12 months. The tax shown on the return, in the case of
the tax imposed by Article 3 (commencing with Section 23181) of
Chapter 2 of Part 11, means the amount of tax shown on the return for
the income year as prescribed in Section 19021.
(B) In the case of a large corporation, subparagraph (A) shall not
apply, except as provided in clauses (i) and (ii).
(i) Subparagraph (A) shall apply for purposes of determining the
amount of the first required installment for any income year.
(ii) Any reduction in the first required installment by reason of
clause (i) shall be recaptured by increasing the amount of the next
required installment by the amount of that reduction.
(2) (A) An amount equal to the applicable percentage specified in
Section 19144 of the tax for the income year computed by placing on
an annualized basis the taxable income:
(i) For the first three months of the income year, in the case of
the installment required to be paid in the fourth month.
(ii) For the first three months of the income year, in the case of
the installment required to be paid in the sixth month.
(iii) For the first six months of the income year in the case of
the installment required to be paid in the ninth month.
(iv) For the first nine months of the income year, in the case of
the installment required to be paid in the 12th month of the taxable
year.
(B) (i) If the taxpayer makes an election under this clause, each
of the following shall apply:
(I) Clause (i) of subparagraph (A) shall be applied by
substituting "two months" for "three months."
(II) Clause (ii) of subparagraph (A) shall be applied by
substituting "four months" for "three months."
(III) Clause (iii) of subparagraph (A) shall be applied by
substituting "seven months" for "six months."
(IV) Clause (iv) of subparagraph (A) shall be applied by
substituting "ten months" for "nine months."
(ii) If the taxpayer makes an election under this clause, each of
the following shall apply:
(I) Clause (ii) of subparagraph (A) shall be applied by
substituting "five months" for "three months."
(II) Clause (iii) of subparagraph (A) shall be applied by
substituting "eight months" for "six months."
(III) Clause (iv) of subparagraph (A) shall be applied by
substituting "eleven months" for the "nine months."
(iii) An election under clause (i) or (ii) shall apply to the
income year for which the election is made and shall be effective
only if the election is made on or before the date required for the
payment of the first required installment for that income year.
(iv) This subparagraph shall apply to income years beginning on or
after January 1, 1997.
(C) For purposes of this paragraph, the taxable income shall be
placed on an annualized basis in the following manner:
(i) Multiply by 12 the taxable income referred to in subparagraph
(A).
(ii) Divide the resulting amount by the number of months in the
income year referred to in subparagraph (A).
"Taxable income" as used in this paragraph means "net income"
includable in the measure of tax or "alternative minimum taxable
income" (as defined by Section 23455).
(D) In the case of any corporation which is subject to the tax
imposed under Section 23731, any reference to taxable income shall be
treated as including a reference to unrelated business taxable
income and, except in the case of an election under subparagraph (B),
each of the following shall apply:
(i) Clause (i) of subparagraph (A) shall be applied by
substituting "two months" for "three months."
(ii) Clause (ii) of subparagraph (A) shall be applied by
substituting "four months" for "three months."
(iii) Clause (iii) of subparagraph (A) shall be applied by
substituting "seven months" for "six months."
(iv) Clause (iv) of subparagraph (A) shall be applied by
substituting "ten months" for "nine months."
(3) The applicable percentage specified in Section 19144 or more
of the tax for the income year was paid by withholding of tax
pursuant to Section 18662.
(4) The applicable percentage specified in Section 19144 or more
of the net income for the income year consists of items from which an
amount was withheld pursuant to Section 18662 and the amount of the
first installment, including payments applied pursuant to subdivision
(c) of Section 19025, equals at least the minimum franchise tax
specified in Section 23153.
(b) (1) For purposes of this section, "large corporation" means
any corporation if that corporation (or any predecessor corporation)
had taxable income (computed without regard to net operating loss
deductions) of one million dollars ($1,000,000) or more for any
income year during the testing period.
(2) For purposes of this subdivision, "testing period" means the
three income years immediately preceding the income year involved.
SEC. 28. Section 19164 of the Revenue and Taxation Code is amended
to read:
19164. (a) (1) An accuracy-related penalty shall be imposed under
this part and shall be determined in accordance with the provisions
of Section 6662 of the Internal Revenue Code, relating to imposition
of accuracy-related penalty.
(2) With respect to corporations, this subdivision shall apply to
all of the following:
(A) All income years beginning on or after January 1, 1990.
(B) Any other income year for which an assessment is made after
July 16, 1991.
(b) A fraud penalty shall be imposed under this part and shall be
determined in accordance with the provisions of Section 6663 of the
Internal Revenue Code, relating to imposition of fraud penalty.
(c) The provisions of Section 6664 of the Internal Revenue Code,
relating to definitions and special rules, shall apply.
(d) The provisions of Section 6665 of the Internal Revenue Code,
relating to applicable rules, shall apply.
SEC. 29. Section 19192 of the Revenue and Taxation Code is amended
to read:
19192. For purposes of this article:
(a) (1) "Qualified business entity" means an entity that is all of
the following:
(A) An entity that is a corporation, as defined in Section 23038.
(B) A business entity, including any predecessors to the business
entity, that previously has never filed a return with the Franchise
Tax Board pursuant to this part, Part 10 (commencing with Section
17001), or Part 11 (commencing with Section 23011).
(C) A business entity, including any predecessors to the business
entity, that previously has not been the subject of an inquiry by the
Franchise Tax Board with respect to liability for any of the taxes
imposed under Part 10 (commencing with Section 17001) or Part 11
(commencing with Section 23001).
(D) A business entity that voluntarily comes forward prior to any
unilateral contact from the Franchise Tax Board, makes application
for a voluntary disclosure agreement in a form and manner prescribed
by the Franchise Tax Board, and makes a full and accurate statement
of its activities in this state for the six immediately preceding
taxable or income years.
(2) (A) Notwithstanding paragraph (1), a qualified business entity
does not include any of the following:
(i) A business entity that is organized and existing under the
laws of this state.
(ii) A business entity that is qualified or registered with the
office of the Secretary of State.
(iii) A business entity that maintains and staffs a permanent
facility in this state.
(B) For purposes of this paragraph, the storing of materials,
goods, or products in a public warehouse pursuant to a public
warehouse contract does not constitute maintaining a permanent
facility in this state.
(3) "Qualified shareholder" means an individual that is all of the
following:
(A) A nonresident on the signing date of the voluntary disclosure
agreement.
(B) A shareholder of an S corporation (defined in Section 23800)
that has applied for a voluntary disclosure agreement under this
article under which all material facts pertinent to the shareholder's
liability would be disclosed on that S corporation's voluntary
disclosure agreement as required under clause (i) of subparagraph (A)
of paragraph (2) of subdivision (d) of Section 19191.
(4) Notwithstanding paragraph (3), subparagraph (B) of paragraph
(1) of subdivision (d) of Section 19191 shall not apply to any of the
six taxable years immediately preceding the signing date that the
qualified shareholder was a California resident required to file a
California tax return, nor to any penalties or additions to tax
attributable to income other than the California source income from
the S corporation that filed an application under this article.
(b) "Signing date" of the voluntary disclosure agreement means the
date on which a person duly authorized by the Franchise Tax Board
signs the agreement.
(c) The amendments to this section made by the act adding this
subdivision shall apply to taxable or income years beginning on or
after January 1, 1997.
SEC. 30. Section 19254 of the Revenue and Taxation Code is amended
to read:
19254. (a) (1) If any person, other than an organization exempt
from taxation under Section 23701, fails to pay any amount of tax,
penalty, addition to tax, interest, or other liability imposed and
delinquent under Part 10 (commencing with Section 17001), Part 11
(commencing with Section 23001), or this part, a collection cost
recovery fee shall be imposed if the Franchise Tax Board has mailed
notice to that person for payment that advises that continued failure
to pay the amount due may result in collection action, including the
imposition of a collection cost recovery fee. The collection cost
recovery fee shall be in the amount of:
(A) In the case of an individual, partnership, limited liability
company classified as a partnership for California income tax
purposes, or fiduciary, eighty-eight dollars ($88) or an amount as
adjusted under subdivision (b).
(B) In the case of a corporation or limited liability company
classified as a corporation for California income tax purposes, one
hundred sixty-six dollars ($166) or an amount as adjusted under
subdivision (b).
(2) If any person, other than an organization exempt from taxation
under Section 23701, fails or refuses to make and file a tax return
required by Part 10 (commencing with Section 17001), Part 11
(commencing with Section 23001), or this part, within 25 days after
formal legal demand to file the tax return is mailed to that person
by the Franchise Tax Board, the Franchise Tax Board shall impose a
filing enforcement cost recovery fee in the amount of:
(A) In the case of an individual, partnership, limited liability
company classified as a partnership for California income tax
purposes, or fiduciary, fifty-one dollars ($51) or an amount as
adjusted under subdivision (b).
(B) In the case of a corporation or limited liability company
classified as a corporation for California income tax purposes, one
hundred nineteen dollars ($119) or an amount as adjusted under
subdivision (b).
(b) For fees imposed under this section during the fiscal year
1993-94 and fiscal years thereafter, the amount of those fees shall
be set to reflect actual costs and shall be specified in the annual
Budget Act.
(c) Interest shall not accrue with respect to the cost recovery
fees provided by this section.
(d) The amounts provided by this section are obligations imposed
by this part and may be collected in any manner provided under this
part for the collection of a tax.
(e) Subdivision (a) is operative with respect to the notices for
payment or formal legal demands to file, either of which is mailed on
or after September 15, 1992.
(f) The Franchise Tax Board shall determine the total amount of
the cost recovery fees collected or accrued through June 30, 1993,
and shall notify the Controller of that amount. The Controller shall
transfer that amount to the Franchise Tax Board, and that amount is
hereby appropriated to the board for the 1992-93 fiscal year for
reimbursement of its collection and filing enforcement efforts.
SEC. 31. Section 19263 of the Revenue and Taxation Code is amended
to read:
19263. At any sale authorized by Section 19262, the property
shall be sold by the Franchise Tax Board or its duly authorized agent
in accordance with law and the notice of sale, and the Franchise Tax
Board shall deliver to the purchaser a bill of sale for the property
so sold and the bill of sale shall vest title in the purchaser. The
unsold portion of any property so seized may be left at the place of
sale at the risk of the taxpayer. If, upon any sale, the moneys so
received exceed the amount of all taxes, interest, penalties and
costs due the state from the taxpayer, any excess shall be returned
to the taxpayer and a receipt therefor obtained. However, if any
person having an interest in or lien upon the property has filed with
the Franchise Tax Board prior to any sale notice of the interest or
lien, the Franchise Tax Board shall withhold any excess pending a
determination of the rights of the respective parties thereto by a
court of competent jurisdiction.
If, for any reason, the receipt of the taxpayer is not available,
the Franchise Tax Board shall deposit the excess moneys with the
Treasurer, as trustee for the owner, subject to the order of the
taxpayer or his or her trust or estate, or in the case of a
corporation, its successor through reorganization, merger, or
consolidation, or its stockholders upon dissolution.
SEC. 35. Section 19301 of the Revenue and Taxation Code is amended
to read:
19301. (a) If the Franchise Tax Board or the board, as the case
may be, finds that there has been an overpayment of any liability
imposed under Part 10 (commencing with Section 17001), Part 11
(commencing with Section 23001), or this part by a taxpayer for any
year for any reason, the amount of the overpayment may be credited
against any amount then due from the taxpayer and the balance shall
be refunded to the taxpayer.
(b) In the case of a joint return filed under Section 18521, the
amount of the overpayment may be credited against the amount then due
from both taxpayers and the balance shall be refunded to both
taxpayers in the names under which the return was paid.
(c) In the case of a corporation, the balance shall be refunded to
the taxpayer or its successor through reorganization, merger, or
consolidation, or to its shareholders upon dissolution.
SEC. 36. Section 19340 of the Revenue and Taxation Code is amended
to read:
19340. Interest shall be allowed and paid on any overpayment in
respect of any tax, at the adjusted annual rate established pursuant
to Section 19521 as follows:
(a) In the case of a credit, from the date of the overpayment to
the due date of the amount for which the credit is allowed. Any
interest allowed on any credit shall first be credited on any amounts
due from the taxpayer under Part 10 (commencing with Section 17001),
this part, or Part 11 (commencing with Section 23001).
(b) In the case of a refund, including a refund in excess of tax
liability as prescribed in subdivision (j) of Section 17053.5, from
the date of the overpayment to a date preceding the date of the
refund warrant by not more than 30 days, the date to be determined by
the Franchise Tax Board.
SEC. 37. Section 19392 of the Revenue and Taxation Code is amended
to read:
19392. If judgment is rendered against the Franchise Tax Board,
the amount thereof shall first be credited against any taxes and
interest due from the taxpayer and the remainder refunded to the
taxpayer or his or her trust or estate, or in the case of a
corporation, its successor through reorganization, merger, or
consolidation, or its stockholders upon dissolution, by the Treasurer
on warrants drawn by the Controller.
SEC. 38. Section 19411 of the Revenue and Taxation Code is amended
to read:
19411. The Franchise Tax Board may recover any refund or credit
or any portion thereof which is erroneously made or allowed, together
with interest at the adjusted annual rate established pursuant to
Section 19521 from the date demand for recovery was made, in an
action brought in a court of competent jurisdiction in the County of
Sacramento in the name of the people of the State of California
within whichever of the following period expires the later:
(a) Two years after the refund or credit was made.
(b) During the period within which the Franchise Tax Board may
mail a notice of proposed additional assessment.
(c) In the case of a corporation, interest shall be computed from
the date the refund was made or the credit allowed, instead of the
date a demand for recovery was made.
SEC. 40. Section 19542 of the Revenue and Taxation Code is amended
to read:
19542. Except as otherwise provided in this article and as
required to administer subdivision (b) of Section 19005, it is a
misdemeanor for the Franchise Tax Board or any member thereof, or any
deputy, agent, clerk, or other officer or employee of the
state (including its political
subdivisions), or any former officer or employee or other individual,
who in the course of his or her employment or duty has or had access
to returns, reports, or documents required to be filed under this
part, to disclose or make known in any manner information as to the
amount of income or any particulars (including the business affairs
of a corporation) set forth or disclosed therein.
SEC. 41. Section 19563 of the Revenue and Taxation Code is amended
to read:
19563. This article does not prohibit the publication of
statistics, so classified as to prevent the identification of
particular reports or returns and the items thereof, or the
publication of the percentage of dividends paid by any corporation
that is deductible by the recipient under Part 11 (commencing with
Section 23001).
SEC. 42. Section 19701 of the Revenue and Taxation Code is amended
to read:
19701. Any person who does any of the following is liable for a
penalty of not more than five thousand dollars ($5,000):
(a) With or without intent to evade any requirement of Part 10
(commencing with Section 17001), Part 11 (commencing with Section
23001), or this part or any lawful requirement of the Franchise Tax
Board, fails to file any return or to supply any information
required, or who, with or without that intent, makes, renders, signs,
or verifies any false or fraudulent return or statement, or supplies
any false or fraudulent information.
(b) Aids, abets, advises, encourages, or counsels any person to
evade the tax imposed by Part 10 (commencing with Section 17001) or
Part 11 (commencing with Section 23001) by not filing any return or
supplying any information required under Part 10 (commencing with
Section 17001), Part 11 (commencing with Section 23001), or this
part, or, by making, rendering, signing, or verifying any false or
fraudulent return or statement, or by supplying false or fraudulent
information.
(c) Under this part, is required to pay any estimated tax or tax,
who willfully fails to pay that estimated tax or tax, at the time or
times required by law or regulations.
The penalty shall be recovered in the name of the people in any
court of competent jurisdiction. Counsel for the Franchise Tax Board
may, upon request of the district attorney or other prosecuting
attorney, assist the prosecuting attorney in presenting the law or
facts to recover the penalty at the trial of a criminal proceeding
for violation of this section.
That person is also guilty of a misdemeanor and shall upon
conviction be fined not to exceed five thousand dollars ($5,000) or
be imprisoned not to exceed one year, or both, at the discretion of
the court, together with costs of investigation and prosecution.
(d) For purposes of subdivision (a), the president of a
corporation, or the chief operating officer, is the person presumed
to be responsible for filing any return or supplying information
required from that corporation.
SEC. 43. Section 19705 of the Revenue and Taxation Code is amended
to read:
19705. (a) Any person who does any of the following shall be
guilty of a felony and, upon conviction, shall be fined not more than
fifty thousand dollars ($50,000) or imprisoned not more than three
years, or both, together with the costs of investigation and
prosecution:
(1) Willfully makes and subscribes any return, statement, or other
document, that contains or is verified by a written declaration that
it is made under penalty of perjury, and he or she does not believe
to be true and correct as to every material matter.
(2) Willfully aids or assists in, or procures, counsels, or
advises the preparation or presentation under, or in connection with
any matter arising under, the Personal Income Tax Law or the Bank and
Corporation Tax Law, of a return, affidavit, claim, or other
document, that is fraudulent or is false as to any material matter,
whether or not that falsity or fraud is with the knowledge or consent
of the person authorized or required to present that return,
affidavit, claim, or document.
(3) Simulates or falsely or fraudulently executes or signs any
bond, permit, entry, or other document required by the provisions of
the Personal Income Tax Law or the Bank and Corporation Tax Law, or
by any regulation pursuant to that law, or procures the same to be
falsely or fraudulently executed or advises, aids in, or connives at
that execution.
(4) Removes, deposits, or conceals, or is concerned in removing,
depositing, or concealing, any goods or commodities for or in respect
whereof any tax is or shall be imposed, or any property upon which
levy is authorized by Chapter 5 (commencing with Section 19201); or
Chapter 8 (commencing with Section 688.010) of Division 1 of, and
Chapter 5 (commencing with Section 706.010) of Division 2 of, Title 9
of the Code of Civil Procedure, with intent to evade or defeat the
assessment or collection of any tax, additions to tax, penalty, or
interest imposed by Part 10 (commencing with Section 17001), Part 11
(commencing with Section 23001), or this part.
(5) In connection with any settlement under Section 19442, or
offer of that settlement, or in connection with any closing agreement
under Section 19441 or offer to enter into that agreement, willfully
does any of the following:
(A) Conceals from any officer or employee of this state any
property belonging to the estate of a taxpayer or other person liable
in respect of the tax.
(B) Receives, withholds, destroys, mutilates, or falsifies any
book, document, or record, or makes any false statement, relating to
the estate or financial condition of the taxpayer or other person
liable in respect of the tax.
(b) In the case of a corporation, the fifty thousand dollars
($50,000) limitation specified in subdivision (a) shall be increased
to two hundred thousand dollars ($200,000).
(c) The fact that an individual's name is signed to a return,
statement, or other document filed, including a return, statement, or
other document filed using electronic technology pursuant to Section
18621.5, shall be prima facie evidence for all purposes that the
return, statement, or other document was actually signed by him or
her.
(d) For purposes of this section, "person" means the taxpayer, any
member of the taxpayer's family, any corporation, agent, fiduciary,
or representative of, or any other individual or entity acting on
behalf of, the taxpayer, or any other corporation or entity owned or
controlled by the taxpayer, directly or indirectly, or which owns or
controls the taxpayer, directly or indirectly.
SEC. 44. Section 19706 of the Revenue and Taxation Code is amended
to read:
19706. Any person or any officer or employee of any corporation
who, within the time required by or under the provisions of this
part, willfully fails to file any return or to supply any information
with intent to evade any tax imposed by Part 10 (commencing with
Section 17001) or Part 11 (commencing with Section 23001), or who,
willfully and with like intent, makes, renders, signs, or verifies
any false or fraudulent return or statement or supplies any false or
fraudulent information, is punishable by imprisonment in the county
jail not to exceed one year, or in the state prison, or by fine of
not more than twenty thousand dollars ($20,000), or by both the fine
and imprisonment, at the discretion of the court, together with the
costs of investigation and prosecution.
SEC. 45. Section 19719 of the Revenue and Taxation Code is amended
to read:
19719. Any person who attempts or purports to exercise the
powers, rights, and privileges of a corporation that has been
suspended pursuant to Section 23301 or who transacts or attempts to
transact intrastate business in this state on behalf of a foreign
corporation, the rights and privileges of which have been forfeited
pursuant to the section, is punishable by a fine of not less than two
hundred fifty dollars ($250) and not exceeding one thousand dollars
($1,000), or by imprisonment not exceeding one year, or both fine and
imprisonment.
SEC. 46. Section 23037 of the Revenue and Taxation Code is amended
to read:
23037. "Taxpayer" means any person subject to the tax imposed
under Chapter 2 (commencing with Section 23101), Chapter 2.5
(commencing with Section 23400), or Chapter 3 (commencing with
Section 23501).
SEC. 47. Section 23038 of the Revenue and Taxation Code is amended
to read:
23038. (a) "Corporation" includes every corporation except
corporations expressly exempt from the tax by this part or the
Constitution of this state.
