BILL NUMBER: ABX3 15 CHAPTERED
BILL TEXT
CHAPTER 10
FILED WITH SECRETARY OF STATE FEBRUARY 20, 2009
APPROVED BY GOVERNOR FEBRUARY 20, 2009
PASSED THE SENATE FEBRUARY 14, 2009
PASSED THE ASSEMBLY FEBRUARY 15, 2009
AMENDED IN SENATE FEBRUARY 14, 2009
AMENDED IN ASSEMBLY JANUARY 7, 2009
INTRODUCED BY Assembly Member Krekorian
(Coauthor: Senator Florez)
JANUARY 5, 2009
An act to amend Sections 17039.2, 23036.2, 23101, 25120, and 25135
of, to amend, repeal, and add Section 25136 of, to add Sections
6902.5, 17053.85, 19136.8, 23685, and 25128.5 to, and to add and
repeal Sections 17053.80 and 23623 of, the Revenue and Taxation Code,
relating to taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 15, Krekorian. Taxation: credits: apportionment: sales factor.
The Personal Income Tax Law and the Corporation Tax Law authorize
various credits against the taxes imposed by those laws.
This bill would authorize a credit against those taxes for taxable
years beginning on or after January 1, 2011, in an amount equal to a
specified percentage of the qualified expenditures, as defined,
attributable to the production of a qualified motion picture in
California, or, where the qualified motion picture has relocated to
California or is an independent film, as provided. This bill would
authorize the sale of credits, attributable to an independent film,
to an unrelated party.
This bill would, until for taxable years beginning on or after
January 1, 2011, in lieu of the credits authorized under the Personal
Income Tax Law and the Corporation Tax Law for qualified motion
pictures, allow a credit against qualified state sales and use taxes,
as provided. This bill would impose specified duties on the
California Film Commission, the Franchise Tax Board, and the State
Board of Equalization, in administering the credits.
This bill would require the Business, Transportation and Housing
Agency to report to the Legislature regarding the economic impact of
specified tax incentives created by the bill, as specified.
This bill would, for taxable years beginning on or after January
1, 2009, and before January 1, 2011, authorize a credit, under both
laws, in an amount equal to $3,000, prorated as provided, for each
full-time employee hired during the taxable year by a qualified
employer, as defined.
The Corporation Tax Law imposes taxes measured by income and, in
the case of a business with income derived from or attributable to
sources both within and without this state, apportions the income
between this state and other states and foreign countries in
accordance with a specified 4-factor formula based on the property,
payroll, and sales within and without this state, except that in the
case of an apportioning trade or business that derives more than 50%
of its gross business receipts from conducting one or more qualified
business activities, as defined, business income is apportioned in
accordance with a specified 3-factor formula.
This bill would, for taxable years beginning on or after January
1, 2011, allow a taxpayer to have that income apportioned in
accordance with a single sales factor formula, except as provided.
The California Constitution authorizes the Governor to declare a
fiscal emergency and to call the Legislature into special session for
that purpose. The Governor issued a proclamation declaring a fiscal
emergency, and calling a special session for this purpose, on
December 19, 2008.
This bill would state that it addresses the fiscal emergency
declared by the Governor by proclamation issued on December 19, 2008,
pursuant to the California Constitution.
This bill would take effect immediately as a tax levy.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 6902.5 is added to the Revenue and Taxation
Code, to read:
6902.5. (a) For the purposes of this section:
(1) "Qualified taxpayer" means a person who is a qualified
taxpayer within the meaning of paragraph (17) of subdivision (b) of
Section 17053.85 or 23685.
(2) "Affiliate" means a qualified taxpayer's affiliated
corporation that has been assigned any portion of the credit amount
by the qualified taxpayer pursuant to subdivision (c) of Section
23685.
(3) "Credit amount" means an amount equal to the tax credit amount
that would otherwise be allowed to a qualified taxpayer pursuant to
Section 17053.85 or 23685 but for the election made pursuant to this
section.
(4) "Production period" means the production period as defined in
paragraph (12) of subdivision (b) of Section 17053.85 or 23685.
(5) (A) "Qualified sales and use taxes" means any state sales and
use taxes imposed by Part 1 (commencing with Section 6001), on the
operative date of the act adding this section.
