BILL NUMBER: SB 1229 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JUNE 30, 1999
AMENDED IN SENATE APRIL 12, 1999
INTRODUCED BY Committee on Revenue and Taxation (Senators Chesbro
(Chair), Alpert, Bowen, Burton, Johnston, McPherson, and Poochigian)
FEBRUARY 26, 1999
An act to amend Section 52514.5 of the Health and Safety Code, to
amend Sections 9201 and 9203 of the Probate Code, to amend Sections
17053.45, 17053.49, 17054.5, 17071, 17073, 17074, 17075,
17076, 17077, 17083, 17085, 17087, 17140, 17140.3, 17142.5, 17143,
17144, 17250, 17268, 17270, 17274, 17276.5, 17287, 17302, 17551,
17552, 17553, 17560, 17639, 17640, 17651, 17671,
17732, 17851, 17853, 17857, 17935, 18601, 18604, 18622,
18662, 18711, 18721, 18741, 18763, 18782, 18793, 18801, 18812, 18821,
18841, 18851, 18871, 19023, 19059, 19060, 19089, 19106,
19145, 19151, 19311, 19411, 23153, 23221, 23335, 23456,
23612.2, 23622.7, 23645, 23649, 23701c, 23704.5, 23704.6,
23731, 23736.1, 23740, 23776, 23777, 23778,
24306, 24357.6, 24410, 24416.2, 24416.5, 24424, 24436.5, 25106, and
25114 of, and to repeal Sections 17013, 17077.5, 17084, 17085.5,
17132.5, 17134.5, 17139, 17218, 17275.6, 17330, 17551.5, 17563,
17852, 17859, 17860, 18605, 19053, 23043, and 23701q of,
the Revenue and Taxation Code, and to amend Sections 1088,
1185, 13021, and 13028 Section 1185 of the
Unemployment Insurance Code, relating to taxation, to take effect
immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 1229, as amended, Committee on Revenue and Taxation. Income
and bank and corporation taxes.
The Personal Income Tax Law and the Bank and Corporation Tax Law
generally prohibit, in computing the income that is subject to the
taxes imposed by those laws, the deduction by any taxpayer who
derives rental income from substandard housing, as defined, of any
interest, taxes, depreciation, or amortization paid during a taxable
or income year with respect to substandard housing.
This bill would make technical, clarifying changes to these
provisions with respect to the definition of substandard housing.
The Bank and Corporation Tax Law provides, in the case of a
business with income derived from, or attributable to, sources both
within and without this state, that income is apportioned between
this state and foreign jurisdictions in accordance with a specified
formula. The Bank and Corporation Tax Law authorizes a taxpayer
whose income is subject to apportionment to determine its income
under a water's edge election made in connection with a specified
contract.
This bill would modify these provisions to delete obsolete
language with respect to the apportionment of dividends, and would
make clarifying changes with respect to the audit process followed by
the Franchise Tax Board with respect to taxpayers that have made a
water's-edge election. This bill would make legislative findings and
declarations that these clarifying changes do not constitute a
change in, but are declaratory of, existing law.
The Personal Income Tax Law allows a dependent parent credit in an
amount equal to the lesser of 30% of the net tax or $200, as
adjusted, to a taxpayer who meets certain requirements.
This bill would provide an additional requirement that the
taxpayer uses the head of household or surviving spouse filing
status.
The Personal Income Tax Law provides for specified taxation with
respect to nonresidents.
This bill would clarify the treatment accorded to nonresidents and
part-year residents, as provided.
Existing law providing for the administration of income and bank
and corporation tax laws requires every taxpayer subject to taxes
under the Bank and Corporation Tax Law to file a return within 2
months and 15 days after the close of its income year.
This bill would require those taxpayers to file a return on or
before the 15th day of the 3rd month following the close of its
income year.
Existing franchise and income tax laws provide, among other
things, an extension for filing certain corporation tax returns,
payment of estimated taxes by corporations, and certain penalties and
additions to tax.
This bill would make nonsubstantive, clarifying changes to those
provisions.
The Bank and Corporation Tax Law provides for the suspension or
forfeiture of certain exempt corporations.
This bill would provide that if those corporations have suffered a
suspension or forfeiture, as specified, they may be required to file
a new application for exemption with an application for revivor.
Existing unemployment insurance law requires employers to
make a report of wages, including the amount of certain taxes to be
withheld the Director of Employment Development, in
collaboration with the Franchise Tax Board, to take certain actions
with respect to disability insurance contribution overpayments
.
This bill would clarify which taxes are to be withheld
and which income is to be treated as wages those
duties and the manner in which interest is to be paid on overpayments
.
This bill would for purposes of the Personal Income Tax Law or the
Bank and Corporation Tax Law, or both, make numerous technical,
clarifying, and supplemental changes relating to, among other things,
deduction for alimony payments, federal determinations and changes,
alternative minimum tax, voluntary contribution funds, various
credits, net operating losses, scholarshare, emergency food
assistance, minimum franchise tax, and dividends received from an
insurance company subsidiary.
This bill would also make numerous nonsubstantive, technical
changes relating to taxation, as provided.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 52514.5 of the Health and Safety Code is
amended to read:
52514.5. All payments to the agency by the borrower on any note
executed pursuant to Section 52514 shall be considered payments of
interest for the purposes of Section 17230 of the Revenue and
Taxation Code.
SEC. 2. Section 9201 of the Probate Code is amended to read:
9201. (a) Notwithstanding any other statute, if a claim of a
public entity arises under a law, act, or code listed in subdivision
(b):
(1) The public entity may provide a form to be used for the
written notice or request to the public entity required by this
chapter. Where appropriate, the form may require the decedent's
social security number, if known.
(2) The claim is barred only after written notice or request to
the public entity and expiration of the period provided in the
applicable section. If no written notice or request is made, the
claim is enforceable by the remedies, and is barred at the time,
otherwise provided in the law, act, or code.
(b)
Law, Act, or Code Applicable Section
Sales and Use Tax Law Section 6487.1 of the
(commencing with Section Revenue and
6001 of the Revenue and Taxation Code
Taxation Code)
Bradley-Burns Uniform Section 6487.1 of the
Local Sales and Use Tax Revenue and
Law (commencing with Taxation Code
Section 7200 of the
Revenue and Taxation
Code)
Transactions and Use Section 6487.1 of the
Tax Law (commencing Revenue and
with Section 7251 of the Taxation Code
Revenue and Taxation Code)
Motor Vehicle Fuel License Section 7675.1 of the
Tax Law (commencing with Revenue and
Section 7301 of the Taxation Code
Revenue and Taxation Code)
Use Fuel Tax Law Section 8782.1 of the
(commencing with Section Revenue and
8601 of the Revenue Taxation Code
and Taxation Code)
Administration of Section 19517 of the
Franchise and Income Revenue and
Tax Law (commencing Taxation Code
with Section
18401 of the Revenue
and Taxation Code)
Cigarette Tax Law Section 30207.1 of the
(commencing with Section Revenue and
30001 of the Revenue Taxation Code
and Taxation Code)
Alcoholic Beverage Section 32272.1 of the
Tax Law (commencing Revenue and
with Section Taxation Code
32001 of the Revenue
and Taxation Code)
Unemployment Insurance Section 1090 of the
Code Unemployment
Insurance Code
State Hospitals for Section 7277.1 of the
the Mentally Disordered Welfare and
(commencing with Section Institutions Code
7200 of the Welfare and
Institutions Code)
Medi-Cal Act (com- Section 9202 of the
mencing with Section Probate Code
14000 of the Welfare and
Institutions Code)
Waxman-Duffy Prepaid Section 9202 of the
Health Plan Act (com- Probate Code
mencing with Section 14200
of the Welfare and
Institutions Code)
SEC. 3. Section 9203 of the Probate Code is amended to read:
9203. (a) Failure of a person to give the written notice or
request required by this chapter does not affect the validity of any
proceeding under this code concerning the administration of the
decedent's estate.
(b) If property in the estate is distributed before expiration of
the time allowed a public entity to file a claim, the public entity
has a claim against the distributees to the full extent of the public
entity's claim, or each distributee's share of the distributed
property, whichever is less. The public entity's claim against
distributees includes interest at a rate equal to that specified in
Section 19521 of the Revenue and Taxation Code, from the date of
distribution or the date of filing the claim by the public entity,
whichever is later, plus other accruing costs as in the case of
enforcement of a money judgment.
SEC. 4. Section 17013 of the Revenue and Taxation Code is
repealed:
SEC. 5. Section 17053.45 of the Revenue and Taxation Code is
amended to read:
17053.45. (a) For each taxable year beginning on or after January
1, 1995, there shall be allowed as a credit against the "net tax"
(as defined by Section 17039) an amount equal to the sales or use tax
paid or incurred by the taxpayer in connection with the purchase of
qualified property to the extent that the qualified property does not
exceed a value of one million dollars ($1,000,000).
(b) For purposes of this section:
(1) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
(2) "Taxpayer" means a taxpayer that conducts a trade or business
within a LAMBRA and, for the first two taxable years, has a net
increase in jobs (defined as 2,000 paid hours per employee per year)
of one or more employees in the LAMBRA.
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA. For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero. If the
taxpayer has a net increase in jobs in the state, the credit shall be
allowed only if one or more full-time employees is employed within
the LAMBRA.
(B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
(i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
(ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
(C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B), the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is
the number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
(3) "Qualified property" means property that is each of the
following:
(A) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA.
(B) Purchased before the date the LAMBRA designation expires, is
no longer binding, or becomes inoperative.
(C) Any of the following:
(i) High technology equipment, including, but not limited to,
computers and electronic processing equipment.
(ii) Aircraft maintenance equipment, including, but not limited
to, engine stands, hydraulic mules, power carts, test equipment,
handtools, aircraft start carts, and tugs.
(iii) Aircraft components, including, but not limited to, engines,
fuel control units, hydraulic pumps, avionics, starts, wheels, and
tires.
(iv) Section 1245 property, as defined in Section 1245(a)(3) of
the Internal Revenue Code.
(c) The credit provided under subdivision (a) shall be allowed
only for qualified property manufactured in California unless
qualified property of a comparable quality and price is not available
for timely purchase and delivery from a California manufacturer.
(d) In the case where the credit otherwise allowed under this
section exceeds the "net tax" for the taxable year, that portion of
the credit which exceeds the "net tax" may be carried over and added
to the credit, if any, in succeeding years, until the credit is
exhausted. The credit shall be applied first to the earliest taxable
years possible.
(e) Any taxpayer who elects to be subject to this section shall
not be entitled to increase the basis of the property as otherwise
required by Section 164(a) of the Internal Revenue Code with respect
to sales or use tax paid or incurred in connection with the purchase
of qualified property.
(f) (1) The amount of credit otherwise allowed under this section
and Section 17053.46, including any credit carryover from prior
years, that may reduce the "net tax" for the taxable year shall not
exceed the amount of tax that would be imposed on the taxpayer's
business income attributed to a LAMBRA determined as if that
attributable income represented all the income of the taxpayer
subject to tax under this part.
(2) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income that is
attributable to sources in this state shall first be determined in
accordance with Chapter 17 (commencing with Section 25101) of Part
11. That business income shall be further apportioned to the LAMBRA
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17 of Part 11, as modified for purposes of this section in
accordance with paragraph (3).
(3) Income shall be apportioned to a LAMBRA by multiplying the
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. For purposes of this paragraph:
(A) 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 LAMBRA 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.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA 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.
(4) 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) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 1998.
SEC. 6. Section 17053.49 of the Revenue and Taxation Code is
amended to read:
17053.49. (a) (1) A qualified taxpayer shall be allowed a credit
against the "net tax," as defined in Section 17039, equal to 6
percent of the qualified cost of qualified property that is placed in
service in this state.
(2) In the case of any qualified costs paid or incurred on or
after January 1, 1994, and prior to the first taxable year of the
qualified taxpayer beginning on or after January 1, 1995, the credit
provided under paragraph (1) shall be claimed by the qualified
taxpayer on the qualified taxpayer's return for the first taxable
year beginning on or after January 1, 1995. No credit shall be
claimed under this section on a return filed for any taxable year
commencing prior to the qualified taxpayer's first taxable year
beginning on or after January 1, 1995.
(b) (1) For purposes of this section, "qualified cost" means any
cost that satisfies each of the following conditions:
(A) Except as otherwise provided in this subparagraph, is a cost
paid or incurred by the qualified taxpayer for the construction,
reconstruction, or acquisition of qualified property on or after
January 1, 1994, and prior to the date this section ceases to be
operative under paragraph (2) of subdivision (i). In the case of any
qualified property constructed, reconstructed, or acquired by the
qualified taxpayer (or any person related to the qualified taxpayer
within the meaning of Section 267 or 707 of the Internal Revenue
Code) pursuant to a binding contract in existence on or prior to
January 1, 1994, costs paid pursuant to that contract shall be
subject to allocation as follows: contract costs shall be allocated
to qualified property based on a ratio of costs actually paid prior
to January 1, 1994, and total contract costs actually paid. "Cost
paid" shall include, without limitation, contractual deposits and
option payments. To the extent of costs allocated, whether or not
currently deductible or depreciable for tax purposes, to a period
prior to January 1, 1994, the cost shall be deemed allocated to
property acquired before January 1, 1994, and is thus not a
"qualified cost."
(B) Except as provided in paragraph (2)
(3) of subdivision (d) and subparagraph (B) of paragraph
(3) (4) of subdivision (d), is an
amount upon which the qualified taxpayer has paid, directly or
indirectly, as a separately stated contract amount or as determined
from the records of the qualified taxpayer, sales or use tax under
Part 1 (commencing with Section 6001).
(C) Is an amount properly chargeable to the capital account of the
qualified taxpayer.
(2) (A) For purposes of this subdivision, any contract entered
into on or after January 1, 1994, that is a successor or replacement
contract to a contract that was binding prior to January 1, 1994,
shall be treated as a binding contract in existence prior to January
1, 1994.
(B) If a successor or replacement contract is entered into on or
after January 1, 1994, and the subject of the successor or
replacement contract relates both to amounts for the construction,
reconstruction, or acquisition of qualified property described in the
original binding contract and to costs for the construction,
reconstruction, or acquisition of qualified property not described in
the original binding contract, then the portion of those amounts
described in the successor or replacement contract that were not
described in the original binding contract shall not be treated as
costs paid or incurred pursuant to a binding contract in existence on
or prior to January 1, 1994, under subparagraph (A) of paragraph
(1).
(3) (A) For purposes of this section, an option contract in
existence prior to January 1, 1994, under which a qualified taxpayer
(or any other person related to the qualified taxpayer within the
meaning of Section 267 or 707 of the Internal Revenue Code) had an
option to acquire qualified property, shall be treated as a binding
contract under the rules in paragraph (2). For purposes of this
subparagraph, an option contract shall not include an option under
which the optionholder will forfeit an amount less than 10 percent of
the fixed option price in the event the option is not exercised.
(B) For purposes of this section, a contract shall be treated as
binding even if the contract is subject to a condition.
(4) For purposes of this subdivision, in the case of any qualified
taxpayer engaged in those lines of business described in Codes 7371
to 7373, inclusive, of the Standard Industrial Classification (SIC)
Manual published by the United States Office of Management and
Budget, 1987 edition, "the first taxable year beginning on or after
January 1, 1998," shall be substituted for "January 1, 1994," in each
place in which it appears.
(c) (1) For purposes of this section, "qualified taxpayer" means
any taxpayer engaged in those lines of business described in Codes
2011 to 3999, inclusive, or Codes 7371 to 7373, inclusive, of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition.
(2) In the case of any pass-through entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section or
Section 23649 shall be allowed to the pass-through entity and passed
through to the partners or shareholders in accordance with applicable
provisions of Part 10 (commencing with Section 17001) or Part 11
(commencing with Section 23001). For purposes of this paragraph, the
term "pass-through entity" means any partnership or S corporation.
(3) The Franchise Tax Board may prescribe regulations to carry out
the purposes of this section, including any regulations necessary to
prevent the avoidance of the effect of this section through
splitups, shell corporations, partnerships, tiered ownership
structures, sale-leaseback transactions, or otherwise.
(d) For purposes of this section, "qualified property" means
property that is described as any of the following:
(1) Tangible personal property that is defined in Section 1245(a)
of the Internal Revenue Code for use by a qualified taxpayer in those
lines of business described in Codes 2011 to 3999, inclusive, of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, that is
primarily used for any of the following:
(A) For the manufacturing, processing, refining, fabricating, or
recycling of property, beginning at the point at which any raw
materials are received by the qualified taxpayer and introduced into
the process and ending at the point at which the manufacturing,
processing, refining, fabricating, or recycling has altered tangible
personal property to its completed form, including packaging, if
required.
(B) In research and development.
(C) To maintain, repair, measure, or test any property described
in this paragraph.
(D) For pollution control that meets or exceeds standards
established by the state or by any local or regional governmental
agency within the state.
(E) For recycling.
(2) Computers and computer peripheral equipment, as defined in
Section 168(i)(2)(B) of the Internal Revenue Code, that is tangible
personal property as defined in Section 1245(a) of the Internal
Revenue Code for use by a qualified taxpayer in those lines of
business described in SIC Codes 7371 to 7373, inclusive, of the SIC
Manual, 1987 edition, that is primarily used to develop or
manufacture prepackaged software or custom software prepared to the
special order of the purchaser who uses the program to produce and
sell or license copies of the program as prepackaged software.
(3) The value of any capitalized labor costs that are directly
allocable to the construction or modification of property described
in paragraph (1) or (2).
(4) In the case of any qualified taxpayer engaged in manufacturing
activities described in SIC Code 357 or 367, those activities
related to biotechnology described in SIC Code 8731, those activities
related to biopharmaceutical establishments only that are described
in SIC Codes 2833 to 2836, inclusive, those activities related to
space vehicles and parts described in SIC Codes 3761 to 3769,
inclusive, those activities related to space satellites and
communications satellites and equipment described in SIC Codes 3663
and 3812 (but only with respect to "qualified property" that is
placed in service on or after January 1, 1996), or those activities
related to semiconductor equipment manufacturing described in SIC
Code 3559 (but only with respect to "qualified property" that is
placed in service on or after January 1, 1997), "qualified property"
also includes the following:
(A) Special purpose buildings and foundations that are constructed
or modified for use by the qualified taxpayer primarily in a
manufacturing, processing, refining, or fabricating process, or as a
research or storage facility primarily used in connection with a
manufacturing process.
(B) The value of any capitalized labor costs that are directly
allocable to the construction or modification of special purpose
buildings and foundations that are used primarily in the
manufacturing, processing, refining, or fabricating process, or as a
research or storage facility primarily used in connection with a
manufacturing process.
(C) (i) For purposes of this paragraph, "special purpose building
and foundation" means only a building and the foundation immediately
underlying the building that is specifically designed and constructed
or reconstructed for the installation, operation, and use of
specific machinery and equipment with a special purpose, which
machinery and equipment, after installation, will become affixed to
or a fixture of the real property, and the construction or
reconstruction of which is specifically designed and used exclusively
for the specified purposes as set forth in subparagraph (A) ("
qualified purpose").
(ii) A building is specifically designed and constructed or
modified for a qualified purpose if it is not economical to design
and construct the building for the intended purpose and then use the
structure for a different purpose.
(iii) For purposes of clause (i) and clause (vi), a building is
used exclusively for a qualified purpose only if its use does not
include a use for which it was not specifically designed and
constructed or modified. Incidental use of a building for
nonqualified purposes does not preclude the building from being a
special purpose building. "Incidental use" means a use which is both
related and subordinate to the qualified purpose. It will be
conclusively presumed that a use is not subordinate if more than
one-third of the total usable volume of the building is devoted to a
use which is not a qualified purpose.
(iv) In the event an entire building does not qualify as a special
purpose building, a taxpayer may establish that a portion of a
building, and the foundation immediately underlying the portion,
qualifies for treatment as a special purpose building and foundation
if the portion satisfies all of the definitional provisions in this
subparagraph.
(v) To the extent that a building is not a special purpose
building as defined above, but a portion of the building qualifies
for treatment as a special purpose building, then all equipment which
exclusively supports the qualified purpose occurring within that
portion and which would qualify as Internal Revenue Code Section 1245
property if it were not a fixture or affixed to the building shall
be treated as a cost of the portion of the building which qualifies
for treatment as a special purpose building.
(vi) Buildings and foundations which do not meet the definition of
a special purpose building and foundation set forth above include,
but are not limited to: buildings designed and constructed or
reconstructed principally to function as a general purpose
manufacturing, industrial, or commercial building; research
facilities that are used primarily prior to or after, or prior to and
after, the manufacturing process; or storage facilities that are
used primarily prior to or after, or prior to and after, completion
of the manufacturing process. A research facility shall not be
considered to be used primarily prior to or after, or prior to and
after, the manufacturing process if its purpose and use relate
exclusively to the development and regulatory approval of the
manufacturing process for specific biopharmaceutical products. A
research facility which is used primarily in connection with the
discovery of an organism from which a biopharmaceutical product or
process is developed does not meet the requirements of the preceding
sentence.
(5) Subject to the provisions in subparagraph (B) of paragraph (1)
of subdivision (b), qualified property also includes computer
software that is primarily used for those purposes set forth in
paragraph (1) or (2) of this subdivision.
(6) Qualified property does not include any of the following:
(A) Furniture.
(B) Facilities used for warehousing purposes after completion of
the manufacturing process.
(C) Inventory.
(D) Equipment used in the extraction process.
(E) Equipment used to store finished products that have completed
the manufacturing process.
(F) Any tangible personal property that is used in administration,
general management, or marketing.
(G) Any vehicle for which a credit is claimed pursuant to Section
17052.11 or 23603.
(e) For purposes of this section:
(1) "Biopharmaceutical activities" means those activities that 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.
(2) "Fabricating" means to make, build, create, produce, or
assemble components or property to work in a new or different manner.
(3) "Manufacturing" means the activity of converting or
conditioning property by changing the form, composition, quality, or
character of the property for ultimate sale at retail or use in the
manufacturing of a product to be ultimately sold at retail.
Manufacturing includes any improvements to tangible personal property
that result in a greater service life or greater functionality than
that of the original property.
(4) "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.
(5) "Primarily" means tangible personal property used 50 percent
or more of the time in an activity described in subdivision (d).
(6) "Process" means the period beginning at the point at which any
raw materials are received by the qualified taxpayer and introduced
into the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer and ending at the point
at which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer has altered tangible
personal property to its completed form, including packaging, if
required. Raw materials shall be considered to have been introduced
into the process when the raw materials are stored on the same
premises where the qualified taxpayer's manufacturing, processing,
refining, or recycling activity is conducted. Raw materials that are
stored on premises other than where the qualified taxpayer's
manufacturing, processing, refining, fabricating, or recycling
activity is conducted, shall not be considered to have been
introduced into the manufacturing, processing, refining, fabricating,
or recycling process.
(7) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.
(8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
(9) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
(10) "Small business" means a qualified taxpayer that meets any of
the following requirements during the taxable year for which the
credit is allowed:
(A) Has gross receipts of less than fifty million dollars
($50,000,000).
(B) Has net assets of less than fifty million dollars
($50,000,000).
(C) Has a total credit of less than one million dollars
($1,000,000).
(D) For taxable years beginning on or after January 1, 1997, 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 has
not received regulatory approval for any product from the United
States Food and Drug Administration.
(f) The credit allowed under subdivision (a) shall apply to
qualified property that is acquired by or subject to lease by a
qualified taxpayer, subject to the following special rules:
(1) A lessor of qualified property, irrespective of whether the
lessor is a qualified taxpayer, shall not be allowed the credit
provided under subdivision (a) with respect to any qualified property
leased to another qualified taxpayer.
(2) For purposes of paragraphs (2) and (3) of subdivision (b),
"binding contract" shall include any lease agreement with respect to
the qualified property.
(3) (A) For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is not treated
as a sale under Part 1 (commencing with Section 6001), the following
rules shall apply:
(i) Except as provided by subparagraph (C) of this paragraph,
subparagraphs (A) and (C) of paragraph (1) of subdivision (b) shall
not apply.
(ii) Except as provided in subparagraph (B) and clause (iii), the
"qualified cost" upon which the lessee shall compute the credit
provided under this section shall be equal to the original cost to
the lessor (within the meaning of Section 18031) of the qualified
property that is the subject of the lease.
(iii) Except as provided in clause (iv), the requirement of
subparagraph (B) of paragraph (1) of subdivision (b) shall be treated
as satisfied only if the lessor has made a timely election under
either Section 6094.1 or subdivision (d) of Section 6244 and has paid
sales tax reimbursement or use tax measured by the purchase price of
the qualified property (within the meaning of paragraph (5) of
subdivision (g) of Section 6006). For purposes of this subdivision
and clause (iv), the amount of original cost to the lessor which may
be taken into account under clause (ii) shall not exceed the purchase
price upon which sales tax reimbursement or use tax has been paid
under the preceding sentence or under clause (iv).
(iv) With respect to leases entered into between January 1, 1994,
and the effective date of this clause, the lessor may elect to pay
use tax measured by the purchase price of the property by reporting
and paying the tax with the return of the lessor for the fourth
calendar quarter of 1994. In computing the use tax under the
preceding sentence, a credit shall be allowed under Part 1
(commencing with Section 6001) for all sales or use tax previously
paid on the lease.
(B) For purposes of applying subparagraph (A) only, the following
special rules shall apply:
(i) The original cost to the lessor of the qualified property
shall be reduced by the amount of any original cost of that property
that was taken into account by any predecessor lessee in computing
the credit allowable under this section.
(ii) Clause (i) shall not apply in any case where the predecessor
lessee was required to recapture the credit provided under this
section pursuant to subdivision (g).
(iii) For purposes of this section only, in any case where a
successor lessor has acquired qualified property from a predecessor
lessor in a transaction not treated as a sale under Part 1
(commencing with Section 6001), the original cost to the successor
lessor of the qualified property shall be reduced by the amount of
the original cost of the qualified property that was taken into
account by any lessee of the predecessor lessor in computing the
credit allowable under this section.
(C) In determining the original cost of any qualified property
under this paragraph, only amounts paid or incurred by the lessor on
or after January 1, 1994, and prior to the date this section ceases
to be operative under paragraph (2) of subdivision (i), shall be
taken into account. In the case of any qualified property
constructed, reconstructed, or acquired by a lessor pursuant to a
binding contract in existence on or prior to January 1, 1994, the
allocation rule specified in subparagraph (A) of paragraph (1) of
subdivision (b) shall apply in determining the original cost to the
lessor of qualified property.
(D) Notwithstanding subparagraph (A), in the case of any leasing
transaction for which the lessee is allowed the credit under this
section and thereafter the lessee (or any party related to the lessee
within the meaning of Section 267 or 318 of the Internal Revenue
Code) acquires the qualified property from the lessor (or any
successor lessor) within one year from the date the qualified
property is first used by the lessee under the terms of the lease,
the lessee's (or related party's) acquisition of the qualified
property from the lessor (or successor lessor) shall be treated as a
disposition by the lessee of the qualified property that was subject
to the lease under subdivision (g).
(4) For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is treated as a
sale under Part 1 (commencing with Section 6001), the following rules
shall apply:
(A) Subparagraph (A) of paragraph (1) of subdivision (b) shall be
applied by substituting the term "purchase" for the term
"construction, reconstruction, or acquisition."