(b) (1) For the purposes of the tax imposed under Chapter 3
(commencing with Section 23501), "corporation" also includes
associations (including nonprofit associations that perform services,
borrow money or own property), other than banking associations, and
Massachusetts or business trusts. For the purposes of this part, a
Massachusetts or business trust includes every business organization
consisting essentially of an arrangement whereby property is conveyed
to one, or more than one, trustee for purposes other than the mere
conservation of assets, collecting and disbursing of fixed or
periodic income, or the securing of an obligation.
(2) In addition to the above, for purposes of the tax imposed
under Chapter 2 (commencing with Section 23101) for the purpose of
exercising its franchise within this state, "corporation" also
includes any limited liability company that is classified as an
association for California tax purposes.
(3) "Corporation" includes any "corporation" operated by any
receiver, liquidator, referee, trustee or other officers or agents
appointed by any court, or an assignee for the benefit of creditors.
"Corporation" includes any professional corporation incorporated
pursuant to Part 4 (commencing with Section 13400) of Division 3 of
Title 1 of the Corporations Code.
(4) Notwithstanding the above, "corporation" also includes a trust
organized and operated exclusively for purposes contained in Section
23701d.
SEC. 47.5. Section 23038 of the Revenue and Taxation Code is
amended to read:
23038. (a) "Corporation" includes every corporation except
corporations expressly exempt from the tax by this part or the
Constitution of this state.
(b) (1) For the purposes of the tax imposed under Chapter 3
(commencing with Section 23501), "corporation" also includes
associations (including nonprofit associations that perform services,
borrow money or own property), other than banking associations, and
Massachusetts or business trusts. For the purposes of this part, a
Massachusetts or business trust includes every business organization
consisting essentially of an arrangement whereby property is conveyed
to one, or more than one, trustee for purposes other than the mere
conservation of assets, collecting and disbursing of fixed or
periodic income, or the securing of an obligation. This paragraph
shall apply for income or taxable years beginning before January 1,
1997.
(2) (A) For the purposes of the tax imposed under Chapter 3
(commencing with Section 23501), "corporation" also includes
associations (other than banking associations but including nonprofit
associations that perform services, borrow money or own property),
business trusts, and other business entities classified as
associations.
(B) (i) For purposes of the preceding subparagraph, the
classification of a business entity (including a business trust) as
an association taxable as a corporation (under Chapter 3 (commencing
with Section 23501)) shall be determined under regulations of the
Franchise Tax Board, which shall be consistent with federal
regulations as in effect January 1, 1997, that classify a business
entity as a partnership or an association taxable as a corporation or
disregard the separate existence of certain business entities for
tax purposes.
(ii) The classification of an eligible business entity as a
partnership or an association taxable as a corporation for purposes
of this part, Part 10 (commencing with Section 17001), and Part 10.2
(commencing with Section 18401) shall be the same as the
classification of the entity for federal tax purposes.
(iii) If the separate existence of an eligible business entity is
disregarded for federal tax purposes, the separate existence of that
business entity shall be disregarded for purposes of this part, Part
10 (commencing with Section 17001) and Part 10.2 (commencing with
Section 18401), other than Section 17941 (relating to the tax of a
limited liability company), Section 17942 (relating to the fee of a
limited liability company), Section 18633.5 (relating to the return
of a limited liability company), and Sections 17039 and 23036
(relating to tax credits).
(C) Notwithstanding clauses (ii) and (iii) of subparagraph (B), an
eligible business entity that, for any income year beginning within
the 60-month period preceding January 1, 1997, was properly
classified as an association taxable as a corporation for California
tax purposes shall continue to be an association taxable as a
corporation until it elects, under regulations issued pursuant to
subparagraph (B), to be classified or disregarded the same as the
entity is classified or disregarded for federal tax purposes. The
preceding sentence shall not apply to any entity that, during the
60-month period preceding January 1, 1997, was not doing business in
this state, did not derive income from sources within this state, and
had no owner who was a resident of this state.
(D) This paragraph shall apply for income or taxable years
beginning on and after January 1, 1997.
(c) In addition to the above, for purposes of the tax imposed
under Chapter 2 (commencing with Section 23101) for the purpose of
exercising its franchise within this state, "corporation" also
includes any limited liability company that is classified as an
association for California tax purposes.
(d) "Corporation" includes any "corporation" operated by any
receiver, liquidator, referee, trustee or other officers or agents
appointed by any court, or an assignee for the benefit of creditors.
"Corporation" includes any professional corporation incorporated
pursuant to Part 4 (commencing with Section 13400) of Division 3 of
Title 1 of the Corporations Code.
(e) Notwithstanding the above, "corporation" also includes a trust
organized and operated exclusively for purposes contained in Section
23701d.
SEC. 48. Section 23040.1 of the Revenue and Taxation Code is
amended to read:
23040.1. (a) Notwithstanding Sections 23040 and 25101, income
derived from or attributable to sources within this state shall not
include the distributive share of interest, dividends, and gains from
the sale or exchange of qualifying investment securities derived by
a corporation that is a partner in a partnership that qualifies as an
investment partnership under Section 17955, whether or not the
partnership has a usual place of business in this state, if the
income from the partnership is the corporation's only income derived
from or attributable to sources within this state.
(b) Subdivision (a) shall not apply to a corporation that
participates in the management of the investment activities of the
investment partnership or that is engaged in a unitary business with
another corporation or partnership that participates in the
management of the investment activities of the partnership or has
income derived from or attributable to sources within this state
other than income described in subdivision (a).
(c) For purposes of this section:
(1) "Investment partnership" means a partnership that meets both
of the following requirements:
(A) No less than 90 percent of the partnership's cost of its total
assets consist of qualifying investment securities, deposits at
banks or other financial institutions, and office space and equipment
reasonably necessary to carry on its activities as an investment
partnership.
(B) No less than 90 percent of its gross income consists of
interest, dividends, and gains from the sale or exchange of
qualifying investment securities.
(2) (A) "Qualifying investment securities" include all of the
following:
(i) Common stock, including preferred or debt securities
convertible into common stock, and preferred stock.
(ii) Bonds, debentures, and other debt securities.
(iii) Foreign and domestic currency deposits or equivalents and
securities convertible into foreign securities.
(iv) Mortgage- or asset-backed securities secured by federal,
state, or local governmental agencies.
(v) Repurchase agreements and loan participations.
(vi) Foreign currency exchange contracts and forward and futures
contracts on foreign currencies.
(vii) Stock and bond index securities and futures contracts, and
other similar financial securities and futures contracts on those
securities.
(viii) Options for the purchase or sale of any of the securities,
currencies, contracts, or financial instruments described in clauses
(i) to (vii), inclusive.
(ix) Regulated futures contracts.
(B) "Qualifying investment securities" does not include an
interest in a partnership unless that partnership is itself an
investment partnership.
SEC. 49. Section 23095 of the Revenue and Taxation Code is amended
to read:
23095. No decree of dissolution, withdrawal, or cancellation
shall be made and entered by any court, nor shall the county clerk of
any county or the Secretary of State file any decree of dissolution,
withdrawal, or cancellation or any other document by which the term
of existence of the limited liability company shall be reduced or
terminated, nor shall the Secretary of State file any certificate of
the surrender or cancellation by a foreign limited liability company
of its rights to do intrastate business in this state unless the
limited liability company obtains from the Franchise Tax Board and
files from the court, county clerk, or Secretary of State as the case
may be, a tax clearance certificate indicating that the Franchise
Tax Board is satisfied from the available evidence that all taxes and
fees imposed by this chapter have been paid or are secured by bond,
deposit, or otherwise. Within 30 days after receiving a request for
a certificate, the Franchise Tax Board shall either issue the
certificate or notify the person requesting the certificate of the
amount of tax or fees that must be paid or the amount of bond,
deposit, or other security that must be furnished as a condition of
issuing the certificate. The issuance of the certificate shall not
relieve the taxpayer or any individual or corporation from liability
for any taxes, fees, penalties, or interest imposed by this code.
The Franchise Tax Board shall furnish a copy of the tax clearance
certificate to the Secretary of State.
SEC. 50. Section 23098 of the Revenue and Taxation Code is amended
to read:
23098. No decree of dissolution, withdrawal, or cancellation
shall be made and entered by any court, nor shall the county clerk of
any county or the Secretary of State file any decree of dissolution,
withdrawal, or cancellation or any other document by which the term
of existence of the registered limited liability partnership shall be
reduced or terminated, nor shall the Secretary of State file any
amended registration or notice by a foreign limited liability
partnership that its rights to do intrastate business in this state
have ceased or of its dissolution and winding up, unless the
registered limited liability partnership or foreign limited liability
partnership obtains from the Franchise Tax Board and files with the
court, county clerk, or Secretary of State, as the case may be, a tax
clearance certificate indicating that the Franchise Tax Board is
satisfied from the available evidence that all taxes imposed by this
chapter have been paid or are secured by bond, deposit, or otherwise.
Within 30 days after receiving a request for a certificate, the
Franchise Tax Board shall either issue the certificate or notify the
person requesting the certificate of the amount of tax or fees that
must be paid or the amount of bond, deposit, or other security that
must be furnished as a condition of issuing the certificate. The
issuance of the certificate shall not relieve the taxpayer or any
individual or corporation from liability for any taxes, fees,
penalties, or interest imposed by this code. The Franchise Tax Board
shall furnish a copy of the tax clearance certificate to the
Secretary of State.
SEC. 52. Section 23151 of the Revenue and Taxation Code is amended
to read:
23151. (a) With the exception of banks and financial
corporations, every corporation doing business within the limits of
this state and not expressly exempted from taxation by the provisions
of the Constitution of this state or by this part, shall annually
pay to the state, for the privilege of exercising its corporate
franchises within this state, a tax according to or measured by its
net income, to be computed at the rate of 7.6 percent upon the basis
of its net income for the next preceding income year, or if greater,
the minimum tax specified in Section 23153.
(b) For calendar or fiscal years ending after June 30, 1973, the
rate of tax shall be 9 percent instead of 7.6 percent as provided by
subdivision (a).
(c) For calendar or fiscal years ending in 1980 to 1986,
inclusive, the rate of tax shall be 9.6 percent.
(d) For calendar or fiscal years ending in 1987 to 1996,
inclusive, and for any income year beginning before January 1, 1997,
the tax rate shall be 9.3 percent.
(e) For any income year beginning on or after January 1, 1997, the
tax rate shall be 8.84 percent. The change in rate provided in this
subdivision shall be made without proration otherwise required by
Section 24251.
SEC. 53. Section 23151.1 of the Revenue and Taxation Code is
amended to read:
23151.1. Notwithstanding Section 23151, every corporation (except
banks and financial corporations) doing business within the limits
of this state and not exempted from taxation by the provisions of the
Constitution of this state or by this part, shall annually pay to
the state for the privilege of exercising its corporate franchises
within this state, a tax determined as follows:
(a) With respect to corporations, other than those described in
subdivision (b), which commence doing business within the state after
December 31, 1971, the tax for the taxable year of commencement,
whether or not for 12 full months, shall be the minimum franchise tax
prescribed in Section 23153.
(b) If after December 31, 1972, a corporation commences to do
business and ceases doing business in the same taxable year, the tax
for that taxable year shall be according to or measured by its net
income for the year, to be computed at the rate prescribed in Section
23151.
(c) With respect to taxable years beginning after December 31,
1972, other than the year of commencement described in subdivision
(a) or (b) or the year of cessation described in subdivision (d), the
tax for that taxable year shall be according to or measured by its
net income for the next preceding income year, to be computed at the
rate prescribed in Section 23151.
(d) With respect to corporations which cease doing business in a
taxable year beginning after December 31, 1972, other than those
described in subdivision (b), the tax for the taxable year of
cessation shall be:
(1) According to or measured by its net income for the next
preceding income year, to be computed at the rate prescribed in
Section 23151, plus
(2) According to or measured by its net income for the income year
during which the corporation ceased doing business, to be computed
at the rate prescribed in Section 23151.
(e) In any event, the tax for any taxable year shall not be less
than the minimum tax provided for in Section 23153 for that taxable
year.
SEC. 54. Section 23151.2 of the Revenue and Taxation Code is
amended to read:
23151.2. Notwithstanding Section 23151, every corporation (except
banks and financial corporations) not exempted from taxation by the
provisions of the Constitution of this state or by this part which
dissolves or withdraws, shall pay a tax for its taxable year of
dissolution or withdrawal according to or measured by its net income
for the income year in which it ceased doing business, unless that
income has previously been included in the measure of tax for any
taxable year, to be computed at the rate prescribed in Section 23151
for its taxable year of dissolution or withdrawal. In any event, the
tax for the taxable year of its dissolution or withdrawal shall not
be less than the minimum tax provided for in Section 23153 for that
taxable year.
SEC. 55. Section 23153 of the Revenue and Taxation Code is amended
to read:
23153. (a) Every corporation described in subdivision (b) shall
be subject to the minimum franchise tax specified in subdivision (d)
from the earlier of the date of incorporation, qualification, or
commencing to do business within this state, until the effective date
of dissolution or withdrawal as provided in Section 23331 or, if
later, the date the corporation ceases to do business within the
limits of this state.
(b) Unless expressly exempted by this part or the California
Constitution, subdivision (a) shall apply to each of the following:
(1) Every corporation that is incorporated under the laws of this
state.
(2) Every corporation that is qualified to transact intrastate
business in this state pursuant to Chapter 21 (commencing with
Section 2100) of Division 1 of Title 1 of the Corporations Code.
(3) Every corporation that is doing business in this state.
(c) The following entities are not subject to the minimum
franchise tax specified in this section:
(1) Credit unions.
(2) Nonprofit cooperative associations organized pursuant to
Chapter 1 (commencing with Section 54001) of Division 20 of the Food
and Agricultural Code that have been issued the certificate of the
board of supervisors prepared pursuant to Section 54042 of the Food
and Agricultural Code. The association shall be exempt from the
minimum franchise tax for five consecutive income years, commencing
with the first income year for which the certificate is issued
pursuant to subdivision (b) of Section 54042 of the Food and
Agricultural Code. This paragraph only applies to nonprofit
cooperative associations organized on or after January 1, 1994.
(d) (1) Except as provided in paragraph (2), corporations subject
to the minimum franchise tax shall pay annually to the state a
minimum franchise tax of eight
hundred dollars ($800).
(2) The minimum franchise tax shall be twenty-five dollars ($25)
for each of the following:
(A) A corporation formed under the laws of this state whose
principal business when formed was gold mining, which is inactive and
has not done business within the limits of the state since 1950.
(B) A corporation formed under the laws of this state whose
principal business when formed was quicksilver mining, which is
inactive and has not done business within the limits of the state
since 1971, or has been inactive for a period of 24 consecutive
months or more.
(3) For purposes of paragraph (2), a corporation shall not be
considered to have done business if it engages in other than mining.
(e) Notwithstanding subdivision (a), a domestic corporation, as
defined in Section 167 of the Corporations Code, that files a
certificate of dissolution in the office of the Secretary of State
pursuant to subdivision (c) of Section 1905 of the Corporations Code
and that does not thereafter do business shall not be subject to the
minimum franchise tax for income years beginning on or after the date
of that filing.
(f) The minimum franchise tax imposed by paragraph (1) of
subdivision (d) shall not be increased by the Legislature by more
than 10 percent during any calendar year.
SEC. 56. Section 23183.1 of the Revenue and Taxation Code is
amended to read:
23183.1. Notwithstanding Section 23183, every financial
corporation doing business within the limits of this state and not
exempted from taxation by the Constitution of this state or by this
part, shall annually pay to the state for the privilege of exercising
its corporate franchises within this state, a tax determined as
follows:
(a) If a financial corporation commences to do business and ceases
doing business in the same taxable year, the tax for that taxable
year shall be according to or measured by its net income for that
year, at the rate provided under Section 23186.
(b) With respect to taxable years other than the year of
commencement described in subdivision (a) or the year of cessation
described in subdivision (c), a tax according to or measured by its
net income, to be computed at the rate prescribed in Section 23186
upon the basis of its net income for the next preceding income year.
(c) With respect to financial corporations, which cease doing
business in a taxable year other than those described in subdivision
(a), the tax for the taxable year of cessation shall be:
(1) According to or measured by its net income for the next
preceding income year to be computed at the rate prescribed in
Section 23186, plus
(2) According to or measured by its net income for the income year
during which the financial corporation ceased doing business, to be
computed at the rate prescribed in Section 23186.
SEC. 57. Section 23183.2 of the Revenue and Taxation Code is
amended to read:
23183.2. Notwithstanding Section 23183, every financial
corporation not exempted from taxation by the provisions of the
Constitution of this state or by this part which dissolves or
withdraws, shall pay a tax for its taxable year of dissolution or
withdrawal according to or measured by its net income for the income
year in which it ceased doing business, to be computed at the rate
prescribed in Section 23186 for its taxable year of dissolution or
withdrawal, unless the income has previously been included in the
measure of tax for any taxable year.
SEC. 58. Section 23184 of the Revenue and Taxation Code is
repealed.
SEC. 59. Section 23184.5 of the Revenue and Taxation Code is
repealed.
SEC. 60. Section 23185 of the Revenue and Taxation Code is
repealed.
SEC. 61. Section 23185a of the Revenue and Taxation Code is
repealed.
SEC. 62. Section 23185b of the Revenue and Taxation Code is
repealed.
SEC. 63. Section 23186 of the Revenue and Taxation Code is amended
to read:
23186. For income years ending on or after December 31, 1995, the
rate of tax on banks and financial corporations shall be the rate of
tax specified in Section 23151, plus 2 percent.
SEC. 64. Section 23186.1 of the Revenue and Taxation Code is
repealed.
SEC. 65. Section 23186.2 of the Revenue and Taxation Code is
repealed.
SEC. 66. Section 23186.5 of the Revenue and Taxation Code is
repealed.
SEC. 67. Section 23303 of the Revenue and Taxation Code is amended
to read:
23303. Notwithstanding the provisions of Section 23301 or
23301.5, any corporation that transacts business or receives income
within the period of its suspension or forfeiture shall be subject to
tax under the provisions of this chapter.
SEC. 68. Section 23305.2 of the Revenue and Taxation Code is
amended to read:
23305.2. Notwithstanding Sections 23305 and 23305.1 that require
a taxpayer to pay any liability to the Franchise Tax Board as a
condition to revivor or relief from voidability, the Franchise Tax
Board shall issue a certificate of revivor under Section 23305, or of
relief from voidability under Section 23305.1, if the taxpayer
provides the Franchise Tax Board with an assumption of liability, or
a bond, deposit, or other security for taxpayer's liability, that is
acceptable to the Franchise Tax Board. The Franchise Tax Board shall
notify the person filing the application for revivor or relief from
voidability of the amount of the bond, deposit, or other security, or
of the terms of an assumption of liability, that must be furnished
as a condition of the revivor or the relief from voidability.
Obtaining revivor or voidability relief by securing the debt pursuant
to this section shall not constitute an admission of liability by
the taxpayer, nor relieve the taxpayer or any individual or
corporation from liability for any taxes, additions to tax,
penalties, or interest imposed by this part. A taxpayer that
provides an assumption of liability or a bond, deposit, or other
security to obtain revivor or relief from voidability may,
notwithstanding Section 23305 or 23305.1, file any returns required
under those sections within a reasonable time after relief is granted
by the Franchise Tax Board.
SEC. 69. Section 23332 of the Revenue and Taxation Code is amended
to read:
23332. (a) Except in the case of a taxpayer subject to the
provisions of Section 23222a, any taxpayer which is dissolved or
withdraws from the state during any taxable year shall pay a tax only
for the months of the taxable year which precede the effective date
of the dissolution or withdrawal, according to or measured by (1) the
net income of the preceding income year or (2) a percentage of net
income determined by ascertaining the ratio which the months of the
taxable year, preceding the effective date of dissolution or
withdrawal, bears to the months of the income year, whichever is the
lesser amount. The taxes levied under this chapter shall not be
subject to abatement or refund because of the cessation of business
or corporate existence of any taxpayer pursuant to a reorganization,
consolidation, or merger (as defined by Section 23251). In any
event, each corporation shall pay a tax not subject to offset for the
period in an amount equal to the minimum tax prescribed by Section
23153.
(b) The provisions of subdivision (a) shall be applied only with
respect to taxpayers which dissolve or withdraw before January 1,
1973. On and after that date, the tax for the taxable year in which
the taxpayer ceases doing business, dissolves or withdraws shall be
determined under the appropriate provisions of Section 23151.1,
23153, 23181, or 23183, whichever is applicable. However, if all of
the following conditions are satisfied, a minimum franchise tax shall
not be imposed with respect to the taxable year in which a tax
clearance certificate is issued by the Franchise Tax Board:
(1) The taxpayer does not do business in this state at any time
during that taxable year.