(B) Notwithstanding subparagraph (A), "qualified sales and use
taxes" does not mean taxes imposed by Section 6051.2, 6051.5, 6201.2,
6201.5, Part 1.5 (commencing with Section 7200), Part 1.6
(commencing with Section 7251), or Section 35 of Article XIII of the
California Constitution.
(b) (1) A qualified taxpayer may, in lieu of claiming the credit
allowed by Section 17053.85 or 23685, make an irrevocable election to
apply the credit amount against qualified sales and use taxes
imposed on the qualified taxpayer in accordance with this section.
(2) An affiliate may, in lieu of claiming the assigned portion of
the credit allowed by Section 23685, make an irrevocable election to
apply the assigned portion of the credit amount against qualified
sales and use taxes imposed on the affiliate in accordance with this
section.
(c) (1) A qualified taxpayer or affiliate shall submit to the
board an irrevocable election, in a form as prescribed by the board,
which shall include, but not be limited to, the following
information:
(A) Representation that the claimant is a qualified taxpayer or an
affiliate.
(B) Statement of the dates on which the production period began
and ended.
(C) The credit amount, and if an affiliate, the portion of the
credit amount assigned to it and documentation supporting the
assignment of that portion of the credit amount.
(D) The amount of qualified sales and use taxes the claimant
remitted to the board during the period commencing on the first day
of the calendar quarter commencing immediately before the beginning
of the production period, and ending on the date the claimant was
required to file its most recent sales and use tax return with the
board.
(E) A copy of the credit certificate issued pursuant to
subparagraph (C) of paragraph (2) of subdivision (g) of Section
17053.85 or 23685.
(2) The election shall be filed on or before the date on which the
qualified taxpayer or affiliate would first be allowed to claim a
credit pursuant to Section 17053.85 or 23685 on its tax return.
(d) (1) The claimant may elect to obtain a refund of qualified
sales and use taxes paid during the period described in subparagraph
(D) of paragraph (1) of subdivision (c). If the claimant elects to
obtain a refund of qualified sales and use taxes, the claimant shall
file a claim for refund with the irrevocable election described in
subdivision (c). The refund amount shall not exceed, for a qualified
taxpayer, the credit amount, or for an affiliate, the portion of the
credit amount assigned to it.
(2) No interest shall be paid on any amount refunded or credited
pursuant to paragraph (1).
(e) If the claimant does not elect to obtain a refund or in the
case where the credit amount, or assigned portion, exceeds the amount
of its claim for refund for the qualified sales and use taxes, the
claimant may, for the reporting periods in the five years following
the last reporting period as described in subparagraph (D) of
paragraph (1) of subdivision (c), offset any remaining credit amount,
or assigned portion, against the qualified sales and use taxes
imposed during those reporting periods.
(f) Section 6961 shall apply to any refund, or part thereof, that
is erroneously made and any credit, or part thereof, that is
erroneously allowed pursuant to this section.
(g) The board shall provide an annual listing to the Franchise Tax
Board, in a form and manner agreed upon by the board and the
Franchise Tax Board, of the qualified taxpayers, or affiliates that
have been assigned a portion of the credit allowed under Section
23685 pursuant to subdivision (c) of Section 23685, who, during the
year, have made an irrevocable election pursuant to this section and
the credit amount, or portion of the credit amount, claimed by each
qualified taxpayer or affiliate.
(h) The board may prescribe rules and regulations for the
administration of this section.
SEC. 2. Section 17039.2 of the Revenue and Taxation Code is
amended to read:
17039.2. (a) Notwithstanding any provision of this part or Part
10.2 (commencing with Section 18401) to the contrary, for each
taxable year beginning on or after January 1, 2008, and before
January 1, 2010, the total of all business credits otherwise
allowable under any credit under any provision of Chapter 2
(commencing with Section 17041), including the carryover of any
business credit under a former provision of that chapter, for the
taxable year shall not reduce the "net tax" (as defined in Section
17039) below the applicable amount.
(b) For purposes of this section, "business credit" means a credit
allowable under any provision of Chapter 2 (commencing with Section
17041) other than the following credits:
(1) The credit allowed by Section 17052.6 (relating to credit for
household and dependent care).
(2) The credit allowed by Section 17052.25 (relating to credit for
adoption costs).
(3) The credit allowed by Section 17053.5 (relating to renter's
tax credit).