(B) Subparagraph (C) of paragraph (1) of subdivision (b) shall
apply.
(C) The requirement of subparagraph (B) of paragraph (1) of
subdivision (b) shall be treated as satisfied at the time that either
the lessor or the qualified taxpayer pays sales or use tax under
Part 1 (commencing with Section 6001).
(5) (A) In the case of any leasing transaction described in
paragraph (3), the lessor shall provide a statement to the lessee
specifying the amount of the lessor's original cost of the qualified
property and the amount of that cost upon which a sales or use tax
was paid within 45 days after the close of the lessee's taxable year
in which the credit is allowable to the lessee under this section.
(B) The statement required under subparagraph (A) shall be made
available to the Franchise Tax Board upon request.
(6) For purposes of this subdivision, in the case of any qualified
taxpayer engaged in those lines of business described in Codes 7371
to 7373, inclusive, of the Standard Industrial Classification (SIC)
Manual published by the United States Office of Management and
Budget, 1987 edition, "the first taxable year beginning on or after
January 1, 1998," shall be substituted for "January 1, 1994," in each
place in which it appears. In addition, "the effective date of this
paragraph" shall be substituted for "the effective date of this
clause" and "fourth calendar quarter of 1998" shall be substituted
for "fourth calendar quarter of 1994."
(g) No credit shall be allowed if the qualified property is
removed from the state, is disposed of to an unrelated party, or is
used for any purpose not qualifying for the credit provided in this
section in the same taxable year in which the qualified property is
first placed in service in this state. If any qualified property for
which a credit is allowed pursuant to this section is thereafter
removed from this state, disposed of to an unrelated party, or used
for any purpose not qualifying for the credit provided in this
section within one year from the date the qualified property is first
placed in service in this state, the amount of the credit allowed by
this section for that qualified property shall be recaptured by
adding that credit amount to the net tax of the qualified taxpayer
for the taxable year in which the qualified property is disposed of,
removed, or put to an ineligible use.
(h) In the case where the credit allowed by this section exceeds
the "net tax," the excess may be carried over to reduce the "net tax"
in the following year, and succeeding years as follows:
(1) Except as provided in paragraph (2), for the seven succeeding
years if necessary, until the credit is exhausted.
(2) In the case of a small business, for the nine succeeding
years, if necessary, until the credit is exhausted.
(i) (1) This section shall remain in effect until the date
specified in paragraph (2), on which date this section shall cease to
be operative, and as of that date is repealed.
(2) (A) This section shall cease to be operative on January 1,
2001, or on January 1 of the earliest year thereafter, if the total
employment in this state, as determined by the Employment Development
Department on the preceding January 1, does not exceed by 100,000
jobs the total employment in this state on January 1, 1994. The
department shall report to the Legislature annually with respect to
the determination required by the preceding sentence.
(B) For purposes of this paragraph, "total employment" means the
total employment in the manufacturing sector, excluding employment in
the aerospace sector.
(j) The amendments made by the act adding this subdivision shall
be operative for taxable years beginning on or after January 1, 1997,
except as provided in paragraph (3) of subdivision (d).
(k) The amendments made by the act adding this subdivision shall
be operative for taxable years beginning on or after January 1, 1998.
SEC. 6.5. Section 17054.5 of the Revenue and Taxation Code
is amended to read:
17054.5. (a) (1) There shall be allowed as a credit against the
"net tax" (as defined in Section 17039) of a qualified individual an
amount equal to 30 percent of the net tax.
(2) For taxable years beginning on or after January 1, 1987, and
before January 1, 1988, a qualified individual means a qualified
joint custody head of household as defined in subdivision (c).
(3) For taxable years beginning on or after January 1, 1988, a
qualified individual means either of the following:
(A) A "qualified joint custody head of household" as defined in
subdivision (c).
(B) A "qualified taxpayer" as defined in subdivision (e).
(4) The amount of the credit under this section shall not exceed
two hundred dollars ($200) for any taxable year.
(5) Does not qualify as a head of household under Section 17042 or
as a surviving spouse under Section 17046.
(b) For each taxable year beginning on or after January 1, 1988,
the Franchise Tax Board shall recompute the maximum credit prescribed
in subdivision (a). That computation shall be made as follows:
(1) The California Department of Industrial Relations shall
transmit annually to the Franchise Tax Board the percentage change in
the California Consumer Price Index as modified for rental
equivalent homeownership for all items from June of the prior
calendar year to June of the current calendar year, no later than
August 1 of the current calendar year.
(2) The Franchise Tax Board shall add 100 percent to the
percentage change figure which is furnished to them pursuant to
paragraph (1) and divide the result by 100.
(3) The Franchise Tax Board shall multiply the immediately
preceding taxable year credit by the inflation adjustment factor
determined in paragraph (2), and round off the resulting product to
the nearest one dollar ($1).
(c) "Qualified joint custody head of household" means an
individual who meets all of the following:
(1) Is not married at the close of the taxable year, or files a
separate return and does not have his or her spouse as a member of
his or her household during the entire taxable year.
(2) Maintains as his or her home a household which constitutes for
the taxable year the principal place of abode for a qualifying
child, as defined in subdivision (d), for no less than 146 days of
the taxable year but no more than 219 days of the taxable year, under
a decree of dissolution or separate maintenance, or under a written
agreement between the parents prior to the issuance of a decree of
dissolution or separate maintenance where the proceedings have been
initiated.
(3) Furnishes over one-half the cost of maintaining the household
during the taxable year.
(4) Does not qualify as a head of household under Section 17042 or
as a surviving spouse under Section 17046.
(d) For purposes of this section, a "qualifying child" means a
son, stepson, daughter, or stepdaughter of the taxpayer or a
descendant of a son or daughter of the taxpayer, but if that son,
stepson, daughter, stepdaughter, or descendant is married at the
close of the taxpayer's taxable year, only if the taxpayer is
entitled to a credit for the taxable year for that person under
Section 17054.
(e) "Qualified taxpayer" means an individual who meets all of the
following:
(1) Is married and files a separate return.
(2) During the last six months of the taxable year the taxpayer's
spouse was not a member of the taxpayer's household.
(3) Maintains a household, whether or not the taxpayer's home,
which constitutes the principal place of abode of a dependent mother
or father of the taxpayer for the taxable year.
(4) Furnishes over one-half of the cost of maintaining the
household during the taxable year.
(5) Does not qualify as a head of household under Section 17042 or
as a surviving spouse under Section 17046.
SEC. 7. Section 17071 of the Revenue and Taxation Code is amended
to read:
17071. Section 61 of the Internal Revenue Code, relating to gross
income defined, shall apply, except as otherwise provided.
SEC. 8. Section 17073 of the Revenue and Taxation Code is amended
to read:
17073. (a) Section 63 of the Internal Revenue Code, relating to
taxable income defined, shall apply, except as otherwise provided.
(b) For individuals who do not itemize deductions, the standard
deduction computed in accordance with Section 17073.5 shall be
allowed as a deduction in computing taxable income.
SEC. 9. Section 17074 of the Revenue and Taxation Code is amended
to read:
17074. Section 64 of the Internal Revenue Code, relating to
ordinary income defined, shall apply, except as otherwise provided.
SEC. 10. Section 17075 of the Revenue and Taxation Code is amended
to read:
17075. Section 65 of the Internal Revenue Code, relating to
ordinary loss defined, shall apply, except as otherwise provided.
SEC. 11. Section 17076 of the Revenue and Taxation Code is amended
to read:
17076. Section 67 of the Internal Revenue Code, relating to the 2
percent floor on miscellaneous itemized deductions, shall apply,
except as otherwise provided.
SEC. 12. Section 17077 of the Revenue and Taxation Code is amended
to read:
17077. Section 68 of the Internal Revenue Code, relating to
overall limitation on itemized deductions, shall apply, except as
otherwise provided.
(a) "Six percent" shall be substituted for "3 percent" in Section
68(a)(1) of the Internal Revenue Code.
(b) Section 68(b)(1) of the Internal Revenue Code shall not apply
and in lieu thereof the term "applicable amount" in each place it
appears in Section 68(a) of the Internal Revenue Code means one
hundred thousand dollars ($100,000) in the case of a single
individual or a married individual making a separate return, one
hundred fifty thousand dollars ($150,000) in the case of a head of
household, and two hundred thousand dollars ($200,000) in the case of
a surviving spouse or a husband and wife making a joint return.
(c) Section 68(b)(2) of the Internal Revenue Code, relating to
inflation adjustments, shall not apply. However, for any taxable
year beginning on or after January 1, 1992, the applicable amounts
specified in subdivision (b) shall be recomputed annually in the same
manner as the recomputation of income tax brackets under subdivision
(h) of Section 17041.
SEC. 13. Section 17077.5 of the Revenue and Taxation Code is
repealed.
SEC. 14. Section 17083 of the Revenue and Taxation Code is amended
to read:
17083. Section 85 of the Internal Revenue Code, relating to
unemployment compensation, shall not apply.
SEC. 15. Section 17084 of the Revenue and Taxation Code is
repealed.
SEC. 16. Section 17085 of the Revenue and Taxation Code is amended
to read:
17085. Section 72 of the Internal Revenue Code, relating to
annuities and certain proceeds of life insurance contracts, shall be
modified as follows:
(a) The amendments and transitional rules made by Public Law
99-514 shall be applicable to this part for the same transactions and
the same years as they are applicable for federal purposes, except
that the repeal of Section 72(d) of the Internal Revenue Code,
relating to repeal of special rule for employees' annuities, shall
apply only to the following:
(1) Any individual whose annuity starting date is after December
31, 1986.
(2) At the election of the taxpayer, any individual whose annuity
starting date is after July 1, 1986, and before January 1, 1987.
(b) The amount of a distribution from an individual retirement
account or annuity or employees' trust or employee annuity that is
includable in gross income for federal purposes shall be reduced for
purposes of this part by the lesser of either of the following:
(1) An amount equal to the amount includable in federal gross
income for the taxable year.
(2) An amount equal to the basis in the account or annuity allowed
by Section 17507 (relating to individual retirement accounts and
simplified employee pensions) or the increased basis allowed by
Sections 17504 and 17506 (relating to plans of self-employed
individuals) remaining after adjustment for reductions in gross
income under this provision in prior taxable years.
(c) (1) Except as provided in paragraph (2), the amount of the
penalty imposed under this part shall be computed in accordance with
Sections 72(m), (q), (t), and (v) of the Internal Revenue Code using
a rate of 21/2 percent, in lieu of the rate provided in those
sections.
(2) In the case where Section 72(t)(6) of the Internal Revenue
Code, relating to special rules for simple retirement accounts,
applies, the rate in paragraph (1) shall be 6 percent in lieu of the
21/2 percent rate specified therein.
(d) Section 72(f)(2) of the Internal Revenue Code, relating to
special rules for computing employees' contributions, shall be
applicable without applying the exceptions which immediately follow
that paragraph.
SEC. 17. Section 17085.5 of the Revenue and Taxation Code is
repealed.
SEC. 18. Section 17087 of the Revenue and Taxation Code is amended
to read:
17087. (a) Section 86 of the Internal Revenue Code, relating to
Social Security and Tier 1 Railroad Retirement Benefits, shall not
apply.
(b) Section 72(r) of the Internal Revenue Code, relating to Tier 2
Railroad Retirement Benefits, shall not apply.
(c) Section 105(h) of the Internal Revenue Code, relating to sick
pay under the Railroad Unemployment Insurance Act, shall not apply.
SEC. 19. Section 17132.5 of the Revenue and Taxation Code is
repealed.
SEC. 20. Section 17134.5 of the Revenue and Taxation Code is
repealed.
SEC. 21. Section 17139 of the Revenue and Taxation Code is
repealed.
SEC. 22. Section 17140 of the Revenue and Taxation Code is amended
to read:
17140. (a) For purposes of this section, the following terms have
the following meanings as provided in the Golden State Scholarshare
Trust Act (Article 19 (commencing with Section 69980) of Chapter 2 of
Part 42 of the Education Code):
(1) "Beneficiary" has the meaning set forth in subdivision (c) of
Section 69980 of the Education Code.
(2) "Benefit" has the meaning set forth in subdivision (d) of
Section 69980 of the Education Code.
(3) "Participant" has the meaning set forth in subdivision (h) of
Section 69980 of the Education Code.
(4) "Participation agreement" has the meaning set forth in
subdivision (i) of Section 69980 of the Education Code.
(5) "Scholarshare trust" has the meaning set forth in subdivision
(f) of Section 69980 of the Education Code.
(b) Except as otherwise provided in subdivision (c), gross income
of a beneficiary or a participant does not include any of the
following:
(1) Any distribution or earnings under a Scholarshare trust
participation agreement, as provided in Article 19 (commencing with
Section 69980) of Chapter 2 of Part 42 of the Education Code.
(2) Any contribution to the Scholarshare trust on behalf of a
beneficiary shall not be includable as gross income of that
beneficiary.
(c) (1) Any distribution under a Scholarshare trust participation
agreement shall be includable in the gross income of the distributee
in the manner as provided under Section 72 of the Internal Revenue
Code, as modified by Section 17085, to the extent not excluded from
gross income under this part. For purposes of applying Section 72 of
the Internal Revenue Code, the following apply:
(A) All Scholarshare trust accounts of which an individual is a
beneficiary shall be treated as one account, except as otherwise
provided.
(B) All distributions during a taxable year shall be treated as
one distribution.
(C) The value of the participation agreement, income on the
participation agreement, and investment in the participation
agreement shall be computed as of the close of the calendar year in
which the taxable year begins.
(2) A contribution by a for-profit or nonprofit entity, or by a
state or local government agency, for the benefit of an owner or
employee of that entity or a beneficiary whom the owner or employee
has the power to designate, including the owner or employee's minor
children, shall be included in the gross income of that owner or
employee in the year the contribution is made.
(3) For purposes of this subdivision, "distribution" includes any
benefit furnished to a beneficiary under a participation agreement,
as provided in Article 19 (commencing with Section 69980) of Chapter
2 of Part 42 of the Education Code.
(4) (A) Paragraph (1) shall not apply to that portion of any
distribution that, within 60 days of distribution, is transferred to
the credit of another beneficiary under the Scholarshare trust who is
a "member of the family," as that term is used in Section 529(e)(2)
of the Internal Revenue Code, as amended by Section 211 of the
Taxpayer Relief Act of 1997 (P.L. 105-34), of the former beneficiary
of that Scholarshare trust.
(B) Any change in the beneficiary of an interest in the
Scholarshare trust shall not be treated as a distribution for
purposes of paragraph (1) if the new beneficiary is a "member of the
family," as that term is used in Section 529(e)(2) of the Internal
Revenue Code, as amended by Section 211 of the Taxpayer Relief Act of
1997 (P.L. 105-34), of the former beneficiary of that Scholarshare
trust.
(d) For purposes of determining adjusted gross income, Section 62
(a)(9) of the Internal Revenue Code shall not apply to any amount
forfeited upon distribution of an account created pursuant to a
participation agreement.
(e) The amendments made to the Internal Revenue Code by Section
211 of the Taxpayer Relief Act of 1997 (P.L. 105-34) shall apply to
taxable years beginning on or after January 1, 1998.
SEC. 23. Section 17140.3 of the Revenue and Taxation Code is
amended to read:
17140.3. Section 529 of the Internal Revenue Code, relating to
qualified state tuition programs, shall apply, except as otherwise
provided.
(a) Section 529 (a) of the Internal Revenue Code is modified as
follows:
(1) By substituting the phrase "under this part and Part 11
(commencing with Section 23001)" in lieu of the phrase "under this
subtitle."
(2) By substituting "Article 2 (commencing with Section 23731)" in
lieu of "Section 511."
(b) A copy of the report required to be filed with the Secretary
of the Treasury under Section 529(d) of the Internal Revenue Code
shall be filed with the Franchise Tax Board at the same time and in
the same manner as specified in that section.
SEC. 24. Section 17142.5 of the Revenue and Taxation Code is
amended to read:
17142.5. (a) For purposes of the following provisions of the
Internal Revenue Code, a qualified hazardous duty area shall be
treated in the same manner as if it were a combat zone
(as determined under Section 112 of the
Internal Revenue Code):
(1) Section 2 (a)(3) (relating to a special rule where a deceased
spouse was in missing status).
(2) Section 112 (relating to certain combat zone compensation of
members of the Armed Forces).
(3) Section 692 (relating to income taxes of members of Armed
Forces upon death).
(4) Section 7508 (relating to time for performing certain acts
postponed by reason of service in combat zone).
(b) "Qualified hazardous duty area" means Bosnia and Herzegovina,
Croatia, or Macedonia, if, as of March 20, 1996, any member of the
Armed Forces of the United States is entitled to special pay under
Section 310 of Title 37 of the United States Code (relating to
special pay; duty subject to hostile fire or imminent danger) for
services performed in that country. "Qualified hazardous duty area"
includes any country only during the period that entitlement is in
effect. Solely for purposes of applying Section 7508 of the Internal
Revenue Code, in the case of an individual who is performing
services as part of Operation Joint Endeavor outside the United
States while deployed away from the individual's permanent duty
station, the term "qualified hazardous duty area" includes, during
the period for which that entitlement is in effect, any area in which
those services are performed.
SEC. 25. Section 17143 of the Revenue and Taxation Code is amended
to read:
17143. Sections 103 and 141 to 150, inclusive, of the Internal
Revenue Code, relating to interest on governmental obligations, shall
not apply.
SEC. 26. Section 17144 of the Revenue and Taxation Code is amended
to read:
17144. (a) Section 108(b)(2)(B) of the Internal Revenue Code,
relating to general business credit, is modified by substituting
"this part" in lieu of "Section 38 (relating to general business
credit)."
(b) Section 108(b)(2)(G) of the Internal Revenue Code, relating to
foreign tax credit carryovers, shall not apply.
(c) Section 108(b)(3)(B) of the Internal Revenue Code, relating to
credit carryover reduction, is modified by substituting "11.1 cents"
in lieu of "331/3 cents" in each place in which it appears. In the
case where more than one credit is allowable under this part, the
credits shall be reduced on a pro rata basis.
(d) Section 108(g)(3)(B) of the Internal Revenue Code, relating to
adjusted tax attributes, is modified by substituting "($9)" in lieu
of "($3)."
(e) (1) If a taxpayer makes an election for federal income tax
purposes under Section 108(c) of the Internal Revenue Code, relating
to treatment of discharge of qualified real property business
indebtedness, a separate election shall not be allowed under
paragraph (3) of subdivision (e) of Section 17024.5 and the federal
election shall be binding for purposes of this part.
(2) If a taxpayer has not made an election for federal income tax
purposes under Section 108(c) of the Internal Revenue Code, relating
to treatment of discharge of qualified real property business
indebtedness, then the taxpayer shall not be allowed to make that
election for purposes of this part.
SEC. 27. Section 17218 of the Revenue and Taxation Code is
repealed.
SEC. 28. Section 17250 of the Revenue and Taxation Code is amended
to read:
17250. (a) Section 168 of the Internal Revenue Code is modified
as follows:
(1) Any reference to "tax imposed by this chapter" in Section 168
of the Internal Revenue Code means "net tax," as defined in Section
17039.
(2) (A) Section 168(e)(3) is modified to provide that any
grapevine, replaced in a vineyard in California in any taxable year
beginning on or after January 1, 1992, as a direct result of a
phylloxera infestation in that vineyard, or replaced in a vineyard in
California in any taxable year beginning on or after January 1,
1997, as a direct result of Pierce's Disease in that vineyard, shall
be "five-year property," rather than "10-year property."
(B) Section 168(g)(3) of the Internal Revenue Code is modified to
provide that any grapevine, replaced in a vineyard in California in
any taxable year beginning on or after January 1, 1992, as a direct
result of a phylloxera infestation in that vineyard, or replaced in a
vineyard in California in any taxable year beginning on or after
January 1, 1997, as a direct result of Pierce's Disease in that
vineyard, shall have a class life of 10 years.
(C) Every taxpayer claiming a depreciation deduction with respect
to grapevines as described in this paragraph shall obtain a written
certification from an independent state-certified integrated pest
management adviser, or a state agricultural commissioner or adviser,
that specifies that the replanting was necessary to restore a
vineyard infested with phylloxera or Pierce's Disease. The taxpayer
shall retain the certification for future audit purposes.
(3) Section 168(j) of the Internal Revenue Code, relating to
property on Indian reservations, shall not apply.
(b) Section 169 of the Internal Revenue Code, relating to
amortization of pollution control facilities, is modified as follows:
(1) The deduction allowed by Section 169 of the Internal Revenue
Code shall be allowed only with respect to facilities located in this
state.
(2) The "state certifying authority," as defined in Section 169(d)
(2) of the Internal Revenue Code, means the State Air Resources
Board, in the case of air pollution, and the State Water Resources
Control Board, in the case of water pollution.
SEC. 29. Section 17268 of the Revenue and Taxation Code is amended
to read:
17268. (a) For each taxable year beginning on or after January 1,
1995, a taxpayer may elect to treat 40 percent of the cost of any
Section 17268 property as an expense that is not chargeable to the
capital account. Any cost so treated shall be allowed as a deduction
for the taxable year in which the taxpayer places the Section 17268
property in service.
(b) In the case of a husband or wife filing separate returns for a
taxable year in which a spouse is entitled to the deduction under
subdivision (a), the applicable amount shall be equal to 50 percent
of the amount otherwise determined under subdivision (a).
(c) (1) An election under this section for any taxable year shall
meet both of the following requirements:
(A) Specify the items of Section 17268 property to which the
election applies and the portion of the cost of each of those items
that is to be taken into account under subdivision (a).
(B) Be made on the taxpayer's return of the tax imposed by this
part for the taxable year.
(2) Any election made under this section, and any specification
contained in that election, may not be revoked except with the
consent of the Franchise Tax Board.
(d) (1) For purposes of this section, "Section 17268 property"
means any recovery property that is each of the following:
(A) Section 1245 property (as defined in Section 1245(a)(3) of the
Internal Revenue Code).
(B) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA.
(C) Purchased before the date the LAMBRA designation expires, is
no longer binding, or becomes inoperative.
(2) For purposes of paragraph (1), "purchase" means any
acquisition of property, but only if both of the following apply:
(A) The property is not acquired from a person whose relationship
to the person acquiring it would result in the disallowance of losses
under Section 267 or 707(b) of the Internal Revenue Code (but, in
applying Section 267(b) and Section 267(c) of the Internal Revenue
Code for purposes of this section, Section 267(c)(4) of the Internal
Revenue Code shall be treated as providing that the family of an
individual shall include only his or her spouse, ancestors, and
lineal descendants).
(B) The basis of the property in the hands of the person acquiring
it is not determined by either of the following:
(i) In whole or in part by reference to the adjusted basis of the
property in the hands of the person from whom acquired.
(ii) Under Section 1014 of the Internal Revenue Code, relating to
basis of property acquired from a decedent.
(3) For purposes of this section, the cost of property does not
include that portion of the basis of the property that is determined
by reference to the basis of other property held at any time by the
person acquiring the property.
(4) This section shall not apply to estates and trusts.
(5) This section shall not apply to any property for which the
taxpayer may not make an election for the taxable year under Section
179 of the Internal Revenue Code because of the provisions of Section
179(d) of the Internal Revenue Code.
(6) In the case of a partnership, the dollar limitation in
subdivision (f) shall apply at the partnership level and at the
partner level.
(7) This section shall not apply to any property described in
Section 168(f) of the Internal Revenue Code, relating to property to
which Section 168 of the Internal Revenue Code does not apply.
(e) For purposes of this section:
(1) "LAMBRA" means a local agency military base recovery area
designated in accordance with the provisions of Section 7114 of the
Government Code.
(2) "Taxpayer" means a taxpayer that conducts a trade or business
within a LAMBRA and, for the first two taxable years, has a net
increase in jobs (defined as 2,000 paid hours per employee per year)
of one or more employees in the LAMBRA.
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA. For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero. If the
taxpayer has a net increase in jobs in the state, the credit shall be
allowed only if one or more full-time employees is employed within
the LAMBRA.
(B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
(i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
(ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
(C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B) the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is the
number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
(f) The aggregate cost of all Section 17268 property that may be
taken into account under subdivision (a) for any taxable year shall
not exceed the following applicable amounts for the taxable year of
the designation of the relevant LAMBRA and taxable years thereafter:
The applicable
amount is:
Taxable year of designation ............ $100,000
1st taxable year thereafter ............ 100,000
2nd taxable year thereafter ............ 75,000
3rd taxable year thereafter ............ 75,000
Each taxable year thereafter ........... 50,000
(g) This section shall apply only to property that is used
exclusively in a trade or business conducted within a LAMBRA.
(h) (1) Any amounts deducted under subdivision (a) with respect to
property that ceases to be used in the trade or business within a
LAMBRA at any time before the close of the second taxable year after
the property was placed in service shall be included in income for
that year.
(2) At the close of the second taxable year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(2) of subdivision (e), then the amount of the deduction previously
claimed shall be added to the taxpayer's taxable income for the
taxpayer's second taxable year.
(i) Any taxpayer who elects to be subject to this section shall
not be entitled to claim for the same property the deduction under
Section 179 of the Internal Revenue Code, relating to an election to
expense certain depreciable business assets.
SEC. 30. Section 17270 of the Revenue and Taxation Code is amended
to read:
17270. (a) For purposes of Section 162(a)(2) of the Internal
Revenue Code, relating to travel expenses, all of the following shall
apply:
(1) The place of residence of a member of the Legislature within
the district represented shall be considered the tax home.
(2) The provisions of Section 162(h) of the Internal Revenue Code,
relating to state legislators' travel expenses away from home, shall
not be applied.
(b) The provisions of Section 280C(a) of the Internal Revenue Code
(relating to rule for employment credits) shall not apply.
(c) Section 280C(c)(3)(B) of the Internal Revenue Code is modified
to refer to Section 17041 in lieu of Section 11(b)(1) of the
Internal Revenue Code.
SEC. 31. Section 17274 of the Revenue and Taxation Code is amended
to read:
17274. (a) Notwithstanding any other provisions in this part to
the contrary, no deduction shall be allowed for interest, taxes,
depreciation, or amortization paid or incurred in the taxable year
with respect to substandard housing located in this state, except as
provided in subdivision (e).
(b) "Substandard housing" means occupied dwellings from which the
taxpayer derives rental income or unoccupied or abandoned dwellings
for which both of the following apply:
(1) Either of the following occurs:
(A) For occupied dwellings from which the taxpayer derives rental
income, a state or local government regulatory agency has determined
that the housing violates state law or local codes dealing with
health, safety, or building.
(B) For dwellings that are unoccupied or abandoned for at least 90
days, a state or local government regulatory agency has cited the
housing for conditions that constitute a serious violation of state
law or local codes dealing with health, safety, or building, and that
constitute a threat to public health and safety.
(2) Either of the following occurs:
(A) After written notice of violation by the regulatory agency,
specifying the applicability of this section, the housing has not
been brought to a condition of compliance within six months after the
date of the notice or the time prescribed in the notice, whichever
period is later.
(B) Good faith efforts for compliance have not been commenced, as
determined by the regulatory agency.