(2) The taxpayer files a certificate of dissolution with the
Secretary of State prior to the beginning of that taxable year, in
accordance with Section 1905 of the Corporations Code.
SEC. 70. Section 23332.5 of the Revenue and Taxation Code is
amended to read:
23332.5. If a financial corporation ceases doing business,
dissolves, or withdraws from the state during any taxable year, the
tax for the taxable year during which cessation of doing business,
dissolution or withdrawal occurs shall be computed as prescribed by
subdivision (b) or (d) of Section 23183, 23183.1, or 23183.2.
SEC. 71. Section 23334 of the Revenue and Taxation Code is amended
to read:
23334. No decree of dissolution shall be made and entered by any
court, nor shall the county clerk of any county or the Secretary of
State file a decree of dissolution, or file in the case of a credit
union incorporated under the California Credit Union Law a
certificate of election to dissolve, or in the case of any other
taxpayer file a certificate of dissolution, except as provided in
subdivision (c) of Section 1905 of the Corporations Code, or any
other document by which the term of existence of the taxpayer shall
be reduced or terminated, nor shall the Secretary of State file any
certificate of the surrender by a foreign corporation of its right to
do intrastate business in this state unless the taxpayer obtains
from the Franchise Tax Board and files with the court, county clerk,
or Secretary of State as the case may be, a tax clearance certificate
indicating that the Franchise Tax Board is satisfied from the
available evidence that all taxes imposed by this chapter have been
paid or are secured by bond, deposit, or otherwise. Within 30 days
after receiving a request for a certificate, the Franchise Tax Board
shall either issue the certificate or notify the person requesting
the certificate of the amount of tax that must be paid or the amount
of bond, deposit, or other security that must be furnished as a
condition of issuing the certificate. The issuance of the
certificate shall not relieve the taxpayer or any individual or
corporation from liability for any taxes, penalties, or interest
imposed by this part, nor shall the issuance of the certificate in
the case of any credit union which revokes its election to wind up
and dissolve, relieve that credit union of any taxes or interest that
would have been imposed under this part had the election not been
filed.
The Franchise Tax Board shall furnish a copy of the tax clearance
certificate to the Secretary of State.
SEC. 72. Section 23455 of the Revenue and Taxation Code is amended
to read:
23455. For purposes of this part, Section 55 of the Internal
Revenue Code is modified as follows:
(a) Section 55(b)(1) of the Internal Revenue Code, relating to
tentative minimum tax, is modified by requiring the tentative minimum
tax for the taxable year to be imposed as follows:
(1) With respect to corporations subject to tax under Chapter 2
(commencing with Section 23101), other than banks or financial
corporations, according to or measured by net income, for the
privilege of doing business within this state, at a rate of 7 percent
upon the basis of so much of the alternative minimum taxable income
for the taxable year as exceeds the exemption amount.
(2) With respect to corporations subject to tax under Chapter 3
(commencing with Section 23501), on net income from sources within
this state, at a rate of 7 percent upon the basis of so much of the
alternative minimum taxable income for the taxable year as exceeds
the exemption amount.
(3) With respect to organizations or trusts subject to tax under
Article 2 (commencing with Section 23731) of Chapter 4, on the
unrelated business income from sources within this state, at a rate
of 7 percent upon the basis of so much of the alternative taxable
income for the taxable year as exceeds the exemption amount.
(4) With respect to banks subject to tax under Section 23181,
according to or measured by net income, for the privilege of doing
business within this state, in an amount equal to the sum of the
following:
(A) At a rate of 7 percent upon the basis of so much of the
alternative minimum taxable income as exceeds the exemption amount.
(B) At the rate determined under Section 23186, less the rate
prescribed by Section 23151, upon the basis of net income for the
taxable year.
(5) With respect to financial corporations subject to tax under
Section 23183, according to or measured by net income, for the
privilege of doing business within this state, in an amount equal to
the sum of the following:
(A) At a rate of 7 percent upon the basis of so much of the
alternative minimum taxable income as exceeds the exemption amount.
(B) At the rate determined under Section 23186, less the rate
prescribed by Section 23151, upon the basis of net income for the
taxable year.
(b) Section 55(b)(2) of the Internal Revenue Code, relating to the
definition of alternative minimum taxable income, is modified as
follows:
(1) For corporations whose net income is determined under Chapter
17 (commencing with Section 25101), alternative minimum taxable
income shall be allocated and apportioned in the same manner as net
income is allocated and apportioned for purposes of the regular tax.
(2) With respect to taxpayers subject to Article 4 (commencing
with Section 23221) of Chapter 2, Article 4 (commencing with Section
23221) to Article 9 (commencing with Section 23361), inclusive, shall
apply to the tax imposed by this section except that Section 23221
shall not apply.
(3) For purposes of computing the alternative minimum tax for
taxable years in which a taxpayer commenced doing business,
dissolves, withdraws, or ceases doing business, Sections 18601,
23151, 23151.1, 23151.2, 23181, 23183, 23183.1, 23183.2, 23201 to
23204, inclusive, 23222 to 23224.5, inclusive, 23282, 23332.5, and
23504 shall be applied with due regard for the rate and alternative
minimum taxable income prescribed by this chapter.
(c) Section 55(c) of the Internal Revenue Code, relating to the
definition of regular tax, is modified to read:
(1) For purposes of this chapter, "regular tax" means the amount
of tax imposed under Chapter 2 (commencing with Section 23101) or
Chapter 3 (commencing with Section 23501) or Article 2 (commencing
with Section 23731) of Chapter 4, but does not include any amount
imposed under paragraph (1) of subdivision (e) of Section 24667 or
paragraph (2) of subdivision (f) of Section 24667.
(2) The tax specified in paragraph (1) shall be the amount
determined prior to reduction by any credits against the tax.
(d) The rate of 7 percent prescribed in subdivision (a) shall be
6.65 percent for any income year beginning on or after January 1,
1997. The change in rate provided in this subdivision shall be made
without proration otherwise required by Section 24251.
SEC. 73. Section 23501 of the Revenue and Taxation Code is amended
to read:
23501. (a) There shall be imposed upon every corporation, other
than a bank, for each taxable year, a tax at the rate of 7.6 percent
upon its net income derived from sources within this state on or
after January 1, 1937, other than income for any period for which the
corporation is subject to taxation under Chapter 2 (commencing with
Section 23101), according to or measured by its net income.
(b) For calendar or fiscal years ending after June 30, 1973, the
rate of tax shall be 9 percent instead of 7.6 percent as provided by
subdivision (a).
(c) For calendar or fiscal years ending after December 31, 1979,
the rate of tax shall be the rate specified for those years by
Section 23151.
SEC. 74. Section 23610.5 of the Revenue and Taxation Code is
amended to read:
23610.5. (a) (1) There shall be allowed as a credit against the
"tax" (as defined by Section 23036) a state low-income housing tax
credit in an amount equal to the amount determined in subdivision
(c), computed in accordance with Section 42 of the Internal Revenue
Code of 1986, except as otherwise provided in this section.
(2) "Taxpayer," for purposes of this section, means the sole owner
in the case of a C corporation, the partners in the case of a
partnership, and the shareholders in the case of an S corporation.
(3) "Housing sponsor," for purposes of this section, means the
sole owner in the case of a C corporation, the partnership in the
case of a partnership, and the S corporation in the case of an S
corporation.
(b) (1) The amount of the credit allocated to any housing sponsor
shall be authorized by the California Tax Credit Allocation
Committee, or any successor thereof, based on a project's need for
the credit for economic feasibility in accordance with the
requirements of this section.
(A) The low-income housing project shall be located in California
and shall meet either of the following requirements:
(i) The project's housing sponsor shall have been allocated by the
California Tax Credit Allocation Committee a credit for federal
income tax purposes under Section 42 of the Internal Revenue Code.
(ii) It shall qualify for a credit under Section 42(h)(4)(B) of
the Internal Revenue Code.
(B) The California Tax Credit Allocation Committee shall not
require fees for the credit under this section in addition to those
fees required for applications for the tax credit pursuant to Section
42 of the Internal Revenue Code. The committee may require a fee if
the application for the credit under this section is submitted in a
calendar year after the year the application is submitted for the
federal tax credit.
(2) (A) The California Tax Credit Allocation Committee shall
certify to the housing sponsor the amount of tax credit under this
section allocated to the housing sponsor for each credit period.
(B) In the case of a partnership or an S corporation, the housing
sponsor shall provide a copy of the California Tax Credit Allocation
Committee certification to the taxpayer.
(C) The taxpayer shall, upon request, provide a copy of the
certification to the Franchise Tax Board.
(D) All elections made by the taxpayer pursuant to Section 42 of
the Internal Revenue Code shall apply to this section.
(E) For buildings located in designated difficult development
areas or qualified census tracts as defined in Section 42(d)(5)(C) of
the Internal Revenue Code, credits may be allocated under this
section in the amounts prescribed in subdivision (c), provided that
the amount of credit allocated under Section 42 of the Internal
Revenue Code is computed on 100 percent of the qualified basis of the
building.
(c) Section 42(b) of the Internal Revenue Code shall be modified
as follows:
(1) In the case of any qualified low-income building placed in
service by the housing sponsor during 1987, the term "applicable
percentage" means 9 percent for each of the first three years and 3
percent for the fourth year for new buildings (whether or not the
building is federally subsidized) and for existing buildings.
(2) In the case of any qualified low-income building that receives
an allocation after 1989 and is a new building not federally
subsidized, the term "applicable percentage" means the following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are not
federally subsidized for the taxable year, determined in accordance
with the requirements of Section 42(b)(2) of the Internal Revenue
Code, in lieu of the percentage prescribed in Section 42(b)(1)(A).
(B) For the fourth year, the difference between 30 percent and the
sum of the applicable percentages for the first three years.
(3) In the case of any qualified low-income building that receives
an allocation after 1989 and that is a new building that is
federally subsidized or that is an existing building that is "at risk
of conversion," the term "applicable percentage" means the
following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are federally
subsidized for the taxable year.
(B) For the fourth year, the difference between 13 percent and the
sum of the applicable percentages for the first three years.
(4) For purposes of this section, the term "at risk of conversion,"
with respect to an existing building means a building that satisfies
all of the following criteria:
(A) The building is presently owned by a housing sponsor other
than a qualified nonprofit organization.
(B) The building is a federally assisted building for which the
low-income use restrictions will terminate or the building is
eligible for prepayment under Subtitle 13 of the Emergency Low Income
Housing Assistance Act of 1987 or under Section 502(c) of the
Housing Act of 1949, anytime in the two calendar years after the year
of application to the California Tax Credit Allocation Committee,
and the purchaser has received preliminary approval from the
applicable federal agency for a maximum level of incentives through a
plan of action.
(C) The person acquiring the building enters into a regulatory
agreement that requires the building to be operated in accordance
with the requirements of this section for a period equal to the
greater of 55 years or the life of the building.
(D) The building satisfies the requirements of Section 42(e) of
the Internal Revenue Code regarding rehabilitation expenditures,
except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
apply.
(d) The term "qualified low-income housing project" as defined in
Section 42(c)(2) of the Internal Revenue Code is modified by adding
the following requirements:
(1) The taxpayer shall be entitled to receive a cash distribution
from the operations of the project, after funding required reserves,
which, at the election of the taxpayer, is equal to:
(A) An amount not to exceed 8 percent of the lesser of:
(i) The owner equity that shall include the amount of the capital
contributions actually paid to the housing sponsor and shall not
include any amounts until they are paid on an investor note; or
(ii) Twenty percent of the adjusted basis of the building as of
the close of the first income year of the credit period; or
(B) The amount of the cash-flow from those units in the building
that are not low-income units. For purposes of computing cash-flow
under this subparagraph, operating costs shall be allocated to the
low-income units using the "floor space fraction," as defined in
Section 42 of the Internal Revenue Code.
(C) Any amount allowed to be distributed under subparagraph (A)
that is not available for distribution during the first five years of
the compliance period may accumulate and be distributed any time
during the first 15 years of the compliance period but not
thereafter.
(2) The limitation on return shall apply in the aggregate to the
partners if the housing sponsor is a partnership and in the aggregate
to the shareholders if the housing sponsor is an S corporation.
(3) The housing sponsor shall apply any cash available for
distribution in excess of the amount eligible to be distributed under
paragraph (1) to reduce the rent on rent-restricted units or to
increase the number of rent-restricted units subject to the tests of
Section 42(g)(1) of the Internal Revenue Code.
(e) The provisions of Section 42(f) of the Internal Revenue Code
shall be modified as follows:
(1) The term "credit period" as defined in Section 42(f)(1) of the
Internal Revenue Code is modified by substituting "four income years"
for "10 taxable years."
(2) The special rule for the first taxable year of the credit
period under Section 42(f)(2) of the Internal Revenue Code shall not
apply to the tax credit under this section.
(3) Section 42(f)(3) of the Internal Revenue Code is modified to
read:
If, as of the close of any income year in the compliance period,
after the first year of the credit period, the qualified basis of any
building exceeds the qualified basis of that building as of the
close of the first year of the credit period, the housing sponsor, to
the extent of its tax credit allocation, shall be eligible for a
credit on the excess in an amount equal to the applicable percentage
determined pursuant to subdivision (c) for the four-year period
beginning with the later of the income years in which the increase in
qualified basis occurs.
(f) The provisions of Section 42(h) of the Internal Revenue Code
shall be modified as follows:
(1) Section 42(h)(2) of the Internal Revenue Code shall not be
applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing
credit dollars allocated in a calendar year to any building shall
reduce the aggregate housing credit dollar amount of the California
Tax Credit Allocation Committee for the calendar year in which the
allocation is made.
(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)
(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall
not be applicable.
(g) The aggregate housing credit dollar amount which may be
allocated annually by the California Tax Credit Allocation Committee
pursuant to this section, Section 12206, and Section 17058 shall be
an amount equal to the sum of the following:
(1) Thirty-five million dollars ($35,000,000).
(2) The unused housing credit ceiling, if any, for the preceding
calendar years; and
(3) The amount of housing credit ceiling returned in the calendar
year. For purposes of this paragraph, the amount of housing credit
dollar amount returned in the calendar year equals the housing credit
dollar amount previously allocated to any project that does not
become a qualified low-income housing project within the period
required by this section or to any project with respect to which an
allocation is canceled by mutual consent of the California Tax Credit
Allocation Committee and the allocation recipient.
(h) The term "compliance period" as defined in Section 42(i)(1) of
the Internal Revenue Code is modified to mean, with respect to any
building, the period of 30-consecutive income years beginning with
the first income year of the credit period with respect thereto.
(i) Section 42(j) of the Internal Revenue Code shall not be
applicable and the following shall be substituted in its place:
(1) The requirements of this section shall be set forth in a
regulatory agreement between the California Tax Credit Allocation
Committee and the housing sponsor, and this agreement shall be
subordinated, when required, to any lien or encumbrance of any banks
or other institutional lenders
to the project. The regulatory agreement entered into
pursuant to subdivision (f) of Section 50199.14 of the Health and
Safety Code, shall apply, providing the agreement includes all of the
following provisions:
(A) A term not less than the compliance period.
(B) A requirement that the agreement be filed in the official
records of the county in which the qualified low-income housing
project is located.
(C) A provision stating which state and local agencies can enforce
the regulatory agreement in the event the housing sponsor fails to
satisfy any of the requirements of this section.
(D) A provision that the regulatory agreement shall be deemed a
contract enforceable by tenants as third-party beneficiaries thereto,
and which allows individuals, whether prospective, present, or
former occupants of the building, who meet the income limitation
applicable to the building, the right to enforce the regulatory
agreement in any state court.
(E) A provision incorporating the requirements of Section 42 of
the Internal Revenue Code as modified by this section.
(F) A requirement that the housing sponsor notify the California
Tax Credit Allocation Committee or its designee if there is a
determination by the Internal Revenue Service that the project is not
in compliance with Section 42(g) of the Internal Revenue Code.
(G) A requirement that the housing sponsor, as security for the
performance of the housing sponsor's obligations under the regulatory
agreement, assign the housing sponsor's interest in rents that it
receives from the project, provided that until there is a default
under the regulatory agreement, the housing sponsor is entitled to
collect and retain the rents.
(H) The remedies available in the event of a default under the
regulatory agreement that is not cured within a reasonable cure
period, include, but are not limited to, allowing any of the parties
designated to enforce the regulatory agreement to collect all rents
with respect to the project; taking possession of the project and
operating the project in accordance with the regulatory agreement
until the enforcer determines the housing sponsor is in a position to
operate the project in accordance with the regulatory agreement;
applying to any court for specific performance; securing the
appointment of a receiver to operate the project; or any other relief
as may be appropriate.
(j) (1) The committee shall allocate the housing credit on a
regular basis consisting of two or more periods in each calendar year
during which applications may be filed and considered. The
committee shall establish application filing deadlines, the maximum
percentage of federal and state low-income housing tax credit ceiling
that may be allocated by the committee in that period, and the
approximate date on which allocations shall be made. If the
enactment of federal or state law, the adoption of rules or
regulations, or other similar events prevent the use of two
allocation periods, the committee may reduce the number of periods
and adjust the filing deadlines, maximum percentage of credit
allocated, and the allocation dates.
(2) The committee shall adopt a qualified allocation plan, as
provided in Section 42(m)(1) of the Internal Revenue Code. In
adopting this plan, the committee shall comply with the provisions of
Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code.
(3) Notwithstanding Section 42(m) of the Internal Revenue Code,
the California Tax Credit Allocation Committee shall allocate housing
credits in accordance with the qualified allocation plan and
regulations, which shall include the following provisions:
(A) All housing sponsors, as defined by paragraph (3) of
subdivision (a), shall demonstrate at the time the application is
filed with the committee that the project meets the following
threshold requirements:
(i) The housing sponsor shall demonstrate there is a need for
low-income housing in the community or region for which it is
proposed.
(ii) The project's proposed financing, including tax credit
proceeds, shall be sufficient to complete the project and shall be
adequate to operate the project for the extended use period.
(iii) The project shall have enforceable financing commitments,
either construction or permanent financing, for at least 50 percent
of the total estimated financing of the project.
(iv) The housing sponsor shall have and maintain control of the
site for the project.
(v) The housing sponsor shall demonstrate that the project
complies with all applicable local land use and zoning ordinances.
(vi) The housing sponsor shall demonstrate that the project
development team has the experience and the financial capacity to
ensure project completion and operation for the extended use period.
(vii) The housing sponsor shall demonstrate the amount of tax
credit that is necessary for the financial feasibility of the project
and its viability as a qualified low-income housing project
throughout the extended use period, taking into account operating
expenses, a supportable debt service, reserves, funds set aside for
rental subsidies, and required equity, and a development fee that
does not exceed a specified percentage of the eligible basis of the
project prior to inclusion of the development fee in the eligible
basis, as determined by the committee.
(B) The committee shall give a preference to those projects
satisfying all of the threshold requirements of subparagraph (A) if:
(i) The project serves the lowest income tenants at rents
affordable to those tenants; and
(ii) The project is obligated to serve qualified tenants for the
longest period.
(C) In addition to the provisions of subparagraphs (A) and (B),
the committee shall use the following criteria in allocating housing
credits:
(i) Projects serving large families in which a substantial number,
as defined by the committee of all residential units is comprised of
low-income units with three and more bedrooms.
(ii) Projects providing single room occupancy units serving very
low income tenants.
(iii) Existing projects that are "at risk of conversion," as
defined by paragraph (4) of subdivision (c).
(iv) Projects for which a public agency provides direct or
indirect long-term financial support for at least 15 percent of the
total project development costs or projects for which the owner's
equity constitutes at least 30 percent of the total project
development costs.
(v) Projects that provide tenant amenities not generally available
to residents of low-income housing projects.
(4) For purposes of allocating credits pursuant to this section,
the committee shall not give preference to any project by virtue of
the date of submission of its application except to break a tie when
two or more of the projects have an equal rating.
(5) Not less than 20 percent of the low-income housing tax credits
available annually under this section, Section 12206, and Section
17058 shall be set aside for allocation to rural areas as defined in
Section 50199.21 of the Health and Safety Code. Any amount of credit
set aside for rural areas remaining on or after October 31 of any
calendar year shall be available for allocation to any eligible
project. No amount of credit set aside for rural areas shall be
considered available for any eligible project so long as there are
eligible rural applications pending on October 31.
(k) Section 42(l) of the Internal Revenue Code shall be modified
as follows:
The term "secretary" shall be replaced by the term "California
Franchise Tax Board."
(l) In the case where the state credit allowed under this section
exceeds the "tax," the excess may be carried over to reduce the "tax"
in the following year, and succeeding years if necessary, until the
credit has been exhausted.