(4) The credit allowed by Section 17053.80 (relating to full time
employment hiring credit).
(5) The credit allowed by Section 17054 (relating to credit for
personal exemption).
(6) The credit allowed by Section 17054.5 (relating to credit for
qualified joint custody head of household and a qualified taxpayer
with a dependent parent).
(7) The credit allowed by Section 17054.7 (relating to credit for
senior head of household).
(8) The credit allowed by Section 17061 (relating to refunds
pursuant to the Unemployment Insurance Code).
(c) For purposes of this section, the "applicable amount" shall be
equal to 50 percent of the "net tax" (as defined in Section 17039)
before application of any credits.
(d) The amount of any credit otherwise allowable for the taxable
year under Section 17039 that is not allowed due to application of
this section shall remain a credit carryover amount under this part.
(e) The carryover period for any credit that is not allowed due to
the application of this section shall be increased by the number of
taxable years the credit (or any portion thereof) was not allowed.
(f) Notwithstanding anything to the contrary in this part or Part
10.2 (commencing with Section 18401) the credits listed in
subdivision (b) shall be required to be applied before any business
credits, as limited by subdivision (a), are applied.
(g) The provisions of this section shall not apply to a taxpayer
with net business income of less than five hundred thousand dollars
($500,000) for the taxable year. For purposes of this subdivision,
business income means:
(1) Income from a trade or business, whether conducted by the
taxpayer or by a pasthrough entity owned directly or indirectly by
the taxpayer. For purposes of this paragraph, the term "passthrough
entity" means a partnership or an "S" corporation.
(2) Income from rental activity.
(3) Income attributable to a farming business.
SEC. 3. Section 17053.80 is added to the Revenue and Taxation
Code, to read:
17053.80. (a) For each taxable year beginning on or after January
1, 2009, there shall be allowed as a credit against the "net tax,"
as defined in Section 17039, three thousand dollars ($3,000) for each
net increase in qualified full-time employees, as specified in
subdivision (c), hired during the taxable year by a qualified
employer.
(b) For purposes of this section:
(1) "Acquired" includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.
(2) "Qualified full-time employee" means:
(A) A qualified employee who was paid qualified wages by the
qualified employer for services of not less than an average of 35
hours per week.
(B) A qualified employee who was a salaried employee and was paid
compensation during the taxable year for full-time employment, within
the meaning of Section 515 of the Labor Code, by the qualified
employer.
(3) A "qualified employee" shall not include any of the following:
(A) An employee certified as a qualified employee in an enterprise
zone designated in accordance with Chapter 12.8 (commencing with
Section 7070) of Division 7 of Title 1 of the Government Code.
(B) An employee certified as a qualified disadvantaged individual
in a manufacturing enhancement area designated in accordance with
Section 7073.8 of the Government Code.
(C) An employee certified as a qualified employee in a targeted
tax area designated in accordance with Section 7097 of the Government
Code.
(D) An employee certified as a qualified disadvantaged individual
or a qualified displaced employee in a local agency military base
recovery area (LAMBRA) designated in accordance with Chapter 12.97
(commencing with Section 7105) of Division 7 of Title 1 of the
Government Code.
(E) An employee whose wages are included in calculating any other
credit allowed under this part.
(4) "Qualified employer" means a taxpayer that, as of the last day
of the preceding taxable year, employed a total of 20 or fewer
employees.
(5) "Qualified wages" means wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance Code.
(6) "Annual full-time equivalent" means either of the following:
(A) In the case of a full-time employee paid hourly qualified
wages, "annual full-time equivalent" means the total number of hours
worked for the taxpayer by the employee (not to exceed 2,000 hours
per employee) divided by 2,000.
(B) In the case of a salaried full-time employee, "annual
full-time equivalent" means the total number of weeks worked for the
taxpayer by the employee divided by 52.
(c) The net increase in qualified full-time employees of a
qualified employer shall be determined as provided by this
subdivision:
(1) (A) The net increase in qualified full-time employees shall be
determined on an annual full-time equivalent basis by subtracting
from the amount determined in subparagraph (C) the amount determined
in subparagraph (B).
(B) The total number of qualified full-time employees employed in
the preceding taxable year by the taxpayer and by any trade or
business acquired by the taxpayer during the current taxable year.