"Substandard housing" also means employee housing that has not,
within 30 days of the date of the written notice of violation or the
date for compliance prescribed in the written notice of violation,
been brought into compliance with the conditions stated in the
written notice of violation of the Employee Housing Act (Part 1
(commencing with Section 17000) of Division 13 of the Health and
Safety Code) issued by the enforcement agency that specifies the
application of this section. The regulatory agency may, for good
cause shown, extend the compliance date prescribed in a violation
notice.
(c) (1) When the period specified in paragraph (2) of subdivision
(b) has expired without compliance, the regulatory agency shall mail
to the taxpayer a notice of noncompliance. The notice of
noncompliance shall be in a form and shall include information
prescribed by the Franchise Tax Board, shall be mailed by certified
mail to the taxpayer at the taxpayer's last known address, and shall
advise the taxpayer of (A) an intent to notify the Franchise Tax
Board of the noncompliance within 10 days unless an appeal is filed,
(B) where an appeal may be filed, and (C) a general description of
the tax consequences of the filing with the Franchise Tax Board.
Appeals shall be made to the same body and in the same manner as
appeals from other actions of the regulatory agency. If no appeal is
made within 10 days or if after disposition of the appeal the
regulatory agency is sustained, the regulatory agency shall notify,
in writing, the Franchise Tax Board of the noncompliance.
(2) The notice of noncompliance shall contain the legal
description or the lot and block numbers of the real property, the
assessor's parcel number, and the name of the owner of record as
shown on the latest equalized assessment roll. In addition, the
regulatory agency shall, at the same time as notification of the
notice of noncompliance is sent to the Franchise Tax Board, record a
copy of the notice of noncompliance in the office of the recorder for
the county in which the substandard housing is located that includes
a statement of tax consequences that may be determined by the
Franchise Tax Board. However, the failure to record a notice with
the county recorder does not relieve the liability of any taxpayer
nor does it create any liability on the part of the regulatory
agency.
(3) The regulatory agency may charge the taxpayer a fee in an
amount not to exceed the regulatory agency's costs incurred in
recording any notice of noncompliance or issuing any release of that
notice. The notice of compliance shall be recorded and shall serve
to expunge the notice of noncompliance. The notice of compliance
shall contain the same recording information required for the notice
of noncompliance. No deduction by the taxpayer, or any other
taxpayer who obtains title to the property subsequent to the
recordation of the notice of noncompliance, shall be allowed for the
items provided in subdivision (a) from the date of the notice of
noncompliance until the date the regulatory agency determines that
the substandard housing has been brought to a condition of
compliance. The regulatory agency shall mail to the Franchise Tax
Board and the taxpayer a notice of compliance, which notice shall be
in the form and include the information prescribed by the Franchise
Tax Board. In the event the period of noncompliance does not cover
an entire taxable year, the deductions shall be denied at the rate of
1/12 for each full month during the period of noncompliance.
(4) If the property is owned by more than one owner or if the
recorded title is in the name of a fictitious owner, the notice
requirements provided in subdivision (b) and this subdivision shall
be satisfied for each owner if the notices are mailed to one owner or
to the fictitious name owner at the address appearing on the latest
available property tax bill. However, notices made pursuant to this
subdivision do not relieve the regulatory agency from furnishing
taxpayer identification information required to implement this
section to the Franchise Tax Board.
(d) For the purposes of this section, a notice of noncompliance
shall not be mailed by the regulatory agency to the Franchise Tax
Board if any of the following occur:
(1) The housing was rendered substandard solely by reason of
earthquake, flood, or other natural disaster except where the
condition remains for more than three years after the disaster.
(2) The owner of the substandard housing has secured financing to
bring the housing into compliance with those laws or codes that have
been violated, causing the housing to be classified as substandard,
and has commenced repairs or other work necessary to bring the
housing into compliance.
(3) The owner of substandard housing that is not within the
meaning of housing accommodation as defined by subdivision (d) of
Section 35805 of the Health and Safety Code has done both of the
following:
(A) Attempted to secure financing to bring the housing into
compliance with those laws or codes that have been violated, causing
the housing to be classified as substandard.
(B) Been denied that financing solely because the housing is
located in a neighborhood or geographical area in which financial
institutions do not provide financing for rehabilitation of any of
that type of housing.
(e) This section does not apply to deductions from income derived
from property rendered substandard solely by reason of a change in
applicable state or local housing standards unless the violations
cause substantial danger to the occupants of the property, as
determined by the regulatory agency which has served notice of
violation pursuant to subdivision (b).
(f) The owner of substandard housing found to be in noncompliance
shall, upon total or partial divestiture of interest in the property,
immediately notify the regulatory agency of the name and address of
the person or persons to whom the property has been sold or otherwise
transferred and the date of the sale or transference.
(g) By July 1 of each year, the regulatory agency shall report to
the appropriate legislative body of its jurisdiction all of the
following information, for the preceding calendar year, regarding its
activities to secure code enforcement, which shall be public
information:
(1) The number of written notices of violation issued for
substandard housing under subdivision (b).
(2) The number of violations complied with within the period
prescribed in subdivision (b).
(3) The number of notices of noncompliance issued pursuant to
subdivision (c).
(4) The number of appeals from those notices pursuant to
subdivision (c).
(5) The number of successful appeals by owners.
(6) The number of notices of noncompliance mailed to the Franchise
Tax Board pursuant to subdivision (c).
(7) The number of cases in which a notice of noncompliance was not
sent pursuant to subdivision (d).
(8) The number of extensions for compliance granted pursuant to
subdivision (b) and the mean average length of the extensions.
(9) The mean average length of time from the issuance of a notice
of violation to the mailing of a notice of noncompliance to the
Franchise Tax Board where the notice is actually sent to the
Franchise Tax Board.
(10) The number of cases where compliance is achieved after a
notice of noncompliance has been mailed to the Franchise Tax Board.
(11) The number of instances of disallowance of tax deductions by
the Franchise Tax Board resulting from referrals made by the
regulatory agency. This information may be filed in a supplemental
report in succeeding years as it becomes available.
(h) The provisions of this section relating to substandard housing
consisting of abandoned or unoccupied dwellings do not apply to any
lender engaging in a "federally related transaction," as defined in
Section 11302 of the Business and Professions Code, who acquires
title through judicial or nonjudicial foreclosure, or accepts a deed
in lieu of foreclosure. The exception provided in this subdivision
covers only substandard housing consisting of abandoned or unoccupied
dwellings involved in the federally related transaction.
SEC. 32. Section 17275.6 of the Revenue and Taxation Code is
repealed.
SEC. 33. Section 17276.5 of the Revenue and Taxation Code is
amended to read:
17276.5. (a) For each taxable year beginning on or after January
1, 1995, the term "qualified taxpayer" as used in Section 17276.1
includes a taxpayer engaged in the conduct of a trade or business
within a LAMBRA. For purposes of this subdivision, all of the
following shall apply:
(1) A net operating loss shall not be a net operating loss
carryback for any taxable year, and a net operating loss for any
taxable 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 taxable year that
ends before the LAMBRA expiration date or to each of the 15 taxable
years following the taxable year of loss, if longer.
(2) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
(3) "Taxpayer" means a person or entity 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 and this state. For
purposes of this paragraph:
(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. 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.
(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.
(4) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 17276.1,
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 Chapter 17 (commencing with Section
25101) of Part 11, modified for purposes of this section as follows:
(A) Loss shall be apportioned to a
LAMBRA by multiplying total 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 2.
(B) "The LAMBRA" shall be substituted for "this state."
(5) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to a LAMBRA.
(6) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income attributable to
sources in this state first shall be determined in accordance with
Chapter 17 (commencing with Section 25101) of Part 11. That business
income shall be further apportioned to the LAMBRA in accordance with
Article 2 (commencing with Section 25120) of Chapter 17 of Part 11,
modified for purposes of this subdivision as follows:
(A) Business income shall be apportioned to a LAMBRA 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. For purposes of
this clause:
(i) 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 LAMBRA 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.
(ii) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA 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.
(B) If a loss carryover is allowable pursuant to this section for
any taxable year after the LAMBRA designation has expired, the LAMBRA
shall be deemed to remain in existence for purposes of computing the
limitation specified in paragraph (5) and allowing a net operating
loss deduction.
(7) "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.
(b) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the taxable year of the net operating
loss and any taxable year to which that net operating loss may be
carried, designate on the original return filed for each year the
section that applies to that taxpayer with respect to that net
operating loss. If the taxpayer is eligible to qualify under more
than one section, the designation is to be made after taking into
account subdivision (c).
(c) If a taxpayer is eligible to qualify under this section and
either Section 17276.2, 17276.4, or 17276.6 as a "qualified taxpayer,"
with respect to a net operating loss in a taxable year, the taxpayer
shall designate which section is to apply to the taxpayer.
(d) Notwithstanding Section 17276, the amount of the loss
determined under this section or Section 17276.2, 17276.4, or 17276.6
shall be the only net operating loss allowed to be carried over from
that taxable year and the designation under subdivision (b) shall be
included in the election under Section 17276.1.
(e) This section shall apply to taxable years beginning on or
after January 1, 1998.
SEC. 34. Section 17287 of the Revenue and Taxation Code is amended
to read:
17287. Section 269A of the Internal Revenue Code is modified by
substituting "California Personal Income Tax" for "Federal income
tax."
SEC. 35. Section 17302 of the Revenue and Taxation Code is amended
to read:
17302. In the case of a nonresident or part-year resident, the
deduction provided by Section 215 of the Internal Revenue Code,
relating to alimony payments, shall be allowed in computing
California adjusted gross income as follows:
(a) In the case of a nonresident, the deduction shall be allowed
in the ratio that California adjusted gross income for the entire
year, computed without regard to the alimony deduction, bears to
total adjusted gross income for the entire year, computed without
regard to the alimony deduction.
(b) In the case of a part-year resident:
(1) For the portion of the year that a part-year resident is a
resident, the deduction shall be allowed for the alimony payments
made during the portion of the year the part-time
part-year resident is a resident in the same manner as is
allowed a resident.
(2) For the portion of the year that a part-year resident is a
nonresident, the deduction shall be allowed for the alimony payments
made during the portion of the year the part-year resident is a
nonresident in the ratio that California adjusted gross income for
the entire year, computed without regard to the alimony deduction,
bears to total adjusted gross income for the entire year, computed
without regard to the alimony deduction.
(c) The amount determined under subdivision (a) or (b) shall be
limited to the amount of the deduction included in computing total
adjusted gross income from all sources.
SEC. 36. Section 17330 of the Revenue and Taxation Code is
repealed.
SEC. 37. Section 17551 of the Revenue and Taxation Code is amended
to read:
17551. (a) Subchapter E of Chapter 1 of Subtitle A of the
Internal Revenue Code, relating to accounting periods and methods of
accounting, shall apply, except as otherwise provided.
(b) Section 444(c)(1) of the Internal Revenue Code, relating to
effect of election, shall not apply.
SEC. 38. Section 17551.5 of the Revenue and Taxation Code is
repealed.
SEC. 39. Section 17552 of the Revenue and Taxation Code is amended
to read:
17552. (a) Notwithstanding Section 17565, a return for a period
of less than 12 months shall also be made when the Franchise Tax
Board terminates the taxpayer's taxable year under Section 19082
(relating to tax in jeopardy).
(b) The provisions of Section 443(c) of the
Internal Revenue Code, relating to adjustment in deduction for
personal exemption, is modified by substituting the phrase "the
credit allowed under Section 17054" for the phrase "the exemptions
allowed as a deduction under section 151 (and any deduction in lieu
thereof)."
SEC. 40. Section 17553 of the Revenue and Taxation Code is amended
to read:
17553. Section 454(c) of the Internal Revenue Code, relating to
matured United States Savings Bonds, shall not apply.
SEC. 41. Section 17560 of the Revenue and Taxation Code is amended
to read:
17560. (a) In the case of any installment obligation to which
Section 453(l)(2)(B) of the Internal Revenue Code applies, in lieu of
the provisions of Section 453(l)(3)(A) of the Internal Revenue Code,
the tax imposed under Section 17041 or 17048 for any taxable year
for which payment is received on that obligation shall be increased
by the amount of interest determined in the manner provided under
Section 453(l)(3)(B) of the Internal Revenue Code.
(b) (1) In the case of any installment obligation to which Section
453A of the Internal Revenue Code applies and which is outstanding
as of the close of the taxable year, in lieu of the provisions of
Section 453A(c)(1) of the Internal Revenue Code, the tax imposed by
Section 17041 or 17048 for the taxable year shall be increased by the
amount of interest determined in the manner provided under Section
453A(c)(2) of the Internal Revenue Code.
(2) Section 453A(c)(3)(B) of the Internal Revenue Code, relating
to the maximum rate used in calculating the deferred tax liability,
is modified to refer to the maximum rate of tax imposed under Section
17041 in lieu of the maximum rate of tax imposed under Section 1 or
11 of the Internal Revenue Code.
SEC. 42.
SEC. 41. Section 17563 of the Revenue and Taxation Code is
repealed.
SEC. 43.
SEC. 42. Section 17639 of the Revenue and Taxation Code is
amended to read:
17639. For purposes of subdivision (a) of Section 17637, a bond,
debenture, note, or certificate or other evidence of indebtedness
(hereinafter in this section referred to as "obligation") acquired by
a trust described in Section 401(a) of the Internal Revenue Code
shall not be treated as a loan made without the receipt of adequate
security if--
(a) Such The obligation is
acquired--
(1) On the market, either (i) at the price of the obligation
prevailing on a national securities exchange which is registered with
the Securities and Exchange Commission, or (ii) if the obligation is
not traded on such a national securities exchange, at a price not
less favorable to the trust than the offering price for the
obligation as established by current bid and asked prices quoted by
persons independent of the issuer;
(2) From an underwriter, at a price (i) not in excess of the
public offering price for the obligation as set forth in a prospectus
or offering circular filed with the Securities and Exchange
Commission, and (ii) at which a substantial portion of the same issue
is acquired by persons independent of the issuer; or
(3) Directly from the issuer, at a price not less favorable to the
trust than the price paid currently for a substantial portion of the
same issue by persons independent of the issuer;
(b) Immediately following acquisition of such
the obligation--
(1) Not more than 25 percent of the aggregate amount of
obligations issued in such the issue
and outstanding at the time of acquisition is held by the trust, and
(2) At least 50 percent of the aggregate amount referred to in
paragraph (1) is held by persons independent of the issuer; and
(c) Immediately following acquisition of the obligation, not more
than 25 percent of the assets of the trust is invested in obligations
of persons described in Section 17637.
SEC. 44.
SEC. 43. Section 17640 of the Revenue and Taxation Code is
amended to read:
17640. Subdivision (a) of Section 17637 shall not apply to a loan
made by a trust described in Section 401(a) of the Internal Revenue
Code to the employer (or to a renewal of such a loan or, if the loan
is repayable upon demand, to a continuation of such a loan) if the
loan bears a reasonable rate of interest, and if (in the case of a
making or renewal)-- (a) The employer is prohibited
(at the time of such the making or
renewal) by any law of the United States or regulation thereunder
from directly or indirectly pledging, as security for such a loan, a
particular class or classes of his assets the value of which (at
such that time) represents more than
one-half of the value of all his assets; (b) The
making or renewal, as the case may be, is approved in writing as an
investment which that is consistent
with the exempt purposes of the trust by a trustee who is independent
of the employer, and no other such similar
trustee had previously refused to give such
that written approval; and (c) Immediately
following the making or renewal, as the case may be, the aggregate
amount loaned by the trust to the employer, without the receipt of
adequate security, does not exceed 25 percent of the value of all the
assets of the trust. (d) For purposes of subdivision (b), the
term "trustee" means, with respect to any trust for which there is
more than one trustee who is independent of the employer, a majority
of such those independent trustees. For
purposes of subdivision (c), the determination as to whether any
amount loaned by the trust to the employer is loaned without the
receipt of adequate security shall be made without regard to Section
17639.
SEC. 45.
SEC. 44. Section 17651 of the Revenue and Taxation Code is
amended to read:
17651. (a) There is hereby imposed for each taxable year on the
unrelated business taxable income (as defined in Section 23732) of
every trust a tax computed as provided in subdivision (e) of Section
17041. In making that computation for purposes of this section, the
term "taxable income" as used in subdivisions (a) and (e) of Section
17041 shall be read as "unrelated business taxable income" as defined
in Section 23732. (b) The tax imposed by subdivision (a) shall
apply in the case of any trust which is exempt, except as provided in
this article, from taxation under this part by reason of Section
17631 and which, if it were not for such exemption, would be subject
to Chapter 9 (commencing with Section 17731) relating to estates,
trusts, beneficiaries, and decedents.
SEC. 46.
SEC. 45. Section 17671 of the Revenue and Taxation Code is
amended to read:
17671. Section 584 of the Internal Revenue Code, relating to
common trust funds, shall apply, except as otherwise provided.
SEC. 47.
SEC. 46. Section 17732 of the Revenue and Taxation Code is
amended to read:
17732. Section 642(b) of the Internal Revenue Code, relating to
deduction for personal exemption, shall not apply.
SEC. 48.
SEC. 47. Section 17851 of the Revenue and Taxation Code is
amended to read:
17851. Subchapter K of Chapter 1 of Subtitle A of the Internal
Revenue Code, relating to partners and partnerships, shall apply,
except as otherwise provided.
SEC. 49.
SEC. 48. Section 17852 of the Revenue and Taxation Code is
repealed.
SEC. 50.
SEC. 49. Section 17853 of the Revenue and Taxation Code is
amended to read:
17853. Section 703(a)(2) of the Internal Revenue Code is modified
to additionally provide that the deduction for taxes provided in
Section 164(a) of the Internal Revenue Code with respect to taxes,
described in Section 18006, paid to another state shall not be
allowed to the partnership.
SEC. 51.
SEC. 50. Section 17857 of the Revenue and Taxation Code is
amended to read:
17857. Section 751(e) of the Internal Revenue Code, relating to
the limitation on tax attributable to deemed sales of Section 1248
stock, shall not apply.
SEC. 52.
SEC. 51. Section 17859 of the Revenue and Taxation Code is
repealed.
SEC. 53.
SEC. 52. Section 17860 of the Revenue and Taxation Code is
repealed.
SEC. 54.
SEC. 53. Section 17935 of the Revenue and Taxation Code is
amended to read:
17935. (a) For each taxable year beginning on or after January 1,
1997, every limited partnership doing business in this state (as
defined by Section 23101) and required to file a return under Section
18633 shall pay annually to this state a tax for the privilege of
doing business in this state in an amount equal to the applicable
amount specified in Section 23153. (b) (1) In addition to any
limited partnership that is doing business in this state and
therefore is subject to the tax imposed by subdivision (a), for each
taxable year beginning on or after January 1, 1997, every limited
partnership that has executed, acknowledged, and filed a certificate
of limited partnership with the Secretary of State pursuant to
Section 15621 of the Corporations Code, and every foreign limited
partnership that has registered with the Secretary of State pursuant
to Section 15692 of the Corporations Code, shall pay annually the tax
prescribed in subdivision (a). The tax shall be paid for each
taxable year, or part thereof, until a certificate of cancellation is
filed on behalf of the limited partnership with the office of the
Secretary of State pursuant to Section 15623 or 15696 of the
Corporations Code. (2) If a taxpayer files a return with the
Franchise Tax Board that is designated its final return, that board
shall notify the taxpayer that the minimum tax is due annually until
a certificate of cancellation is filed with the Secretary of State
pursuant to Section 15623 or 15696 of the Corporations Code. (c)
The tax imposed under this section shall be due and payable on the
date the return is required to be filed under former Section 18432 or
Section 18633. (d) For purposes of this
section, "limited partnership" means any partnership formed by two or
more persons under the laws of this state or any other jurisdiction
and having one or more general partners and one or more limited
partners. (e) Notwithstanding subdivision (b), any limited
partnership that ceased doing business prior to January 1, 1997,
filed a final return with the Franchise Tax Board for a taxable year
ending before January 1, 1997, filed a certificate of dissolution
with the Secretary of State pursuant to Section 15623 of the
Corporations Code prior to January 1, 1997, and files a certificate
of cancellation with the Secretary of State pursuant to that section
of the Corporations Code at any time during the period from the date
of enactment of the act adding this subdivision to the date that is
not later than 60 days after the date of the mailing of a notice of
proposed deficiency assessment of tax or the date of the mailing of a
notice of tax due (whichever is applicable) for any period following
the date the certificate of dissolution was filed with the Secretary
of State, shall not be subject to the tax imposed by this section
for the period following the date the certificate of dissolution was
filed with the Secretary of State.
SEC. 55.
SEC. 54. Section 18601 of the Revenue and Taxation Code is
amended to read:
18601. (a) Except as provided in subdivision (b) or (c), every
taxpayer subject to the tax imposed by Part 11 (commencing with
Section 23001) shall, on or before the 15th day of the third month
following the close of its income year, transmit to the Franchise Tax
Board a return in a form prescribed by it, specifying for the income
year, all the facts as it may by rule, or otherwise, require in
order to carry out this part. A tax return, disclosing net income
for any income year, filed pursuant to Chapter 2 (commencing with
Section 23101) or Chapter 3 (commencing with Section 23501) of Part
11 shall be deemed filed pursuant to the proper chapter of Part 11
for the same income period, if the chapter under which the return is
filed is determined erroneous. (b) In the case of cooperative
associations described in Section 24404, returns shall be filed on or
before the 15th day of the ninth month following the close of its
income year. (c) In the case of taxpayers required to file a
return for a short period under Section 24634, the due date for the
short period return shall be the same as the due date of the federal
tax return that includes the net income of the taxpayer for that
short period, or the due date specified in subdivision (a) if no
federal return is required to be filed that would include the net
income for that short period. (d) For income years beginning on or
after January 1, 1997, each "S corporation" required to file a
return under subdivision (a) for any income year shall, on or before
the day on which the return for the income year was filed, furnish
each person who is a shareholder at any time during the income year a
copy of the information shown on the return. (e) For taxable or
income years beginning on or after January 1, 1997: (1) A
shareholder of an "S corporation" shall, on the shareholder's return,
treat a Subchapter S item in a manner that is consistent with the
treatment of the item on the corporate return. (2) (A) In the case
of any Subchapter S item, paragraph (1) shall not apply to that item
if both of the following occur: (i) Either of the following
occurs: (I) The corporation has filed a return, but the
shareholder's treatment of the item on the shareholder's return is,
or may be, inconsistent with the treatment of the item on the
corporate return. (II) The corporation has not filed a return.
(ii) The shareholder files with the Franchise Tax Board a statement
identifying the inconsistency. (B) A shareholder shall be treated
as having complied with clause (ii) of subparagraph (A) with respect
to a Subchapter S item if the shareholder does both of the following:
(i) Demonstrates to the satisfaction of the Franchise Tax Board
that the treatment of the Subchapter S item on the shareholder's
return is consistent with the treatment of the item on the schedule
furnished to the shareholder by the corporation. (ii) Elects to
have this paragraph apply with respect to that item. (3) In any
case described in subclause (I) of clause (i) of subparagraph (A) of
paragraph (2), and in which the shareholder does not comply with
clause (ii) of subparagraph (A) of paragraph (2), any adjustment
required to make the treatment of the items by the shareholder
consistent with the treatment of the items on the corporate return
shall be treated as arising out of a mathematical error and assessed
and collected under Section 19051. (4) For purposes of this
subdivision, "Subchapter S item" means any item of an "S corporation"
to the extent provided by regulations that, for purposes of Part 10
(commencing with Section 17001) or this part, the item is more
appropriately determined at the corporation level than at the
shareholder level. (5) The penalties imposed under Article 7
(commencing with Section 19131) of Chapter 4 shall apply in the case
of a shareholder's negligence in connection with, or disregard of,
the requirements of this section.
SEC. 54.5. 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. 55. Section 18605 of the Revenue and Taxation Code is
repealed.
18605. A reasonable extension of time for filing a return,
statement, or other document required under Section 23772 or 23774
may be granted by the Franchise Tax Board whenever in its judgment
good cause exists. The Franchise Tax Board may prescribe rulings and
regulations as are necessary and reasonable to carry out this
section.
SEC. 56. Section 18622 of the Revenue and Taxation Code is amended
to read:
18622. (a) If any item required to be shown on a federal tax
return, including any gross income, deduction, penalty, credit, or
tax for any year of any taxpayer is changed or corrected by the
Commissioner of Internal Revenue or other officer of the United
States or other competent authority, or where a renegotiation of a
contract or subcontract with the United States results in a change in
gross income or deductions, that taxpayer shall report each change
or correction, or the results of the renegotiation, within six months
after the date of each final federal determination of the change or
correction or renegotiation, or as required by the Franchise Tax
Board, and shall concede the accuracy of the determination or state
wherein it is erroneous. For any individual subject to tax under
Part 10 (commencing with Section 17001), changes or corrections need
not be reported unless they increase the amount of tax payable under
Part 10 (commencing with Section 17001) for any year. (b) Any
taxpayer filing an amended return with the Commissioner of Internal
Revenue shall also file within six months thereafter an amended
return with the Franchise Tax Board which shall contain any
information as it shall require. For any individual subject to tax
under Part 10 (commencing with Section 17001), an amended return need
not be filed unless the change therein would increase the amount of
tax payable under Part 10 (commencing with Section 17001) for any
year. (c) Notification of a change or correction by the
Commissioner of Internal Revenue or other officer of the United
States or other competent authority, or renegotiation of a contract
or subcontract with the United States that results in a change in any
item or the filing of an amended return must be sufficiently
detailed to allow computation of the resulting California tax change
and shall be reported in the form and manner as prescribed by the
Franchise Tax Board. (d) For purposes of this part, the date of
each final federal determination shall be the date on which each
adjustment or resolution resulting from an Internal Revenue Service
examination is assessed pursuant to Section 6203 of the Internal
Revenue Code.
SEC. 57. 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
121 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. 58. Section 18711 of the Revenue and Taxation Code is amended
to read:
18711. (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
State Children's Trust Fund. (b) The contribution shall be in full
dollar amounts and may be made individually by each signatory on the
joint return. (c) A designation under subdivision (a) shall be
made for any taxable year on the initial return for that taxable
year, and once made shall be irrevocable. In the event that payments
and credits reported on the return, together with any other credits
associated with the taxpayer's account do not exceed the tax
liability, if any, shown thereupon, the return shall be treated as
though no designation has been made. (d) The Franchise Tax Board
shall revise the form of the return to include a space labeled the
"State Children's Trust Fund For for
the Prevention of Child Abuse" to allow for the designation permitted
under subdivision (a). (e) A deduction shall be allowed under
Article 6 (commencing with Section 17201) of Chapter 3 of Part 10 for
any contribution made pursuant to subdivision (a).
SEC. 59. Section 18721 of the Revenue and Taxation Code is amended
to read:
18721. (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Fund for Senior Citizens established by Section 18722 to
be used to conduct the sessions of the California Senior Legislature
and to support its ongoing activities on behalf of older persons.