(m) A project that received an allocation of a 1989 federal
housing credit dollar amount shall be eligible to receive an
allocation of a 1990 state housing credit dollar amount, subject to
all of the following conditions:
(1) The project was not placed in service prior to 1990.
(2) To the extent the amendments made to this section by the
Statutes of 1990 conflict with any provisions existing in this
section prior to those amendments, the prior provisions of law shall
prevail.
(3) Notwithstanding paragraph (2), a project applying for an
allocation under this subdivision shall be subject to the
requirements of paragraph (3) of subdivision (j).
(n) The credit period with respect to an allocation of credit in
1989 by the California Tax Credit Allocation Committee of which any
amount is attributable to unallocated credit from 1987 or 1988 shall
not begin until after December 31, 1989.
(o) The provisions of Section 11407(a) of Public Law 101-508,
relating to the effective date of the extension of the low-income
housing credit, shall apply to calendar years after 1989.
(p) The provisions of Section 11407(c) of Public Law 101-508,
relating to election to accelerate credit, shall not apply.
(q) (1) A corporation may elect to assign any portion of any
credit allowed under this section to one or more affiliated
corporations for each income year in which the credit is allowed.
For purposes of this subdivision, "affiliated corporation" has the
meaning provided in subdivision (b) of Section 25110, as that section
was amended by Chapter 881 of the Statutes of 1993, as of the last
day of the income year in which the credit is allowed, except that
"100 percent" is substituted for "more than 50 percent" wherever it
appears in the section, as that section was amended by Chapter 881 of
the Statutes of 1993, and "voting common stock" is substituted for
"voting stock" wherever it appears in the section, as that section
was amended by Chapter 881 of the Statutes of 1993.
(2) The election provided in paragraph (1):
(A) May be based on any method selected by the corporation that
originally receives the credit.
(B) Shall be irrevocable for the income year the credit is
allowed, once made.
(C) May be changed for any subsequent income year if the election
to make the assignment is expressly shown on each of the returns of
the affiliated corporations that assign and receive the credits.
(r) Any unused credit may continue to be carried forward, as
provided in subdivision (k), until the credit has been exhausted.
This section shall remain in effect on or after December 1, 1990,
for as long as Section 42 of the Internal Revenue Code, pertaining to
low-income housing credits, remains in effect.
(s) The amendments to this section made by the act adding this
subdivision shall apply only to income years beginning on or after
January 1, 1994, except that paragraph (1) of subdivision (q), as
amended, shall apply to income years beginning on or after January 1,
1993.
SEC. 75. Section 23612.6 of the Revenue and Taxation Code is
amended to read:
23612.6. (a) For each income year beginning on or after January
1, 1992, and before January 1, 1998, there shall be allowed 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 during the
income year by the taxpayer in connection with the taxpayer's
purchase of qualified property.
(b) For purposes of this section:
(1) "Taxpayer" means a corporation engaged in a trade or business
within the Los Angeles Revitalization Zone designated pursuant to
Section 7102 of the Government Code.
(2) "Qualified property" means the purchase on or after May 1,
1992, and before the zone expiration date, of either or both of the
following:
(A) Building materials to replace or repair the taxpayer's
building and fixtures.
(B) Machinery or equipment, excluding inventory, to be used by the
taxpayer exclusively in the Los Angeles Revitalization Zone.
(3) "Zone expiration date" means the date the Los Angeles
Revitalization Zone designation expires, is repealed, or becomes
inoperative pursuant to Section 7102, 7103, or 7104 of the Government
Code.
(c) 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.
(d) 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 income years for the number of income
years in which the designation of the Los Angeles Revitalization Zone
under Section 7102 of the Government Code is operative, or 15 income
years, if longer, until the credit is exhausted. The credit shall
be applied first to the earliest income year 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 the sales and use tax paid or incurred in connection with the
taxpayer's purchase of qualified property.
(f) (1) The amount of credit otherwise allowed under this section
and Sections 23623.5 and 23625, including any credit carryover from
prior years, that may reduce the tax for the income year shall not
exceed the amount of tax which would be imposed on the taxpayer's
business income attributable to the Los Angeles Revitalization Zone
(designated pursuant to Section 7102 of the Government Code)
determined as if that attributable income represented all of the
income of the taxpayer subject to tax under this part.
(2) The amount of attributable income described in paragraph (1)
shall be that portion of the taxpayer's California source business
income which is apportioned to the Los Angeles Revitalization Zone.
For that purpose, the taxpayer's business income attributable to
sources in this state first shall be determined in accordance with
the provisions of Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the Los Angeles
Revitalization Zone in accordance with the provisions of Article 2
(commencing with Section 25120) of Chapter 17, modified as follows:
(A) Business income shall be apportioned to the Los Angeles
Revitalization Zone by multiplying total California business income
of the taxpayer by a fraction, the numerator of which is the property
factor plus the payroll factor, and the denominator of which is two.
(B) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the Los Angeles Revitalization
Zone during the income year and the denominator of which is the
average value of all the taxpayer's real and tangible personal
property owned or rented and used in this state during the income
year.
(C) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the Los Angeles
Revitalization Zone during the income year for compensation, and the
denominator of which is the total compensation paid by the taxpayer
in this state during the income year.
(3) The portion of the 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) If the qualified property is disposed of or no longer used by
the taxpayer in the Los Angeles Revitalization Zone, at any time
before the close of the second income year after the property is
placed in service, the amount of the credit previously claimed shall
be added to the taxpayer's tax liability in the income year of that
disposition or nonuse.
(h) This section shall be inoperative as of the first day of the
income year beginning on or after the determination date, and each
income year thereafter, with respect to the taxpayer's business
activities within a geographic area that is excluded from the map
pursuant to Section 7102 of the Government Code, or an excluded area
determined pursuant to Section 7104 of the Government Code. The
determination date is the earlier of the first effective date of a
determination under subdivision (c) of Section 7102 of the Government
Code occurring after December 1, 1994, or the first effective date
of an exclusion of an area from the amended Los Angeles
Revitalization Zone under Section 7104 of the Government Code.
However, if the taxpayer has any unused credit amount as of the date
this section becomes inoperative, that unused credit amount may
continue to be carried forward as provided in subdivision (d).
(i) This section shall remain in effect only until December 1,
1998, and as of that date is repealed. However, any unused credit
may continue to be carried forward, as provided in subdivision (d).
SEC. 76. Section 23623.5 of the Revenue and Taxation Code is
amended to read:
23623.5. (a) For each income year beginning on or after January
1, 1992, and before January 1, 1998, the taxpayer shall be allowed
for hiring qualified disadvantaged individuals on or after May 1,
1992, a credit against the "tax," as defined in Section 23036, for
the income year equal to the sum of each of the following:
(1) Fifty percent of qualified wages in the first year of
employment.
(2) Forty percent of qualified wages in the second year of
employment.
(3) Thirty percent of qualified wages in the third year of
employment.
(4) Twenty percent of qualified wages in the fourth year of
employment.
(5) Ten percent of 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 taxpayer during
the income year to qualified disadvantaged individuals that does not
exceed 150 percent of the minimum wage.
(B) Wages received during the 60-month period beginning with the
day the disadvantaged individual commences employment with the
taxpayer.
(C) Qualified wages does not include any wages paid or incurred by
the taxpayer on or after the zone expiration date.
(D) If, after a taxpayer hires a qualified disadvantaged
individual, the geographic area in which the taxpayer's trade or
business is located is excluded from the map of the Los Angeles
Revitalization Zone by the Trade and Commerce Agency pursuant to
Section 7102 or 7104 of the Government Code, wages paid or incurred
with respect to the disadvantaged individual may continue to be
qualified wages and may qualify for the credit under this section,
provided all provisions of this section are satisfied, applied as if
the taxpayer's trade or business was still located within the Los
Angeles Revitalization Zone.
(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) "Qualified disadvantaged individual" means an individual who
is a qualified employee and a resident of the Los Angeles
Revitalization Zone.
(4) "Los Angeles Revitalization Zone" means the area designated
under Section 7102 of the Government Code.
(5) "Qualified employee" means an individual that meets both of
the following:
(A) 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 the Los Angeles Revitalization Zone.
(B) Who performs at least 50 percent of his or her services for
the taxpayer during the income year in the Los Angeles Revitalization
Zone.
(6) "Resident" means a "resident" as defined in Section 7101 of
the Government Code.
(7) "Taxpayer" means a corporation engaged in a trade or business
within the Los Angeles Revitalization Zone.
(8) "Zone expiration date" means the date the Los Angeles
Revitalization Zone designation expires, is repealed, or becomes
inoperative pursuant to Section 7102, 7103, or 7104 of the Government
Code.
(9) (A) All employees of all 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
allocated in that manner.
(C) "Controlled group of corporations" means "controlled group of
corporations" as defined in Section 1563(a) of the Internal Revenue
Code, except that:
(i) "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.
(ii) The determination shall be made without regard to Sections
1563(a)(4) and 1563(e)(3)(C) of the Internal Revenue Code.
(10) If a taxpayer acquires the major portion of a trade or
business of another employer (hereafter 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 the purposes of
applying this section (other than subdivision (c)) for any calendar
year ending after that acquisition, the employment relationship
between a disadvantaged individual and an employer shall not be
treated as terminated if the individual continues to be employed in
that trade or business.
(c) (1) If the employment of any disadvantaged individual, 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 individual 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 individual.
(2) (A) Paragraph (1) shall not apply to any of the following:
(i) A termination of employment of a disadvantaged individual who
voluntarily leaves the employment of the taxpayer.
(ii) A termination of employment of a disadvantaged individual
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 taxpayer fails to offer reemployment to that
individual.
(iii) A termination of employment of a disadvantaged individual,
if it is determined under the applicable employment compensation
provisions that the termination was due to the misconduct of that
individual.
(iv) A termination of employment of a disadvantaged individual due
to a substantial reduction in the trade or business operations of
the taxpayer.
(v) A termination of employment of a disadvantaged 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 a disadvantaged individual shall not be
treated as terminated by either of the following:
(i) By a transaction to which Section 381(a) of the Internal
Revenue Code applies, if the individual continues to be employed by
the acquiring corporation.
(ii) By reason of a mere change in the form of conducting the
trade or business of the taxpayer, if the individual 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.
(d) 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 Sections 46(e) and 46(h) of
the Internal Revenue Code shall apply.
(e) The credit shall be reduced by the credits allowed under
Sections 23621, 23622.7, 23623, and 23625, claimed for the same
disadvantaged individual. 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 (f) or (g).
(f) In the case where the credit otherwise allowed under this
section exceeds 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 income years while the designation of the Los
Angeles Revitalization Zone under Section 7102 of the Government Code
is operative or 15 income years, if longer, until the credit is
exhausted. The credit shall be applied first to the earliest income
years possible.
(g) (1) The amount of credit otherwise allowed under this section
and Sections 23612.6 and 23625, including any credit carryover 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 attributable to the Los Angeles Revitalization Zone
determined as if that attributable income represented all of the
income of the taxpayer subject to tax under this part.
(2) The amount of attributable income described in paragraph (1)
shall be that portion of the taxpayer's California source business
income which is apportioned to the Los Angeles Revitalization Zone.
For that purpose, the taxpayer's business income attributable to
sources in this state first shall be determined in accordance with
the provisions of Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the Los Angeles
Revitalization Zone in accordance with the provisions of Article 2
(commencing with Section 25120) of Chapter 17, modified as follows:
(A) Business income shall be apportioned to the Los Angeles
Revitalization Zone by multiplying total California business income
of the taxpayer by a fraction, the numerator of which is the property
factor plus the payroll factor, and the denominator of which is two.
(B) The property
factor is a fraction, the numerator of which is the average value of
the taxpayer's real and tangible personal property owned or rented
and used in the Los Angeles Revitalization Zone during the income
year and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the income year.
(C) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the Los Angeles
Revitalization Zone during the income year for compensation, and the
denominator of which is the total compensation paid by the taxpayer
in this state during the income year.
(3) The portion of the 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 (f).
(h) Except as provided in subparagraph (D) of paragraph (1) of
subdivision (b), this section shall be inoperative on the first day
of the income year beginning on or after the determination date, and
each income year thereafter, with respect to the taxpayer's business
activities within a geographic area that is excluded from the map
pursuant to Section 7102 of the Government Code, or an excluded area
determined pursuant to Section 7104 of the Government Code. The
determination date is the earlier of the first effective date of a
determination under subdivision (c) of Section 7102 of the Government
Code occurring after December 1, 1994, or the first effective date
of an exclusion of an area from the amended Los Angeles
Revitalization Zone under Section 7104 of the Government Code.
However, if the taxpayer has any unused credit amount as of the date
this section becomes inoperative, that unused credit amount may
continue to be carried forward as provided in subdivision (f).
(i) This section shall remain in effect only until December 1,
1998, and as of that date is repealed. However, any unused credit
may continue to be carried forward, as specified in subdivision (f).
SEC. 77. Section 23625 of the Revenue and Taxation Code is amended
to read:
23625. (a) For each income year beginning on or after January 1,
1992, and before January 1, 1998, there shall be allowed to a
taxpayer who employs qualified employees in the Los Angeles
Revitalization Zone during the income year as a credit against the
"tax," as defined in Section 23036, an amount equal to the sum of the
following:
(1) One hundred percent of the qualified wages paid or incurred
during the period from May 1, 1992, to the end of the sixth full
month after the designation of the Los Angeles Revitalization Zone
with respect to qualified employees that are hired during that
period.
(2) Seventy-five percent of the qualified wages paid or incurred
during the period from the beginning of the seventh month after
designation to the end of the 12th full month after designation with
respect to qualified employees that are hired during that period.
(3) Fifty percent of the qualified wages paid or incurred during
the period from the beginning of the 13th month after designation to
the end of the 60th full month after designation with respect to
qualified employees that are hired during that period.
(b) For purposes of this section:
(1) (A) "Qualified wages" means that portion of wages paid or
incurred by the taxpayer for construction work in the Los Angeles
Revitalization Zone during the income year with respect to qualified
employees which does not exceed 150 percent of the minimum wage.
(B) If, after a taxpayer hires a qualified employee, the
geographic area in which the taxpayer's trade or business is located
is excluded from the map of the Los Angeles Revitalization Zone by
the Trade and Commerce Agency pursuant to Section 7102 or 7104 of the
Government Code, wages paid or incurred with respect to the
qualified employee may continue to be qualified wages and may qualify
for the credit under this section, provided all provisions of this
section are satisfied, applied as if the taxpayer's trade or business
was still located within the Los Angeles Revitalization Zone.
(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) "Qualified employee" means an individual to whom both of the
following apply:
(A) Is a resident, as defined in Section 7101 of the Government
Code, in the Los Angeles Revitalization Zone.
(B) Was hired by the taxpayer to perform construction work in the
Los Angeles Revitalization Zone.
(4) "Los Angeles Revitalization Zone" means the area designated
pursuant to Section 7102 of the Government Code.
(5) "Construction work" means any work performed by a qualified
employee directly related to the erection, demolition, repair, or
renovation of a structure located within the Los Angeles
Revitalization Zone.
(6) "Taxpayer" means a corporation engaged in a trade or business
within the Los Angeles Revitalization Zone.
(c) If an employer acquires the major portion of a trade or
business of another employer (hereafter in this subdivision referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for the purposes of
applying this section, other than subdivision (h), for any income
year ending after the acquisition, the employment relationship
between a qualified employee and employer shall not be treated as
terminated if the employee continues to be employed in that trade or
business.
(d) The credit shall be reduced by the credits allowable under
Sections 23621, 23622, 23623, and 23623.5 claimed for the same
qualified employee. The credit shall also be reduced by the credit
allowed under Section 51 of the Internal Revenue Code for the same
qualified employee.
(e) 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 credit, prior to any
reduction required by subdivision (f) or (g).
(f) 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 income years for the number of income
years in which the designation of the Los Angeles Revitalization Zone
under Section 7102 of the Government Code is operative, or 15 income
years, if longer, until the credit is exhausted. The credit shall
be applied first to the earliest income year possible.
(g) (1) The amount of credit otherwise allowed under this section
and Sections 23612.6 and 23623.5, including any credit carryover 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 attributable to the Los Angeles Revitalization Zone
determined as if that attributable income represented all of the
income of the taxpayer subject to tax under this part.
(2) The amount of attributable income described in paragraph (1)
shall be that portion of the taxpayer's California source business
income which is apportioned to the Los Angeles Revitalization Zone.
For that purpose, the taxpayer's business income attributable to
sources in this state first shall be determined in accordance with
the provisions of Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the Los Angeles
Revitalization Zone in accordance with the provisions of Article 2
(commencing with Section 25120) of Chapter 17 of Part 11, modified as
follows:
(A) Business income shall be apportioned to the Los Angeles
Revitalization Zone by multiplying total California business income
of the taxpayer by a fraction, the numerator of which is the property
factor plus the payroll factor, and the denominator of which is two.
(B) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the Los Angeles Revitalization
Zone during the income year and the denominator of which is the
average value of all the taxpayer's real and tangible personal
property owned or rented and used in this state during the income
year.
(C) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the Los Angeles
Revitalization Zone during the income year for compensation, and the
denominator of which is the total compensation paid by the taxpayer
in this state during the income year.
(3) The portion of the 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 (f).
(h) (1) If the employment of any qualified 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 a qualified employee who
voluntarily leaves the employment of the taxpayer.
(ii) A termination of employment of a qualified 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 taxpayer fails to offer reemployment to that qualified employee.
(iii) A termination of employment of a qualified employee, if it
is determined under the applicable employment compensation provisions
that the termination was due to the misconduct of that qualified
employee.
(iv) A termination of employment of a qualified employee due to a
substantial reduction in the trade or business operations of the
taxpayer.
(v) A termination of employment of a qualified employee, if that
qualified employee is replaced by other qualified employees so as to
create a net increase in both the number of employees and the hours
of employment.
(vi) A termination of employment due to a contractual agreement.
(B) For purposes of paragraph (1), the employment relationship
between the taxpayer and a qualified 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 qualified employee
continues to be employed in that trade or business and the taxpayer
retains a substantial interest in that trade or business.
(i) Except as provided in subparagraph (B) of paragraph (1) of
subdivision (b), this section shall cease to be operative on the
first day of the income year beginning on or after the determination
date, and each income year thereafter, with respect to the taxpayer's
business activities within a geographic area that is excluded from
the map pursuant to Section 7102 of the Government Code, or an
excluded area determined pursuant to Section 7104 of the Government
Code. For purposes of this subdivision, "determination date" means
the earlier of the first effective date of a determination under
subdivision (c) of Section 7102 of the Government Code occurring
after December 1, 1994, or the first effective date of an exclusion
of an area from the amended Los Angeles Revitalization Zone under
Section 7104 of the Government Code. However, if the taxpayer has
any unused credit amount as of the date this section becomes
inoperative, that unused credit amount may continue to be carried
forward as provided in subdivision (f).
(j) This section shall remain in effect only until December 1,
1998, and as of that date is repealed. However, any unused credit
may continue to be carried forward, as provided in subdivision (f).
SEC. 78. 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, and before January 1, 2003, 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 the purchase of any of the
following for exclusive use in a LAMBRA:
(A) High technology equipment, including, but not limited to,
computers and electronic processing equipment.
(B) Aircraft maintenance equipment, including, but not limited to,
engine stands, hydraulic mules, power carts, test equipment,
handtools, aircraft start carts, and tugs.
(C) Aircraft components, including, but not limited to, engines,
fuel control units, hydraulic pumps, avionics, starts, wheels, and
tires.
(D) Any property that is 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.
(i) This section shall remain in effect only until December 1,
2003, and as of that date is repealed. However, any unused credit
may continue to be carried forward as provided in subdivision (d),
until the credit is exhausted.
SEC. 79. 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, and before January 1, 2003, 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.
(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) Any individual who has been certified eligible by the
Employment Development Department under the federal Targeted Jobs Tax
Credit Program whether or not this program is in effect.
(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.
(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.
(j) This section shall remain in effect only until December 1,
2003, and as of that date is repealed. However, any unused credit
may continue to be carried over as provided in subdivision (g), until
the credit is exhausted.
SEC. 80. Section 23731 of the Revenue and Taxation Code is amended
to read:
23731. Every organization or trust exempt under this chapter,
except as provided in this article, is subject to the tax imposed
upon its unrelated business taxable income as defined in Section
23732.
(a) Corporations (other than banks and financial corporations),
associations, and business trusts are subject to the tax rates
imposed under Section 23151 or Section 23501.
(b) Trusts will be subject to the tax rates imposed by subdivision
(e) of Section 17041.
This section applies to income years beginning after December 31,
1970.
SEC. 81. Section 23802 of the Revenue and Taxation Code is amended
to read:
23802. (a) Section 1363(a) of the Internal Revenue Code, relating
to the taxability of an S corporation, shall not be applicable.