(C) The total number of full-time employees employed in the
current taxable year by the taxpayer and by any trade or business
acquired during the current taxable year.
(2) For taxpayers who first commence doing business in this state
during the taxable year, the number of full-time employees for the
immediately preceding prior taxable year shall be zero.
(d) 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 seven years if necessary,
until the credit is exhausted.
(e) Any deduction otherwise allowed under this part for qualified
wages shall not be reduced by the amount of the credit allowed under
this section.
(f) For purposes of this section:
(1) All employees of the trades or businesses that are treated as
related under either Section 267, 318, or 707 of the Internal Revenue
Code shall be treated as employed by a single taxpayer.
(2) In determining whether the taxpayer has first commenced doing
business in this state during the taxable year, the provisions of
subdivision (f) of Section 17276, without application of paragraph
(7) of that subdivision, shall apply.
(g) (1) (A) Credit under this section and Section 23623 shall be
allowed only for credits claimed on timely filed original returns
received by the Franchise Tax Board on or before the cut-off date
established by the Franchise Tax Board.
(B) For purposes of this paragraph, the cut-off date shall be the
last day of the calendar quarter within which the Franchise Tax Board
estimates it will have received timely filed original returns
claiming credits under this section and Section 23623 that
cumulatively total four hundred million dollars ($400,000,000) for
all taxable years.
(2) The date a return is received shall be determined by the
Franchise Tax Board.
(3) (A) The determinations of the Franchise Tax Board with respect
to the cut-off date, the date a return is received, and whether a
return has been timely filed for purposes of this subdivision may not
be reviewed in any administrative or judicial proceeding
(B) Any disallowance of a credit claimed due to a determination
under this subdivision, including the application of the limitation
specified in paragraph (1), shall be treated as a mathematical error
appearing on the return. Any amount of tax resulting from such
disallowance may be assessed by the Franchise Tax Board in the same
manner as provided by Section 19051.
(4) The Franchise Tax Board shall periodically provide notice on
its Web site with respect to the amount of credit under this section
and Section 23623 claimed on timely filed original returns received
by the Franchise Tax Board.
(h) (1) The Franchise Tax Board may prescribe rules, guidelines or
procedures necessary or appropriate to carry out the purposes of
this section, including any guidelines regarding the limitation on
total credits allowable under this section and Section 23623 and
guidelines necessary to avoid the application of paragraph (2) of
subdivision (f) through split-ups, shell corporations, partnerships,
tiered ownership structures, or otherwise.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this section.
(i) This section shall remain in effect only until December 1 of
the calendar year after the year of the cut-off date, and as of that
December 1 is repealed.
SEC. 4. Section 17053.85 is added to the Revenue and Taxation
Code, to read:
17053.85. (a) (1) For taxable years beginning on or after January
1, 2011, there shall be allowed to a qualified taxpayer a credit
against the "net tax," as defined in Section 17039, in an amount
equal to the applicable percentage, as specified in paragraph (4), of
the qualified expenditures for the production of a qualified motion
picture in California.
(2) The credit shall be allowed for the taxable year in which the
California Film Commission issues the credit certificate pursuant to
subdivision (g) for the qualified motion picture, and shall be for
the applicable percentage of all qualified expenditures paid or
incurred by the qualified taxpayer in all taxable years for that
qualified motion picture.
(3) The amount of the credit allowed to a qualified taxpayer shall
be limited to the amount specified in the credit certificate issued
to the qualified taxpayer by the California Film Commission pursuant
to subdivision (g).
(4) For purposes of paragraphs (1) and (2), the applicable
percentage shall be:
(A) Twenty percent of the qualified expenditures attributable to
the production of a qualified motion picture in California.
(B) Twenty-five percent of the qualified expenditures attributable
to the production of a qualified motion picture in California where
the qualified motion picture is a television series that relocated to
California or an independent film.
(b) For purposes of this section:
(1) "Ancillary product" means any article for sale to the public
that contains a portion of, or any element of, the qualified motion
picture.
(2) "Budget" means an estimate of all expenses paid or incurred
during the production period of a qualified motion picture. It shall
be the same budget used by the qualified taxpayer and production
company for all qualified motion picture purposes.
(3) "Clip use" means a use of any portion of a motion picture,
other than the qualified motion picture, used in the qualified motion
picture.