(b) The contribution shall be in full dollar amounts and may be made
individually by each signatory on the joint return. (c) A
designation under subdivision (a) shall be made for any taxable year
on the initial return for that taxable year, and once made shall be
irrevocable. In the event that payments and credits reported on
the return, together with any other credits associated with the
individual's account do not exceed the tax liability, if any, shown
thereupon, the return shall be treated as though no designation has
been made. (d) The Franchise Tax Board shall revise the forms of
the return to include a space labeled the "California Fund for Senior
Citizens" to allow for the designation permitted under subdivision
(a). The forms shall also include in the instructions the
information that the contribution may be in the amount of one dollar
($1) or more and that the contribution will be used to conduct the
sessions of the California Senior Legislature and to support its
ongoing activities on behalf of older persons. (e) A deduction
shall be allowed under Article 6 (commencing with Section 17201) of
Chapter 3 of Part 10 for any contribution made pursuant to
subdivision (a).
SEC. 60. Section 18741 of the Revenue and Taxation Code is amended
to read:
18741. (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
Endangered and Rare Fish, Wildlife, and Plant Species Conservation
and Enhancement Account in the Fish and Game Preservation Fund.
(b) The contribution shall be in full dollar amounts and may be made
individually by each signatory on a joint return. (c) A
designation under subdivision (a) shall be made for any taxable year
on the initial return for that taxable year, and once made shall be
irrevocable. If payments and credits reported on the return,
together with any other credits associated with the individual's
account, do not exceed the tax liability, if any, shown thereon, the
return shall be treated as though no designation has been made. (d)
The Franchise Tax Board shall revise the form of the return to
include a space labeled "Rare and Endangered Species Preservation
Program" to allow for the designation permitted under subdivision
(a). (e) A deduction shall be allowed under Article 6 (commencing
with Section 17201) of Chapter 3 of Part 10 for any contribution made
pursuant to subdivision (a).
SEC. 61. Section 18763 of the Revenue and Taxation Code is amended
to read:
18763. (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Alzheimer's Disease and Related Disorders Research Fund,
which that is established by Section
18764. (b) The contributions shall be in full dollar amounts and
may be made individually by each signatory on the joint return.
(c) A designation under subdivision (a) shall be made for any taxable
year on the individual return for that taxable year, and once made
shall be irrevocable. In the event that payments and
credits reported on the return, together with any other credits
associated with the individual's account, do not exceed the
individual's tax liability, the return shall be treated as though no
designation has been made. (d) The Franchise Tax Board shall
revise the forms of the return to include a space labeled the
"Alzheimer's Disease/Related Disorders Fund" to allow for the
designation permitted under subdivision (a). The forms shall also
include in the instructions information that the contribution may be
in the amount of one dollar ($1) or more and that the contribution
shall be used to conduct research relating to the cure and treatment
of Alzheimer's disease. (e) A deduction shall be allowed under
Article 6 (commencing with Section 17201) of Chapter 3 of Part 10 for
any contribution made pursuant to subdivision (a).
SEC. 62. Section 18782 of the Revenue and Taxation Code is amended
to read:
18782. (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
D.A.R.E. California (Drug Abuse Resistance Education) Fund, which is
established by Section 18783. That designation is to be used as a
voluntary checkoff on the tax return. (b) The contributions shall
be in full dollar amounts and may be made individually by each
signatory on the joint return. (c) A designation shall be made for
any taxable year on the initial return for that taxable year, and
once made shall be irrevocable. In the event that payments and
credits reported on the return, together with any other credits
associated with the taxpayer's account, do not exceed the taxpayer's
liability, the return shall be treated as though no designation has
been made. (d) The Franchise Tax Board shall revise the forms of
the return to include a space labeled the "D.A.R.E. California (Drug
Abuse Resistance Education) Fund" to allow for the designation
permitted. The forms shall also include in the instructions
information that the contribution may be in the amount of one dollar
($1) or more and that the contribution shall be used for purposes of
drug abuse resistance education. (e) A deduction shall be allowed
under Article 6 (commencing with Section 17201) of Chapter 3 of Part
10 for any contribution made pursuant to subdivision (a).
SEC. 63. Section 18793 of the Revenue and Taxation Code is amended
to read:
18793. (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Breast Cancer Research Fund, which is established by
Section 18794. (b) The contributions shall be in full dollar
amounts and may be made individually by each signatory on the joint
return. (c) A designation shall be made for any taxable year on
the individual return for that taxable year, and once made shall be
irrevocable. In the event that payments and credits reported on the
return, together with any other credits associated with the
individual's account, do not exceed the individual's liability, the
return shall be treated as though no designation has been made.
(d) The Franchise Tax Board shall revise the forms of the return to
include a space labeled the "California Breast Cancer Research Fund"
to allow for the designation permitted. The forms shall also include
in the instructions information that the contribution may be in the
amount of one dollar ($1) or more and that the contribution shall be
used to conduct research relating to the cure, screening, and
treatment of breast cancer. (e) A deduction shall be allowed under
Article 6 (commencing with Section 17201) of Chapter 3 of Part 10
for any contribution made pursuant to subdivision (a).
SEC. 64. Section 18801 of the Revenue and Taxation Code is amended
to read:
18801. (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Firefighters' Memorial Fund, which is established by
Section 18802. That designation is to be used as a voluntary
checkoff on the tax return. (b) The contributions shall be in full
dollar amounts and may be made individually by each signatory on the
joint return. (c) A designation shall be made for any taxable
year on the initial return for that taxable year, and once made shall
be irrevocable. In the event that payments and credits reported on
the return, together with any other credits associated with the
taxpayer's account, do not exceed the taxpayer's liability, the
return shall be treated as though no designation has been made. (d)
The Franchise Tax Board shall revise the forms of the return to
include a space labeled the "California Firefighters' Memorial Fund"
to allow for the designation permitted. The forms shall also include
in the instructions information that the contribution may be in the
amount of one dollar ($1) or more and that the contribution shall be
used to construct a memorial to California firefighters on the
grounds of the State Capitol. (e) A deduction shall be allowed
under Article 6 (commencing with Section 17201) of Chapter 3 of Part
10 for any contribution made pursuant to subdivision (a).
SEC. 65. Section 18812 of the Revenue and Taxation Code is amended
to read:
18812. (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Public School Library Protection Fund, which is
established by Section 18813. That designation is to be used as a
voluntary checkoff on the tax return. (b) The contributions shall
be in full dollar amounts and may be made individually by each
signatory on the joint return. (c) A designation shall be made for
any taxable year on the initial return for that taxable year, and
once made shall be irrevocable. In the event that payments and
credits reported on the return, together with any other credits
associated with the taxpayer's account, do not exceed the taxpayer's
liability, the return shall be treated as though no designation has
been made. (d) The Franchise Tax Board shall revise the forms of
the return to include a space labeled the "California Public School
Library Protection Fund" to allow for the designation permitted. The
forms shall also include in the instructions information that the
contribution may be in the amount of one dollar ($1) or more and that
the contribution shall be used to purchase books and library media
technology for schools as described in Sections 18177 and 18178 of
the Education Code. (e) A deduction shall be allowed under Article
6 (commencing with Section 17201) of Chapter 3 of Part 10 for any
contribution made pursuant to subdivision (a).
SEC. 66. Section 18821 of the Revenue and Taxation Code is amended
to read:
18821. (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Mexican American Veterans' Memorial Beautification and
Enhancement Account in the General Fund established by Section 1340
of the Military and Veterans Code. That designation is to be used as
a voluntary checkoff on the tax return only after the Franchise Tax
Board has been notified in writing that construction of the veterans'
memorial has commenced. If the Franchise Tax Board has been
notified in writing by the Veterans' Memorial Commission at any time
during the taxable year that construction has commenced, the
California Mexican American Veterans' Memorial Beautification and
Enhancement Account shall first appear for contribution on the tax
return filed for the taxable year beginning on or after January 1 of
that year. (b) The contributions shall be in full dollar amounts
and may be made individually by each signatory on the joint return.
(c) A designation under subdivision (a) shall be made on the
initial return for that taxable year, and once made shall be
irrevocable. In the event that payments and credits reported on the
return, together with any other credits associated with the taxpayer'
s account, do not exceed the taxpayer's liability, the return shall
be treated as though no designation has been made. (d) The
Franchise Tax Board shall revise the forms of the return to include a
space labeled the "California Mexican American Veterans' Memorial"
to allow for the designation permitted under subdivision (a). The
forms shall also include in the instructions information that the
contribution may be in the amount of one dollar ($1) or more and that
the contribution shall be used to beautify and enhance an existing
memorial. (e) A deduction shall be allowed under Article 6
(commencing with Section 17201) of Chapter 3 of Part 10 for any
contribution made pursuant to subdivision (a).
SEC. 67. Section 18841 of the Revenue and Taxation Code is amended
to read:
18841. (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Military Museum Fund, which is established by Section
18842. That designation is to be used as a voluntary checkoff on the
tax return. (b) The contributions shall be in full dollar amounts
and may be made by the signatory on an individual return or
individually by each signatory on a joint return. (c) A
designation shall be made for any taxable year on the initial return
for that taxable year, and once made shall be irrevocable. In the
event that payments and credits reported on the return, together with
any other credits associated with the taxpayer's account, do not
exceed the taxpayer's liability, the return shall be treated as
though no designation has been made. If the amount available for
designation is insufficient to satisfy the total amount designated,
the amount designated shall be adjusted to correspond to the amount
available for designation. (d) The Franchise Tax Board shall revise
the forms of the return to include a space labeled the "California
Military Museum Fund" to allow for the designation permitted. The
forms shall also include in the instructions information that the
contribution may be in the amount of one dollar ($1) or more and that
the contribution shall be used to operate the California Military
Museum. It is the intent of the Legislature that tax returns for
taxable years during which this article remains in effect shall
include a space for the California Military Museum Fund. (e) A
deduction shall be allowed under Article 6 (commencing with Section
17201) of Chapter 3 of Part 10 for any contribution made pursuant to
subdivision (a).
SEC. 68. Section 18851 of the Revenue and Taxation Code is amended
to read:
18851. (a) An individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
Emergency Food Assistance Program Fund, which is established by
Section 18852. That designation is to be used as a voluntary
checkoff on the tax return. (b) The contributions shall be in full
dollar amounts and may be made individually by each signatory on a
joint return. (c) A designation shall be made for any taxable year
on the initial return for that taxable year and once made is
irrevocable. If payments and credits reported on the return,
together with any other credits associated with the taxpayer's
account do not exceed the taxpayer's liability, the return shall be
treated as though no designation has been made. (d) The Franchise
Tax Board shall revise the form of the return to include a space
labeled the "Emergency Food Assistance Program Fund" to allow for the
designation permitted. The form shall also include in the
instructions information that the contribution may be in the amount
of one dollar ($1) or more and that the contribution shall be used
for the Emergency Food Assistance Program. (e) A deduction shall
be allowed under Article 6 (commencing with Section 17201) of Chapter
3 of Part 10 for any contribution made pursuant to subdivision (a).
SEC. 69. Section 18871 of the Revenue and Taxation Code is amended
to read:
18871. In implementing this chapter, all of the
following requirements shall apply: (a) Unless otherwise
specifically required by law, each voluntary contribution fund or
account established by this chapter shall be included on the forms of
the return through the taxable year immediately preceding the year
of repeal of the article establishing that
voluntary contribution fund or account. (b)
Notwithstanding the repeal of any article of this chapter, the
voluntary contribution fund or account specified in that article
shall continue in effect until December 31 of the year of the repeal
of that article, and any contribution designated pursuant to that
article on a timely filed initial return for the taxable year
immediately preceding the date of repeal shall be transferred and
disbursed, and all costs incurred by the Franchise Tax Board and
Controller in connection with the transfer and disbursement of these
contribution amounts shall continue to be paid, in accordance with
that article as it read immediately prior to its repeal. (c)
Unless otherwise specifically required by law, a contribution made to
any voluntary contribution fund or account established by this
chapter shall be subject to the following provisions: (1) In the
event that no designee is specified, the contribution shall, after
reimbursement of the direct actual costs of the Franchise Tax Board
for the collection and administration of contributions made under
this article, be transferred to the General Fund. (2) In the event
an individual designates a contribution to more than one account or
fund listed on the tax return, and the amount available is
insufficient to satisfy the total amount designated, the contribution
shall be allocated among the designees on a pro rata basis.
SEC. 70. 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 or an
organization described in Section 23731 , the term "estimated
tax" means the amount which the corporation or organization
described in Section 23731 estimates as the amount of the tax
imposed by Part 11 (commencing with Section 23001) and the amount of
its liability for the tax of each wholly owned subsidiary under
Section 23800.5; 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. 70.5. Section 19053 of the Revenue and Taxation Code is
repealed.
SEC. 71. Section 19059 of the Revenue and Taxation Code is amended
to read:
19059. (a) If a taxpayer is required by subdivision (a) of
Section 18622 to report a change or correction by the Commissioner of
Internal Revenue or other officer of the United States or other
competent authority and does report the change or correction within
six months after the final federal determination, or the Internal
Revenue Service reports that change or correction within six months
after the final federal determination, a notice of proposed
deficiency assessment resulting from those adjustments may be mailed
to the taxpayer within two years from the date when the notice is
filed with the Franchise Tax Board by the taxpayer or the Internal
Revenue Service, or within the periods provided in Section 19057,
19058, or 19065, whichever period expires later. (b) If a taxpayer
is required by subdivision (b) of Section 18622 to file an amended
return and does file the return within six months of filing an
amended return with the Commissioner of Internal Revenue, a notice of
proposed deficiency assessment in excess of the self-assessed tax on
the amended return, and resulting from the adjustments may be mailed
to the taxpayer within two years from the date when the amended
return is filed with the Franchise Tax Board by the taxpayer, or
within the periods provided in Section 19057, 19058, or 19065,
whichever period expires later.
SEC. 72. Section 19060 of the Revenue and Taxation Code is amended
to read:
19060. (a) If a taxpayer fails to report a change or correction
by the Commissioner of Internal Revenue or other officer of the
United States or other competent authority or fails to file an
amended return as required by Section 18622, a notice of proposed
deficiency assessment resulting from the adjustment may be mailed to
the taxpayer at any time. (b) If, after the six-month period
required in Section 18622, a taxpayer or the Internal Revenue Service
reports a change or correction by the Commissioner of Internal
Revenue or other officer of the United States or other competent
authority or files an amended return as required by Section 18622, a
notice of proposed deficiency assessment resulting from the
adjustment may be mailed to the taxpayer within four years from the
date the taxpayer or the Internal Revenue Service notifies the
Franchise Tax Board of that change or correction or files that
return.
SEC. 73. Section 19089 of the Revenue and Taxation Code is amended
to read:
19089. (a) Every trustee in a case under Title 11 of the United
States Code, receiver, assignee for the benefit of creditors or like
fiduciary shall give notice of qualification as such to the Franchise
Tax Board in the manner and at the time that may be required by
regulations of the Franchise Tax Board. The Franchise Tax Board may
by regulation provide for any exemptions from the requirements of
this section that the Franchise Tax Board deems proper. (b) If the
regulations issued pursuant to this section require the giving of
any notice by any fiduciary in any case under Title 11 of the United
States Code, or by a receiver in any other court proceeding to the
Franchise Tax Board of qualification as such, the running of the
period of limitations for mailing a notice of proposed deficiency
assessment shall be suspended for the period from the date of the
institution of the proceeding to a date 30 days after the date upon
which the notice from the receiver or other fiduciary is received by
the Franchise Tax Board; but the suspension under this section shall
in no case be for a period in excess of two years.
SEC. 74. Section 19106 of the Revenue and Taxation Code is amended
to read:
19106. Except as provided in Section 19111, interest shall be
imposed under Section 19101 with respect to any assessable penalty,
additional amount, or addition to tax imposed under this article, as
follows: (a) In the case of a penalty, additional amount, or
addition to tax which, when assessed, is due and payable on notice
and demand, other than a penalty imposed under Section 19131
(relating to failure to file a return on or before the due date),
Section 19132 (relating to underpayment of tax), or Section 19164
(relating to imposition of the accuracy-related penalty), interest
shall be imposed from the date of the notice and demand to the date
of payment. (b) In the case of a penalty, additional amount, or
addition to tax which is initially assessed as a deficiency, other
than a penalty imposed under Section 19131 (relating to failure to
file a return on or before the due date), Section 19132 (relating to
underpayment of tax), or Section 19164 (relating to imposition of the
accuracy-related penalty), interest shall be imposed from the date
of the notice of proposed deficiency assessment to the date of
payment. (c) In the case of a penalty or addition to tax imposed
by Section 19131 (relating to failure to file a return on or before
the due date), Section 19132 (relating to underpayment of tax), or
Section 19164 (relating to imposition of the accuracy-related
penalty), for the period that-- (1) Begins on the date on which the
return of the tax with respect to which that penalty is imposed is
required to be filed (including any extensions), and (2) Ends on
the date of payment of that penalty or addition to tax.
SEC. 75. Section 19145 of the Revenue and Taxation Code is
amended to read:
19145. For purposes of Section 19142, the period of the
underpayment shall run from the date the installment was required to
be made to whichever of the following date
dates is the earlier: (a) The 15th day of the third month
following the close of the income year, except in the case of
a corporation which is an organization
described in Section 23731 subject to the tax imposed under
Section 23731, in which case "fifth" shall be substituted for "third."
(b) With respect to any portion of the underpayment, the date on
which that portion is paid. For purposes of this subdivision, a
payment of estimated tax on any installment date shall be considered
a payment of any previous underpayment only to the extent the payment
exceeds the amount of the installment determined under subdivision
(a) of Section 19144 for the installment date.
SEC. 75.3. Section 19151 of the Revenue and Taxation Code is
amended to read:
19151. Notwithstanding Sections 19142 to 19150, inclusive, the
addition to the tax with respect to underpayment of any installment
shall not be imposed on an exempt corporation
organization described in Section 23731 whose exemption is
retroactively revoked unless the corporation
organization described in Section 23731 has notice that the
estimated tax should have been paid. The denial of the organization'
s exemption application or the revocation of its exemption by the
Internal Revenue Service normally satisfies the notice requirement.
SEC. 75.5. Section 19311 of the Revenue and Taxation Code is
amended to read:
19311. (a) If a change or correction is made or allowed by the
Commissioner of Internal Revenue or other officer of the United
States or other competent authority, a claim for credit or refund
resulting from the adjustment may be filed by the taxpayer within two
years from the date of the final federal determination (as defined
in Section 18622), or within the period provided in Section 19306,
19307, or 19308, whichever period expires later. (b) This section
shall apply to any federal determination that becomes final on or
after January 1, 1993.
SEC. 76. 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
periods 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 deficiency 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. 77. Section 23043 of the Revenue and Taxation Code is
repealed.
SEC. 78. 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), for income years
beginning on or after January 1, 1999, every "qualified new
corporation" shall pay annually to the state a minimum franchise tax
of five hundred dollars ($500) for the second taxable year. This
subdivision shall apply to any corporation that is a qualified new
corporation and is incorporated on or after January 1, 1999. (1)
The determination of the gross receipts of a corporation, for
purposes of this subdivision, shall be made by including the gross
receipts of each member of the commonly controlled group, as defined
in Section 25105, of which the corporation is a member. (2) "Gross
receipts, less returns and allowances reportable to this state,"
means the sum of the gross receipts from the production of business
income, as defined in subdivision (a) of Section 25120, and the gross
receipts from the production of nonbusiness income, as defined in
subdivision (d) of Section 25120. (3) "Qualified new corporation"
means a corporation that is incorporated under the laws of this state
or has qualified to transact intrastate business in this state, that
begins business operations at or after the time of its
incorporation, and that reasonably estimates that it will have gross
receipts, less returns and allowances, reportable to this state for
the income year of one million dollars ($1,000,000) or less.
"Qualified new corporation" does not include any corporation that
began business operations as a single sole
proprietorship, a partnership, or any other form of business
entity prior to its incorporation. This subdivision shall not apply
to any corporation that reorganizes solely for the purpose of
reducing its minimum franchise tax. (4) This subdivision shall not
apply to limited partnerships, as defined in Section 17935, limited
liability companies, as defined in Section 17941, limited liability
partnerships, as defined in Section 17948, charitable organizations,
as described in Section 23703, regulated investment companies, as
defined in Section 851 of the Internal Revenue Code, real estate
investment trusts, as defined in Section 856 of the Internal Revenue
Code, real estate mortgage investment conduits, as defined in Section
860D of the Internal Revenue Code, financial asset securitization
investment trusts, as defined in Section 860L of the Internal Revenue
Code, qualified Subchapter S subsidiaries, as defined in Section
1361(b)(3) of the Internal Revenue Code, or to the formation of any
subsidiary corporation, to the extent applicable. (5) For any
income year beginning on or after January 1, 1999, if a corporation
has qualified to pay five hundred dollars ($500) for the second
taxable year under this subdivision, but in its second taxable year,
the corporation's gross receipts, as determined under paragraphs (1)
and (2), exceed one million dollars ($1,000,000), an additional tax
in the amount equal to three hundred dollars ($300) for the second
taxable year shall be due and payable by the corporation on the due
date of its return, without regard to extension, for that year.
(f) 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. (g) 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. 79. Section 23221 of the Revenue and Taxation Code is amended
to read:
23221. (a) Except as provided under subdivision (b), a
corporation which incorporates under the laws of this state or
qualifies to transact intrastate business in this state shall
thereupon prepay the minimum tax provided in Section 23153, except
that any credit union shall thereupon prepay a tax of twenty-five
dollars ($25). The prepayment shall be made to the Secretary of
State with the filing of the articles of incorporation or the
statement and designation by a foreign corporation. The Secretary of
State shall transmit the amount of the prepayment to the Franchise
Tax Board. The Franchise Tax Board shall certify to the Secretary of
State on an individual or class basis those domestic or foreign
corporations which are exempt from prepayment or for which prepayment
to the Secretary of State is waived. (b) (1) For income years
commencing on or after January 1, 1997, and before January 1, 1999,
the amount payable by a qualified new corporation under subdivision
(a) shall be six hundred dollars ($600). (2) For income years
commencing on or after January 1, 1999, the amount payable by a
qualified new corporation that is incorporated on or after January 1,
1999, under subdivision (a) shall be three hundred dollars ($300).
(c) For purposes of this section, "qualified new corporation" means
a corporation that begins operation at or after the time of its
incorporation and that reasonably estimates that, for the income
year, it will have both gross receipts, less returns and allowances
reportable to this state, of one million dollars ($1,000,000) or less
and a tax liability under Section 23151 that does not exceed eight
hundred dollars ($800). "Qualified new corporation" does not include
any corporation that began business operations as a sole
proprietorship, a partnership, or any other form of business entity
prior to its incorporation. (1) The determination of gross
receipts of a corporation, for purposes of this section, shall be
made by including the gross receipts of each member of the commonly
controlled group, as defined in Section 25105, of which the bank or
corporation is a member. (2) "Gross receipts, less returns and
allowances reportable to this state," means the sum of the gross
receipts from the production of business income, as defined in
subdivision (a) of Section 25120, and the gross receipts from the
production of nonbusiness income, as defined in subdivision (d) of
Section 25120. (d) Subdivision (b) shall not apply to any
corporation if 50 percent or more of its stock is, or will be upon
the initial issuance of stock, owned by another corporation. (e)
(1) For income years commencing on or after January 1, 1997 and
before January 1, 1999, if a corporation paid six hundred dollars
($600) under paragraph (1) of subdivision (b), but for its first
income year the corporation's tax liability under Section 23151
exceeds eight hundred dollars ($800), or the corporation's gross
receipts, as determined under paragraph (2) of subdivision (c),
exceed one million dollars ($1,000,000), an additional tax in an
amount equal to two hundred dollars ($200) shall be due and payable
by the corporation on the due date of its return, without regard to
extension, for its first income year. (2) For income years
commencing on or after January 1, 1999, if a corporation paid three
hundred dollars ($300) under paragraph (2) of subdivision (b), but
for its first income year the corporation's tax liability under
Section 23151 exceeds eight hundred dollars ($800), or the
corporation's gross receipts, as determined under paragraphs (1) and
(2) of subdivision (c), exceed one million dollars ($1,000,000), an
additional tax in an amount equal to five hundred dollars ($500)
shall be due and payable by the corporation on the due date of its
return, without regard to extension, for its first income year.
(f) The amendments made by the act adding this subdivision shall
apply to income years commencing on or after January 1, 1999.
SEC. 80. Section 23335 of the Revenue and Taxation Code is amended
to read:
23335. (a) Any return filed pursuant to Section 18601 that the
taxpayer designates in the appropriate place on the form provided by
the Franchise Tax Board as the taxpayer's final return as the result
of a dissolution or withdrawal shall be treated as a request for a
certificate issued by the Franchise Tax Board pursuant to Section
23334 unless the taxpayer has otherwise filed a request with the
Franchise Tax Board for that certificate. (b) If a taxpayer has
filed a return that is a request for a tax clearance certificate as
described in subdivision (a), the Franchise Tax Board shall provide
the taxpayer with information, including forms and instructions,
regarding all documents that are required by this article to be filed
with the Franchise Tax Board and the Secretary of State.
SEC. 81. Section 23456 of the Revenue and Taxation Code is amended
to read:
23456. For purposes of this part, Section 56 of the Internal
Revenue Code is modified as follows: (a) (1) Section 56(a)(1)(A)
(i) of the Internal Revenue Code is modified to refer to the
depreciation deduction allowable under Article I of Chapter 7 in lieu
of the depreciation deduction allowable under Section 167 of the
Internal Revenue Code. (2) Section 56(a)(1)(A)(ii) of the Internal
Revenue Code is modified to refer to the depreciation deduction
determined under Section 24349 in lieu of the depreciation deduction
determined under Section 168 of the Internal Revenue Code. (3)
Section 56(a)(2) of the Internal Revenue Code, relating to mining
exploration and development costs, shall apply only to expenses
incurred during income years beginning on or after January 1, 1988.
(4) Section 56(a)(5) of the Internal Revenue Code, relating to
pollution control facilities, shall apply only to amounts allowable
as a deduction under Section 24372.3. (5) (A) Section 56(a)(6) of
the Internal Revenue Code, as in effect on January 1, 1997, relating
to installment sales of certain property, shall not apply to payments
received in income years beginning on or after January 1, 1997, with
respect to dispositions occurring in income years beginning after
December 31, 1987. (B) This paragraph shall not apply to any
income year beginning on or after January 1, 1998. (b) For
purposes of applying Section 56(d) of the Internal Revenue Code, all
references to "December 31, 1986," are modified to read "December 31,
1987," and all references to "January 1, 1987," are modified to read
"January 1, 1988." (c) Section 56(d)(1) of the Internal Revenue
Code, relating to the alternative tax net operating loss deduction,
is modified to include the provisions of Section 25108. (d) For
each income year beginning on or after January 1, 1988, and before
January 1, 1990, Section 56(f)(2)(E) of the Internal Revenue Code, as
it read during that period, is modified to refer to both of the
following: (1) Cooperatives under Section 24404 in lieu of the
deduction allowed under Section 1382(b) of the Internal Revenue Code.
(2) Credit unions under Section 24405 as though the deduction
allowed under Section 1382(b) of the Internal Revenue Code applied to
credit unions. (e) Section 56(g) of the Internal Revenue Code,
relating to adjustments based on adjusted current earnings, is
modified to provide that for corporations whose income is determined
under Chapter 17 (commencing with Section 25101), adjusted current
earnings shall be allocated and apportioned in the same manner as net
income is allocated and apportioned for purposes of the regular tax.
In addition, each of the following shall apply: (1) Sections 56
(g)(1)(A) and 56(g)(3) of the Internal Revenue Code are modified to
provide that the term "adjusted current earnings" means the sum of
the adjusted current earnings of that corporation apportionable to
this state and the adjusted current earnings allocable to this state.