(b) Corporations qualifying under this chapter shall continue to
be subject to the taxes imposed under Chapter 2 (commencing with
Section 23101) and Chapter 3 (commencing with Section 23501), except
as follows:
(1) The tax imposed under Section 23151 or 23501 shall be imposed
at a rate of 11/2 percent rather than the rate specified in those
sections.
(2) In the case of an "S corporation" which is also a financial
corporation, the rate of tax specified in paragraph (1) shall be
increased by the excess of the rate imposed under Section 23183 over
the rate imposed under Section 23151.
(c) An "S corporation" shall be subject to the minimum franchise
tax imposed under Section 23153.
(d) (1) For purposes of subdivision (b), an "S corporation" shall
be allowed a deduction under Section 24416 or 24416.1 (relating to
net operating loss deductions), but only with respect to losses
incurred during periods in which the corporation had in effect a
valid election to be treated as an "S corporation" for purposes of
this part.
(2) Section 1371(b) of the Internal Revenue Code, relating to
denial of carryovers between "C years" and "S years," shall apply for
purposes of the tax imposed under subdivision (b), except as
provided in paragraph (1).
(3) The provisions of this subdivision shall not affect the amount
of any item of income or loss computed in accordance with the
provisions of Section 1366 of the Internal Revenue Code, relating to
pass-thru items to shareholders.
(4) For purposes of subdivision (b) of Section 17276, relating to
limitations on loss carryovers, losses passed through to shareholders
of an "S corporation," to the extent otherwise allowable without
application of that subdivision, shall be fully included in the net
operating loss of that shareholder and then that subdivision shall be
applied to the entire net operating loss.
(e) For purposes of computing the taxes specified in subdivision
(b), an "S corporation" shall be allowed a deduction from income for
built-in gains and passive investment income for which a tax has been
imposed under this part in accordance with the provisions of Section
1374 of the Internal Revenue Code, relating to tax imposed on
certain built-in gains, or Section 1375 of the Internal Revenue Code,
relating to tax imposed on passive investment income.
(f) For purposes of computing taxes imposed under this part, as
provided in subdivision (b)--
(1) An "S corporation" shall compute its deductions for
amortization and depreciation in accordance with the provisions of
Part 10 (commencing with Section 17001) of Division 2.
(2) The provisions of Section 465 of the Internal Revenue Code,
relating to limitation of deductions to the amount at risk, shall be
applied in the same manner as in the case of an individual.
(3) (A) The provisions of Section 469 of the Internal Revenue
Code, relating to limitations on passive activity losses and credits,
shall be applied in the same manner as in the case of an individual.
For purposes of the tax imposed under Section 23151 or 23501, as
modified by this section, material participation shall be determined
in accordance with Section 469(h) of the Internal Revenue Code,
relating to certain closely held "C corporations" and personal
service corporations.
(B) For purposes of this paragraph, the "adjusted gross income" of
the "S corporation" shall be equal to its "net income," as
determined under Section 24341 with the modifications required by
this subdivision, except that no deduction shall be allowed for
contributions allowed by Section 24357.
(4) The exclusion provided under Section 18152.5 shall not be
allowed to an "S corporation."
(g) The provisions of Section 1363(d) of the Internal Revenue
Code, relating to recapture of LIFO benefits, shall be modified for
purposes of this part to refer to Section 19102 in lieu of Section
6601 of the Internal Revenue Code.
SEC. 82. Section 23809 of the Revenue and Taxation Code is amended
to read:
23809. There is hereby imposed a tax on built-in gains
attributable to California sources, determined in accordance with the
provisions of Section 1374 of the Internal Revenue Code, relating to
tax imposed on certain built-in gains, as modified by this section.
(a) (1) The rate of tax specified in Section 1374(b)(1) of the
Internal Revenue Code shall be equal to the rate of tax imposed under
Section 23151 in lieu of the rate of tax specified in Section 11(b)
of the Internal Revenue Code.
(2) In the case of an "S corporation" which is also a financial
corporation, the rate of tax specified in paragraph (1) shall be
increased by the excess of the rate imposed under Section 23183 over
the rate imposed under Section 23151.
(b) The provisions of Section 1374(b)(3) of the Internal Revenue
Code, relating to credits, shall be modified to provide that the tax
imposed under subdivision (a) shall not be reduced by any credits
allowed under this part.
(c) The provisions of Section 1374(b)(4) of the Internal Revenue
Code, relating to coordination with Section 1201(a), shall not be
applicable.
(d) In the case of a corporation which is subject to the
provisions of former Section 1374 of the Internal Revenue Code (prior
to amendment by Public Law 99-514), the provisions of that section
shall be modified to provide that:
(1) The tax specified in Section 1374(b)(1) of the Internal
Revenue Code shall be equal to the rate of tax imposed under Section
23151 in lieu of the rate of tax specified in Section 11(b) of the
Internal Revenue Code.
(2) In the case of an "S corporation" which is also a financial
corporation, the rate of tax specified in paragraph (1) shall be
increased by the excess of the rate imposed under Section 23183 over
the rate imposed under Section 23151.
SEC. 83. Section 23811 of the Revenue and Taxation Code is amended
to read:
23811. Except as otherwise provided in this section, there is
hereby imposed a tax on passive investment income attributable to
California sources, determined in accordance with the provisions of
Section 1375 of the Internal Revenue Code, relating to tax imposed on
passive investment income, as modified by this section.
(a) The tax imposed under this section shall not be imposed on an
"S corporation" that has no excess net passive income for federal
purposes determined in accordance with Section 1375 of the Internal
Revenue Code.
(b) (1) The rate of tax shall be equal to the rate of tax imposed
under Section 23151 in lieu of Section 11(b) of the Internal Revenue
Code.
(2) In the case of an "S corporation" which is also a financial
corporation, the rate of tax specified in paragraph (1) shall be
increased by the excess of the rate imposed under Section 23183 over
the rate imposed under Section 23151.
(c) The provisions of Section 1375(c)(1) of the Internal Revenue
Code, relating to credits, shall be modified to provide that the tax
imposed under subdivision (a) shall not be reduced by any credits
allowed under this part.
(d) The term "subchapter C earnings and profits" as used in
Sections 1362(d)(3) and 1375 of the Internal Revenue Code shall mean
the subchapter C earnings and profits of the corporation attributable
to California sources determined under this part, modified as
provided in subdivision (e).
(e) (1) In the case of a corporation which elects to be treated as
an "S corporation" for purposes of this part for its first income
year beginning in 1987, or for its first income year for which it has
in effect a valid federal S election, there shall be allowed as a
deduction in determining that corporation's subchapter C earnings and
profits at the close of any income year the amount of any consent
dividend (as provided in paragraph (2)) paid after the close of that
income year.
(2) In the event there is a determination that a corporation
described in paragraph (1) has subchapter C earnings and profits at
the close of any income year, that corporation shall be entitled to
distribute a consent dividend to its shareholders. The amount of the
consent dividend shall not exceed the difference between the
corporation's subchapter C earnings and profits determined under
subdivision (d) at the close of the income year with respect to which
the determination is made and the corporation's subchapter C
earnings and profits for federal income tax purposes at the same
date. A consent dividend must be paid within 90 days of the date of
the determination that the corporation has subchapter C earnings and
profits. For this purpose, the date of a determination means the
effective date of a closing agreement pursuant to Section 19441, the
date an assessment of tax imposed by this section becomes final, or
the date of execution by the corporation of an agreement with the
Franchise Tax Board relating to liability for the tax imposed by this
section. For purposes of Part 10 and this part, a corporation must
make the election provided in Section 1368(e)(3) of the Internal
Revenue Code for any consent dividend.
(3) If a corporation distributes a consent dividend, it shall
claim the deduction provided in paragraph (1) by filing a claim
therefor with the Franchise Tax Board within 120 days of the date of
the determination specified in paragraph (2).
(4) The collection of tax imposed by this section from a
corporation described in paragraph (2) shall be stayed for 120 days
after the date of the determination specified in paragraph (2). If a
claim is filed pursuant to paragraph (3), collection of that tax
shall be further stayed until the date the claim is acted upon by
the Franchise Tax Board.
(5) If a claim is filed pursuant to paragraph (3), the running of
the statute of limitations on the making of assessments and actions
for collection of the tax imposed by this section shall be suspended
for a period of two years after the date of the determination
specified in paragraph (2).
SEC. 84. Section 24346 of the Revenue and Taxation Code is amended
to read:
24346. (a) For purposes of subdivision (a) of Section 24345, if
real property is sold during any real property tax year, then--
(1) So much of the real property tax as is properly allocable to
that part of the year which ends on the day before the date of the
sale shall be treated as a tax imposed on the seller; and
(2) So much of that tax as is properly allocable to that part of
the year which begins on the date of the sale shall be treated as a
tax imposed on the purchaser.
(b) (1) In the case of any sale of real property; if-- (A) A
corporation may not, by reason of its method of accounting, deduct
any amount for taxes unless paid; and (B) The other party to the
sale is (under the law imposing the real property tax) liable for the
real property tax for the real property tax year; then for purposes
of subdivision (a) of Section 24345 the corporation shall be treated
as having paid, on the date of the sale, so much of the tax as, under
subdivision (a), is treated as imposed on the corporation. For
purposes of the preceding sentence, if neither party is liable for
the tax, then the party holding the property at the time the tax
becomes a lien on the property shall be considered liable for the
real property tax for the real property tax year.
(2) Subdivision (a) shall apply to income years beginning after
December 31, 1960, but only in the case of sales after December 31,
1960.
(3) Subdivision (a) shall not apply to any real property tax, to
the extent that the tax was allowable as a deduction under the Bank
and Corporation Tax Law of 1954 to the seller for an income year
which began before January 1, 1961.
(4) In the case of any sale of real property, if the corporation's
net income for the income year during which the sale occurs is
computed under an accrual method of accounting, and if no election
under subdivision (b) of Section 24681 (relating to the accrual of
real property taxes) applies, then, for purposes of subdivision (a)
of Section 24345, that portion of the tax that--
(A) Is treated, under subdivision (a), as imposed on the
corporation; and
(B) May not, by reason of the corporation's method of accounting,
be deducted by the corporation for any income year, shall be treated
as having accrued on the date of the sale.
SEC. 85. Section 24356.4 of the Revenue and Taxation Code is
amended to read:
24356.4. (a) A taxpayer may elect to treat the cost of any
Section 24356.4 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 24356.4
property in service.
(b) (1) An election made under this section for any income year
shall meet both of the following requirements:
(A) Specify the items of Section 24356.4 property to which the
election applies and the cost of each of those items that is to be
taken into account under subdivision (a).
(B) Be made on the taxpayer's original return of the tax imposed
by this part for the income year.
(2) Any election made under this section, and any specifications
contained in that election, may not be revoked except with the
consent of the Franchise Tax Board.
(c) For purposes of this section:
(1) "Taxpayer" means a corporation engaged in a trade or business
within the Los Angeles Revitalization Zone designated pursuant to
Section 7102 of the Government Code.
(2) "Section 24356.4 property" means any recovery property that is
all of the following:
(A) Section 1245 property (as defined in Section 1245(a)(3) of the
Internal Revenue Code).
(B) Purchased and placed in service by the taxpayer on or after
September 1, 1992, and before the zone expiration date.
(C) Used exclusively in a trade or business conducted within the
Los Angeles Revitalization Zone designated pursuant to Section 7102
of the Government Code.
(3) "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,
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 member of an affiliated
group from another 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 the property in the hands of the person from whom
acquired.
(4) "Zone expiration date" means the date the Los Angeles
Revitalization Zone designation expires, is repealed, or becomes
inoperative pursuant to Section 7102, 7103, or 7104 of the Government
Code.
(d) This section does 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) This section applies only to Section 24356.4 property that is
used by the taxpayer exclusively in a trade or business conducted in
the Los Angeles Revitalization Zone.
(f) Any amount deducted under subdivision (a) with respect to
Section 24356.4 property that ceases to be used in the taxpayer's
trade or business within the Los Angeles Revitalization Zone at any
time before the close of the second income year after the property
was placed in service shall be included in income in the income year
in which property ceases to be so used.
(g) This section shall be inoperative on the first day of the
income year beginning on or after the determination date, and each
income year thereafter, with respect to the taxpayer's business
activities within a geographic area that is excluded from the map
pursuant to Section 7102 of the Government Code, or an excluded area
determined pursuant to Section 7104 of the Government Code. The
determination date is the earlier of the first effective date of a
determination under subdivision (c) of Section 7102 of the Government
Code occurring after December 1, 1994, or the first effective date
of an exclusion of an area from the amended Los Angeles
Revitalization Zone under Section 7104 of the Government Code.
(h) This section shall remain in effect only until December 1,
1998, and as of that date is repealed.
SEC. 86. 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, and before January 1, 2003, a taxpayer may elect to treat
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 Section
24356.8 property is placed 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 Section 1245 property (as defined
in Section 1245(a)(3) of the Internal Revenue Code) and that the
taxpayer acquires by purchase for exclusive use in a trade or
business conducted within a LAMBRA.
(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 deduction allowable under subdivision (a) for any income
year shall not exceed the following applicable amount for the income
year of the designation of a LAMBRA and each income year thereafter:
The applicable amount is:
Income year of designation ........... $ 5,000
1st income year thereafter ........... 5,000
2nd income year thereafter ........... 7,500
3rd income year thereafter ........... 7,500
Each income year thereafter .......... 10,000
(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.
(j) This section shall remain in effect only until December 1,
2003, and as of that date is repealed.
SEC. 87. Section 24357 of the Revenue and Taxation Code is amended
to read:
24357. (a) There shall be allowed as a deduction any charitable
contribution (as defined in Section 24359) payment of which is made
within the income year. A charitable contribution shall be allowable
as a deduction only if verified under regulations prescribed by the
Franchise Tax Board.
(b) In the case of a corporation reporting its income on the
accrual basis, if-- (1) The board of directors authorizes a
charitable contribution during any income year; and (2) Payment of
the contribution is made after the close of that income year and on
or before the 15th day of the third month following the close of that
income year, then the corporation may elect to treat the
contribution as paid during that income year. The election may be
made only at the time of the filing of the return for that income
year, and shall be signified in any manner as the Franchise Tax Board
shall by regulations prescribe.
(c) For purposes of this section, payment of a charitable
contribution that consists of a future interest in tangible personal
property shall be treated as made only when all intervening interests
in, and rights to the actual possession or enjoyment of, the
property have expired or are held by persons other than the taxpayer
or those standing in a relationship to the taxpayer described in
Section 24428. For purposes of the preceding sentence, a fixture
which is intended to be severed from the real property shall be
treated as tangible personal property.
(d) No deduction shall be allowed under this section for traveling
expenses (including amounts expended for meals and lodging) while
away from home, whether paid directly or by reimbursement, unless
there is no significant element of personal pleasure, recreation, or
vacation in that travel.
SEC. 88. Section 24358 of the Revenue and Taxation Code is amended
to read:
24358. (a) In the case of a corporation, the total deductions
under Section 24357 for any income year shall not exceed 10 percent
of the taxpayer's net income computed without regard to any of the
following:
(1) Subdivision (e) of Section 23802, relating to a deduction for
built-in gains and passive investment income.
(2) Sections 24357 to 24359, inclusive, relating to the deduction
for contributions.
(3) Article 2 (commencing with Section 24401) of Chapter 7 (except
Sections 24407 to 24409, inclusive, relating to organizational
expenses).
(b) Section 170(d)(2) of the Internal Revenue Code, relating to
carryovers of excess contributions, shall apply with respect to
excess contributions made during income years beginning on or after
January 1, 1996.
SEC. 89. Section 24359 of the Revenue and Taxation Code is amended
to read:
24359. For purposes of Sections 24357 to 24359, inclusive, the
term "charitable contribution" means a contribution or gift to or for
the use of--
(a) A state, a possession of the United States, or any political
subdivision of any of the foregoing, or the United States or the
District of Columbia, but only if the contribution or gift is made
for exclusively public purposes.
(b) A corporation, trust, or community chest, fund, or
foundation--
(1) Created or organized in the United States or in any possession
thereof, or under the law of the United States, any state, the
District of Columbia, or any possession of the United States;
(2) Organized and operated exclusively for religious, charitable,
scientific, literary, or educational purposes or to foster national
or international amateur sports competition (but only if no part of
its activities involve the provision of athletic facilities or
equipment), or for the prevention of cruelty to children or animals;
(3) No part of the net earnings of which inures to the benefit of
any private shareholder or individual; and
(4) Which is not disqualified for tax exemption under Section
23701d by reason of attempting to influence legislation, and which
does not participate in, or intervene in (including the publishing or
distributing of statements), any political campaign on behalf of (or
in opposition to) any candidate for public office.
A contribution or gift by a corporation to a trust, chest, fund,
or foundation shall be deductible by reason of this section only if
it is to be used within the United States or any of its possessions
exclusively for purposes specified in paragraph (2). Rules similar
to the rules of subdivision (b) of Section 23701d shall apply for
purposes of this section.
(c) A post or organization of war veterans, or an auxiliary unit
or society of, or trust or foundation for, any post or organization
of war veterans--
(1) Organized in the United States or any of its possessions, and
(2) No part of the net earnings of which inures to the benefit of
any private shareholder or individual.
(d) A cemetery company owned and operated exclusively for the
benefit of its members, or any corporation chartered solely for
burial purposes as a cemetery corporation and not permitted by its
charter to engage in any business not necessarily incident to that
purpose, if the company or corporation is not operated for profit and
no part of the net earnings of the company or corporation inures to
the benefit of any private shareholder or individual.
SEC. 90. Section 24402 of the Revenue and Taxation Code is amended
to read:
24402. (a) A portion of the dividends received during the income
year declared from income which has been included in the measure of
the taxes imposed under Chapter 2 (commencing with Section 23101),
Chapter 2.5 (commencing with Section 23400), or Chapter 3 (commencing
with Section 23501) upon the taxpayer declaring the dividends.
(b) The portion of dividends which may be deducted under this
section shall be as follows:
(1) In the case of any dividend described in subdivision (a),
received from a "more than 50 percent owned corporation," 100
percent.
(2) In the case of any dividend described in subdivision (a),
received from a "20 percent owned corporation," 80 percent.
(3) In the case of any dividend described in subdivision (a),
received from a corporation that is less than 20 percent owned, 70
percent.
(c) For purposes of this section:
(1) The term "more than 50 percent owned corporation" means any
corporation if more than 50 percent of the stock of that corporation
(by vote and value) is owned by the taxpayer. For purposes of the
preceding sentence, stock described in Section 1504(a)(4) of the
Internal Revenue Code shall not be taken into account.
(2) The term "20 percent owned corporation" means any corporation
if 20 percent or more of the stock of that corporation (by vote and
value) is owned by the taxpayer. For purposes of the preceding
sentence, stock described in Section 1504(a)(4) of the Internal
Revenue Code shall not be taken into account.
SEC. 91. Section 24407 of the Revenue and Taxation Code is amended
to read:
24407. The organizational expenditures of a corporation may, at
the election of the corporation (made in accordance with regulations
prescribed by the Franchise Tax Board), be treated as deferred
expenses. In computing net income, the deferred expenses shall be
allowed as a deduction ratably over that period of not less than 60
months as may be selected by the corporation (beginning with the
month in which the corporation begins business).
SEC. 92. Section 24408 of the Revenue and Taxation Code is amended
to read:
24408. The term "organizational expenditures" means any
expenditure that meets all of the following requirements:
(a) Is incident to the creation of the corporation.
(b) Is chargeable to capital account.
(c) Is of a character which, if expended incident to the creation
of a corporation having a limited life, would be amortizable over
that life.
SEC. 93. Section 24409 of the Revenue and Taxation Code is amended
to read:
24409. The election provided by Section 24407 may be made for any
income year beginning after December 31, 1960, but only if made not
later than the time prescribed by law for filing the return for that
income year (including extensions thereof). The period so elected
shall be adhered to in computing the income of the corporation for
the income year for which the election is made and all subsequent
income years. The election shall apply only with respect to the
expenditures paid or incurred on or after June 23, 1961.
SEC. 94. Section 24411 of the Revenue and Taxation Code is amended
to read:
24411. (a) For purposes of those taxpayers electing to compute
income under Section 25110, 100 percent of the qualifying dividends
described in subdivision (c) and 75 percent of other qualifying
dividends to the extent not otherwise allowed as a deduction or
eliminated from income. "Qualifying dividends" means those received
by the water's-edge group from corporations if both of the following
conditions are satisfied:
(1) The average of the property, payroll, and sales factors within
the United States for the corporation is less than 20 percent.
(2) More than 50 percent of the total combined voting power of all
classes of stock entitled to vote is owned directly or indirectly by
the water's-edge group.
(b) The water's-edge group consists of corporations whose income
and apportionment factors are taken into account pursuant to Section
25110.