(4) "Credit certificate" means the certificate issued by the
California Film Commission pursuant to subparagraph (C) of paragraph
(2) of subdivision (g).
(5) (A) "Employee fringe benefits" means the amount allowable as a
deduction under this part to the qualified taxpayer involved in the
production of the qualified motion picture, exclusive of any amounts
contributed by employees, for any year during the production period
with respect to any of the following:
(i) Employer contributions under any pension, profit-sharing,
annuity, or similar plan.
(ii) Employer-provided coverage under any accident or health plan
for employees.
(iii) The employer's cost of life or disability insurance provided
to employees.
(B) Any amount treated as wages under clause (i) of subparagraph
(A) of paragraph (18) shall not be taken into account under this
paragraph.
(6) "Independent film" means a motion picture with a minimum
budget of one million dollars ($1,000,000) and a maximum budget of
ten million dollars ($10,000,000) that is produced by a company that
is not publicly traded and publicly traded companies do not own,
directly or indirectly, more than 25 percent of the producing
company.
(7) "Licensing" means any grant of rights to distribute the
qualified motion picture, in whole or in part.
(8) "New use" means any use of a motion picture in a medium other
than the medium for which it was initially created.
(9) (A) "Postproduction" means the final activities in a qualified
motion picture's production, including editing, foley recording,
automatic dialogue replacement, sound editing, scoring and music
editing, beginning and end credits, negative cutting, negative
processing and duplication, the addition of sound and visual effects,
soundmixing, film-to-tape transfers, encoding, and color correction.
(B) "Postproduction" does not include the manufacture or shipping
of release prints.
(10) "Preproduction" means the process of preparation for actual
physical production which begins after a qualified motion picture has
received a firm agreement of financial commitment, or is greenlit,
with, for example, the establishment of a dedicated production
office, the hiring of key crew members, and includes, but is not
limited to, activities that include location scouting and execution
of contracts with vendors of equipment and stage space.
(11) "Principal photography" means the phase of production during
which the motion picture is actually shot, as distinguished from
preproduction and postproduction.
(12) "Production period" means the period beginning with
preproduction and ending upon completion of postproduction.
(13) "Qualified entity" means a personal service corporation as
defined in Section 269A(b)(1) of the Internal Revenue Code, a payroll
services corporation, or any entity receiving qualified wages with
respect to services performed by a qualified individual.
(14) (A) "Qualified individual" means any individual who performs
services during the production period in an activity related to the
production of a qualified motion picture.
(B) "Qualified individual" shall not include either of the
following:
(i) Any individual related to the qualified taxpayer as described
in subparagraph (A), (B), or (C) of Section 51(i)(1) of the Internal
Revenue Code.
(ii) Any 5 percent owner, as defined in Section 416(i)(1)(B) of
the Internal Revenue Code, of the qualified taxpayer.
(15) (A) "Qualified motion picture" means a motion picture that is
produced for distribution to the general public, regardless of
medium that is one of the following:
(i) A feature with a minimum production budget of one million
dollars ($1,000,000) and a maximum production budget of seventy-five
million dollars ($75,000,000).
(ii) A movie of the week or miniseries with a minimum production
budget of five hundred thousand dollars ($500,000).
(iii) A new television series produced in California with a
minimum production budget of one million dollars ($1,000,000)
licensed for original distribution on basic cable.
(iv) An independent film.
(v) A television series that relocated to California.
(B) To qualify as a "qualified motion picture," all of the
following conditions shall be satisfied:
(i) At least 75 percent of the production days occur wholly in
California or 75 percent of the production budget is incurred for
payment for services performed within the state and the purchase or
rental of property used within the state.
(ii) Production of the qualified motion picture is completed
within 30 months from the date on which the qualified taxpayer's
application is approved by the California Film Commission. For
purposes of this section, a qualified motion picture is "completed"
when the process of postproduction has been finished.
(iii) The copyright for the motion picture is registered with the
United States Copyright Office pursuant to Title 17 of the United
States Code.
(iv) Principal photography of the qualified motion picture
commences after the date on which the application is approved by the
California Film Commission, but no later than 180 days after the date
of that approval.
(C) For the purposes of subparagraph (A), in computing the total
wages paid or incurred for the production of a qualified motion
picture, all amounts paid or incurred by all persons or entities that
share in the costs of the qualified motion picture shall be
aggregated.