(2) Section 56(g)(1)(B) of the Internal Revenue Code is modified
to provide that the term "alternative minimum taxable income" means
the sum of the alternative minimum taxable income of that corporation
apportionable to this state and the alternative minimum taxable
income allocable to this state. (f) Section 56(g)(4)(A) of the
Internal Revenue Code is modified to provide the following: (1) In
the case of any property placed in service on or after January 1,
1981, and prior to January 1, 1987, other than residential rental
property for which an election was made under former Section 24349.5,
the amount allowable as depreciation or amortization with respect to
that property shall be the same amount that would have been
allowable for the income year had the taxpayer depreciated the
property under the straight line method for each income year of the
useful life (determined without regard to Section 24354.2) for which
the taxpayer has held the property. (2) In the case of any
property placed in service on or after January 1, 1987, and prior to
January 1, 1990, other than residential rental property for which an
election was made under former Section 24349.5, the amount allowable
as depreciation or amortization with respect to that property shall
be determined by each of the following: (A) Taking into account
the adjusted basis of that property (as determined for purposes of
computing alternative minimum taxable income) as of the close of the
last income year beginning before January 1, 1990. (B) Using the
straight line method over the remainder of the recovery period
applicable to that
property under the alternative system of Section 168(g) of the
Internal Revenue Code. (3) The amendments made to paragraph (2) by
the act adding this paragraph shall apply to income years beginning
on or after January 1, 1990. (4) The last sentence of Section 56
(g)(4)(A)(i) of the Internal Revenue Code, shall not apply to income
years beginning before January 1, 1998. (g) (1) Section 56(g)(4)
(C) of the Internal Revenue Code, relating to disallowance of items
not deductible in computing earnings and profits, shall be modified
as follows: (A) (i) A deduction shall be allowed for amounts
allowable as a deduction for purposes of the regular tax under
Sections 24402, 24410, 24411, and 25106. (ii) For each income year
beginning on or after January 1, 1990, a deduction shall be allowed
for amounts allowable as a deduction to a credit union for purposes
of the regular tax under Section 24405. (B) Section 56(g)(4)(C)
(ii) of the Internal Revenue Code, relating to special rule for
100-percent dividends, shall not be applicable. (C) Section 56(g)
(4)(C)(iii) of the Internal Revenue Code, relating to special rule
for dividends from Section 936 companies, shall not be applicable.
(D) Section 56(g)(4)(C)(iv) of the Internal Revenue Code, relating
to special rule for certain dividends received by certain
cooperatives, shall not be applicable. (2) Section 56(g)(4)(D)(ii)
of the Internal Revenue Code is modified to specify that Sections
24364 and 24407 shall not apply to expenditures paid or incurred in
income years beginning on or after January 1, 1990. (3) With
respect to corporations which are not subject to the tax imposed
under Chapter 2 (commencing with Section 23101), the amount of
interest income included in the adjusted current earnings shall not
exceed the amount of interest income included for purposes of the
regular tax. (4) Appropriate adjustments shall be made to limit
deductions from adjusted current earnings for interest expense in
accordance with the provisions of Sections 24344 and 24425. (h)
Section 56(g)(4)(I) of the Internal Revenue Code, relating to
treatment of charitable contributions, shall not apply.
SEC. 82. Section 23612.2 of the Revenue and Taxation Code is
amended to read:
23612.2. (a) 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 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 an
enterprise zone. (2) "Qualified property" means: (A) Any of the
following: (i) Machinery and machinery parts used for
fabricating, processing, assembling, and manufacturing. (ii)
Machinery and machinery parts used for the production of renewable
energy resources. (iii) Machinery and machinery parts used for
either of the following: (I) Air pollution control mechanisms.
(II) Water pollution control mechanisms. (iv) Data processing and
communications equipment, including, but not limited to, computers,
computer-automated drafting systems, copy machines, telephone
systems, and faxes. (v) Motion picture manufacturing equipment
central to production and postproduction, including, but not limited
to, cameras, audio recorders, and digital image and sound processing
equipment. (B) The total cost of qualified property purchased and
placed in service in any income year that may be taken into account
by any taxpayer for purposes of claiming this credit shall not exceed
twenty million dollars ($20,000,000). (C) The qualified property
is used by the taxpayer exclusively in an enterprise zone. (D) The
qualified property is purchased and placed in service before the
date the enterprise zone designation expires, is no longer binding,
or becomes inoperative. (3) "Enterprise zone" means the area
designated as an enterprise zone pursuant to Chapter 12.8 (commencing
with Section 7070) of Division 7 of Title 1 of the Government Code.
(c) If the taxpayer has purchased property upon which a use tax
has been paid or incurred, the credit provided by this section shall
be allowed only if qualified property of a comparable quality and
price is not timely available for purchase in this state. (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 the following year, and succeeding years if necessary,
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 qualified 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 taxpayer's purchase of
qualified property. (f) (1) The amount of credit otherwise allowed
under this section and Section 23622.7, 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 enterprise zone
determined as if that attributable income represented all of the
income of the taxpayer subject to tax under this part. (2)
Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the enterprise zone
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this section in accordance with
paragraph (3). (3) Business income shall be apportioned to the
enterprise zone by multiplying the 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.
For purposes of this paragraph: (A) 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
enterprise 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. (B) The payroll factor is a fraction, the numerator
of which is the total amount paid by the taxpayer in the enterprise
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. (4) 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) The
amendments made to this section by the act adding this subdivision
shall apply to income years beginning on or after January 1, 1998.
SEC. 83. Section 23622.7 of the Revenue and Taxation Code is
amended to read:
23622.7. (a) There shall be allowed a credit against the "tax"
(as defined by Section 23036) to a taxpayer who employs a qualified
employee in an enterprise zone during the income year. The credit
shall be 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) (i) Except as provided in clause
(ii), that portion of wages paid or incurred by the taxpayer during
the income year to qualified employees that does not exceed 150
percent of the minimum wage. (ii) For up to 1,350 qualified
employees who are employed by the taxpayer in the Long Beach
Enterprise Zone in aircraft manufacturing activities described in
Codes 3721 to 3728, inclusive, and Code 3812 of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, "qualified wages"
means that portion of hourly wages that does not exceed 202 percent
of the minimum wage. (B) Wages received during the 60-month period
beginning with the first day the employee commences employment with
the taxpayer. Reemployment in connection with any increase, including
a regularly occurring seasonal increase, in the trade or business
operations of the taxpayer does not constitute commencement of
employment for purposes of this section. (C) Qualified wages do
not include any wages paid or incurred by the taxpayer on or after
the zone expiration date. However, wages paid or incurred with
respect to qualified employees who are employed by the taxpayer
within the enterprise zone within the 60-month period prior to the
zone expiration date shall continue to qualify for the credit under
this section after the zone expiration date, in accordance with all
provisions of this section applied as if the enterprise zone
designation were still in existence and binding. (2) "Minimum wage"
means the wage established by the Industrial Welfare Commission as
provided for in Chapter 1 (commencing with Section 1171) of Part 4 of
Division 2 of the Labor Code. (3) "Zone expiration date" means
the date the enterprise zone designation expires, is no longer
binding, or becomes inoperative. (4) (A) "Qualified employee"
means an individual who meets all of the following requirements:
(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 an enterprise zone. (ii) Performs at
least 50 percent of his or her services for the taxpayer during the
income year in an enterprise zone. (iii) Is hired by the taxpayer
after the date of original designation of the area in which services
were performed as an enterprise zone. (iv) Is any of the
following: (I) Immediately preceding the qualified employee's
commencement of employment with the taxpayer, was a person eligible
for services under the federal Job Training Partnership Act (29
U.S.C. Sec. 1501 et seq.), or its successor, who is receiving, or is
eligible to receive, subsidized employment, training, or services
funded by the federal Job Training Partnership Act, or its successor.
(II) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a person eligible to be a
voluntary or mandatory registrant under the Greater Avenues for
Independence Act of 1985 (GAIN) 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, or its successor. (III)
Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was an economically disadvantaged
individual 14 years of age or older. (IV) Immediately preceding
the qualified employee's commencement of employment with the
taxpayer, was a dislocated worker who meets any of the following:
(aa) Has been terminated or laid off or who has received a notice of
termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(bb) Has been terminated or has received a notice of termination of
employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff. (cc) Is long-term
unemployed and has limited opportunities for employment or
reemployment in the same or a similar occupation in the area in which
the individual resides, including an individual 55 years of age or
older who may have substantial barriers to employment by reason of
age. (dd) Was self-employed (including farmers and ranchers) and
is unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(ee) Was a civilian employee of the Department of Defense
employed at a military installation being closed or realigned under
the Defense Base Closure and Realignment Act of 1990. (ff) Was an
active member of the armed forces or National Guard as of September
30, 1990, and was either involuntarily separated or separated
pursuant to a special benefits program. (gg) Is a seasonal or
migrant worker who experiences chronic seasonal unemployment and
underemployment in the agriculture industry, aggravated by continual
advancements in technology and mechanization. (hh) Has been
terminated or laid off, or has received a notice of termination or
layoff, as a consequence of compliance with the Clean Air Act. (V)
Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a disabled individual who is
eligible for or enrolled in, or has completed a state rehabilitation
plan or is a service-connected disabled veteran, veteran of the
Vietnam era, or veteran who is recently separated from military
service. (VI) Immediately preceding the qualified employee's
commencement of employment with the taxpayer, was an ex-offender. An
individual shall be treated as convicted if he or she was placed on
probation by a state court without a finding of guilt. (VII)
Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a person eligible for or a
recipient of any of the following: (aa) Federal Supplemental
Security Income benefits. (bb) Aid to Families with Dependent
Children. (cc) Food stamps. (dd) State and local general
assistance. (VIII) Immediately preceding the qualified employee's
commencement of employment with the taxpayer, was a member of a
federally recognized Indian tribe, band, or other group of Native
American descent. (IX) Immediately preceding the qualified
employee's commencement of employment with the taxpayer, was a
resident of a targeted employment area (as defined in Section 7072 of
the Government Code). (X) An employee who qualified the taxpayer
for the enterprise zone hiring credit under former Section 23622 or
the program area hiring credit under former Section 23623. (XI)
Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a member of a targeted group, as
defined in Section 51(d) of the Internal Revenue Code, or its
successor. (B) Priority for employment shall be provided to an
individual who is enrolled in a qualified program under the federal
Job Training Partnership Act or the Greater Avenues for Independence
Act of 1985 or who is eligible as a member of a targeted group under
the Work Opportunity Tax Credit (Section 51 of the Internal Revenue
Code), or its successor. (5) "Taxpayer" means a corporation
engaged in 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. (6) "Seasonal employment"
means employment by a taxpayer that has regular and predictable
substantial reductions in trade or business operations. (c) The
taxpayer shall do both of the following: (1) Obtain from either
the Employment Development Department, as permitted by federal law,
or the local county or city Job Training Partnership Act
administrative entity or the local county GAIN office or social
services agency, as appropriate, a certification that provides that a
qualified employee meets the eligibility requirements specified in
clause (iv) of subparagraph (A) of paragraph (4) of subdivision (b).
The Employment Development Department may provide preliminary
screening and referral to a certifying agency. The Employment
Development Department shall develop a form for this purpose. (2)
Retain a copy of the certification and provide it upon request to the
Franchise Tax Board. (d) (1) For purposes of this section: (A)
All employees of all corporations which are members of the same
controlled group of corporations shall be treated as employed by a
single taxpayer. (B) The credit, if any, allowable by this section
to each member shall be determined by reference to its proportionate
share of the expense of the qualified wages giving rise to the
credit, and shall be allocated in that manner. (C) For purposes of
this subdivision, "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 subsections (a)(4) and
(e)(3)(C) of Section 1563 of the Internal Revenue Code. (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 (e)) for any calendar year ending
after that acquisition, the employment relationship between a
qualified employee and an employer shall not be treated as terminated
if the employee continues to be employed in that trade or business.
(e) (1) (A) If the employment, other than seasonal 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. (B) If the seasonal
employment of any qualified employee, with respect to whom qualified
wages are taken into account under subdivision (a) is not continued
by the taxpayer for a period of 270 days of employment during the
60-month period beginning with the day the qualified employee
commences seasonal employment with the taxpayer, the tax imposed by
this part, for the income year that includes the 60th month following
the month in which the qualified employee commences seasonal
employment with the taxpayer, 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 qualified employee. (2) (A)
Subparagraph (A) of 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 subparagraph (A) of 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
employee. (iii) A termination of employment of a qualified
employee, if it is determined that the termination was due to the
misconduct (as defined in Sections 1256-30 to 1256-43, inclusive, of
Title 22 of the California Code of Regulations) of that employee.
(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 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. (B) Subparagraph (B) of paragraph (1) shall not
apply to any of the following: (i) A failure to continue the
seasonal employment of a qualified employee who voluntarily fails to
return to the seasonal employment of the taxpayer. (ii) A failure
to continue the seasonal employment of a qualified employee who,
before the close of the period referred to in subparagraph (B) of
paragraph (1), becomes disabled and unable to perform the services of
that seasonal employment, unless that disability is removed before
the close of that period and the taxpayer fails to offer seasonal
employment to that qualified employee. (iii) A failure to continue
the seasonal employment of a qualified employee, if it is determined
that the failure to continue the seasonal employment was due to the
misconduct (as defined in Sections 1256-30 to 1256-43, inclusive, of
Title 22 of the California Code of Regulations) of that qualified
employee. (iv) A failure to continue seasonal employment of a
qualified employee due to a substantial reduction in the regular
seasonal trade or business operations of the taxpayer. (v) A
failure to continue the seasonal 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 seasonal
employees and the hours of seasonal employment. (C) For purposes
of paragraph (1), the employment relationship between the taxpayer
and a qualified employee 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 qualified employee
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 qualified 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. (f) Rules similar to the rules provided
in Section 46(e) and (h) of the Internal Revenue Code shall apply to
both of the following: (1) An organization to which Section 593
of the Internal Revenue Code applies. (2) A regulated investment
company or a real estate investment trust subject to taxation under
this part. (g) For purposes of this section, "enterprise zone"
means an area designated as an enterprise zone pursuant to Chapter
12.8 (commencing with Section 7070) of Division 7 of Title 1 of the
Government Code. (h) The credit allowable under this section shall
be reduced by the credit allowed under Sections 23623.5, 23625, and
23646 claimed for the same employee. 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
(i) or (j). (i) 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, until the
credit is exhausted. The credit shall be applied first to the
earliest income years possible. (j) (1) The amount of the credit
otherwise allowed under this section and Section 23612.2, 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
enterprise zone determined as if that attributable income represented
all of the income of the taxpayer subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone. For that purpose, the taxpayer's business
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the enterprise zone
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this section in accordance with
paragraph (3). (3) Business income shall be apportioned to the
enterprise zone by multiplying the 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.
For purposes of this paragraph: (A) 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
enterprise 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. (B) The payroll factor is a fraction, the numerator
of which is the total amount paid by the taxpayer in the enterprise
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) 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 (i). (k) The
changes made to this section by the act adding this subdivision
shall apply to income years on or after January 1, 1997.
SEC. 84. Section 23645 of the Revenue and Taxation Code is amended
to read:
23645. (a) For each income year beginning on or after January 1,
1995, there shall be allowed as a credit against the "tax" (as
defined by Section 23036) for the income year an amount equal to the
sales or use tax paid or incurred by the taxpayer in connection with
the purchase of
qualified property to the extent that the qualified property does not
exceed a value of twenty million dollars ($20,000,000). (b) For
purposes of this section: (1) "LAMBRA" means a local agency
military base recovery area designated in accordance with Section
7114 of the Government Code. (2) "Taxpayer" means a corporation
that conducts a trade or business within a LAMBRA and, for the first
two income years, has a net increase in jobs (defined as 2,000 paid
hours per employee per year) of one or more employees in the LAMBRA.
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the income year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second income year after commencing
business operations in the LAMBRA. For taxpayers who commence doing
business in this state with their LAMBRA business operation, the
number of employees for the income year prior to commencing business
operations in the LAMBRA shall be zero. If the taxpayer has a net
increase in jobs in the state, the credit shall be allowed only if
one or more full-time employees is employed within the LAMBRA. (B)
The total number of employees employed in the LAMBRA shall equal the
sum of both of the following: (i) The total number of hours
worked in the LAMBRA for the taxpayer by employees (not to exceed
2,000 hours per employee) who are paid an hourly wage divided by
2,000. (ii) The total number of months worked in the LAMBRA for
the taxpayer by employees that are salaried employees divided by 12.
(C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the income year, for purposes of clauses (i) and
(ii), respectively, of subparagraph (B) the divisors "2,000" and "12"
shall be multiplied by a fraction, the numerator of which is the
number of months of the income year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12. (3)
"Qualified property" means property that is each of the following:
(A) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA. (B) Purchased before the date
the LAMBRA designation expires, is no longer binding, or becomes
inoperative. (C) Any of the following: (i) High technology
equipment, including, but not limited to, computers and electronic
processing equipment. (ii) Aircraft maintenance equipment,
including, but not limited to, engine stands, hydraulic mules, power
carts, test equipment, handtools, aircraft start carts, and tugs.
(iii) Aircraft components, including, but not limited to, engines,
fuel control units, hydraulic pumps, avionics, starts, wheels, and
tires. (iv) Section 1245 property, as defined in Section 1245(a)
(3) of the Internal Revenue Code. (c) The credit provided under
subdivision (a) shall only be allowed for qualified property
manufactured in California unless qualified property of a comparable
quality and price is not available for timely purchase and delivery
from a California manufacturer. (d) In the case where the credit
otherwise allowed under this section exceeds the "tax" for the income
year, that portion of the credit which exceeds the "tax" may be
carried over and added to the credit, if any, in succeeding years,
until the credit is exhausted. The credit shall be applied first to
the earliest income years possible. (e) Any taxpayer who elects to
be subject to this section shall not be entitled to increase the
basis of the property as otherwise required by Section 164(a) of the
Internal Revenue Code with respect to sales or use tax paid or
incurred in connection with the purchase of qualified property.
(f) (1) The amount of the credit otherwise allowed under this section
and Section 23646, including any credit carryovers from prior years,
that may reduce the "tax" for the income year shall not exceed the
amount of tax that would be imposed on the taxpayer's business income
attributed to a LAMBRA determined as if that attributable income
represented all the income of the taxpayer subject to tax under this
part. (2) Attributable income shall be that portion of the
taxpayer's California source business income that is apportioned to
the LAMBRA. For that purpose, the taxpayer's business income that is
attributable to sources in this state shall first be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the LAMBRA in
accordance with Article 2 (commencing with Section 25120) of Chapter
17, modified for purposes of this section in accordance with
paragraph (3). (3) Income shall be apportioned to a LAMBRA by
multiplying the 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. For purposes of
this paragraph: (A) 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 LAMBRA
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. (B) The
payroll factor is a fraction, the numerator of which is the total
amount paid by the taxpayer in the LAMBRA 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) 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 income 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 income 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) The amendments made to this section by the act
adding this subdivision shall apply to income years beginning on or
after January 1, 1998.
SEC. 85. Section 23649 of the Revenue and Taxation Code is
amended to read:
23649. (a) (1) A qualified taxpayer shall be allowed a credit
against the "tax," as defined in Section 23036, equal to 6 percent of
the qualified cost of qualified property that is placed in service
in this state. (2) In the case of any qualified costs paid or
incurred on or after January 1, 1994, and prior to the first income
year of the qualified taxpayer beginning on or after January 1, 1995,
the credit provided under paragraph (1) shall be claimed by the
qualified taxpayer on the qualified taxpayer's return for the first
income year beginning on or after January 1, 1995. No credit shall
be claimed under this section on a return filed for any income year
commencing prior to the qualified taxpayer's first income year
beginning on or after January 1, 1995. (b) (1) For purposes of
this section, "qualified cost" means any cost that satisfies each of
the following conditions: (A) Except as otherwise provided in this
subparagraph, is a cost paid or incurred by the qualified taxpayer
for the construction, reconstruction, or acquisition of qualified
property on or after January 1, 1994, and prior to the date this
section ceases to be operative under paragraph (2) of subdivision
(i). In the case of any qualified property constructed,
reconstructed, or acquired by the qualified taxpayer (or any person
related to the qualified taxpayer within the meaning of Section 267
or 707 of the Internal Revenue Code) pursuant to a binding contract
in existence on or prior to January 1, 1994, costs paid pursuant to
that contract shall be subject to allocation as follows: contract
costs shall be allocated to qualified property based on a ratio of
costs actually paid prior to January 1, 1994, and total contract
costs actually paid. "Cost paid" shall include, without limitation,
contractual deposits and option payments. To the extent of cost
allocated, whether or not currently deductible or depreciable for tax
purposes, to a period prior to January 1, 1994, the cost shall be
deemed allocated to property acquired before January 1, 1994, and is
thus not a "qualified cost." (B) Except as provided in paragraph
(2) (3) of subdivision (d) and
subparagraph (B) of paragraph (3) (4)
of subdivision (d), is an amount upon which the qualified taxpayer
has paid, directly or indirectly as a separately stated contract
amount or as determined from the records of the qualified taxpayer,
sales or use tax under Part 1 (commencing with Section 6001). (C)
Is an amount properly chargeable to the capital account of the
qualified taxpayer. (2) (A) For purposes of this subdivision, any
contract entered into on or after January 1, 1994, that is a
successor or replacement contract to a contract that was binding
prior to January 1, 1994, shall be treated as a binding contract in
existence prior to January 1, 1994. (B) If a successor or
replacement contract is entered into on or after January 1, 1994, and
the subject of the successor or replacement contract relates both to
amounts for the construction, reconstruction, or acquisition of
qualified property described in the original binding contract and to
costs for the construction, reconstruction, or acquisition of
qualified property not described in the original binding contract,
then the portion of those amounts described in the successor or
replacement contract that were not described in the original binding
contract shall not be treated as costs paid or incurred pursuant to a
binding contract in existence on or prior to January 1, 1994, under
subparagraph (A) of paragraph (1). (3) (A) For purposes of this
section, an option contract in existence prior to January 1, 1994,
under which a qualified taxpayer (or any other person related to the
qualified taxpayer within the meaning of Section 267 or 707 of the
Internal Revenue Code) had an option to acquire qualified property,
shall be treated as a binding contract under the rules in paragraph
(2). For purposes of this subparagraph, an option contract shall not
include an option under which the optionholder will forfeit an
amount less than 10 percent of the fixed option price in the event
the option is not exercised. (B) For purposes of this section, a
contract shall be treated as binding even if the contract is subject
to a condition. (4) For purposes of this subdivision, in the case
of any qualified taxpayer engaged in those lines of business
described in Codes 7371 to 7373, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, "the first income
year beginning on or after January 1, 1998," shall be substituted for
"January 1, 1994," in each place in which it appears. (c) (1) For
purposes of this section, "qualified taxpayer" means any taxpayer
engaged in those lines of business described in Codes 2011 to 3999,
inclusive, or Codes 7371 to 7373, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition. (2) In the case of
any pass-through entity, the determination of whether a taxpayer is
a qualified taxpayer shall be made at the entity level and any credit
under this section or Section 17053.49 shall be allowed to the
pass-through entity and passed through to the partners or
shareholders in accordance with applicable provisions of Part 10
(commencing with Section 17001) or Part 11 (commencing with Section
23001). For purposes of this paragraph, the term "pass-through
entity" means any partnership or S corporation. (3) The Franchise
Tax Board may prescribe regulations to carry out the purposes of this
section, including any regulations necessary to prevent the
avoidance of the effect of this section through splitups, shell
corporations, partnerships, tiered ownership structures,
sale-leaseback transactions, or otherwise. (d) For purposes of
this section, "qualified property" means property that is described
as either of the following: (1) Tangible personal property that is
defined in Section 1245(a) of the Internal Revenue Code for use by a
qualified taxpayer in those lines of business described in Codes
2011 to 3999, inclusive, of the Standard Industrial Classification
(SIC) Manual published by the United States Office of Management and
Budget, 1987 edition, that is primarily used for any of the
following: (A) For the manufacturing, processing, refining,
fabricating, or recycling of property, beginning at the point at
which any raw materials are received by the qualified taxpayer and
introduced into the process and ending at the point at which the
manufacturing, processing, refining, fabricating, or recycling has
altered tangible personal property to its completed form, including
packaging, if required. (B) In research and development. (C) To
maintain, repair, measure, or test any property described in this
paragraph. (D) For pollution control that meets or exceeds
standards established by the state or by any local or regional
governmental agency within the state. (E) For recycling. (2)
Computers and computer peripheral equipment, as defined in Section
168(i)(2)(B) of the Internal Revenue Code, that is tangible personal
property as defined in Section 1245(a) of the Internal Revenue Code
for use by a qualified taxpayer in those lines of business described
in SIC Codes 7371 to 7373, inclusive, of the SIC Manual, 1987
edition, that is primarily used to develop or manufacture prepackaged
software or custom software prepared to the special order of the
purchaser who uses the program to produce and sell or license copies
of the program as prepackaged software. (3) The value of any
capitalized labor costs that are directly allocable to the
construction or modification of property described in paragraph (1)
or (2). (4) In the case of any qualified taxpayer engaged in
manufacturing activities described in SIC Code 357 or 367, those
activities related to biotechnology described in SIC Code 8731, those
activities related to biopharmaceutical establishments only that are
described in SIC Codes 2833 to 2836, inclusive, those activities
related to space vehicles and parts described in SIC Codes 3761 to
3769, inclusive, those activities related to space satellites and
communications satellites and equipment described in SIC Codes 3663
and 3812 (but only with respect to "qualified property" that is
placed in service on or after January 1, 1996), or those activities
related to semiconductor equipment manufacturing described in SIC
Code 3559 (but only with respect to "qualified property" that is
placed in service on or after January 1, 1997), "qualified property"
also includes the following: (A) Special purpose buildings and
foundations that are constructed or modified for use by the qualified
taxpayer primarily in a manufacturing, processing, refining, or
fabricating process, or as a research or storage facility primarily
used in connection with a manufacturing process. (B) The value of
any capitalized labor costs that are directly allocable to the
construction or modification of special purpose buildings and
foundations that are used primarily in the manufacturing, processing,
refining, or fabricating process, or as a research or storage
facility primarily used in connection with a manufacturing process.
(C) (i) For purposes of this paragraph, "special purpose building
and foundation" means only a building and the foundation immediately
underlying the building that is specifically designed and constructed
or reconstructed for the installation, operation, and use of
specific machinery and equipment with a special purpose, which
machinery and equipment, after installation, will become affixed to
or a fixture of the real property, and the construction or
reconstruction of which is specifically designed and used exclusively
for the specified purposes as set forth in subparagraph (A) ("
qualified purpose"). (ii) A building is specifically designed and
constructed or modified for a qualified purpose if it is not
economical to design and construct the building for the intended
purpose and then use the structure for a different purpose. (iii)
For purposes of clause (i) and clause (vi), a building is used
exclusively for a qualified purpose only if its use does not include
a use for which it was not specifically designed and constructed or
modified. Incidental use of a building for nonqualified purposes does
not preclude the building from being a special purpose building.