(c) Dividends derived from a construction project, the location of
which is not subject to the taxpayer's control.
For purposes of this subdivision:
(1) "Construction project" means any activity which meets the
following requirements:
(A) Is undertaken for any entity, including a governmental entity,
which is not affiliated with the taxpayer.
(B) The majority of its cost of performance is attributable to an
addition to real property or an alteration of land or any improvement
thereto as those terms are utilized for purposes of this code.
"Construction project" does not include the operation, rental,
leasing, or depletion of real property, land, or any improvement
thereto.
(2) "Location of which is not subject to the taxpayer's control"
means that the place at which the majority of the construction takes
place results from the nature or character of the construction
project and not as a result of the terms of the contract or agreement
governing the construction project.
SEC. 95. Section 24416 of the Revenue and Taxation Code is amended
to read:
24416. Except as provided in Sections 24416.1 and 24416.2, a net
operating loss deduction shall be allowed in computing net income
under Section 24341 and shall be determined in accordance with
Section 172 of the Internal Revenue Code, except as otherwise
provided.
(a) (1) Net operating losses attributable to income years
beginning before January 1, 1987, shall not be allowed.
(2) A net operating loss shall not be carried forward to any
income year beginning before January 1, 1987.
(b) (1) Except as provided in paragraphs (2) and (3), the
provisions of Section 172(b)(2) of the Internal Revenue Code,
relating to the amount of carryovers, shall be modified so that 50
percent of the entire amount of the net operating loss for any income
year shall not be eligible for carryover to any subsequent income
year.
(2) In the case of a taxpayer who has a net operating loss in an
income year beginning on or after January 1, 1994, and who operates a
new business during that income year, each of the following shall
apply to each loss incurred during the first three income years of
operating the new business:
(A) If the net operating loss is equal to or less than the net
loss from the new business, 100 percent of the net operating loss
shall be carried forward as provided in paragraph (2) of subdivision
(e).
(B) If the net operating loss is greater than the net loss from
the new business, the net operating loss shall be carried over as
follows:
(i) With respect to an amount equal to the net loss from the new
business, 100 percent of that amount shall be carried forward as
provided in paragraph (2) of subdivision (e).
(ii) With respect to the portion of the net operating loss that
exceeds the net loss from the new business, 50 percent of that amount
shall be a net operating loss carryover to each of the five taxable
years following the taxable year of the loss.
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(3) In the case of a taxpayer who has a net operating loss in an
income year beginning on or after January 1, 1994, and who operates
an eligible small business during that income year, each of the
following shall apply:
(A) If the net operating loss is equal to or less than the net
loss from the eligible small business, 100 percent of the net
operating loss shall be carried forward to the income years specified
in paragraph (1) of subdivision (e).
(B) If the net operating loss is greater than the net loss from
the eligible small business, the net operating loss shall be carried
over as follows:
(i) With respect to an amount equal to the net loss from the
eligible small business, 100 percent of that amount shall be carried
forward to each of the five income years following the income year of
the loss.
(ii) With respect to the portion of the net operating loss that
exceeds the net loss from the eligible small business, 50 percent of
that amount shall be a net operating loss carryover to each of the
five income years following the income year of the loss.
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(4) In the case of a taxpayer who has a net operating loss in an
income year beginning on or after January 1, 1994, and who operates a
business that qualifies as both a new business and an eligible small
business under this section, that business shall be treated as a new
business for the first three income years of the new business.
(5) In the case of a taxpayer who has a net operating loss in an
income year beginning on or after January 1, 1994, and who operates
more than one business, and more than one of those businesses
qualifies as either a new business or an eligible small business
under this section, paragraph (2) shall be applied first, except that
if there is any remaining portion of the net operating loss after
application of clause (i) of subparagraph (B) of paragraph (2),
paragraph (3) shall be applied to the remaining portion of the net
operating loss as though that remaining portion of the net operating
loss constituted the entire net operating loss.
(6) For purposes of this section, "net loss" means the amount of
net loss after application of Sections 465 and 469 of the Internal
Revenue Code.
(c) For any income year in which the taxpayer has in effect a
water's-edge election under Section 25110, the deduction of a net
operating loss carryover shall be denied to the extent that the net
operating loss carryover was determined by taking into account the
income and factors of an affiliated corporation in a combined report
whose income and apportionment factors would not have been taken into
account if a water's-edge election under Section 25110 had been in
effect for the income year in which the loss was incurred.
(d) Net operating loss carrybacks shall not be allowed.
(e) (1) Except as provided in paragraphs (2), (3), and (4), for
each income year beginning on or after January 1, 1987, Section 172
(b)(1)(A)(ii) of the Internal Revenue Code, relating to years to
which net operating losses may be carried, is modified to substitute
"five income years" in lieu of "15 taxable years."
(2) In the case of a "new business," the "five income years"
referred to in paragraph (1) shall be modified to read as follows:
(A) "Eight income years" for a net operating loss attributable to
the first income year of that new business.
(B) "Seven income years" for a net operating loss attributable to
the second income year of that new business.
(C) "Six income years" for a net operating loss attributable to
the third income year of that new business.
(3) For any carryover of a net operating loss for which a
deduction is denied by Section 24416.3, the carryover period
specified in this subdivision shall be extended as follows:
(A) By one year for a net operating loss attributable to income
years beginning in 1991.
(B) By two years for a net operating loss attributable to income
years beginning prior to January 1, 1991.
(4) The net operating loss attributable to income years beginning
on or after January 1, 1987, and before January 1, 1994, shall be a
net operating loss carryover to each of the 10 income years following
the year of the loss if it is incurred by a corporation that was
either of the following:
(A) Under the jurisdiction of the court in a Title 11 or similar
case at any time prior to January 1, 1994. The loss carryover
provided in the preceding sentence shall not apply to any loss
incurred in an income year after the income year during which the
corporation is no longer under the jurisdiction of the court in a
Title 11 or similar case.
(B) In receipt of assets acquired in a transaction that qualifies
as a tax-free reorganization under Section 368(a)(1)(G) of the
Internal Revenue Code.
(f) For purposes of this section:
(1) "Eligible small business" means any trade or business that has
gross receipts, less returns and allowances, of less than one
million dollars ($1,000,000) during the income year.
(2) Except as provided in subdivision (g), "new business" means
any trade or business activity that is first commenced in this state
on or after January 1, 1994.
(3) "Title 11 or similar case" shall have the same meaning as in
Section 368(a)(3) of the Internal Revenue Code.
(4) In the case of any trade or business activity conducted by a
partnership or an S corporation, paragraphs (1) and (2) shall be
applied to the partnership or S corporation.
(g) For purposes of this section, in determining whether a trade
or business activity qualifies as a new business under paragraph (2)
of subdivision (e), the following rules shall apply:
(1) In any case where a taxpayer purchases or otherwise acquires
all or any portion of the assets of an existing trade or business
(irrespective of the form of entity) that is doing business in this
state (within the meaning of Section 23101), the trade or business
thereafter conducted by the taxpayer (or any related person) shall
not be treated as a new business if the aggregate fair market value
of the acquired assets (including real, personal, tangible, and
intangible property) used by the taxpayer (or any related person) in
the conduct of its trade or business exceeds 20 percent of the
aggregate fair market value of the total assets of the trade or
business being conducted by the taxpayer (or any related person).
For purposes of this paragraph only, the following rules shall apply:
(A) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the first income year in which the taxpayer (or any related
person) first uses any of the acquired trade or business assets in
its business activity.
(B) Any acquired assets that constituted property described in
Section 1221(1) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(1) of the Internal Revenue Code in the
hands of the acquiring taxpayer (or related person).
(2) In any case where a taxpayer (or any related person) is
engaged in one or more trade or business activities in this state, or
has been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, than are
any of the taxpayer's (or any related person's) current or prior
trade or business activities.
(3) In any case where a taxpayer, including all related persons,
is engaged in trade or business activities wholly outside of this
state and the taxpayer first commences doing business in this state
(within the meaning of Section 23101) after December 31, 1993 (other
than by purchase or other acquisition described in paragraph (1)),
the trade or business activity shall be treated as a new business
under paragraph (2) of subdivision (e).
(4) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
taxpayer as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
paragraph (1) of this subdivision.
(5) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
(6) "Acquire" shall include any transfer, whether or not for
consideration.
(7) (A) For income years beginning on or after January 1, 1997,
the term "new business" shall include any taxpayer that is engaged in
biopharmaceutical activities or other biotechnology activities that
are described in Codes 2833 to 2836, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, and as further
amended, and that has not received regulatory approval for any
product from the United States Food and Drug Administration.
(B) For purposes of this paragraph:
(i) "Biopharmaceutical activities" means those activities which
use organisms or materials derived from organisms, and their
cellular, subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities which make use of chemical compounds to produce commercial
products.
(ii) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
(h) For purposes of corporations whose net income is determined
under Chapter 17 (commencing with Section 25101), Section 25108 shall
apply to each of the following:
(1) The amount of net operating loss incurred in any income year
which may be carried forward to another income year.
(2) The amount of any loss carry forward which may be deducted in
any income year.
(i) The provisions of Section 172(b)(1)(K) of the Internal Revenue
Code, relating to bad debt losses of commercial banks, shall not be
applicable.
(j) The Franchise Tax Board may prescribe appropriate regulations
to carry out the purposes of this section, including any regulations
necessary to prevent the avoidance of the purposes of this section
through splitups, shell
corporations, partnerships, tiered ownership structures, or
otherwise.
(k) The Franchise Tax Board may reclassify any net operating loss
carryover determined under either paragraph (2) or (3) of subdivision
(b) as a net operating loss carryover under paragraph (1) of
subdivision (b) upon a showing that the reclassification is necessary
to prevent evasion of the purposes of this section.
(l) The amendments made by the act adding this subdivision shall
be operative for income years beginning on or after January 1, 1997.
SEC. 96. Section 24416.2 of the Revenue and Taxation Code is
amended to read:
24416.2. The term "qualified taxpayer" as used in Section 24416.1
means any of the following:
(a) A corporation engaged in the conduct of a trade or business
within an enterprise zone designated pursuant to Chapter 12.8
(commencing with Section 7070) of Division 7 of Title 1 of the
Government Code.
(1) A net operating loss shall not be a net operating loss
carryback for any income year and a net operating loss for any income
year beginning on or after the date that the area in which the
taxpayer conducts a trade or business is designated as an enterprise
zone shall be a net operating loss carryover to each of the 15 income
years following the income year of loss.
(2) For purposes of this subdivision:
(A) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's business activities within the
enterprise zone (as defined in Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code) prior to the
enterprise zone expiration date. That attributable loss shall be
determined in accordance with the provisions of Chapter 17
(commencing with Section 25101), modified for purposes of this
section by substituting "enterprise zone" for "this state."
(B) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to the
enterprise zone (as defined in Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code) determined in
accordance with the provisions of Chapter 17 (commencing with Section
25101), modified for purposes of this section by substituting
"enterprise zone" for "this state."
(C) "Enterprise zone expiration date" means the date the
enterprise zone designation expires, is no longer binding, or becomes
inoperative.
(b) A corporation engaged in the conduct of a trade or business
within the Los Angeles Revitalization Zone designated pursuant to
Section 7102 of the Government Code.
(1) (A) A net operating loss shall not be a net operating loss
carryback for any income year and, except as provided in subparagraph
(B), a net operating loss for any income year beginning on or after
the date the area in which the taxpayer conducts a trade or business
is designated the Los Angeles Revitalization Zone shall be a net
operating loss carryover to each following income year that ends
before the Los Angeles Revitalization Zone expiration date or to each
of the 15 income years following the income year of loss, if longer.
(B) In the case of a financial institution to which Section 585,
586, or 593 of the Internal Revenue Code applies, a net operating
loss for any income year beginning on or after January 1, 1984, shall
be a net operating loss carryover to each of the five years
following the income year of the loss. Subdivision (b) of Section
24416.1 shall not apply.
(2) For the purposes of this subdivision:
(A) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's business activities within the Los
Angeles Revitalization Zone (as defined in Section 7102 of the
Government Code) prior to the Los Angeles Revitalization Zone
expiration date. The attributable loss shall be determined in
accordance with the provisions of Chapter 17 (commencing with Section
25101), modified as follows:
(i) The loss shall be apportioned to the Los Angeles
Revitalization Zone by multiplying the loss from the business by a
fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two.
(ii) "The Los Angeles Revitalization Zone" shall be substituted
for this state.
(B) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to the Los
Angeles Revitalization Zone (as defined in Section 7102 of the
Government Code) determined in accordance with the provisions of
paragraph (3).
(3) Attributable income shall be that portion of the taxpayer's
California source business income which is apportioned to the Los
Angeles Revitalization Zone. For that purpose, the taxpayer's
business income attributable to sources in this state first shall be
determined in accordance with the provisions of Chapter 17
(commencing with Section 25101). That business income shall be
further apportioned to the Los Angeles Revitalization Zone in
accordance with the provisions of Article 2 (commencing with Section
25120) of Chapter 17, modified as follows:
(A) Business income shall be apportioned to the Los Angeles
Revitalization Zone by multiplying total California business income
of the taxpayer by a fraction, the numerator of which is the property
factor plus the payroll factor, and the denominator of which is two.
(B) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the Los Angeles Revitalization
Zone during the income year and the denominator of which is the
average value of all the taxpayer's real and tangible personal
property owned or rented and used in this state during the income
year.
(C) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the Los Angeles
Revitalization Zone during the income year for compensation, and the
denominator of which is the total compensation paid by the taxpayer
in this state during the income year.
(4) "Los Angeles Revitalization Zone expiration date" means the
date the Los Angeles Revitalization Zone designation expires, is
repealed, or becomes inoperative pursuant to Section 7102, 7103, or
7104 of the Government Code.
(5) This subdivision shall be inoperative on the first day of the
income year beginning on or after the determination date, and each
income year thereafter, with respect to the taxpayer's business
activities within a geographic area that is excluded from the map
pursuant to Section 7102 of the Government Code, or an excluded area
determined pursuant to Section 7104 of the Government Code. The
determination date is the earlier of the first effective date of a
determination under subdivision (c) of Section 7102 of the Government
Code occurring after December 1, 1994, or the first effective date
of an exclusion of an area from the amended Los Angeles
Revitalization Zone under Section 7104 of the Government Code.
However, if the taxpayer has any unused loss amount as of the date
this section becomes inoperative, that unused loss amount may
continue to be carried forward as provided in this subdivision.
(6) This subdivision shall cease to be operative on January 1,
1998. However, any unused net operating loss may continue to be
carried over to following years as provided in this subdivision.
(c) For each income year beginning on or after January 1, 1995,
and before January 1, 2003, a taxpayer engaged in the conduct of a
trade or business within a LAMBRA.
(1) (A) A net operating loss shall not be a net operating loss
carryback for any income year and, except as provided in subparagraph
(B), a net operating loss for any income year beginning on or after
the date the area in which the taxpayer conducts a trade or business
is designated a LAMBRA shall be a net operating loss carryover to
each following income year that ends before the LAMBRA expiration
date or to each of the 15 income years following the income year of
loss, if longer.
(B) In the case of a financial institution to which Section 585,
586, or 593 of the Internal Revenue Code applies, a net operating
loss for any income year beginning on or after January 1, 1984, shall
be a net operating loss carryover to each of the five years
following the income year of the loss. Subdivision (b) of Section
24416.1 shall not apply.
(2) For the purposes of this subdivision:
(A) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
(B) "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 and this state.
(i) 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. The deduction shall be
allowed only if the taxpayer has a net increase in jobs in the state,
and if one or more full-time employees is employed within the
LAMBRA.
(ii) 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.
(iii) In the case of a taxpayer that first commences doing
business in the LAMBRA during the income year, for purposes of
subclauses (I) and (II), respectively, of clause (ii) 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.
(C) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's business activities within a LAMBRA
prior to the LAMBRA expiration date. The attributable loss shall be
determined in accordance with the provisions of Chapter 17
(commencing with Section 25101), modified as follows:
(i) Loss shall be apportioned to a LAMBRA by multiplying the loss
from the business by a fraction, the numerator of which is the
property factor plus the payroll factor, and the denominator of which
is two.
(ii) "The LAMBRA" shall be substituted for "this state."
(D) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to a LAMBRA
determined in accordance with the provisions of Chapter 17
(commencing with Section 25101), modified as follows:
(i) Business 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.
(ii) "The LAMBRA" shall be substituted for "this state."
(iii) If a loss carryover is allowable pursuant to this section
for any income year after the LAMBRA designation has expired, the
LAMBRA shall be deemed to remain in existence for purposes of
computing this limitation.
(E) "LAMBRA expiration date" means the date the LAMBRA designation
expires, is no longer binding, or becomes inoperative pursuant to
Section 7110 of the Government Code.
(d) A taxpayer who qualifies as a "qualified taxpayer" shall, for
the income year of the net operating loss and any income year to
which that net operating loss may be carried, designate on the
original return filed for each year the subdivision of this section
which applies to that taxpayer with respect to that net operating
loss. If the taxpayer is eligible to qualify under more than one
subdivision of this section, the designation is to be made after
taking into account subdivision (e).
(e) If a taxpayer is eligible to qualify under more than one
subdivision of this section as a "qualified taxpayer," with respect
to a net operating loss in an income year, the taxpayer shall
designate which subdivision of this section is to apply to the
taxpayer.
(f) Notwithstanding Section 24416, the amount of the loss
determined under this section shall be the only net operating loss
allowed to be carried over from that income year and the designation
under subdivision (d) shall be included in the election under Section
24416.1.
SEC. 96.5. Section 24416.2 of the Revenue and Taxation Code is
amended to read:
24416.2. The term "qualified taxpayer" as used in Section 24416.1
means any of the following:
(a) A corporation engaged in the conduct of a trade or business
within an enterprise zone designated pursuant to Chapter 12.8
(commencing with Section 7070) of Division 7 of Title 1 of the
Government Code.
(1) A net operating loss shall not be a net operating loss
carryback for any income year and a net operating loss for any income
year beginning on or after the date that the area in which the
taxpayer conducts a trade or business is designated as an enterprise
zone shall be a net operating loss carryover to each of the 15 income
years following the income year of loss.
(2) For purposes of this subdivision:
(A) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's business activities within the
enterprise zone (as defined in Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code) prior to the
enterprise zone expiration date. That attributable loss shall be
determined in accordance with the provisions of Chapter 17
(commencing with Section 25101), modified for purposes of this
section by substituting "enterprise zone" for "this state."
(B) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to the
enterprise zone (as defined in Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code) determined in
accordance with the provisions of Chapter 17 (commencing with Section
25101), modified for purposes of this section by substituting
"enterprise zone" for "this state."
(C) If a loss carryover is allowable pursuant to this section for
any income year after the enterprise zone designation has expired,
the enterprise zone shall be deemed to remain in existence for
purposes of computing the limitation set forth in subparagraph (B)
and allowing a net operating loss deduction.
(D) "Enterprise zone expiration date" means the date the
enterprise zone designation expires, is no longer binding, or becomes
inoperative.
(b) A corporation engaged in the conduct of a trade or business
within the Los Angeles Revitalization Zone designated pursuant to
Section 7102 of the Government Code.
(1) (A) A net operating loss shall not be a net operating loss
carryback for any income year and, except as provided in subparagraph
(B), a net operating loss for any income year beginning on or after
the date the area in which the taxpayer conducts a trade or business
is designated the Los Angeles Revitalization Zone shall be a net
operating loss carryover to each following income year that ends
before the Los Angeles Revitalization Zone expiration date or to each
of the 15 income years following the income year of loss, if longer.
(B) In the case of a financial institution to which Section 585,
586, or 593 of the Internal Revenue Code applies, a net operating
loss for any income year beginning on or after January 1, 1984, shall
be a net operating loss carryover to each of the five years
following the income year of the loss. Subdivision (b) of Section
24416.1 shall not apply.
(2) For the purposes of this subdivision:
(A) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's business activities within the Los
Angeles Revitalization Zone (as defined in Section 7102 of the
Government Code) prior to the Los Angeles Revitalization Zone
expiration date. The attributable loss shall be determined in
accordance with the provisions of Chapter 17 (commencing with Section
25101), modified as follows:
(i) The loss shall be apportioned to the Los Angeles
Revitalization Zone by multiplying the loss from the business by a
fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two.
(ii) "The Los Angeles Revitalization Zone" shall be substituted
for this state.
(B) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to the Los
Angeles Revitalization Zone (as defined in Section 7102 of the
Government Code) determined in accordance with the provisions of
paragraph (3).
(C) If a loss carryover is allowable pursuant to this section for
any income year after the Los Angeles Revitalization Zone designation
has expired, the Los Angeles Revitalization Zone shall be deemed to
remain in existence for purposes of computing the limitation set
forth in subparagraph (B) and allowing a net operating loss
deduction.