(D) "Qualified motion picture" shall not include commercial
advertising, music videos, a motion picture produced for private
noncommercial use, such as weddings, graduations, or as part of an
educational course and made by students, a news program, current
events or public events program, talk show, game show, sporting event
or activity, awards show, telethon or other production that solicits
funds, reality television program, clip-based programming if more
than 50 percent of the content is comprised of licensed footage,
documentaries, variety programs, daytime dramas, strip shows,
one-half hour (air time) episodic television shows, or any production
that falls within the recordkeeping requirements of Section 2257 of
Title 18 of the United States Code.
(16) "Qualified expenditure" means amounts paid or incurred to
purchase or lease tangible personal property used within this state
in the production of a qualified motion picture and payments,
including qualified wages, for services performed within this state
in the production of a qualified motion picture.
(17) (A) "Qualified taxpayer" means a taxpayer who has paid or
incurred qualified expenditures and has been issued a credit
certificate by the California Film Commission pursuant to subdivision
(g).
(B) In the case of any passthrough 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 is not
allowed to the passthrough entity, but shall be 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, "passthrough entity"
means any entity taxed as a partnership or "S" corporation.
(18) (A) "Qualified wages" means all of the following:
(i) Any wages required to be reported under Section 13050 of the
Unemployment Insurance Code that were paid or incurred by any
taxpayer involved in the production of a qualified motion picture
with respect to a qualified individual for services performed on the
qualified motion picture production within this state.
(ii) The portion of any employee fringe benefits paid or incurred
by any taxpayer involved in the production of the qualified motion
picture that are properly allocable to qualified wage amounts
described in clause (i).
(iii) Any payments made to a qualified entity for services
performed in this state by qualified individuals within the meaning
of paragraph (14).
(iv) Remuneration paid to an independent contractor who is a
qualified individual for services performed within this state by that
qualified individual.
(B) "Qualified wages" shall not include any of the following:
(i) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or residual compensation, or the
creation of any ancillary product, including, but not limited to, a
soundtrack album, toy, game, trailer, or teaser.
(ii) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.
(iii) Expenses, including wages, related to financing, overhead,
marketing, promotion, or distribution of a qualified motion picture.
(iv) Expenses, including wages, paid per person per qualified
motion picture for writers, directors, music directors, music
composers, music supervisors, producers, and performers, other than
background actors with no scripted lines.
(19) "Residual compensation" means supplemental compensation paid
at the time that a motion picture is exhibited through new use,
reuse, clip use, or in secondary markets, as distinguished from
payments made during production.
(20) "Reuse" means any use of a qualified motion picture in the
same medium for which it was created, following the initial use in
that medium.
(21) "Secondary markets" means media in which a qualified motion
picture is exhibited following the initial media in which it is
exhibited.
(22) "Television series that relocated to California" means a
television series, without regard to episode length or initial media
exhibition, that filmed all of its prior season or seasons outside of
California and for which the taxpayer certifies that the credit
provided pursuant to this section is the primary reason for
relocating to California.
(c) (1)
Notwithstanding any other law, a qualified taxpayer may sell any
credit allowed under this section that is attributable to an
independent film, as defined in paragraph (6) of subdivision (b), to
an unrelated party.
(2) The qualified taxpayer shall report to the Franchise Tax Board
prior to the sale of the credit, in the form and manner specified by
the Franchise Tax Board, all required information regarding the
purchase and sale of the credit, including the social security or
other taxpayer identification number of the unrelated party to whom
the credit has been sold, the face amount of the credit sold, and the
amount of consideration received by the qualified taxpayer for the
sale of the credit.
(3) In the case where the credit allowed under this section
exceeds the "net tax," the excess credit may be carried over to
reduce the "net tax" in the following taxable year, and succeeding
five taxable years, if necessary, until the credit has been
exhausted.
(4) A credit shall not be sold pursuant to this subdivision to
more than one taxpayer, nor may the credit be resold by the unrelated
party to another taxpayer or other party.
(5) A party that has acquired tax credits under this section shall
be subject to the requirements of this section.
(6) In no event may a qualified taxpayer assign or sell any tax
credit to the extent the tax credit allowed by this section is
claimed on any tax return of the qualified taxpayer.