"Incidental use" means a use which is both related and subordinate to
the qualified purpose. It will be conclusively presumed that a use
is not subordinate if more than one-third of the total usable volume
of the building is devoted to a use which is not a qualified purpose.
(iv) In the event an entire building does not qualify as a
special purpose building, a taxpayer may establish that a portion of
a building, and the foundation immediately underlying the portion,
qualifies for treatment as a special purpose building and foundation
if the portion satisfies all of the definitional provisions in this
subparagraph. (v) To the extent that a building is not a special
purpose building as defined above, but a portion of the building
qualifies for treatment as a special purpose building, then all
equipment which exclusively supports the qualified purpose occurring
within that portion and which would qualify as Internal Revenue Code
Section 1245 property if it were not a fixture or affixed to the
building shall be treated as a cost of the portion of the building
which qualifies for treatment as a special purpose building. (vi)
Buildings and foundations which do not meet the definition of a
special purpose building and foundation set forth above include, but
are not limited to: buildings designed and constructed or
reconstructed principally to function as a general purpose
manufacturing, industrial, or commercial building; research
facilities that are used primarily prior to or after, or prior to and
after, the manufacturing process; or storage facilities that are
used primarily prior to or after, or prior to and after, completion
of the manufacturing process. A research facility shall not be
considered to be used primarily prior to or after, or prior to and
after, the manufacturing process if its purpose and use relate
exclusively to the development and regulatory approval of the
manufacturing process for specific biopharmaceutical products. A
research facility which is used primarily in connection with the
discovery of an organism from which a biopharmaceutical product or
process is developed does not meet the requirements of the preceding
sentence. (5) Subject to the provisions in subparagraph (B) of
paragraph (1) of subdivision (b), qualified property also includes
computer software that is primarily used for those purposes set forth
in paragraph (1) or (2) of this subdivision. (6) Qualified
property does not include any of the following: (A) Furniture.
(B) Facilities used for warehousing purposes after completion of the
manufacturing process. (C) Inventory. (D) Equipment used in the
extraction process. (E) Equipment used to store finished products
that have completed the manufacturing process. (F) Any tangible
personal property that is used in administration, general management,
or marketing. (G) Any vehicle for which a credit is claimed
pursuant to Section 17052.11 or 23603. (e) For purposes of this
section: (1) "Biopharmaceutical activities" means those activities
that 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. (2) "Fabricating" means to make, build, create,
produce, or assemble components or property to work in a new or
different manner. (3) "Manufacturing" means the activity of
converting or conditioning property by changing the form,
composition, quality, or character of the property for ultimate sale
at retail or use in the manufacturing of a product to be ultimately
sold at retail. Manufacturing includes any improvements to tangible
personal property that result in a greater service life or greater
functionality than that of the original property. (4) "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. (5) "Primarily"
means tangible personal property used 50 percent or more of the time
in an activity described in subdivision (d). (6) "Process" means
the period beginning at the point at which any raw materials are
received by the qualified taxpayer and introduced into the
manufacturing, processing, refining, fabricating, or recycling
activity of the qualified person and ending at the point at which the
manufacturing, processing, refining, fabricating, or recycling
activity of the qualified taxpayer has altered tangible personal
property to its completed form, including packaging, if required.
Raw materials shall be considered to have been introduced into the
process when the raw materials are stored on the same premises where
the qualified taxpayer's manufacturing, processing, refining,
fabricating, or recycling activity is conducted. Raw materials that
are stored on premises other than where the qualified taxpayer's
manufacturing, processing, refining, fabricating, or recycling
activity is conducted, shall not be considered to have been
introduced into the manufacturing, processing, refining, fabricating,
or recycling process. (7) "Processing" means the physical
application of the materials and labor necessary to modify or change
the characteristics of property. (8) "Refining" means the process
of converting a natural resource to an intermediate or finished
product. (9) "Research and development" means those activities
that are described in Section 174 of the Internal Revenue Code or in
any regulations thereunder. (10) "Small business" means a
qualified taxpayer that meets any of the following requirements
during the income year for which the credit is allowed: (A) Has
gross receipts of less than fifty million dollars ($50,000,000).
(B) Has net assets of less than fifty million dollars ($50,000,000).
(C) Has a total credit of less than one million dollars
($1,000,000). (D) For income years beginning on or after January
1, 1997, 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 has not received regulatory approval for any product
from the United States Food and Drug Administration. (f) The
credit allowed under subdivision (a) shall apply to qualified
property that is acquired by or subject to lease by a qualified
taxpayer, subject to the following special rules: (1) A lessor of
qualified property, irrespective of whether the lessor is a qualified
taxpayer, shall not be allowed the credit provided under subdivision
(a) with respect to any qualified property leased to another
qualified taxpayer. (2) For purposes of paragraphs (2) and (3) of
subdivision (b), "binding contract" shall include any lease agreement
with respect to the qualified property. (3) (A) For purposes of
determining the qualified cost paid or incurred by a lessee in any
leasing transaction that is not treated as a sale under Part 1
(commencing with Section 6001), the following rules shall apply:
(i) Except as provided by subparagraph (C) of this paragraph,
subparagraphs (A) and (C) of paragraph (1) of subdivision (b) shall
not apply. (ii) Except as provided in subparagraph (B) and clause
(iii), the "qualified cost" upon which the lessee shall compute the
credit provided under this section shall be equal to the original
cost to the lessor (within the meaning of Section 24912) of the
qualified property that is the subject of the lease. (iii) Except
as provided in clause (iv), the requirement of subparagraph (B) of
paragraph (1) of subdivision (b) shall be treated as satisfied only
if the lessor has made a timely election under either Section 6094.1
or subdivision (d) of Section 6244 and has paid sales tax
reimbursement or use tax measured by the purchase price of the
qualified property (within the meaning of paragraph (5) of
subdivision (g) of Section 6006). For purposes of this subdivision
and clause (iv), the amount of original cost to the lessor which may
be taken into account under clause (ii) shall not exceed the purchase
price upon which sales tax reimbursement or use tax has been paid
under the preceding sentence or under clause (iv). (iv) With
respect to leases entered into between January 1, 1994, and the
effective date of this clause, the lessor may elect to pay use tax
measured by the purchase price of the property by reporting and
paying the tax with the return of the lessor for the fourth calendar
quarter of 1994. In computing the use tax under the preceding
sentence, a credit shall be allowed under Part 1 (commencing with
Section 6001) for all sales or use tax previously paid on the lease.
(B) For purposes of applying subparagraph (A) only, the following
special rules shall apply: (i) The original cost to the lessor of
the qualified property
shall be reduced by the amount of any original cost of that property
that was taken into account by any predecessor lessee in computing
the credit allowable under this section. (ii) Clause (i) shall not
apply in any case where the predecessor lessee was required to
recapture the credit provided under this section pursuant to
subdivision (g). (iii) For purposes of this section only, in any
case where a successor lessor has acquired qualified property from a
predecessor lessor in a transaction not treated as a sale under Part
1 (commencing with Section 6001), the original cost to the successor
lessor of the qualified property shall be reduced by the amount of
the original cost of the qualified property that was taken into
account by any lessee of the predecessor lessor in computing the
credit allowable under this section. (C) In determining the
original cost of any qualified property under this paragraph, only
amounts paid or incurred by the lessor on or after January 1, 1994,
and prior to the date this section ceases to be operative under
paragraph (2) of subdivision (i), shall be taken into account. In
the case of any qualified property constructed, reconstructed, or
acquired by a lessor pursuant to a binding contract in existence on
or prior to January 1, 1994, the allocation rule specified in
subparagraph (A) of paragraph (1) of subdivision (b) shall apply in
determining the original cost to the lessor of qualified property.
(D) Notwithstanding subparagraph (A), in the case of any leasing
transaction for which the lessee is allowed the credit under this
section and thereafter the lessee (or any party related to the lessee
within the meaning of Section 267 or 318 of the Internal Revenue
Code) acquires the qualified property from the lessor (or any
successor lessor) within one year from the date the qualified
property is first used by the lessee under the terms of the lease,
the lessee's (or related party's) acquisition of the qualified
property from the lessor (or successor lessor) shall be treated as a
disposition by the lessee of the qualified property that was subject
to the lease under subdivision (g). (4) For purposes of
determining the qualified cost paid or incurred by a lessee in any
leasing transaction that is treated as a sale under Part 1
(commencing with Section 6001), the following rules shall apply:
(A) Subparagraph (A) of paragraph (1) of subdivision (b) shall be
applied by substituting the term "purchase" for the term
"construction, reconstruction, or acquisition." (B) Subparagraph
(C) of paragraph (1) of subdivision (b) shall apply. (C) The
requirement of subparagraph (B) of paragraph (1) of subdivision (b)
shall be treated as satisfied at the time that either the lessor or
the qualified taxpayer pays sales or use tax under Part 1 (commencing
with Section 6001). (5) (A) In the case of any leasing
transaction described in paragraph (3), the lessor shall provide a
statement to the lessee specifying the amount of the lessor's
original cost of the qualified property and the amount of that cost
upon which a sales or use tax was paid within 45 days after the close
of the lessee's taxable year in which the credit is allowable to the
lessee under this section. (B) The statement required under
subparagraph (A) shall be made available to the Franchise Tax Board
upon request. (6) For purposes of this subdivision, in the case of
any qualified taxpayer engaged in those lines of business described
in Codes 7371 to 7373, inclusive, of the Standard Industrial
Classification (SIC) Manual published by the United States Office of
Management and Budget, 1987 edition, "the first income year beginning
on or after January 1, 1998," shall be substituted for "January 1,
1994," in each place in which it appears. In addition, "the
effective date of this paragraph" shall be substituted for "the
effective date of this clause" and "fourth calendar quarter of 1998"
shall be substituted for "fourth calendar quarter of 1994." (g) No
credit shall be allowed if the qualified property is removed from the
state, is disposed of to an unrelated party, or is used for any
purpose not qualifying for the credit provided in this section in the
same taxable year in which the qualified property is first placed in
service in this state. If any qualified property for which a credit
is allowed pursuant to this section is thereafter removed from this
state, disposed of to an unrelated party, or used for any purpose not
qualifying for the credit provided in this section within one year
from the date the qualified property is first placed in service in
this state, the amount of the credit allowed by this section for that
qualified property shall be recaptured by adding that credit amount
to the net tax of the qualified taxpayer for the taxable year in
which the qualified property is disposed of, removed, or put to an
ineligible use. (h) In the case where the credit allowed by this
section exceeds the "tax," the excess may be carried over to reduce
the "tax" in the following year, and succeeding years as follows:
(1) Except as provided in paragraph (2), for the seven succeeding
years if necessary, until the credit is exhausted. (2) In the case
of a small business, for the nine succeeding years, if necessary,
until the credit is exhausted. (i) (1) This section shall remain
in effect until the date specified in paragraph (2) on which date
this section shall cease to be operative, and as of that date is
repealed. (2) (A) This section shall cease to be operative on
January 1, 2001, or on January 1 of the earliest year thereafter, if
the total employment in this state, as determined by the Employment
Development Department on the preceding January 1, does not exceed by
100,000 jobs the total employment in this state on January 1, 1994.
The department shall report to the Legislature annually with respect
to the determination required by the preceding sentence. (B) For
purposes of this paragraph, "total employment" means the total
employment in the manufacturing sector, excluding employment in the
aerospace sector. (j) The amendments made by the act adding this
subdivision shall be operative for income years beginning on or after
January 1, 1997, except as provided in paragraph (3) of subdivision
(d). (k) The amendments made by the act adding this subdivision
shall be operative for income years beginning on or after January 1,
1998.
SEC. 85.5. Section 23701c of the Revenue and Taxation Code
is amended to read:
23701c. Cemetery companies owned and operated exclusively for the
benefit of their members or which are not operated for profit; and
any corporation chartered solely for the purpose of the disposal of
bodies by burial or cremation which is not permitted by its charter
to engage in any business not necessarily incident to that purpose
and no part of the net earnings of which inures to the benefit of any
private shareholder or individual.
SEC. 86. Section 23701q of the Revenue and Taxation Code is
repealed.
SEC. 87. Section 23704.5 of the Revenue and Taxation Code is
amended to read:
23704.5. (a) In the case of an organization to which this section
applies, exemption from taxation under Section 23701 shall be denied
because a substantial part of the activities of such
that organization consists of carrying on
propaganda, or otherwise attempting to influence legislation, but
only if such that organization
normally-- (1) Makes lobbying expenditures in excess of the
lobbying ceiling amount for such that
organization for each taxable year, or (2) Makes grassroots
expenditures in excess of the grassroots ceiling amount for
such that organization for each taxable year.
(b) For purposes of this section-- (1) The term "lobbying
expenditures" means expenditures for the purpose of influencing
legislation (as defined in Section subdivision (d)
of Section 23740). (2) The lobbying ceiling amount for any
organization for any taxable year is 150 percent of the lobbying
nontaxable amount for the organization for that taxable year,
determined under Section 23740. (3) The term "grassroots
expenditures" means expenditures for the purpose of influencing
legislation (as defined in Section subdivision (d)
of Section 23740 without regard to subparagraph (B) of paragraph (1)
thereof). (4) The grassroots ceiling amount for any organization
for any taxable year is 150 percent of the grassroots nontaxable
amount for such that organization for
such that taxable year, determined
under Section 23740. (c) This section shall apply to any
organization which has elected (in such that
manner and at such that time as
the Franchise Tax Board may prescribe) to have the provisions of this
section apply to such that organization
and which, for the taxable year which includes the date the election
is made, is described in Section 23701d and-- (1) Is described in
subdivision (d), and (2) Is not a disqualified organization under
subdivision (e). (d) An organization is described in this
paragraph if it is described in-- (1) Section 170(b)(1)(A)(ii) of
the Internal Revenue Code (relating to educational institutions),
(2) Section 170(b)(1)(A)(iii) of the Internal Revenue Code (relating
to hospitals and medical research organizations), (3) Section 170
(b)(1)(A)(iv) of the Internal Revenue Code (relating to organizations
supporting government schools), (4) Section 170(b)(1)(A)(vi) of
the Internal Revenue Code (relating to organizations publicly
supported by charitable contributions), (5) Section 509(a)(2) of
the Internal Revenue Code (relating to organizations publicly
supported by admissions, sales, etc.), or (6) Section 509(a)(3) of
the Internal Revenue Code (relating to organizations supporting
certain types of public charities) except that for purposes of this
paragraph, Section 509(a)(3) of the Internal Revenue Code shall be
applied without regard to the last sentence of Section 509(a) of the
Internal Revenue Code. (e) For purposes of subdivision (c) an
organization is a disqualified organization if it is-- (1)
Described in Section 170(b)(1)(A)(i) of the Internal Revenue Code
(relating to churches), (2) An integrated auxiliary of a church or
of a convention or association of churches, or (3) A member of an
affiliated group of organizations (within the meaning of paragraph
(2) of subdivision (f) of Section 23740) if one or more members of
that group is described in paragraphs (1) and (2). (f) An election
by an organization under this section shall be effective for all
taxable years of those organizations which-- (1) End after the date
the election is made, and (2) Begin before the date the election
is revoked by that organization (under regulations prescribed by the
Franchise Tax Board). (g) With respect to any organization for a
taxable year for which-- (1) That organization is a disqualified
organization (within the meaning of subdivision (e)), or (2) An
election under this section is not in effect for that organization,
nothing in this section or in Section 23740 shall be construed to
affect the interpretation of the phrase, "no substantial part of the
activities of which is carrying on propaganda, or otherwise
attempting, to influence legislation, under Section 23701d."
(h) For rules regarding affiliated organizations see subdivision
(f) of Section 23740.
SEC. 88. Section 23704.6 of the Revenue and Taxation Code is
amended to read:
23704.6. (a) An organization which-- (1) Was exempt (or was
determined by the Franchise Tax Board to be exempt) from taxation
under Section 23701 by reason of being an organization described in
Section 23701d, and (2) Is not an organization described in Section
23701d: (A) By reason of carrying on propaganda, or otherwise
attempting, to influence legislation, or (B) By reason of
participating in, or intervening in, any political campaign on behalf
of (or in opposition to) any candidate for public office, shall not
at any time thereafter be treated as an organization described in
Section 23701f.
(b) The Franchise Tax Board shall prescribe such
those regulations as may be necessary or
appropriate to prevent the avoidance of subdivision (a), including
regulations relating to a direct or indirect transfer of all or part
of the assets of an organization to an organization controlled
(directly or indirectly) by the same person or persons who control
the transferor organization.
(c) Subdivision (a) shall not apply to any organization which is a
disqualified organization within the meaning of subdivision (e) of
Section 23704.5 (relating to churches, etc.) for the taxable year
immediately preceding the first taxable year for which such
that organization is described in paragraph (2)
of subdivision (a).
SEC. 89. 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 . , as follows:
(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 are subject to
the tax rates imposed by subdivision (e) of
Section 17041.
This section applies to income years beginning after December 31,
1970.
SEC. 89.5. Section 23736.1 of the Revenue and Taxation Code
is amended to read:
23736.1. (a) For the purposes of this article, the term
"prohibited transaction" means any transaction in which an
organization subject to the provisions of this article-- (1) Lends
any part of its income or corpus, without the receipt of adequate
security and a reasonable rate of interest, to; (2) Pays any
compensation, in excess of a reasonable allowance for salaries or
other compensation for personal services actually rendered, to; (3)
Makes any part of its services available on a preferential basis to;
(4) Makes any substantial purchase of securities or any other
property, for more than adequate consideration in money or money's
worth, from; (5) Sells any substantial part of its securites or
other property, for less than an adequate consideration in money or
money's worth, to; or (6) Engages in any other transaction which
results in a substantial diversion of its income or corpus to; the
creator of the organization (if a trust); a person who has made a
substantial contribution to the organization; a member of the family
(as defined in Section 267(c)(4) of the Internal Revenue Code) of an
individual who is the creator of that trust or who has made a
substantial contribution to such that
organization; or a corporation controlled by that creator or person
through the ownership, directly or indirectly, of 50 percent or more
of the total combined voting power of all classes of stock entitled
to vote or 50 percent or more of the total value of shares of all
classes of stock of the corporation.
(b) For purposes of subdivision (a), a bond, debenture, note, or
certificate or other evidence of indebtedness (hereinafter in this
section referred to as "obligation") acquired by a trust described in
Section 23701n shall not be treated as a loan made without the
receipt of adequate security if--
(1) Such obligation is acquired--
(A) On the market, either (i) at the price of the obligation
prevailing on a national securities exchange which is registered with
the Securities and Exchange Commission, or (ii) if the obligation is
not traded on such a national securities exchange, at a price not
less favorable to the trust than the offering price for the
obligation as established by current bid and asked prices quoted by
persons independent of the issuer;
(B) From an underwriter, at a price (i) not in excess of the
public offering price for the obligation as set forth in a prospectus
or offering circular filed with the Securities and Exchange
Commission, and (ii) at which a substantial portion of the same issue
is acquired by persons independent of the issuer; or
(C) Directly from the issuer, at a price not less favorable to the
trust than the price paid currently for a substantial portion of the
same issue by persons independent of the issuer;
(2) Immediately following acquisition of that obligation--
(A) Not more than 25 percent of the aggregate amount of
obligations issued in that issue and outstanding at the time of
acquisition is held by the trust, and
(B) At least 50 percent of the aggregate amount referred to in
subparagraph (A) is held by persons independent of the issuer; and
(3) Immediately following acquisition of the obligation, not more
than 25 percent of the assets of the trust is invested in obligations
of persons described in subdivision (a).
(4) (A) In the case of a trust described in Section 23701n, or in
the case of a corporation described in Section 23701h, all of the
stock of which was acquired before January 1, 1961, by a trust
described in Section 23701n, any indebtedness incurred by that trust
or that corporation before January 1, 1961, in connection with real
property which is leased before January 1, 1961, and any indebtedness
incurred by that trust or that corporation on or after that date
necessary to carry out the terms of that lease, shall not be
considered as an indebtedness with respect to that trust or that
corporation for purposes of this section.
(B) In the application of paragraph (1) of subdivision (a), if a
trust described in Section 23701n forming part of a supplemental
unemployment compensation benefit plan lends any money to another
trust described in Section 23701n forming part of the same plan, that
loan shall not be treated as an indebtedness of the borrowing trust,
except to the extent that the loaning trust--
(i) Incurs any indebtedness in order to make that loan,
(ii) Incurred indebtedness before the making of that loan which
would not have been incurred but for the making of that loan, or
(iii) Incurred indebtedness after the making of that loan which
would not have been incurred but for the making of that loan and
which was reasonably foreseeable at the time of making that loan.
(c) Subdivision (a) shall not apply to a loan made by a trust
described in Section 23701n to the employer (or to a renewal of that
loan or, if the loan is repayable upon demand, to a continuation of
that loan) if the loan bears a reasonable rate of interest, and if
(in the case of a making or renewal)--
(1) The employer is prohibited (at the time of that making or
renewal) by any law of the United States or regulation thereunder
from directly or indirectly pledging, as security for the loan, a
particular class or classes of his or her assets the value of which
(at that time) represents more than one-half of the value of all his
or her assets;
(2) The making or renewal, as the case may be, is approved in
writing as an investment that is consistent with the exempt purposes
of the trust by a trustee who is independent of the employer, and no
other independent trustee had previously refused to give that written
approval; and
(3) Immediately following the making or renewal, as the case may
be, the aggregate amount loaned by the trust to the employer, without
the receipt of adequate security, does not exceed 25 percent of the
value of all the assets of the trust.
(4) For purposes of paragraph (2) the term "trustee" means, with
respect to any trust for which there is more than one trustee who is
independent of the employer, a majority of those independent
trustees. For purposes of paragraph (3), the determination as to
whether any amount loaned by the trust to the employer is loaned
without the receipt of adequate security shall be made without regard
to subdivision (b).
SEC. 90. Section 23740 of the Revenue and Taxation Code is amended
to read:
23740. (a) This section applies to any organization with respect
to which an election under Section 23704.5 (relating to lobbying
expenditures by public charities) is in effect for the taxable year.
(b) For purposes of this section, the term "excess lobbying
expenditures" means for a taxable year, the greater of--
(1) The amount by which the lobbying expenditures made by the
organization during the taxable year exceed the lobbying nontaxable
amount for such the organization for
such that taxable year, or
(2) The amount by which the grassroots expenditures made by the
organization during the taxable year exceed the grassroots nontaxable
amount for such that organization for
such taxable year.
(c) For purposes of this section--
(1) The term "lobbying expenditures" means expenditures for the
purpose of influencing legislation (as defined in subdivision (d)).
(2) The lobbying nontaxable amount for any organization for any
taxable year is the lesser of (A) one million dollars ($1,000,000) or
(B) the amount determined under the following table:
If the exempt purpose The lobbying
expenditures are-- nontaxable amount is--
Not over $500,000 .......... 20 percent of the exempt
purpose expenditures.
Over $500,000 but not over
$1,000,000 ............... $100,000, plus 15 percent of
the
excess of the exempt purpose
expenditures over $500,000.
Over $1,000,000 but not over
$1,500,000 ............... $175,000 , plus 10
percent of the
excess of the exempt purpose
expenditures over $1,000,000.
Over $1,500,000 ............ $225,000 , plus 5
percent of the
excess of the exempt purpose
expenditures over $1,500,000.
(3) The term "grassroots expenditures" means expenditures for the
purpose of influencing legislation (as defined in subdivision (d)
without regard to subparagraph (B) of paragraph (1) thereof).
(4) The grassroots nontaxable amount for any organization for any
taxable year is 25 percent of the lobbying nontaxable amount
(determined under paragraph (2) for the organization for that taxable
year.
(d) (1) Except as otherwise provided in paragraph (2), for
purposes of this section, the term "influencing legislation" means--
(A) Any attempt to influence any legislation through an attempt to
affect the opinions of the general public or any segment thereof,
and
(B) Any attempt to influence any legislation through communication
with any member or employee of a legislative body, or with any
government official or employee who may participate in the
formulation of the legislation.
(2) For purposes of this section, the term "influencing
legislation," with respect to an organization, does not include--
(A) Making available the results of nonpartisan analysis, study,
or research;
(B) Providing of technical advice or assistance (where such advice
would otherwise constitute the influencing of legislation) to a
governmental body or to a committee or other subdivision thereof in
response to a written request by such that
body or subdivision, as the case may be;
(C) Appearances before, or communications to, any legislative body
with respect to a possible decision of such
that body which that might affect
the existence of the organization, its powers and duties, tax-exempt
status, or the deduction of contributions to the organization;
(D) Communications between the organization and its bona fide
members with respect to legislation or proposed legislation of direct
interest to the organization and such members, other than
communications described in paragraph (3); and
(E) Any communication with a government official or employee,
other than--
(i) A communication with a member or employee of a legislative
body (where such that communication
would otherwise constitute the influencing of legislation), or
(ii) A communication , the principal purpose of which
is to influence legislation.
(3) (A) A communication between an organization and any bona fide
member of the organization to directly encourage that member to
communicate as provided in subparagraph (B) of paragraph (1) shall be
treated as a communication described in subparagraph (B) of
paragraph (1).
(B) A communication between an organization and any bona fide
member of the organization to directly encourage that member to urge
persons other than members to communicate as provided in either
subparagraph (A) or subparagraph (B) of paragraph (1) shall be
treated as a communication described in subparagraph (A) of paragraph
(1).
(e) For purposes of this section--
(1) (A) The term "exempt purpose expenditures" means, with respect
to any organization for any taxable year, the total of the amounts
paid or incurred by the organization to accomplish purposes described
in paragraph (2) of subdivision (b) of Section 24359 (relating to
religious, charitable, educational, etc., purposes).
(B) The term "exempt purpose expenditures" includes--
(i) Administrative expenses paid or incurred for purposes
described in paragraph (2) of subdivision (b) of Section 24359, and
(ii) Amounts paid or incurred for the purpose of influencing
legislation (whether or not for purposes described in paragraph (2)
of subdivision (b) of Section 24359).
(C) The term "exempt purpose expenditures" does not include
amounts paid or incurred to or for--
(i) A separate fundraising unit of the organization, or
(ii) One or more other organizations, if the amounts are paid or
incurred primarily for fundraising.
(2) The term "legislation" includes action with respect to acts,
bills, resolutions, or similar items by the Congress, any state
legislature, any local council, or similar governing body or by the
public in a referendum, initiative, constitutional amendment, or
similar procedure.
(3) The term "action" is limited to the introduction, amendment,
enactment, defeat, or repeal of acts, bills, resolutions, or similar
items.
(4) In computing expenditures paid or incurred for the purpose of
influencing legislation (within the meaning of paragraph (1) or (2)
of subdivision (b)) or exempt purpose expenditures (as defined in
paragraph (1)), amounts properly chargeable to capital account shall
not be taken into account. There shall be taken into account a
reasonable allowance for exhaustion, wear and tear, obsolescence or
amortization. The
allowance shall be computed only on the basis of the straight-line
method of depreciation. For purposes of this section, a determination
of whether an amount is properly chargeable to capital account shall
be made on the basis of the principles that apply under this part to
amounts which are paid or incurred in a trade or business.
(f) (1) Except as otherwise provided in paragraph (4), if for a
taxable year two or more organizations described in Section 23701d
are members of an affiliated group of organizations as defined in
paragraph (2), and an election under Section 23704.5 is effective for
at least one such that organization
for such that year, then--
(A) The determination as to whether excess lobbying expenditures
have been made and the determination as to whether the expenditure
limits of paragraph (1) of subdivision (a) of
Section 23704.5 have been exceeded shall be made as though the
affiliated group is one organization.