(3) Attributable income shall be that portion of the taxpayer's
California source business income which is apportioned to the Los
Angeles Revitalization Zone. For that purpose, the taxpayer's
business income attributable to sources in this state first shall be
determined in accordance with the provisions of Chapter 17
(commencing with Section 25101). That business income shall be
further apportioned to the Los Angeles Revitalization Zone in
accordance with the provisions of Article 2 (commencing with Section
25120) of Chapter 17, modified as follows:
(A) Business income shall be apportioned to the Los Angeles
Revitalization Zone by multiplying total California business income
of the taxpayer by a fraction, the numerator of which is the property
factor plus the payroll factor, and the denominator of which is two.
(B) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the Los Angeles Revitalization
Zone during the income year and the denominator of which is the
average value of all the taxpayer's real and tangible personal
property owned or rented and used in this state during the income
year.
(C) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the Los Angeles
Revitalization Zone during the income year for compensation, and the
denominator of which is the total compensation paid by the taxpayer
in this state during the income year.
(4) "Los Angeles Revitalization Zone expiration date" means the
date the Los Angeles Revitalization Zone designation expires, is
repealed, or becomes inoperative pursuant to Section 7102, 7103, or
7104 of the Government Code.
(5) This subdivision shall be inoperative on the first day of the
income year beginning on or after the determination date, and each
income year thereafter, with respect to the taxpayer's business
activities within a geographic area that is excluded from the map
pursuant to Section 7102 of the Government Code, or an excluded area
determined pursuant to Section 7104 of the Government Code. The
determination date is the earlier of the first effective date of a
determination under subdivision (c) of Section 7102 of the Government
Code occurring after December 1, 1994, or the first effective date
of an exclusion of an area from the amended Los Angeles
Revitalization Zone under Section 7104 of the Government Code.
However, if the taxpayer has any unused loss amount as of the date
this section becomes inoperative, that unused loss amount may
continue to be carried forward as provided in this subdivision.
(6) This subdivision shall cease to be operative on January 1,
1998. However, any unused net operating loss may continue to be
carried over to following years as provided in this subdivision.
(c) For each income year beginning on or after January 1, 1995,
and before January 1, 2003, a taxpayer engaged in the conduct of a
trade or business within a LAMBRA.
(1) (A) A net operating loss shall not be a net operating loss
carryback for any income year and, except as provided in subparagraph
(B), a net operating loss for any income year beginning on or after
the date the area in which the taxpayer conducts a trade or business
is designated a LAMBRA shall be a net operating loss carryover to
each following income year that ends before the LAMBRA expiration
date or to each of the 15 income years following the income year of
loss, if longer.
(B) In the case of a financial institution to which Section 585,
586, or 593 of the Internal Revenue Code applies, a net operating
loss for any income year beginning on or after January 1, 1984, shall
be a net operating loss carryover to each of the five years
following the income year of the loss. Subdivision (b) of Section
24416.1 shall not apply.
(2) For the purposes of this subdivision:
(A) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
(B) "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 and this state.
(i) 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. The deduction shall be
allowed only if the taxpayer has a net increase in jobs in the state,
and if one or more full-time employees is employed within the
LAMBRA.
(ii) 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.
(iii) In the case of a taxpayer that first commences doing
business in the LAMBRA during the income year, for purposes of
subclauses (I) and (II), respectively, of clause (ii) 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.
(C) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's business activities within a LAMBRA
prior to the LAMBRA expiration date. The attributable loss shall be
determined in accordance with the provisions of Chapter 17
(commencing with Section 25101), modified as follows:
(i) Loss shall be apportioned to a LAMBRA by multiplying the loss
from the business by a fraction, the numerator of which is the
property factor plus the payroll factor, and the denominator of which
is two.
(ii) "The LAMBRA" shall be substituted for "this state."
(D) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to a LAMBRA
determined in accordance with the provisions of Chapter 17
(commencing with Section 25101), modified as follows:
(i) Business 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.
(ii) "The LAMBRA" shall be substituted for "this state."
(iii) If a loss carryover is allowable pursuant to this section
for any income year after the LAMBRA designation has expired, the
LAMBRA shall be deemed to remain in existence for purposes of
computing this limitation.
(E) "LAMBRA expiration date" means the date the LAMBRA designation
expires, is no longer binding, or becomes inoperative pursuant to
Section 7110 of the Government Code.
(d) A taxpayer who qualifies as a "qualified taxpayer" shall, for
the income year of the net operating loss and any income year to
which that net operating loss may be carried, designate on the
original return filed for each year the subdivision of this section
which applies to that taxpayer with respect to that net operating
loss. If the taxpayer is eligible to qualify under more than one
subdivision of this section, the designation is to be made after
taking into account subdivision (e).
(e) If a taxpayer is eligible to qualify under more than one
subdivision of this section as a "qualified taxpayer," with respect
to a net operating loss in an income year, the taxpayer shall
designate which subdivision of this section is to apply to the
taxpayer.
(f) Notwithstanding Section 24416, the amount of the loss
determined under this section shall be the only net operating loss
allowed to be carried over from that income year and the designation
under subdivision (d) shall be included in the election under Section
24416.1.
SEC. 97. Section 24677 of the Revenue and Taxation Code is amended
to read:
24677. (a)
If an amount representing damages is received or accrued by a
corporation during an income year as a result of an award in a civil
action for breach of contract or breach of a fiduciary duty or
relationship, then the tax attributable to the inclusion in gross
income for the income year of that part of the amount that would have
been received or accrued by the corporation in a prior income year
or years but for the breach of contract, or breach of a fiduciary
duty or relationship, shall not be greater than the aggregate of the
increases in taxes that would have resulted had that part been
included in gross income for that prior income year or years.
(b) A corporation in computing the tax shall be entitled to deduct
all credits and deductions for depletion, depreciation, and other
items to which it would have been entitled, had the income been
received or accrued by the corporation in the year during which it
would have received or accrued it, except for the breach of contract
or for the breach of fiduciary duty or relationship. The credits,
deductions, or other items referred to in the prior sentence,
attributable to property, shall be allowed only with respect to that
part of the award which represents the corporation's share of income
from the actual operation of the property.
(c) Subdivision (a) shall not apply unless the amount representing
damage is three thousand dollars ($3,000) or more.
SEC. 98. Section 24678 of the Revenue and Taxation Code is amended
to read:
24678. (a) If an amount representing damages is received or
accrued during an income year as a result of an award in, or
settlement of, a civil action brought under Section 4 of the act
entitled "An act to supplement existing laws against unlawful
restraints and monopolies, and for other purposes," approved October
15, 1914 (commonly known as the Clayton Act), for injuries sustained
by a corporation in its business or property by reason of anything
forbidden in the antitrust laws, then the tax attributable to the
inclusion of that amount in gross income for the income year shall
not be greater than the aggregate of the increases in taxes which
would have resulted if that amount had been included in gross income
in equal installments for each month during the period in which the
injuries were sustained by the corporation.
(b) This section shall apply to income years ending after June 23,
1961, but only with respect to amounts received or accrued after
that date as a result of awards or settlements made after that date.
SEC. 99. Section 24901 of the Revenue and Taxation Code is amended
to read:
24901. (a) The gain from the sale or other disposition of
property shall be the excess of the amount realized therefrom over
the adjusted basis provided in Section 24911 for determining gain,
and the loss shall be the excess of the adjusted basis provided in
that section for determining loss over the amount realized.
(b) The amount realized from the sale or other disposition of
property shall be the sum of any money received plus the fair market
value of the property (other than money) received. In determining
the amount realized--
(1) There shall not be taken into account any amount received as
reimbursement for real property taxes which are treated under Section
24346 as imposed on the purchaser, and
(2) There shall be taken into account amounts representing real
property taxes which are treated under Section 24346 as imposed on
the corporation if those taxes are to be paid by the purchaser.
(c) In the case of a sale or exchange of property, the extent to
which the gain or loss determined under this section shall be
recognized for purposes of this part shall be determined under
Section 24902.
(d) Nothing in this section shall be construed to prevent (in the
case of property sold under contract providing for payment in
installments) the taxation of that portion of any installment payment
representing gain or profit in the year in which that payment is
received.
(e) (1) In determining gain or loss from the sale or other
disposition of a term interest in property, that portion of the
adjusted basis of that interest which is determined pursuant to
Sections 24914 and 24915 (to the extent that the adjusted basis is a
portion of the entire adjusted basis of the property) shall be
disregarded.
(2) For purposes of paragraph (1), the term "term interest in
property" means--
(A) A life interest in property,
(B) An interest in property for a term of years, or
(C) An income interest in a trust.
(3) Paragraph (1) shall not apply to a sale or other disposition
which is a part of a transaction in which the entire interest in
property is transferred to any person or persons.
SEC. 100. Section 24912 of the Revenue and Taxation Code is
amended to read:
24912. The basis of property shall be the cost of the property,
except as otherwise provided in Chapter 8 (commencing with Section
24451), relating to corporate distributions and adjustments, and this
chapter. The cost of real property shall not include any amount in
respect of real property taxes which are treated under Section 24346
as imposed on a corporation.
SEC. 101. Section 24916 of the Revenue and Taxation Code is
amended to read:
24916. Proper adjustment with regard to the property shall in all
cases be made as follows:
(a) For expenditures, receipts, losses, or other items properly
chargeable to capital account. However, no adjustment shall be made
for any of the following:
(1) Sales or use tax paid or incurred in connection with the
acquisition of property for which a tax credit is claimed pursuant to
Section 23612.2.
(2) Taxes or other carrying charges described in Section 24426, or
for expenditures described in Sections 24364 and 24369 for which
deductions have been taken in determining net income for the income
year or any prior income year.
(b) For exhaustion, wear and tear, obsolescence, amortization, and
depletion:
(1) In the case of corporations subject to the tax imposed by
Chapter 2 (commencing with Section 23101), to the extent sustained
prior to January 1, 1928, and to the extent allowed (but not less
than the amount allowable) under this part, except that no deduction
shall be made for amounts in excess of the amount which would have
been allowable had depreciation not been computed on the basis of
January 1, 1928, value and amounts in excess of the adjustments
required by Section 113(b)(1)(B) of the Federal Revenue Act of 1938
for depletion prior to January 1, 1932.
(2) In the case of a taxpayer subject to the tax imposed by
Chapter 3 (commencing with Section 23501), to the extent sustained
prior to January 1, 1937, and for periods thereafter to the extent
allowed (but not less than the amount allowable) under the provisions
of this part.
(3) If a taxpayer has not claimed an amortization deduction for an
emergency facility, the adjustment under paragraph (1) shall be made
only to the extent ordinarily provided under Sections 24349 and
24372.
(c) In the case of stock (to the extent not provided for in the
foregoing subdivisions) for the amount of distributions previously
made which, under the law applicable to the year in which the
distribution was made, either were tax free or were applicable in
reduction of basis (not including distributions made by a
corporation, which was classified as a personal service corporation
under the provisions of the Federal Revenue Act of 1918 or 1921, out
of its earnings or profits which were taxable in accordance with the
provisions of Section 218 of the Federal Revenue Act of 1918 or
1921).
(d) (1) In the case of corporations subject to the tax imposed by
Chapter 2 (commencing with Section 23101), in the case of any bond,
as defined in Section 24363, to the extent of the deductions
allowable pursuant to Section 24360 with respect thereto.
(2) In the case of taxpayers subject to the tax imposed by Chapter
3 (commencing with Section 23501), in the case of any bond, as
defined in Section 24363, the interest on which is wholly exempt from
the tax imposed by this part, to the extent of the amortizable bond
premium disallowable as a deduction pursuant to subdivision (b) of
Section 24360, and in the case of any other bond, as defined in
Section 24363, to the extent of the deductions allowable pursuant to
subdivision (a) of Section 24360 (or the amount applied to reduce
interest payments under paragraph (2) of subdivision (a) of Section
24363.5) with respect thereto.
(3) In the case of property pledged to the Commodity Credit
Corporation, to the extent of the amount received as a loan from the
Commodity Credit Corporation and treated by the taxpayer as income
for the year in which received pursuant to Section 24273, and to the
extent of any deficiency on that loan with respect to which the
taxpayer has been relieved from liability.
(e) For amounts allowed as deductions as deferred expenses under
Section 616(b) of the Internal Revenue Code, relating to certain
expenditures in the development of mines, and resulting in a
reduction of the taxpayer's tax, but not less than the amounts
allowable under that section for the income year and prior years.
(f) For amounts allowable as deductions as deferred expenses under
Section 617(a) of the Internal Revenue Code, relating to certain
exploration expenditures, and resulting in a reduction of the
taxpayer's tax, but not less than the amounts allowable under that
section for the income year and prior years.
(g) For amounts allowed as deductions as deferred expenses under
subdivision (a) of Section 24366, relating to research and
experimental expenditures, and resulting in a reduction of the
corporations' taxes under this part, but not less than the amounts
allowable under that section for the income year and prior years.
(h) For amounts allowed as deductions under Sections 24356.2,
24356.3, and 24356.4.
(i) (1) To the extent provided in Section 179A(e)(6)(A) of the
Internal Revenue Code, relating to basis reduction for clean-fuel
vehicles and certain refueling property.
(2) This subdivision shall apply to property placed in service
after June 30, 1993, without regard to income year.
SEC. 102. Section 24917 of the Revenue and Taxation Code is
amended to read:
24917. Whenever it appears that the basis of property in the
hands of the corporation is a substituted basis, then the adjustments
provided in Section 24916 shall be made after first making in
respect of that substituted basis proper adjustments of a similar
nature in respect of the period during which the property was held by
the transferor, donor, or grantor, or during which the other
property was held by the person for whom the basis is to be
determined. A similar rule shall be applied in the case of a series
of substituted bases.
SEC. 103. Section 24942 of the Revenue and Taxation Code is
amended to read:
24942. (a) No gain or loss shall be recognized to a corporation
on the receipt of money or other property in exchange for stock
(including treasury stock) of that corporation. No gain or loss
shall be recognized by a corporation with respect to any lapse or
acquisition of an option to buy or sell its stock (including treasury
stock).
(b) For basis of property acquired by a corporation in certain
exchanges for its stock, see Sections 24552 to 24554, inclusive.
SEC. 104. Section 25105 of the Revenue and Taxation Code is
amended to read:
25105. (a) For purposes of this article, other than Section
25102, the income and apportionment factors of two or more
corporations shall be included in a combined report only if the
corporations, otherwise meeting the requirements of Section 25101 or
25101.15, are members of a commonly controlled group.
(b) A "commonly controlled group" means any of the following:
(1) A parent corporation and any one or more corporations or
chains of corporations, connected through stock ownership (or
constructive ownership) with the parent, but only if--
(A) The parent owns stock possessing more than 50 percent of the
voting power of at least one corporation, and, if applicable,
(B) Stock cumulatively representing more than 50 percent of the
voting power of each of the corporations, except the parent, is owned
by the parent, one or more corporations described in subparagraph
(A), or one or more other corporations that satisfy the conditions of
this subparagraph.
(2) Any two or more corporations, if stock representing more than
50 percent of the voting power of the corporations is owned, or
constructively owned, by the same person.
(3) Any two or more corporations that constitute stapled entities.
(A) For purposes of this paragraph, "stapled entities" means any
group of two or more corporations if more than 50 percent of the
ownership or beneficial ownership of the stock possessing voting
power in each corporation consists of stapled interests.
(B) Two or more interests are stapled interests if, by reason of
form of ownership restrictions on transfer, or other terms or
conditions, in connection with the transfer of one of the interests
the other interest or interests are also transferred or required to
be transferred.
(4) Any two or more corporations, all of whose stock representing
more than 50 percent of the voting power of the corporations is
cumulatively owned (without regard to the constructive ownership
rules of paragraph (1) of subdivision (e)) by, or for the benefit of,
members of the same family. Members of the same family are limited
to an individual, his or her spouse, parents, brothers or sisters,
grandparents, children and grandchildren, and their respective
spouses.
(c) (1) If, in the application of subdivision (b), a corporation
is eligible to be treated as a member of more than one commonly
controlled group of corporations, the corporation shall elect to be
treated as a member of only one commonly controlled group. This
election shall remain in effect unless revoked with the approval of
the Franchise Tax Board.
(2) Membership in a commonly controlled group shall be treated as
terminated in any year, or fraction thereof, in which the conditions
of subdivision (b) are not met, except as follows:
(A) When stock of a corporation is sold, exchanged, or otherwise
disposed of, the membership of a corporation in a commonly controlled
group shall not be terminated, if the requirements of subdivision
(b) are again met immediately after the sale, exchange, or
disposition.
(B) The Franchise Tax Board may treat the commonly controlled
group as remaining in place if the conditions of subdivision (b) are
again met within a period not to exceed two years.
(d) A taxpayer may exclude some or all corporations included in a
"commonly controlled group" by reason of paragraph (4) of subdivision
(b) by showing that those members of the group are not controlled
directly or indirectly by the same interests, within the meaning of
the same phrase in Section 482 of the Internal Revenue Code. For
purposes of this subdivision, the term "controlled" includes any kind
of control, direct or indirect, whether legally enforceable, and
however exercisable or exercised.
(e) Except as otherwise provided, stock is "owned" when title to
the stock is directly held or if the stock is constructively owned.
(1) An individual constructively owns stock that is owned by any
of the following:
(A) His or her spouse.
(B) Children, including adopted children, of that individual or
the individual's spouse, who have not attained the age of 21 years.
(C) An estate or trust, of which the individual is an executor,
trustee, or grantor, to the extent that the estate or trust is for
the benefit of that individual's spouse or children.
(2) Stock owned by a corporation, or a member of a controlled
group of which the corporation is the parent corporation, is
constructively owned by any shareholder owning stock that represents
more than 50 percent of the voting power of the corporation.
(3) Stock owned by a partnership is constructively owned by any
partner, other than a limited partner, in proportion to the partner's
capital interest in the partnership. For this purpose, a
partnership is treated as owning proportionately the stock owned by
any other partnership in which it has a tiered interest, other than
as a limited partner.
(4) In any case where a member of a commonly controlled group, or
shareholders, officers, directors, or employees of a member of a
commonly controlled group, is a general partner in a limited
partnership, stock held by the limited partnership is constructively
owned by a limited partner to the extent of its capital interest in
the limited partnership.
(f) For purposes of this section, each of the following shall
apply:
(1) "Corporation" means a subchapter S corporation, any other
incorporated entity, or any entity defined or treated as a
corporation pursuant to Section 23038 or 23038.5.
(2) "Person" means an individual, a trust, an estate, a qualified
employee benefit plan, a limited partnership, or a corporation.
(3) "Voting power" means the power of all classes of stock
entitled to vote that possess the power to elect the membership of
the board of directors of the corporation.
(4) "More than 50 percent of the voting power" means voting power
sufficient to elect a majority of the membership of the board of
directors of the corporation.
(5) "Stock representing voting power" includes stock where
ownership is retained but the actual voting power is transferred in
either of the following manners:
(A) For one year or less.
(B) By proxy, voting trust, written shareholder agreement, or by
similar device, where the transfer is revocable by the transferor.
(g) The Franchise Tax Board may prescribe any regulations as may
be necessary or appropriate to carry out the purposes of this
section, including, but not limited to, regulations that do the
following:
(1) Prescribe terms and conditions relating to the election
described by subdivision (c), and the revocation thereof.
(2) Disregard transfers of voting power not described by paragraph
(5) of subdivision (f).
(3) Treat entities not described by paragraph (2) of subdivision
(f) as a person.
(4) Treat warrants, obligations convertible into stock, options to
acquire or sell stock, and similar instruments as stock.
(5) Treat holders of a beneficial interest in, or executor or
trustee powers over, stock held by an estate or trust as
constructively owned by the holder.
(6) Prescribe rules relating to the treatment of partnership
agreements which authorize a particular partner or partners to
exercise voting power of stock held by the partnership.
(h) This section shall apply to income years beginning on or after
January 1, 1995.
SEC. 105. Section 25110 of the Revenue and Taxation Code is
amended to read:
25110. (a) Notwithstanding Section 25101, a qualified taxpayer,
as defined in paragraph (2) of subdivision (b), that is subject to
the tax imposed under this part, may elect to determine its income
derived from or attributable to sources within this state pursuant to
a water's-edge election in accordance with the provisions of this
part, as modified by this article. A taxpayer that makes a water'
s-edge election shall take into account the income and apportionment
factors of the following affiliated entities only:
(1) Domestic international sales corporations, as described in
Sections 991 to 994, inclusive, of the Internal Revenue Code and
foreign sales corporations as described in Sections 921 to 927,
inclusive, of the Internal Revenue Code.
(2) Any corporation (other than a bank), regardless of the place
where it is incorporated if the average of its property, payroll, and
sales factors within the United States is 20 percent or more.