(7) In the event that both the taxpayer originally allocated a
credit under this section by the California Film Commission and a
taxpayer to whom the credit has been sold both claim the same amount
of credit on their tax returns, the Franchise Tax Board may disallow
the credit of either taxpayer, so long as the statute of limitations
upon assessment remains open.
(8) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this subdivision.
(d) No credit shall be allowed pursuant to this section unless the
qualified taxpayer provides the following to the California Film
Commission:
(1) Identification of each qualified individual.
(2) The specific start and end dates of production.
(3) The total wages paid.
(4) The amount of qualified wages paid to each qualified
individual.
(5) The copyright registration number, as reflected on the
certificate of registration issued under the authority of Section 410
of Title 17 of the United States Code, relating to registration of
claim and issuance of certificate. The registration number shall be
provided on the return claiming the credit.
(6) The total amounts paid or incurred to purchase or lease
tangible personal property used in the production of a qualified
motion picture.
(7) Information to substantiate its qualified expenditures.
(8) Information required by the California Film Commission under
regulations promulgated pursuant to subdivision (g) necessary to
verify the amount of credit claimed.
(e) The California Film Commission may prescribe rules and
regulations to carry out the purposes of this section including any
rules and regulations necessary to establish procedures, processes,
requirements, and rules identified in or required to implement this
section. The regulations shall include provisions to set aside a
percentage of annual credit allocations for independent films.
(f) If the qualified taxpayer fails to provide the copyright
registration number as required in paragraph (5) of subdivision (d),
the credit shall be disallowed and assessed and collected under
Section 19051 until the procedures are satisfied.
(g) For purposes of this section, the California Film Commission
shall do the following:
(1) On, or after, July 1, 2009, and before July 1, 2014, allocate
tax credits to applicants.
(A) Establish a procedure for applicants to file with the
commission a written application, on a form jointly prescribed by the
commission and the Franchise Tax Board for the allocation of the tax
credit. The application shall include, but not be limited to, the
following information:
(i) The budget for the motion picture production.
(ii) The number of production days.
(iii) A financing plan for the production.
(iv) The diversity of the workforce employed by the applicant,
including, but not limited to, the ethnic and racial makeup of the
individuals employed by the applicant during the production of the
qualified motion picture, to the extent possible.
(v) Any other information deemed relevant by the commission or the
Franchise Tax Board.
(B) Establish criteria, consistent with the requirements of this
section, for allocating tax credits.
(C) Determine and designate applicants who meet the requirements
of this section.
(D) Process and approve, or reject, all applications on a
first-come-first-served basis.
(E) Subject to the annual cap established as provided in
subdivision (i), allocate an aggregate amount of credits under this
section and Section 23685, and allocate any carryover of unallocated
credits from prior years.
(2) Certify tax credits allocated to qualified taxpayers.
(A) Establish a verification procedure for the amount of qualified
expenditures paid or incurred by the applicant.
(B) Establish audit requirements that must be satisfied before a
credit certificate may be issued by the California Film Commission.
(C) Issue a credit certificate to a qualified taxpayer upon
completion of the qualified motion picture reflecting the credit
amount allocated after qualified expenditures have been verified
under this section. The amount of credit shown in the credit
certificate shall not exceed the amount of credit allocated to that
qualified taxpayer pursuant to this section.
(h) The California Film Commission shall provide the Franchise Tax
Board annually with a list of qualified taxpayers and the tax credit
amounts allocated to each qualified taxpayer by the California Film
Commission. The list shall include the names and taxpayer
identification numbers, including taxpayer identification numbers of
each partner or shareholder, as applicable, of the qualified
taxpayers.
(i) (1) The aggregate amount of credits that may be allocated in
any fiscal year pursuant to this section and Section 23686 shall be
an amount equal to the sum of all of the following:
(A) One hundred million dollars ($100,000,000) in credits for the
2009-10 fiscal year and each fiscal year thereafter, through and
including the 2013-14 fiscal year.
(B) The unused allocation credit amount, if any, for the preceding
fiscal year.
(C) The amount of previously allocated credits not certified.
(2) If the amount of credits applied for in any particular fiscal
year exceeds the aggregate amount of tax credits authorized to be
allocated under this section, such excess shall be treated as having
been applied for on the first day of the subsequent fiscal year.