(B) If the group has excess lobbying expenditures, each
organization as to which an election under Section 23704.5 is
effective for that year shall be treated as an organization that has
excess lobbying expenditures in an amount which equals the
organization's proportionate share of the group's excess lobbying
expenditures.
(C) If the expenditure limits of paragraph (1) of
subdivision (a) of Section 23704.5 are exceeded, each
organization as to which an election under Section 23704.5 is
effective for that year shall be treated as an organization that is
not described in Section 23701d by reason of the application of
Section 23704.5, and
(D) Subparagraphs (C) and (D) of paragraph (2) of subdivision (d),
paragraph (3) of subdivision (d), and clause (i) of subparagraph (C)
of paragraph (1) of subdivision (e) shall be applied as if the
affiliated group were one organization.
(2) For purposes of paragraph (1), two organizations are members
of an affiliated group of organizations but only if--
(A) The governing instrument of one organization requires it to be
bound by decisions of the other organization on legislative issues,
or
(B) The governing board of one organization includes persons who--
(i) Are specifically designated representatives of another
organization or are members of the governing board, officers, or paid
executive staff members of the other organization, and
(ii) By aggregating their votes, have sufficient voting power to
cause or prevent action on legislative issues by the first
organization.
(3) If members of an affiliated group of organizations have
different taxable years, their expenditures shall be computed for
purposes of this section in a manner to be prescribed by regulations
promulgated by the Franchise Tax Board.
(4) If two or more organizations are members of an affiliated
group of organizations (as defined in paragraph (2) without regard to
subparagraph (B) thereof), no two members of the affiliated group
are affiliated (as defined in paragraph (2) without regard to
subparagraph (A) thereof), and the governing instrument of no
such organization requires it to be bound by
decisions of any of the other organizations on legislative issues
other than as to action with respect to acts, bills, resolutions, or
similar items by the Congress or State Legislature, then--
(A) In the case of any organization whose decisions bind one or
more members of the affiliated group, directly or indirectly, the
determination as to whether the organization has paid or incurred
excess lobbying, expenditures and the determination as to whether the
organization has exceeded the expenditure limits of Section
paragraph (1) of subdivision (a) of Section 23704.5 shall
be made as though the organization has paid or incurred those amounts
paid or incurred by the members of the affiliated group to influence
legislation with respect to acts, bills, resolutions, or similar
items by the Congress or State Legislature, and
(B) In the case of any organization to which subparagraph (A) does
not apply, but which is a member of the affiliated group, the
determination as to whether the organization has paid or incurred
excess lobbying expenditures and the determination as to whether the
organization has exceeded the expenditure limits of
paragraph (1) of subdivision (a) of Section 23704.5 shall
be made as though the organization is not a member of the affiliated
group.
SEC. 91. Section 23776 of the Revenue and Taxation Code is
amended to read:
23776. (a) Any organization which has suffered the
suspension or forfeiture provided for in Section 23775 may, in
accordance with Section 23305a, be relieved therefrom upon the
filing of--
(a) filing of all of the following:
(1) An application for revivor and payment of a
filing fee of ten dollars ($10); and
(b) revivor.
(2) When required by the Franchise Tax Board, a new
application for exemption; and
(c) exemption under Section 23701.
(3) Any information returns, statements,
notifications, or amounts due under Sections 23772, 23774, or 23775
which were not previously submitted or paid and which resulted in the
suspension or forfeiture; and
(d) forfeiture.
(4) An information return or statement and the amounts
specified under Section 23772 for each year, or part thereof, during
the period of suspension or forfeiture in which the organization
conducted any activities or received income, grants, gifts or any
other asset.
(b) Any organization exempt from tax under Section 23701 which has
suffered the suspension or forfeiture provided for in Section 23301
or 23301.5 may be required by the Franchise Tax Board to file a new
application for exemption in connection with an application for
revivor under Section 23305.
SEC. 91.3. Section 23777 of the Revenue and Taxation Code is
amended to read:
23777. The exemption granted to any organization under the
provisions of Article 1 (commencing with Section 23701) of this
chapter may be revoked by the Franchise Tax Board if the organization
fails to--
(a) File the annual return or statement required under
Section 23772 or 23774 or pay any amount required under Section 23703
or 23772 any return required under this chapter or
pay any amount due under this part or Part 10.2 (commencing with
Section 18401) on or before the last day of the 12th month
following the close of the income year;
(b) Comply with Section 19504 (relating to powers of the Franchise
Tax Board to examine records and subpoena witnesses); or
(c) Confine its activities to those permitted by the section under
which the exemption was granted.
SEC. 91.5. Section 23778 of the Revenue and Taxation Code is
amended to read:
23778. An organization whose exemption was revoked under Section
23777 may be reestablished as an exempt organization upon
the filing of-- upon:
(a) The filing or payment of:
(1) A new application for exemption and payment of the
filing fee required under Section 23701;
(b)
(2) Any information returns, statements,
notifications, or payment of any
amounts due under Section 23772, 23774, or 23775
this part or Part 10.2 (commencing with Section 18401)
which were not previously submitted or paid and which resulted in the
revocation; and
(c) revocation.
(b) When revocation occurred under subdivision (c) of
Section 23777, satisfactory proof that--
(1) The organization has corrected its nonexempt activities; and
(2) That it will operate in an exempt manner in the future; and
(3) The payment of any tax for periods the organization was not
qualified for exemption.
SEC. 91.7. Section 24306 of the Revenue and Taxation Code is
amended to read:
24306. (a) For purposes of this section, the following terms have
the following meanings, as provided in the Golden State Scholarshare
Trust Act (Article 19 (commencing with Section 69980) of Chapter 2
of Part 42 of the Education Code):
(1) "Beneficiary" has the meaning set forth in subdivision (c) of
Section 69980 of the Education Code.
(2) "Benefit" has the meaning set forth in subdivision (d) of
Section 69980 of the Education Code.
(3) "Participant" has the meaning set forth in subdivision (h) of
Section 69980 of the Education Code.
(4) "Participation agreement" has the meaning set forth in
subdivision (i) of Section 69980 of the Education Code.
(5) "Scholarshare trust" has the meaning set forth in subdivision
(f) of Section 69980 of the Education Code.
(b) Except as otherwise provided in subdivision (c), gross income
of a participant shall not include any of the following:
(1) Any earnings under a Scholarshare trust, or a participation
agreement, as provided in Article 19 (commencing with Section 69980)
of Chapter 2 of Part 42 of the Education Code.
(2) Contributions to the Scholarshare trust on behalf of a
beneficiary shall not be includable as gross income of that
beneficiary.
(c) (1) Any distribution under a Scholarshare trust participation
agreement shall be includable in the gross income of the distributee
in the manner as provided under Section 72 of the Internal Revenue
Code, as modified by Section 24272.2, to the extent not excluded from
gross income under any other provision of this part. For purposes
of applying Section 72 of the Internal Revenue Code, the following
apply:
(A) All Scholarshare trust accounts of which an individual is a
beneficiary shall be treated as one account, except as otherwise
provided.
(B) All distributions during an income year shall be treated as
one distribution.
(C) The value of the participation agreement, income on the
participation agreement, and investment in the participation
agreement shall be computed as of the close of the calendar year in
which the income year begins.
(2) A contribution by a for-profit or nonprofit entity, or by a
state or local government agency, for the benefit of an owner or
employee of that entity or a beneficiary whom the owner or employee
has the power to designate, including the owner or employee's minor
children, shall be included in the gross income of that owner or
employee in the year the contribution is made.
(3) For purposes of this subdivision, "distribution" includes any
benefit furnished to a beneficiary under a participation agreement,
as provided in Article 19 (commencing with Section 69980) of Chapter
2 of Part 42 of the Education Code.
(4) (A) Paragraph (1) shall not apply to that portion of any
distribution that, within 60 days of distribution, is transferred to
the credit of another beneficiary under the Scholarshare trust who is
a "member of the family," as that term is used in Section 529(e)(2)
of the Internal Revenue Code, as amended by Section 211 of the
Taxpayer Relief Act of 1997 (P.L. 105-34), of the former beneficiary
of that Scholarshare trust.
(B) Any change in the beneficiary of an interest in the
Scholarshare trust shall not be treated as a distribution for
purposes of paragraph (1) if the new beneficiary is a "member of the
family," as that term is used in Section 2032A(e)(2) of the Internal
Revenue Code, of the former beneficiary of that Scholarshare trust.
SEC. 92. Section 24357.6 of the Revenue and Taxation Code is
amended to read:
24357.6. No deduction shall be allowed under this part for an
out-of-pocket expenditure made on behalf of an organization described
in Section 24359 (other than an organization described in
paragraph (5) of subdivision (a) subdivision (e)
of Section 23704.5 (relating to churches, etc.)) if the expenditure
is made for the purpose of influencing legislation (within the
meaning of Section 23701d).
SEC. 93. Section 24410 of the Revenue and Taxation Code is amended
to read:
24410. (a) Dividends received by a corporation during the income
year from an insurance company subject to tax imposed by Part 7
(commencing with Section 12001) of this division at the time of the
payment of the dividends and at least 80 percent of each class of its
stock then being owned by the corporation receiving the dividend.
(b) The deduction under this section shall be limited to that
portion of the dividends received which are determined to be paid
from income from California sources determined pursuant to
subdivision (c).
(c) Dividends paid from California sources shall be determined by
multiplying the amount of the dividends by an apportionment factor
equal to the ratio of gross income from California sources to all
gross income of the company. Gross income from California sources
equals total gross income less dividends from other insurance
companies multiplied by the average of the following three factors:
(1) A gross receipts factor, the denominator of which shall
include all receipts, other than dividends from another insurance
company, regardless of the nature or source from which derived. The
numerator of which shall include all gross receipts, other than
dividends from another insurance company, derived from or
attributable to this state. With respect to premiums, only receipts
which were subject to tax under Part 7 (commencing with Section
12001) of this division, shall be included in the numerator, and with
respect to income from intangibles they shall be attributable to the
commercial domicile of the insurance company.
(2) A payroll factor determined under the provisions of the
Uniform Division of Income for Tax Purposes Act, Chapter 17, Article
2 of this part.
(3) A property factor, determined under the provisions of the
Uniform Division of Income for Tax Purposes Act provided for in
Article 2 (commencing with Section 25120) of Chapter 17 of this part,
provided that for the purposes of this paragraph the property factor
shall include all intangible investment property, which intangible
property shall be allocated to the commercial domicile of
such that insurance company.
(4) Plus the portion of the dividends received from another
insurance company determined to be paid from California source income
pursuant to the formula set forth in paragraphs (1) through (3)
based upon the receipts, payroll and property of such
that other insurance company.
(d) The insurance company from which the dividends are received
shall furnish such that information as
the Franchise Tax Board may require to determine the allocation
formula and the Franchise Tax Board may adopt such
those regulations as it deems necessary to effectuate the
purpose of this section.
Nothing in this section shall be construed to limit or affect in
any manner any other provisions of this part.
SEC. 94. Section 24416.2 of the Revenue and Taxation Code is
amended to read:
24416.2. (a) The term "qualified taxpayer" as used in Section
24416.1 includes 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. For purposes of this subdivision, all of the
following shall apply:
(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 Chapter 17 (commencing with Section
25101), modified for purposes of this subdivision as follows:
(i) Loss shall be apportioned to the enterprise zone by
multiplying total 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 enterprise 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
enterprise zone as defined in Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code.
(C) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the enterprise zone
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this subdivision as follows:
(i) Business income shall be apportioned to the enterprise zone by
multiplying the 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. For purposes of
this clause:
(I) 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 enterprise 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.
(II) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the enterprise 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.
(ii) 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.
(3) The changes made to this subdivision by the act adding this
paragraph shall apply to income years beginning on or after January
1, 1998.
(b) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections 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 section
which applies to that taxpayer with respect to that net operating
loss. If the taxpayer is eligible to qualify under more than one
section, the designation is to be made after taking into account
subdivision (c).
(c) If a taxpayer is eligible to qualify under this section and
either Section 24416.4, 24416.5, or 24416.6 as a "qualified taxpayer,"
with respect to a net operating loss in an income year, the taxpayer
shall designate which section is to apply to the taxpayer.
(d) Notwithstanding Section 24416, the amount of the loss
determined under this section, or Section 24416.4, 24416.5, or
24416.6 shall be the only net operating loss allowed to be carried
over from that income year and the designation under subdivision (b)
shall be included in the election under Section 24416.1.
SEC. 95. Section 24416.5 of the Revenue and Taxation Code is
amended to read:
24416.5. (a) For each income year beginning on or after January
1, 1995, the term "qualified taxpayer" as used in Section 24416.1
includes a taxpayer engaged in the conduct of a trade or business
within a LAMBRA. For purposes of this subdivision, all of the
following shall apply:
(1) 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.
(2) 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.
(3) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
(4) "Taxpayer" means a bank or 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. For
purposes of this paragraph, all of the following shall apply:
(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. 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 are 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.
(5) "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 Chapter 17 (commencing with Section
25101), modified for purposes of this section as follows:
(A) Loss shall be apportioned to a LAMBRA by multiplying total
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 2.
(B) "The LAMBRA" shall be substituted for "this state."
(6) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to a LAMBRA.
(7) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income attributable to
sources in this state first shall be determined in accordance with
Chapter 17 (commencing with Section 25101). That business income
shall be further apportioned to the LAMBRA in accordance with Article
2 (commencing with Section 25120) of Chapter 17, modified as
follows:
(A) Business income shall be apportioned to a LAMBRA 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. For purposes of
this clause:
(i) 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 LAMBRA 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.
(ii) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA 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.
(B) 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 the
limitation specified in subparagraph (D) and allowing a net operating
loss deduction.
(8) "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.
(b) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections 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 section
that applies to that taxpayer with respect to that net operating
loss. If the taxpayer is eligible to qualify under more than one
section, the designation is to be made after taking into account
subdivision (c).
(c) If a taxpayer is eligible to qualify under this section and
either Section 24416.2, 24416.4, or 24416.6 as a "qualified taxpayer,"
with respect to a net operating loss in an income year, the taxpayer
shall designate which section is to apply to the taxpayer.
(d) Notwithstanding Section 24416, the amount of the loss
determined under this section or Section 24416.2, 24416.4, or 24416.6
shall be the only net
operating loss allowed to be carried over from that income year and
the designation under subdivision (b) shall be included in the
election under Section 24416.1.
(e) This section shall apply to income years beginning on and
after January 1, 1998.
SEC. 96. Section 24424 of the Revenue and Taxation Code is amended
to read:
24424. (a) No deduction shall be allowed for--
(1) Premiums paid on any life insurance policy, or endowment or
annuity contract, if the taxpayer is directly or indirectly a
beneficiary under that policy or contract.
(2) Any amount paid or accrued on indebtedness incurred to
purchase or carry a single premium life insurance, endowment, or
annuity contract. This paragraph shall apply with respect to annuity
contracts only as to contracts purchased after December 31, 1954.
(3) Except as provided in subdivision (c), any amount paid or
accrued on indebtedness incurred or continued to purchase or carry a
life insurance, endowment, or annuity contract (other than a single
premium contract or a contract treated as a single premium contract)
pursuant to a plan of purchase which contemplates the systematic
direct or indirect borrowing of part or all of the increases in the
cash value of that contract (either from the insurer or otherwise).
This paragraph shall apply only with respect to contracts purchased
after August 6, 1963.
(4) Except as provided in subdivision (d), any interest paid or
accrued on any indebtedness with respect to one or more insurance
policies owned by the taxpayer covering the life of any individual,
or any endowment or annuity contracts owned by the taxpayer covering
any individual.
This paragraph shall apply with respect to contracts purchased
after June 20, 1986.
(b) Paragraph (1) of subdivision (a) shall not apply to either of
the following:
(1) Any annuity contract described in Section 72(s)(5) of the
Internal Revenue Code.
(2) Any annuity contract to which Section 72(u) of the Internal
Revenue Code applies.
(c) For purposes of paragraph (2) of subdivision (a), a contract
shall be treated as a single premium contract if either of the
following conditions exist:
(1) Substantially all the premiums on the contract are paid within
a period of four years from the date on which the contract is
purchased.
(2) An amount is deposited after December 31, 1954, with the
insurer for payment of a substantial number of future premiums on the
contract.
(d) Paragraph (3) of subdivision (a) shall not apply to any amount
paid or accrued by a person during an income year on indebtedness
incurred or continued as part of a plan referred to in paragraph (3)
of subdivision (a) if any of the following is applicable:
(1) No part of four of the annual premiums due during the
seven-year period (beginning with the date the first premium on the
contract to which that plan relates was paid) is paid under that plan
by means of indebtedness.
(2) The total of the amounts paid or accrued by that person during
that income year for which (without regard to this paragraph) no
deduction would be allowable by reason of paragraph (3) of
subdivision (a) does not exceed one hundred dollars ($100).
(3) That amount was paid or accrued on indebtedness incurred
because of an unforeseen substantial loss of income or unforeseen
substantial increase in its financial obligations.
(4) That indebtedness was incurred in connection with its trade or
business.
For purposes of applying paragraph (1), if there is a substantial
increase in the premiums on a contract, a new seven-year period
described in that paragraph with respect to that contract shall
commence on the date the first increased premium is paid.
(e) (1) Paragraph (4) of subdivision (a) shall not apply to any
interest paid or accrued on any indebtedness with respect to policies
or contracts covering an individual who is a key person to the
extent that the aggregate amount of that indebtedness with respect to
policies and contracts covering that individual does not exceed
fifty thousand dollars ($50,000).
(2) (A) No deduction shall be allowed by reason of paragraph (1)
or the last sentence of subdivision (a) with respect to interest paid
or accrued for any month beginning after December 31, 1995, to the
extent the amount of that interest exceeds the amount which would
have been determined if the applicable rate of interest were used for
that month.
(B) For purposes of subparagraph (A):
(i) The applicable rate of interest for any month is the rate of
interest described as Moody's Corporate Bond Yield Average-Monthly
Average Corporates, as published by Moody's Investors Service, Inc.,
or any successor thereto, for that month.
(ii) In the case of indebtedness on a contract purchased on or
before June 20, 1986, all of the following shall apply:
(I) If the contract provides a fixed rate of interest, the
applicable rate of interest for any month shall be the Moody's rate
described in clause (i) for the month in which the contract was
purchased.
(II) If the contract provides a variable rate of interest, the
applicable rate of interest for any month in an applicable period
shall be the Moody's rate described in clause (i) for the third month
preceding the first month in that period.
(III) For purposes of subclause (II), the term "applicable period"
means the 12-month period beginning on the date the policy is issued
(and each successive 12-month period thereafter) unless the taxpayer
elects a number of months (not greater than 12) other than that
12-month period to be its applicable period. That election shall be
made not later than the 90th day after the date of the enactment of
the act adding this sentence and, if made, shall apply to the
taxpayer's first income year ending on or after December 31, 1995,
and all subsequent income years, unless revoked with the consent of
the Franchise Tax Board.
(3) For purposes of paragraph (1), "key person" means an officer
or 20-percent owner, except that the number of individuals who may be
treated as key persons with respect to any taxpayer shall not exceed
the greater of:
(A) Five individuals.
(B) The lesser of 5 percent of the total officers and employees of
the taxpayer or 20 individuals.
(4) For purposes of this subdivision, "20-percent owner" means
both of the following:
(A) If the taxpayer is a corporation, any person who directly owns
20 percent or more of the outstanding stock of the corporation or
stock possessing 20 percent or more of the total combined voting
power of all stock of the corporation.
(B) If the taxpayer is not a corporation, any person who owns 20
percent or more of the capital or profits interest in the taxpayer.
(5) (A) For purposes of subparagraph (A) of paragraph (4) and for
purposes of applying the fifty thousand dollars
dollar ($50,000) limitation in paragraph (1) ,
both of the following shall apply:
(i) All members of a controlled group shall be treated as one
taxpayer.
(ii) The limitation shall be allocated among the members of the
controlled group in the manner the Franchise Tax Board may prescribe.
(B) For purposes of this paragraph, all persons treated as a
single employer under Section 52(a) or 52(b) of the Internal Revenue
Code, relating to special rules, or Section 414(m) or 414(o) of the
Internal Revenue Code, relating to definitions and special rules,
shall be treated as members of a controlled group.
(f)(1) No deduction shall be allowed for that portion of the
taxpayer's interest expense which is allocable to unborrowed policy
cash values.
(2) For purposes of paragraph (1), the portion of the taxpayer's
interest expense which is allocable to unborrowed policy cash values
is an amount which bears the same ratio to the interest expense as:
(A) The taxpayer's average unborrowed policy cash values of life
insurance policies, and annuity and endowment contracts, issued after
June 8, 1997, bears to
(B) The sum of:
(i) In the case of assets of the taxpayer which are life insurance
policies or annuity or endowment contracts, the average unborrowed
policy cash values of those policies and contracts, and
(ii) In the case of assets of the taxpayer not described in clause
(i), the average adjusted bases (within the meaning of Section
24916) of those assets.
(3) For purposes of this subdivision, the term "unborrowed policy
cash value" means, with respect to any life insurance policy or
annuity or endowment contract, the excess of:
(A) The cash surrender value of the policy or contract determined
without regard to any surrender charge, over
(B) The amount of any loan with respect to that policy or
contract.
(4) (A) Paragraph (1) shall not apply to any policy or contract
owned by an entity engaged in a trade or business if the policy or
contract covers only one individual and if that individual is (at the
time first covered by the policy or contract):
(i) A 20-percent owner of the entity, or
(ii) An individual (not described in clause (i)) who is an
officer, director, or employee of that trade or business.
A policy or contract covering a 20-percent owner of the entity
shall not be treated as failing to meet the requirements of the
preceding sentence by reason of covering the joint lives of the owner
and the owner's spouse.
(B) Paragraph (1) shall not apply to any annuity contract to which
Section 72(u) of the Internal Revenue Code applies.
(C) Any policy or contract to which paragraph (1) does not apply
by reason of this paragraph shall not be taken into account under
paragraph (2).
(D) For purposes of subparagraph (A), the term "20-percent owner"
has the meaning given such that term by
paragraph (4) of subdivision (e).
(5)(A)(i) This subdivision shall not apply to any policy or
contract held by a natural person.
(ii) If a trade or business is directly or indirectly the
beneficiary under any policy or contract, the policy or contract
shall be treated as held by that trade or business and not by a
natural person.
(iii)(I) Clause (ii) shall not apply to any trade or business
carried on as a sole proprietorship and to any trade or business
performing services as an employee.
(II) The amount of the unborrowed cash value of any policy or
contract which is taken into account by reason of clause (ii) shall
not exceed the benefit to which the trade or business is directly or
indirectly entitled under the policy or contract.
(iv) A copy of the report required for federal purposes under
Section 264(f) of the Internal Revenue Code shall be filed with the
Franchise Tax Board at a time and in the manner specified for federal
purposes and shall be treated as a statement referred to in Section
6724(d)(1) of the Internal Revenue Code.
(B) In the case of a partnership or S corporation, this
subdivision shall be applied at the partnership and corporate levels.
(6)(A) If interest on any indebtedness is disallowed under
subdivision (a) or Section 24425, both of the following shall apply:
(i) The disallowed interest shall not be taken into account for
purposes of applying this subdivision.
(ii) The amount otherwise taken into account under subparagraph
(B) of paragraph (2) shall be reduced (but not below zero) by the
amount of the indebtedness.
(B) This subdivision shall be applied before the application of
Section 263A of the Internal Revenue Code, relating to capitalization
of certain expenses where taxpayer produces property.
(7) The term "interest expense" means the aggregate amount
allowable to the taxpayer as a deduction for interest (within the
meaning of Section 24344) for the income year (determined without
regard to this subdivision, Section 24425, and Section 291 of the
Internal Revenue Code).
(8) All members of a controlled group (within the meaning of
subparagraph (B) of paragraph (5) of subdivision (e)) shall be
treated as one taxpayer for purposes of this subdivision.
(g) (1) The amendments made to this section by the act adding this
subdivision shall apply to interest paid or accrued after December
31, 1995.
(2) (A) The amendments made to this section by the act adding this
subdivision shall not apply to qualified interest paid or accrued on
that indebtedness after December 31, 1995, and before January 1,
1999, in the case of either of the following:
(i) Indebtedness incurred before January 1, 1996.
(ii) Indebtedness incurred before January 1, 1997, with respect to
any contract or policy entered into in 1994 or 1995.
(B) For purposes of subparagraph (A), the qualified interest with
respect to any indebtedness for any month is the amount of interest
(otherwise deductible) which would be paid or accrued for that month
on that indebtedness if--
(i) In the case of any interest paid or accrued after December 31,
1995, indebtedness with respect to no more than 20,000 insured
individuals were taken into account, and
(ii) The lesser of the following rates of interest were used for
that month:
(I) The rate of interest specified under the terms of the
indebtedness as in effect on December 31, 1995 (and without regard to
modification of the terms after that date).
(II) The applicable percentage of the rate of interest described
as Moody's Corporate Bond Yield Average-Monthly Average Corporates as
published by Moody's Investors Service, Inc., or any successor
thereto, for that month. For purposes of clause (i), all persons
treated as a single employer under Section 52(a) or 52(b) of the
Internal Revenue Code, relating to special rules, or Section 414(m)
or 414(o) of the Internal Revenue Code, relating to definitions and
special rules, shall be treated as one person. Subclause (II) of
clause (ii) shall not apply to any month before January 1, 1996.
(C) For purposes of subparagraph (B), the applicable percentage is
as follows:
For calendar year: The percentage is:
1996 ....................... 100 percent
1997 ....................... 90 percent
1998 ....................... 80 percent
(3) This subdivision shall not apply to any contract purchased on
or before June 20, 1986, except that paragraph (2) of subdivision (d)
shall apply to interest paid or accrued after December 31, 1995.
(h) (1) Any amount received under any life insurance policy or
endowment or annuity contract described in paragraph (4) of
subdivision (a) shall be includable in gross income (in lieu of any
other inclusion in gross income) ratably over the four-income-year
period beginning with the income year that amount would (but for this
paragraph) be includable, upon the occurrence of either of the
following:
(A) The complete surrender, redemption, or maturity of that policy
or contract during calendar year 1996, 1997, or 1998.
(B) The full discharge during calendar year 1996, 1997, or 1998 of
the obligation under the policy or contract which is in the nature
of a refund of the consideration paid for the policy or contract.
(2) Paragraph (1) shall only apply to the extent the amount is
includable in gross income for the income year in which the event
described in subparagraph (A) or (B) of paragraph (1) occurs.
(3) Solely by reason of an occurrence described in subparagraph
(A) or (B) of paragraph (1) or solely by reason of no additional
premiums being received under the contract by reason of a lapse
occurring after December 31, 1995, a contract shall not be treated as
either of the following:
(A) Failing to meet the requirement of paragraph (1) of
subdivision (c).
(B) A single premium contract under paragraph (1) of subdivision
(b).