(3) Corporations that are incorporated in the United States,
excluding corporations making an election pursuant to Sections 931 to
936, inclusive, of the Internal Revenue Code, of which more than 50
percent of their voting stock is owned or controlled directly or
indirectly by the same interests.
(4) A corporation that is not described in paragraphs (1) to (3),
inclusive, or paragraph (5), but only to the extent of its income
derived from or attributable to sources within the United States and
its factors assignable to a location within the United States in
accordance with paragraph (3) of subdivision (b). Income of that
corporation derived from or attributable to sources within the United
States as determined by federal income tax laws shall be limited to
and determined from the books of account maintained by the
corporation with respect to its activities conducted within the
United States.
(5) Export trade corporations, as described in Sections 970 to
972, inclusive, of the Internal Revenue Code.
(6) Any affiliated corporation which is a "controlled foreign
corporation," as defined in Section 957 of the Internal Revenue Code,
if all or part of the income of that affiliate is defined in Section
952 of Subpart F of the Internal Revenue Code ("Subpart F income").
The income and apportionment factors of any affiliate to be included
under this paragraph shall be determined by multiplying the income
and apportionment factors of that affiliate without application of
this paragraph by a fraction (not to exceed one), the numerator of
which is the "Subpart F income" of that corporation for that income
year and the denominator of which is the "earnings and profits" of
that corporation for that income year, as defined in Section 964 of
the Internal Revenue Code.
(7) (A) The income and factors of the above-enumerated
corporations shall be taken into account only if the income and
factors would have been taken into account under Section 25101 if
this section had not been enacted.
(B) The income and factors of a corporation that is not described
in paragraphs (1) to (3), inclusive, and paragraph (5) and that is an
electing taxpayer under this subdivision shall be taken into account
in determining its income only to the extent set forth in paragraph
(4).
(b) For purposes of this article and Section 24411:
(1) An "affiliated corporation" means a corporation that is a
member of a commonly controlled group as defined in Section 25105.
(2) A "qualified taxpayer" means a corporation which does both of
the following:
(A) Files with the state tax return on which the water's-edge
election is made a consent to the taking of depositions at the time
and place most reasonably convenient to all parties from key domestic
corporate individuals and to the acceptance of subpoenas duces tecum
requiring reasonable production of documents to the Franchise Tax
Board as provided in Section 19504 or by the State Board of
Equalization as provided in Title 18, California Code of Regulations,
Section 5005, or by the courts of this state as provided in Chapter
2 (commencing with Section 1985) of Title 3 of Part 4 of, and Section
2025 of, the Code of Civil Procedure. The consent relates to issues
of jurisdiction and service and does not waive any defenses a
taxpayer may otherwise have. The consent shall remain in effect so
long as the water's-edge election is in effect and shall be limited
to providing that information necessary to review or to adjust income
or deductions in a manner authorized under Sections 482, 861,
Subpart F of Part III of Subchapter N, or similar provisions of the
Internal Revenue Code, together with the regulations adopted pursuant
to those provisions, and for the conduct of an investigation with
respect to any unitary business in which the taxpayer may be
involved.
(B) Agrees that for purposes of this article, dividends received
by any corporation whose income and apportionment factors are taken
into account pursuant to subdivision (a) from either of the following
are functionally related dividends and shall be presumed to be
business income:
(i) A corporation of which more than 50 percent of the voting
stock is owned, directly or indirectly, by members of the unitary
group and which is engaged in the same general line of business.
(ii) Any corporation that is either a significant source of supply
for the unitary business or a significant purchaser of the output of
the unitary business, or that sells a significant part of its output
or obtains a significant part of its raw materials or input from the
unitary business. "Significant," as used in this subparagraph,
means an amount of 15 percent or more of either input or output.
All other dividends shall be classified as business or nonbusiness
income without regard to this subparagraph.
(3) The definitions and locations of property, payroll, and sales
shall be determined under the laws and regulations that set forth the
apportionment formulas used by the individual states to assign net
income subject to taxes on or measured by net income in that state.
If a state does not impose a tax on or measured by net income or does
not have laws or regulations with respect to the assignment of
property, payroll, and sales, the laws and regulations provided in
Article 2 (commencing with Section 25120) shall apply.
Sales shall be considered to be made to a state only if the
corporation making the sale may otherwise be subject to a tax on or
measured by net income under the Constitution or laws of the United
States, and shall not include sales made to a corporation whose
income and apportionment factors are taken into account pursuant to
subdivision (a) in determining the amount of income of the taxpayer
derived from or attributable to sources within this state.
(4) "The United States" means the 50 states of the United States
and the District of Columbia.
(c) All references in this part to income determined pursuant to
Section 25101 shall also mean income determined pursuant to this
section.
SEC. 106. Section 25111 of the Revenue and Taxation Code is
amended to read:
25111. (a) The making of a water's-edge election as provided for
in Section 25110 shall be made by contract with the Franchise Tax
Board in the original return for a year and shall be effective only
if every taxpayer that is a member of the water's-edge group and
which is subject to tax under this part makes the election. A single
taxpayer that is engaged in more than one business activity subject
to allocation and apportionment as provided in Article 2 (commencing
with Section 25120) of Chapter 17 may make a separate election for
each business. The form and manner of making the water's-edge
election shall be prescribed by
the Franchise Tax Board. Each contract making a water's-edge
election shall be for an initial term of 84 months, except as
provided in subdivision (b). Each contract shall provide that on the
anniversary date of the contract or any other annual date specified
by the contract a year shall be added automatically to the initial
term unless notice of nonrenewal is given as provided in subdivision
(d). An affiliated corporation that is a member of the water's-edge
group and subsequently becomes subject to tax under this part or is a
nonelecting taxpayer that is subsequently proved to be a member of
the water's-edge group pursuant to a Franchise Tax Board audit
determination, as evidenced by a notice of deficiency proposed to be
assessed or a notice of tax change, shall be deemed to have elected.
No water's-edge election shall be made for an income year
beginning prior to January 1, 1988.
(b) A water's-edge election may be terminated by a taxpayer prior
to the end of the 84-month period if either of the following occurs:
(1) The taxpayer is acquired directly or indirectly by a
nonelecting entity which alone or together with those affiliates
included in its combined report is larger than the taxpayer as
measured by equity capital.
(2) With the permission of the Franchise Tax Board.
(c) In granting a change of election, the Franchise Tax Board
shall impose any conditions that are necessary to prevent the
avoidance of tax or to clearly reflect income for the period the
election was, or was purported to be, in effect. These conditions
may include a requirement that income, including dividends paid from
income earned while a water's-edge election was in effect, which
would have been included in determining the income of the taxpayer
from sources within and without this state pursuant to Section 25101
but for the water's-edge election shall be included in income in the
year in which the election is changed.
(d) If the taxpayer desires in any year not to renew the election,
the taxpayer shall serve written notice of nonrenewal upon the board
at least 90 days in advance of the annual renewal date. Unless that
written notice is provided to the board, the election shall be
considered renewed as provided in subdivision (a).
(e) If the taxpayer serves notice of intent in any year not to
renew the existing water's-edge election, that existing election
shall remain in effect for the balance of the period remaining since
the original election or the last renewal of the election, as the
case may be.
SEC. 107. Section 25112 of the Revenue and Taxation Code is
amended to read:
25112. (a) If a taxpayer electing to file under Section 25110
fails to supply any information described in subdivision (b), the
taxpayer shall pay a penalty of one thousand dollars ($1,000) for
each income year with respect to which the failure occurs.
(b) A taxpayer electing to file pursuant to Section 25110 shall do
all of the following:
(1) Retain and make available to the Franchise Tax Board, upon
request, the documents and information, including any questionnaires
completed and submitted to the Internal Revenue Service or qualified
states, that are necessary to audit issues involving attribution of
income to the United States or foreign jurisdictions under Sections
482, 861, 863, 902, and 904, and Subpart F of Part III of Subchapter
N, or similar sections of the Internal Revenue Code.
(2) Identify, upon request, principal officers or employees who
have substantial knowledge of, and access to, documents and records
that discuss pricing policies, profit centers, cost centers, and the
methods of allocating income and expense among these centers. The
information shall include the employees' titles and addresses.
(3) Retain and make available, upon request, all documents and
correspondence ordinarily available to a corporation included in the
water's-edge election that are submitted to, or obtained from, the
Internal Revenue Service, foreign countries or their territories or
possessions, and competent authority pertaining to ruling requests,
rulings, settlement resolutions, and competing claims involving
jurisdictional assignment and sourcing of income that affect the
assignment of income to the United States. The documents shall
include all ruling requests and rulings on reorganizations involving
foreign incorporation of branches, all ruling requests and rulings on
changing a corporation's jurisdictional incorporation, and all
documents that are ordinarily available to a corporation included in
the water's-edge election that pertain to the determination of
foreign tax liability, including examination reports issued by
foreign taxing administrations. If the documents have been
translated, the translations shall be furnished.
(4) Retain and make available, upon request, information filed
with the Internal Revenue Service to comply with Sections 6038,
6038A, 6038B, 6038C, and 6041 of the Internal Revenue Code.
(5) Upon request, prepare and make available for each corporation
organized or created under the laws of the United States or a
political subdivision thereof, of which 50 percent or more of its
voting stock is directly or indirectly owned or controlled, the
information that would be included in the forms described in
paragraph (4) if those forms were required for United States
corporations.
(6) Retain and make available, upon request, all state tax returns
filed by each corporation included under subdivision (a) in each
state, including the District of Columbia.
(7) Comply with reasonable requests for information necessary to
determine or verify its net income, apportionment factors, or the
geographic source of that income pursuant to the Internal Revenue
Code.
(8) For purposes of this subdivision, information for any year
shall be retained for that period of time in which the taxpayer's
income or franchise tax liability to this state may be subject to
adjustment, including all periods in which additional income or
franchise taxes may be assessed or during which an appeal is pending
before the State Board of Equalization or a lawsuit is pending in the
courts of this state or the United States with respect to California
franchise or income tax.
(c) If the failure continues for more than 90 days after the date
on which the Franchise Tax Board mails notice of that failure to the
taxpayer, the taxpayer shall pay a penalty (in addition to the amount
required under subdivision (a)) of one thousand dollars ($1,000) for
each 30-day period (or fraction thereof) during which the failure
continues after the expiration of the 90-day period. The increase in
any penalty under this subdivision shall not exceed twenty-four
thousand dollars ($24,000).
(d) If the taxpayer fails to comply substantially with any formal
document request arising out of the examination of the tax treatment
of any item (hereafter in this section referred to as the "examined
item") before the 90th day after the date of the mailing of the
request, any court having jurisdiction of a civil proceeding in which
the tax treatment of the examined item is an issue may, upon motion
by the Franchise Tax Board, prohibit the introduction by the taxpayer
of documentation covered by that request.
(e) For purposes of this section, the time in which information is
to be furnished (and the beginning of the 90-day period after notice
by the Franchise Tax Board) shall be treated as beginning not
earlier than the last day on which reasonable cause existed for
failure to furnish the information.
(f) This section shall not apply with respect to any requested
documentation if the taxpayer establishes that the failure to provide
the documentation, as requested by the Franchise Tax Board, is due
to reasonable cause. For purposes of subdivision (d), the fact that
a foreign jurisdiction would impose a civil or criminal penalty on
the taxpayer (or any other person) for disclosing the requested
documentation is not reasonable cause unless, after in-camera review
of the documentation, the court finds otherwise.
(g) For purposes of this section, the term "formal document
request" means any request (made after the normal request procedures
have failed to produce the requested documentation) for the
production of documentation that is mailed by registered or certified
mail to the taxpayer at its last known address and that sets forth
all of the following:
(1) The time and place for the production of the documentation.
(2) A statement of the reason the documentation previously
produced (if any) is not sufficient.
(3) A description of the documentation being sought.
(4) The consequences to the taxpayer of the failure to produce the
documentation described in this section.
(h) Notwithstanding any other law or rule of law, any taxpayer to
whom a formal document request is mailed may begin a proceeding to
quash that request not later than the 90th day after the date the
request was mailed. In that proceeding, the Franchise Tax Board may
seek to compel compliance with the request.
(i) The superior courts of the State of California for the
Counties of Los Angeles, Sacramento, and San Diego, and for the City
and County of San Francisco shall have jurisdiction to hear any
proceeding brought under subdivision (h). An order denying the
petition shall be deemed a final order that may be appealed.
The running of the 90-day period referred to in subdivision (c)
shall be suspended during any period during which a proceeding
brought under subdivision (h) is pending.
(j) For purposes of this section, "documentation" means any
documentation which may be relevant or material to the tax treatment
of the examined item.
(k) The Franchise Tax Board, and any court having jurisdiction
over a proceeding under subdivision (g), may extend the 90-day period
referred to in subdivision (b).
(l) If any corporation takes any action as provided in subdivision
(h), the running of any period of limitations under Sections 19057
to 19067, inclusive (relating to the assessment and collection of
tax), or under Section 19704 (relating to criminal prosecutions) with
respect to that corporation shall be suspended for the period during
which the proceedings under subdivision (h) and appeals thereto are
pending.
SEC. 108. Section 25128 of the Revenue and Taxation Code is
amended to read:
25128. (a) Notwithstanding Section 38006, all business income
shall be apportioned to this state by multiplying the business income
by a fraction, the numerator of which is the property factor plus
the payroll factor plus twice the sales factor, and the denominator
of which is four, except as provided in subdivision (b) or (c).
(b) If an apportioning trade or business derives more than 50
percent of its "gross business receipts" from conducting one or more
qualified business activities, all business income of the
apportioning trade or business shall be apportioned to this state by
multiplying business income by a fraction, the numerator of which is
the property factor plus the payroll factor plus the sales factor,
and the denominator of which is three.
(c) For purposes of this section, a "qualified business activity"
means the following:
(1) An agricultural business activity.
(2) An extractive business activity.
(3) A savings and loan activity.
(4) A banking or financial business activity.
(d) For purposes of this section:
(1) "Gross business receipts" means gross receipts described in
subdivision (e) of Section 25120 (other than gross receipts from
sales or other transactions within an apportioning trade or business
between members of a group of corporations whose income and
apportionment factors are required to be included in a combined
report under Section 25101, limited, if applicable, by Section
25110), whether or not the receipts are excluded from the sales
factor by operation of Section 25137.
(2) "Agricultural business activity" means activities relating to
any stock, dairy, poultry, fruit, furbearing animal, or truck farm,
plantation, ranch, nursery, or range. "Agricultural business
activity" also includes activities relating to cultivating the soil
or raising or harvesting any agricultural or horticultural commodity,
including, but not limited to, the raising, shearing, feeding,
caring for, training, or management of animals on a farm as well as
the handling, drying, packing, grading, or storing on a farm any
agricultural or horticultural commodity in its unmanufactured state,
but only if the owner, tenant, or operator of the farm regularly
produces more than one-half of the commodity so treated.
(3) "Extractive business activity" means activities relating to
the production, refining, or processing of oil, natural gas, or
mineral ore.
(4) "Savings and loan activity" means any activities performed by
savings and loan associations or savings banks which have been
chartered by federal or state law.
(5) "Banking or financial business activity" means activities
attributable to dealings in money or moneyed capital in substantial
competition with the business of national banks.
(6) "Apportioning trade or business" means a distinct trade or
business whose business income is required to be apportioned under
Sections 25101 and 25120, limited, if applicable, by Section 25110,
using the same denominator for each of the applicable payroll,
property, and sales factors.
(7) Paragraph (4) of subdivision (c) shall apply only if the
Franchise Tax Board adopts the Proposed Multistate Tax Commission
Formula for the Uniform Apportionment of Net Income from Financial
Institutions, or its substantial equivalent, and shall become
operative upon the same operative date as the adopted formula.
(8) In any case where the income and apportionment factors of two
or more savings associations or corporations are required to be
included in a combined report under Section 25101, limited, if
applicable, by Section 25110, both of the following shall apply:
(A) The application of the more than 50 percent test of
subdivision (b) shall be made with respect to the "gross business
receipts" of the entire apportioning trade or business of the group.
(B) The entire business income of the group shall be apportioned
in accordance with either subdivision (a) or (b), as applicable.
SEC. 109. Section 56 of Chapter 952 of the Statutes of 1996 is
amended to read:
SEC. 56. Except as otherwise provided, the provisions of this act
shall be applied to taxable or income years beginning on or after
January 1, 1997.
SEC. 110. The Legislature finds and declares all of the following:
(a) Except as otherwise provided in subdivision (b) or Section 114
of this act, the amendments to Sections 18402, 18604, 18606,
18621.5, 18637, 18638, 18662, 18670, 19009, 19011, 19023, 19024,
19058, 19132.5, 19141.5, 19141.6, 19147, 19164, 19192, 19254, 19263,
19301, 19392, 19411, 19542, 19563, 19701, 19705, 19706, 19719, 23037,
23038, 23040.1, 23095, 23098, 23151, 23151.1, 23151.2, 23153, 23303,
23305.2, 23334, 23455, 23501, 23610.5, 23612.6, 23623.5, 23625,
23645, 23646, 23731, 24346, 24356.4, 24356.8, 24357, 24358, 24359,
24402, 24407, 24408, 24409, 24411, 24416, 24416.2, 24677, 24678,
24901, 24912, 24916, 24917, 24942, 25105, 25110, 25111, 25112, and
25128 of the Revenue and Taxation Code are consistent with the intent
of the acts enacting those sections, and as such shall apply from
the original effective dates of those acts.
(b) The amendments to Sections 17052.15, 17053.45, 17053.46,
23612.6, 23645, and 23646 of the Revenue and Taxation Code made by
this act that relate to the election of the credit to be claimed are
consistent with the intent of the Los Angeles Revitalization Zone Act
and the Local Military Base Recovery Area Act, and as such shall
apply from the original effective dates of those acts.
(c) This act repeals Sections 23184, 23184.5, 23185, 23185a, and
23185b of the Revenue and Taxation Code which have been obsolete
since January 1, 1981, when the provisions of Chapter 1150 of the
Statutes of 1979 took effect, providing financial corporations with
the same taxation treatment as banks, thereby prohibiting the
imposition of personal property taxes or business license taxes on
financial corporations by local jurisdictions. The repeal made by
this act shall not affect any act done or any right accruing or
accrued, or any suit, appeal, or other proceeding that commenced
under Section 23184, 23184.5, 23185, 23185a, or 23185b of the Revenue
and Taxation Code before that repeal.
SEC. 111. The amendments to Section 23186 of, and the repeal of
Sections 23186.1, 23186.2, and 23186.5 of, the Revenue and Taxation
Code made by this act shall become operative on January 1, 1998.
SEC. 112. The amendments to Section 24411 of the Revenue and
Taxation Code made by this act shall apply to income years beginning
on or after January 1, 1998.
SEC. 113. It is the intent of the Legislature to replace the code
section references to the Standard Industrial Classification Manual
published by the United States Office of Management and Budget, 1987
edition, that are contained in the Revenue and Taxation Code with
code section references to the North American Industry Classification
System (NAICS), expected to be published in 1997. Publication of
NAICS is not to be construed to impair the ability of any taxpayer to
rely on a SIC classification for the purposes of determining
eligibility for the manufacturers investment tax credit.
SEC. 114. (a) Section 47.5 of this bill incorporates amendments to
Section 23038 of the Revenue and Taxation Code proposed by both this
bill and SB 1234. It shall only become operative if (1) both bills
are enacted and become effective on or before January 1, 1998, (2)
each bill amends Section 23038 of the Revenue and Taxation Code, and
(3) this bill is enacted after SB 1234, in which case Section 23038
of the Revenue and Taxation Code, as amended by SB 1234, shall remain
operative only until the operative date of this bill, at which time
Section 47.5 of this bill shall become operative, and Section 47 of
this bill shall not become operative.
(b) If Section 47.5 of this bill becomes operative, both of the
following shall apply:
(1) The amendments made to Section 23038 of the Revenue and
Taxation Code by only this bill shall be applied from the original
effective date of the act enacting Section 23038 of the Revenue and
Taxation Code. The Legislature finds and declares that the
amendments made to Section 23038 of the Revenue and Taxation Code by
this bill are consistent with the intent of the act enacting that
section.
(2) The amendments to Section 23038 of the Revenue and Taxation
Code made only by SB 1234 shall be operative for income years
beginning on or after January 1, 1997.
SEC. 115. Section 96.5 of this bill incorporates amendments to
Section 24416.2 of the Revenue and Taxation Code proposed by this
bill and SB 1106. It shall only become operative if (1) both bills
are enacted and become effective on or before January 1, 1998, (2)
each bill amends Section 24416.2 of the Revenue and Taxation Code,
and (3) this bill is enacted after SB 1106, in which case Section
24416.2 of the Revenue and Taxation Code, as amended by SB 1106,
shall remain operative only until the operative date of this bill, at
which time Section 96.5 of this bill shall become operative, and
Section 96 of this bill shall not become operative.