(i) The amendments made by the act adding this subdivision shall
apply to contracts issued after June 8, 1997, in income years
beginning on or after January 1, 1998. For purposes of the preceding
sentence, any material increase in the death benefit or other
material change in the contract shall be treated as a new contract,
except that the addition of covered lives shall be treated as a new
contract only with respect to those additional covered lives. For
purposes of this subdivision, an increase in the death benefit under
a policy or contract issued in connection with a lapse described in
Section 501(d)(2) of the Health Insurance Portability and
Accountability Act of 1996 shall not be treated as a new contract.
SEC. 97. Section 24436.5 of the Revenue and Taxation Code is
amended to read:
24436.5. (a) No deduction shall be allowed for interest,
depreciation, taxes, or amortization paid or incurred in the income
year under Section 24343, 24344, 24345, or 24349, with respect to
substandard housing located in this state, except as provided in
subdivision (e).
(b) "Substandard housing" means occupied dwellings from which the
taxpayer derives rental income or unoccupied or abandoned dwellings
for which both of the following apply:
(1) Either of the following occurs:
(A) For occupied dwellings from which the taxpayer derives rental
income, a state or local government regulatory agency has determined
that the housing violates state law or local codes dealing with
health, safety, or building.
(B) For dwellings that are unoccupied or abandoned for at least 90
days, a state or local government regulatory agency has cited the
housing for conditions that constitute a serious violation of state
law or local codes dealing with health, safety, or building, and that
constitute a threat to public health and safety.
(2) Either of the following occurs:
(A) After written notice of violation by the regulatory agency,
specifying the applicability of this section, the housing has not
been repaired or brought to a condition of compliance within six
months after the date of the notice or the time prescribed in the
notice, whichever period is later.
(B) Good faith efforts for compliance have not been commenced, as
determined by the regulatory agency.
"Substandard housing" also means employee housing that has not,
within 30 days of the date of the written notice of violation or the
date for compliance prescribed in the written notice of violation,
been brought into compliance with the conditions stated in the
written notice of violation of the Employee Housing Act (Part 1
(commencing with Section 17000) of Division 13 of the Health and
Safety Code) issued by the enforcement agency that specifies the
application of this section. The regulatory agency may, for good
cause shown, extend the compliance date prescribed in a violation
notice.
(c) (1) When the period specified in paragraph (2) of subdivision
(b) has expired without compliance, the government regulatory agency
shall mail to the taxpayer a notice of noncompliance. The notice of
noncompliance shall be in a form and shall include information
prescribed by the Franchise Tax Board, shall be mailed by certified
mail to the taxpayer at his or her last known address, and shall
advise the taxpayer of (A) an intent to notify the Franchise Tax
Board of the noncompliance within 10 days unless an appeal is filed,
(B) where an appeal may be filed, and (C) a general description of
the tax consequences of that filing with the Franchise Tax Board.
Appeals shall be made to the same body and in the same manner as
appeals from other actions of the regulatory agency. If no appeal is
made within 10 days or if after disposition of the appeal the
regulatory agency is sustained, the regulatory agency shall notify,
in writing, the Franchise Tax Board of the noncompliance.
(2) The notice of noncompliance shall contain the legal
description or the lot and block numbers of the real property, the
assessor's parcel number, and the name of the owner of record as
shown on the latest equalized assessment roll. In addition, the
regulatory agency shall, at the same time as notification of the
notice of noncompliance is sent to the Franchise Tax Board, record a
copy of the notice of noncompliance in the office of the recorder for
the county in which the substandard housing is located that includes
a statement of tax consequences that may be determined by the
Franchise Tax Board. However, the failure to record a notice with
the county recorder does not relieve the liability of any taxpayer
nor does it create any liability on the part of the regulatory
agency.
(3) The regulatory agency may charge the taxpayer a fee in an
amount not to exceed the regulatory agency's costs incurred in
recording any notice of noncompliance or issuing any release of that
notice. The notice of compliance shall be recorded and shall serve
to expunge the notice of noncompliance. The notice of compliance
shall contain the same recording information required for the notice
of noncompliance. No deduction by the taxpayer, or any other
taxpayer who obtains title to the property subsequent to the
recordation of the notice of noncompliance, shall be allowed for the
items provided in subdivision (a) from the date of the notice of
noncompliance until the date the regulatory agency determines that
the substandard housing has been brought to a condition of
compliance. The regulatory agency shall mail to the Franchise Tax
Board and the taxpayer a notice of compliance, which notice shall be
in the form and include the information prescribed by the Franchise
Tax Board. In the event the period of noncompliance does not cover
an entire income year, the deductions shall be denied at the rate of
1/12 for each full month during the period of noncompliance.
(4) If the property is owned by more than one owner or the
recorded title is in the name of a fictitious owner, the notice
requirements provided in subdivision (b) and this subdivision shall
be satisfied for each owner if the notices are mailed to one owner or
to the fictitious name owner at the address appearing on the latest
available property tax bill. However, notices made pursuant to this
subdivision shall not relieve the regulatory agency from furnishing
taxpayer identification information required to implement this
section to the Franchise Tax Board.
(d) For the purposes of this section, a notice of noncompliance
shall not be mailed by the regulatory agency to the Franchise Tax
Board if any of the following occur:
(1) The housing was rendered substandard solely by reason of
earthquake, flood or other natural disaster except where the
condition remains for more than three years after the disaster.
(2) The owner of the substandard housing has secured financing to
bring the housing into compliance with those laws or codes that have
been violated, causing the housing to be classified as substandard,
and has commenced repairs or other work necessary to bring the
housing into compliance.
(3) The owner of substandard housing that is not within the
meaning of housing accommodation, as defined in subdivision (d) of
Section 35805 of the Health and Safety Code, has done both of the
following:
(A) Attempted to secure financing to bring the housing into
compliance with those laws or codes that have been violated, causing
the housing to be classified as substandard.
(B) Been denied that financing solely because the housing is
located in a neighborhood or geographical area in which financial
institutions do not provide financing for rehabilitation of any of
that type of housing.
(e) The provisions of this section do not apply to deductions from
income derived from property rendered substandard solely by reason
of a change in applicable state or local housing standards unless
those violations cause substantial danger to the occupants of the
property, as determined by the regulatory agency which has served
notice of violation pursuant to subdivision (b).
(f) The owner of substandard housing found to be in noncompliance
shall, upon total or partial divestiture of interest in the property,
immediately notify the regulatory agency of the name and address of
the person or persons to whom the property has been sold or otherwise
transferred and the date of the sale or transference.
(g) By July 1 of each year, the regulatory agency shall report to
the appropriate legislative body of its jurisdiction all of the
following information, for the preceding calendar year, regarding its
activities to secure code enforcement, which shall be public
information:
(1) The number of written notices of violation issued for
substandard housing under subdivision (b).
(2) The number of violations complied with within the period
prescribed in subdivision (b).
(3) The number of notices of noncompliance issued pursuant to
subdivision (c).
(4) The number of appeals from those notices pursuant to
subdivision (c).
(5) The number of successful appeals by owners.
(6) The number of notices of noncompliance mailed to the Franchise
Tax Board pursuant to subdivision (c).
(7) The number of cases in which a notice of noncompliance was not
sent pursuant to the provisions of subdivision (d).
(8) The number of extensions for compliance granted pursuant to
subdivision (b) and the mean average length of the extensions.
(9) The mean average length of time from the issuance of a notice
of violation to the mailing of a notice of noncompliance to the
Franchise Tax Board where the notice is actually sent to the
Franchise Tax Board.
(10) The number of cases where compliance is achieved after a
notice of noncompliance has been mailed to the Franchise Tax Board.
(11) The number of instances of disallowance of tax deductions by
the Franchise Tax Board resulting from referrals made by the
regulatory agency. This information may be filed in a supplemental
report in succeeding years as it becomes available.
(h) The provisions of this section relating to substandard housing
consisting of abandoned or unoccupied dwellings do not apply to any
lender engaging in a "federally related transaction," as defined in
Section 11302 of the Business and Professions Code, who acquires
title through judicial or nonjudicial foreclosure, or accepts a deed
in lieu of foreclosure. The exception provided in this subdivision
covers only substandard housing consisting of abandoned or unoccupied
dwellings involved in the federally related transaction.
SEC. 98. Section 25106 of the Revenue and Taxation Code is amended
to read:
25106. In any case in which the tax of a corporation is or has
been determined under this chapter with reference to the income and
apportionment factors of another corporation with which it is doing
or has done a unitary business, all dividends paid by one to another
of those corporations shall, to the extent those dividends are paid
out of the income
previously described of the unitary business, be eliminated from the
income of the recipient and, except for purposes of applying Section
24345, shall not be taken into account under Section 24344 or in any
other manner in determining the tax of any member of the unitary
group.
SEC. 99. Section 25114 of the Revenue and Taxation Code is amended
to read:
25114. (a) The Franchise Tax Board, for purposes of administering
the provisions of this article, shall examine the returns filed by
taxpayers subject to these provisions. Where this examination
reveals potential noncompliance, a detailed examination shall be
made, notwithstanding the potential net revenue benefit to the state,
unless the taxpayer is being examined by the Internal Revenue
Service for the same year or years on the same issues.
(b) (1) In any case of two or more organizations, trades, or
businesses (whether or not organized in the United States and whether
or not affiliated) owned or controlled directly or indirectly by the
same interests, the Franchise Tax Board may distribute, apportion,
or allocate gross income, deductions, credits, or allowances between
or among these organizations, trades, or businesses, if the board
determines that the distribution, apportionment, or allocation is
necessary in order to prevent evasion of taxes or clearly to reflect
the income of any of these organizations, trades, or businesses. In
the case of any transfer (or license) of intangible property (within
the meaning of Section 936(h)(3)(B) of the Internal Revenue Code),
the income with respect to that transfer or license shall be
commensurate with the income attributable to the intangible property.
(2) In making distributions, apportionments, and allocations under
this section, the Franchise Tax Board shall generally follow the
rules, regulations, and procedures of the Internal Revenue Service in
making audits under Section 482 of the Internal Revenue Code. Any
of these rules, regulations, and procedures adopted by the Franchise
Tax Board shall not be subject to review by the Office of
Administrative Law.
(3) If the Internal Revenue Service has conducted a detailed audit
pursuant to Section 482 of the Internal Revenue Code or Subchapter N
of Chapter 1 of Subtitle A of the Internal Revenue Code and has made
adjustments pursuant to those provisions, it shall be presumed, to
the extent that the provisions relate to the determination of the
amount of income and factors required to be taken into account
pursuant to Section 25110, that no further adjustments are necessary
for this state's purposes. If the Internal Revenue Service has
conducted a detailed audit pursuant to Section 482 of the Internal
Revenue Code or Subchapter N of Chapter 1 of Subtitle A of the
Internal Revenue Code and has made or proposed no adjustments to the
transactions examined, it shall be presumed, to the extent that the
provisions relate to the determination of the amount of income and
factors required to be taken into account pursuant to Section 25110,
that no adjustment is necessary for this state's purposes. These
presumptions apply to all Internal Revenue Service audit
determinations, including determinations made by the Appeals and
Competent Authority. These presumptions shall be overcome if the
Franchise Tax Board or the taxpayer demonstrates that an adjustment
or a failure to make an adjustment was erroneous, if it demonstrates
that the results of such an adjustment would produce a minimal tax
change for federal purposes because of correlative or offsetting
adjustments or for other reasons, or if substantially the same
federal tax result was obtained under other sections of the Internal
Revenue Code. No inference shall be drawn from an Internal Revenue
Service failure to audit international transactions pursuant to
Section 482 of the Internal Revenue Code or Subchapter N of Chapter 1
of Subtitle A of the Internal Revenue Code and it shall not be
presumed that any of those transactions were correctly reported.
SEC. 100. Section 1088 of the Unemployment Insurance Code is
amended to read:
1088. (a) (1) Each employer shall file with the director within
the time required by subdivision (a) or (d) of Section 1110 for
payment of employer contributions, a report of contributions and a
report of wages paid to his or her workers in the form and containing
any information as the director prescribes. An electronic funds
transfer of contributions pursuant to subdivision (f) of Section 1110
shall satisfy the requirement for a report of contributions. The
report of wages shall include individual amounts required to be
withheld under Section 13020 or withheld under Section 13028.
(2) In order to enhance efforts to reduce tax fraud and to reduce
the personal income tax reporting burden, effective January 1, 1997,
the report of wages shall also include the full first name of the
employee and total wages, as defined in Section 13009, paid to each
employee. This paragraph shall apply to reports of wages for the
1997 calendar year and after.
(b) Each employer shall file with the director within the time
required by subdivision (b) or (d) of Section 1110 for payment of
worker contributions, a report of contributions containing the
employer's business name, address, and account number, the total
amount of worker contributions due, and any other information as the
director shall prescribe. The director shall prescribe the form for
the report of contributions. An electronic funds transfer of
contributions pursuant to subdivision (f) of Section 1110 shall
satisfy the requirement for a report of contributions.
(c) In addition to the report of contributions and report of wages
required by employers under subdivision (a), an individual who has
elected coverage under subdivision (a) of Section 708 is also
required to file a separate report of contributions, subject to Part
2 (commencing with Section 2601).
(d) Any employer making an election under subdivision (d) of
Section 1110 shall submit the report of wages described in
subdivision (a), within the time required for submitting employer
contributions under subdivision (a) of Section 1110.
(e) In addition to the report of contributions and report of wages
described in subdivision (a), each employer shall file with the
director an annual reconciliation return showing the total amount of
wages, employer contributions required under Sections 976 and 976.6,
worker contributions required under Section 984, the amounts required
to be withheld under Section 13020 or withheld under Section 13028,
and any other information as the director shall prescribe. This
annual reconciliation return shall be due on the first day of January
following the close of the prior calendar year and shall become
delinquent if not filed on or before the last day of that month.
This subdivision shall not apply to individuals electing coverage
under Section 708 or 708.5 or employers electing financing under
Section 821.
(f) For purposes of making a report of wages under subdivision
(a), employers who are required under Section 6011 of the Internal
Revenue Code and authorized regulations thereunder to file magnetic
media returns, shall, within 90 days of becoming subject to this
requirement, do one of the following:
(1) Submit a magnetic media format to the department for approval,
and upon receiving approval from the department, submit any
subsequent reports of wages on magnetic media.
(2) Establish to the satisfaction of the director that there is a
lack of automation, a severe economic hardship, a current exemption
from submitting magnetic media information returns for federal
purposes, or other good cause for not complying with the provisions
of this subdivision. Approved waivers shall be valid for six months
or longer, at the discretion of the director.
(g) The Franchise Tax Board shall be allowed access to the
information filed with the department pursuant to this section.
(h) If an employer demonstrates that an undue hardship would be
imposed, the director may authorize an exemption from the requirement
in subdivision (a) to report individual amounts withheld under
Section 13020 and the requirement in subdivision (e) to file the
annual reconciliation return for the 1995 calendar year only. Any
request for exemption must be filed on or before January 15, 1995.
Upon approval of a request for exemption under this subdivision, the
employer shall file quarterly returns and reports of wages in the
manner and method prescribed by the director for the 1995 calendar
year only.
SEC. 101.
SEC. 100. Section 1185 of the Unemployment Insurance Code is
amended to read:
1185. The director, in collaboration with the Franchise Tax
Board, shall do all of the following:
(a) Identify taxpayers who have overpaid disability insurance
contributions in any or all tax years from January 1, 1993, to
December 31, 1995, inclusive, and have not received refunds due to
them. For purposes of this subdivision, "taxpayers" means any
individual who filed a FTB Form 540A or 540EZ.
(b) (1) By October 15, 1997, credit the taxpayers identified in
this subdivision with the amount of any overpaid disability insurance
pursuant to Section 17061 of the Revenue and Taxation Code. If the
amount credited pursuant to this subdivision exceeds any amount then
due from the taxpayer, the difference shall be refunded to the
taxpayer. For taxable years 1993, 1994, and 1995, inclusive,
interest, at the rate established pursuant to Section 19521 of the
Revenue and Taxation Code, shall accrue from April 15 of the tax year
following the overpayment to a date preceding the date of the refund
warrant by not more than 30 days.
(2) Identify and refund overpayments, with interest, to those
taxpayers who have overpaid disability insurance contributions, and
who have not claimed refunds due to them.
(3) Interest on overpayments of disability insurance contributions
shall be allowed and paid pursuant to Sections 19340 and 19341 of
the Revenue and Taxation Code.
(4) For purposes of Section 19340 of the Revenue and Taxation
Code, any overpayment of disability insurance contributions shall be
deemed to have been paid on the last day prescribed for filing the
return under Article 1 (commencing with Section 18501) or Article 2
(commencing with Section 18601) of Chapter 2 of Part 10.2 of the
Revenue and Taxation Code without regard to any extension of time for
filing the return with respect to which the overpayment is allowable
as a credit under Section 17061 of the Revenue and Taxation Code.
SEC. 102. Section 13021 of the Unemployment Insurance Code is
amended to read:
13021. (a) Every employer required to withhold any tax under
Section 13020 shall for each calendar quarter, whether or not wages
or payments are paid in the quarter, file a withholding report and a
report of wages in a form prescribed by the department, and pay over
the taxes so required to be withheld. The report of wages shall
include individual amounts required to be withheld under Section
13020 or withheld under Section 13028. Except as provided in
subdivisions (c) and (d) of this section, the employer shall file a
withholding report and remit the total amount of income taxes
withheld during the calendar quarter on or before the last day of the
month following the close of the calendar quarter.
(b) Every employer electing to file a single annual return under
subdivision (d) of Section 1110 shall report and pay any taxes
withheld under Section 13020 on an annual basis within the time
specified in subdivision (d) of Section 1110.
(c) (1) Effective January 1, 1995, whenever an employer is
required, for federal income tax purposes, to remit the total amount
of withheld federal income tax in accordance with Section 6302 of the
Internal Revenue Code and regulations thereunder, and the
accumulated amount of state income tax withheld is more than five
hundred dollars ($500), the employer shall remit the total amount of
income tax withheld for state income tax purposes within the number
of banking days as specified for withheld federal income taxes by
Section 6302 of the Internal Revenue Code, and regulations
thereunder.
(2) Effective January 1, 1996, the five hundred dollar ($500)
amount referred to in paragraph (1) shall be adjusted annually as
follows, based on the annual average rate of interest earned on the
Pooled Money Investment Fund as of June 30 in the prior fiscal year:
Average Rate of Interest
Greater than or equal to 9 percent: $ 75
Less than 9 percent, but greater than or equal to
7 percent: 250
Less than 7 percent, but greater than or equal to
4 percent: 400
Less than 4 percent: 500
(d) (1) Notwithstanding subdivisions (a) and (c), for calendar
years beginning prior to January 1, 1995, if in the 12-month period
ending June 30 of the prior year the cumulative average payment made
pursuant to this division or Section 1110, for eight-monthly periods,
as defined under Section 6302 of the Internal Revenue Code and
regulations thereunder, was fifty thousand dollars ($50,000) or more,
the employer shall remit the total amount of income tax withheld
within three banking days following the close of each eight-monthly
period, as defined by Section 6302 of the Internal Revenue Code and
regulations thereunder. For purposes of this subdivision, payment
shall be made by electronic funds transfer in accordance with Section
13021.5, for one calendar year beginning on January 1. 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 complete on the date settlement occurs. The
department shall, on or before October 31 of the prior year, notify
all employers required to make payment by electronic funds transfer
of these requirements.
(2) Notwithstanding subdivisions (a) and (c), for calendar years
beginning on or after January 1, 1995, if in the 12-month period
ending June 30 of the prior year, the cumulative average payment made
pursuant to this division or Section 1110 for any deposit periods,
as defined under Section 6302 of the Internal Revenue Code and
regulations thereunder, was twenty thousand dollars ($20,000) or
more, the employer shall remit the total amount of income tax
withheld within the number of banking days as specified for federal
income taxes by Section 6302 of the Internal Revenue Code and
regulations thereunder. For purposes of this subdivision, payment
shall be made by electronic funds transfer in accordance with Section
13021.5, for one calendar year beginning on January 1. 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 complete on the date settlement occurs. The
department shall, on or before October 31 of the prior year, notify
all employers required by this paragraph to make payments by
electronic funds transfer of these requirements.
(3) Notwithstanding paragraph (2), effective January 1, 1995,
electronic funds transfer payments that are subject to the one-day
deposit rule, as defined by Section 6302 of the Internal Revenue Code
and regulations thereunder, shall be deemed timely if the payment
settles to the state's demand account within three banking days after
the date the employer meets the threshold for the one-day deposit
rule.
(4) Any taxpayer required to remit payments pursuant to paragraphs
(1) and (2) may request from the department a waiver of those
requirements. The department may grant a waiver only if it
determines that the particular amounts paid in excess of fifty
thousand dollars ($50,000) or twenty thousand dollars ($20,000), as
stated in paragraphs (1) and (2), respectively, were the result of an
unprecedented occurrence for that employer, and were not
representative of the employer's cumulative average payment in prior
years.
(5) Any state agency required to remit payments pursuant to
paragraphs (1) and (2) may request a waiver of those requirements
from the department. The department may grant a waiver if it
determines that there will not be a negative impact on the interest
earnings of the General Fund. If there is a negative impact to the
General Fund, the department may grant a waiver if the requesting
state agency follows procedures designated by the department to
mitigate the impact to the General Fund.
(e) Any employer not required to make payment pursuant to
subdivision (d) of this section may elect to make payment by
electronic funds transfer in accordance with Section 13021.5 under
the following conditions:
(1) The election shall be made in a form, and shall contain
information, as prescribed by the director, and shall be subject to
approval by the department.
(2) If approved, the election shall be effective on the date
specified in the notification to the employer of approval.
(3) The election shall be operative from the date specified in the
notification of approval, and shall continue in effect until
terminated by the employer or the department.
(4) Funds remitted by electronic funds transfer pursuant to this
subdivision shall be deemed complete in accordance with subdivision
(d) or as deemed appropriate by the director to encourage use of this
payment method.
(f) Notwithstanding Section 1112, no interest or penalties shall
be assessed against any employer who remits at least 95 percent of
the amount required by subdivision (c) or (d), provided that the
failure to remit the full amount is not willful and any remaining
amount due is paid with the next payment. The director may allow any
employer to submit the amounts due from multiple locations upon a
showing that those submissions are necessary to comply with the
provisions of subdivision (c) or (d).
(g) The department may, if it believes that action is necessary,
require any employer to make the report required by this section and
pay to it the tax deducted and withheld at any time, or from time to
time but no less frequently than provided for in subdivision (a).
(h) Any employer required to withhold any tax and who is not
required to make payment under subdivision (c) shall remit the total
amount of income tax withheld during each month of each calendar
quarter, on or before the 15th day of the subsequent month if the
income tax withheld for any of the three months or, cumulatively for
two or more months, is three hundred fifty dollars ($350) or more.
(i) For purposes of subdivisions (a), (c), and (h), payment is
deemed complete when it is placed in a properly addressed envelope,
bearing the correct postage, and it is deposited in the United States
mail.
(j) In addition to the withholding report and report of wages
described in subdivision (a), each employer shall file with the
director an annual reconciliation return showing the amount required
to be withheld under Section 13020, and any other information the
director shall prescribe. This annual reconciliation return shall be
due on the first day of January following the close of the prior
calendar year and shall become delinquent if not filed on or before
the last day of that month.
(k) If an employer demonstrates that an undue hardship would be
imposed, the director may authorize an exemption from the requirement
in subdivision (a) to report individual amounts withheld under
Section 13020 and the requirement in subdivision (j) to file the
annual reconciliation return for the 1995 calendar year only. Any
request for exemption must be filed on or before January 15, 1995.
Upon approval of a request for exemption under this subdivision, the
employer shall file quarterly returns reporting the amount withheld
under Section 13020, the statement required to be furnished under
Section 13050, and the annual return required by Section 13053, for
the 1995 calendar year only.
SEC. 103. Section 13028 of the Unemployment Insurance Code is
amended to read:
13028. (a) (1) For purposes of this division (and so much of Part
10 (commencing with Section 17001) and Part 10.2 (commencing with
Section 18401) of Division 2 of the Revenue and Taxation Code as
relates to this division) pensions, annuities, and other deferred
income, as described in Section 3405 of the Internal Revenue Code,
are wages and subject to withholding under this division. Amounts
withheld shall be treated as if the amounts are withheld by an
employer for a payroll period and only amounts withheld shall be
reported to the department pursuant to Section 1088 and Section
13021.
(2) Notwithstanding paragraph (1), amounts excluded from gross
income by Section 17131.5 of the Revenue and Taxation Code are not
wages and are not subject to withholding under this division.
(b) If an individual makes an election under Section 3405(a)(2) or
Section 3405(b)(3) of the Internal Revenue Code not to have tax
withheld, that election shall apply to withholding under this
division, unless the individual elects, with the consent of the
payer, to have those payments subject to withholding under this
division. If an individual has not made an election under Section
3405(a)(2) or Section 3405(b)(3) of the Internal Revenue Code, that
individual may elect to exclude those payments from withholding under
this division. Elections provided in this subdivision shall be made
pursuant to regulations of the director.
(c) Where Section 3405 of the Internal Revenue Code provides that
tables or other computational procedures shall be prescribed by the
Secretary of the Treasury, for the purposes of this division, any of
the following amounts may be withheld, upon election of the payer:
(1) An amount determined by the method prescribed under Section
13020.
(2) A designated dollar amount as requested by the payee.
(3) Ten percent of the amount of federal withholding computed
pursuant to Section 3405 of the Internal Revenue Code.
(d) Where the amount of withholding computed pursuant to
subdivision (c) is less than ten dollars ($10) per month, the payer
shall not be required to withhold that amount.
(e) This section shall not apply to pensions, annuities, and other
deferred income of payees with addresses outside this state, as
shown on the most current records of the payer.
(f) The department shall, in consultation with the affected payers
and payees, issue regulations to implement this section.
Those regulations shall provide for delay (but not beyond July 1,
1987) of the application of this section with respect to any payer or
class of payers until that time as the payers are able to comply
without undue hardship with the requirements of this section. In
that case, no retroactive compliance shall be required.
SEC. 104.
SEC. 101. The amendments made by this act to Sections 17053.49 and
23649 of the Revenue and Taxation Code apply to taxable or income
years beginning on or after January 1, 1998.
SEC. 102. The amendments made by this act to Sections 18622,
19059, 19060, and 19311 of the Revenue and Taxation Code apply to
federal determinations that become final (as defined by this act) on
or after January 1, 2000.
SEC. 103. (a) The amendments to Sections 17302 and
24410 of the Revenue and Taxation Code made by this act shall apply
to all taxable years for which the Franchise Tax Board may propose an
assessment or allow a claim for refund.
(b) The Legislature finds and declares that the amendments to
Section 17302 of the Revenue and Taxation Code made by this act
fulfill a statewide public purpose because they revise a potentially
unconstitutional provision contained in the state's Personal Income
Tax Law.
(c) The Legislature finds and declares that the amendments to
Section 24410 of the Revenue and Taxation Code made by this act
fulfill a statewide public purpose because they revise a potentially
unconstitutional provision contained in the state's Bank and
Corporation Tax Law.
SEC. 105.
SEC. 104. The amendments made by this act to Section 25114
of the Revenue and Taxation Code do not constitute a change in, but
are declaratory of, existing law.
SEC. 106.
SEC. 105. This act provides for a tax levy within the
meaning of Article IV of the Constitution and shall go into immediate
effect.