However, credits may not be allocated from a fiscal year other than
the fiscal year in which the credit was originally applied for or the
immediately succeeding fiscal year.
(3) Notwithstanding the foregoing, the Film Commission shall set
aside up to ten million ($10,000,000) of tax credits each fiscal year
for independent films allocated in accordance with rules and
regulations developed pursuant to subdivision (e).
(4) Any act that reduces the amount that may be allocated pursuant
to paragraph (1) constitutes a change in state taxes for the purpose
of increasing revenues within the meaning of Section 3 of Article
XIII A of the California Constitution and may be passed by not less
than two-thirds of all Members elected to each of the two houses of
the Legislature.
(j) The film commission shall have the authority to allocate tax
credits in accordance with this section and in accordance with any
regulations prescribed pursuant to subdivision (e) upon adoption.
SEC. 5. Section 19136.8 is added to the Revenue and Taxation Code,
to read:
19136.8. (a) No addition to tax shall be made under Section 19136
with respect to any underpayment of an installment to the extent
that the underpayment was created or increased by the disallowance of
a credit under subdivision (f) of Section 17053.80.
(b) No addition to tax shall be made under Section 19142 with
respect to any underpayment of an installment to the extent that the
underpayment was created or increased by the disallowance of a credit
under subdivision (f) of Section 23623.
(c) The Franchise Tax Board shall adopt procedures, forms, and
instructions necessary to implement this section in a reasonable
manner.
SEC. 6. Section 23036.2 of the Revenue and Taxation Code is
amended to read:
23036.2. (a) Notwithstanding any provision of this part or Part
10.2 (commencing with Section 18401) to the contrary, for each
taxable year beginning on or after January 1, 2008, and before
January 1, 2010, the total of all credits otherwise allowable under
any provision of Chapter 3.5 (commencing with Section 23604)
including the carryover of any credit under a former provision of
that chapter, for the taxable year shall not reduce the "tax" (as
defined in Section 23036) below the applicable amount.
(b) This section shall not apply to the credit allowed by Section
23623 (relating to full time employment hiring credit).
(c) For purposes of this section, the "applicable amount" shall be
equal to 50 percent of the "tax" (as defined in Section 23036)
before application of any credits.
(d) The amount of any credit otherwise allowable for the taxable
year under Section 23036 that is not allowed due to the application
of this section shall remain a credit carryover amount under this
part.
(e) The carryover period for any credit that is not allowed due to
the application of this section shall be increased by the number of
taxable years the credit (or any portion thereof) was not allowed.
(f) The provisions of this section shall not apply to a taxpayer
with income subject to tax under this part of less than $500,000 for
the taxable year.
SEC. 7. Section 23101 of the Revenue and Taxation Code is amended
to read:
23101. (a) "Doing business" means actively engaging in any
transaction for the purpose of financial or pecuniary gain or profit.
(b) For taxable years beginning on or after January 1, 2011, a
taxpayer is doing business in this state for a taxable year if any of
the following conditions has been satisfied:
(1) The taxpayer is organized or commercially domiciled in this
state.
(2) Sales, as defined in subdivision (e) or (f) of Section 25120
as applicable for the taxable year, of the taxpayer in this state
exceed the lesser of five hundred thousand dollars ($500,000) or 25
percent of the taxpayer's total sales. For purposes of this
paragraph, sales of the taxpayer include sales by an agent or
independent contractor of the taxpayer. For purposes of this
paragraph, sales in this state shall be determined using the rules
for assigning sales under Sections 25135 and 25136 and the
regulations thereunder, as modified by regulations under Section
25137.
(3) The real property and tangible personal property of the
taxpayer in this state exceed the lesser of fifty thousand dollars
($50,000) or 25 percent of the taxpayer's total real property and
tangible personal property. The value of real and tangible personal
property and the determination of whether property is in this state
shall be determined using the rules contained in Sections 25129 to
25131, inclusive, and the regulations thereunder, as modified by
regulation under Section 25137.
(4) The amount paid in this state by the taxpayer for
compensation, as defined in subdivision (c) of Section 25120, exceeds
the lesser of fifty thousand dollars ($50,000) or 25 percent of the
total compensation paid by the taxpayer. Compensation in this state
shall be determined using the rules for assigning payroll contained
in Section 25133 and the regulations thereunder, as modified by
regulations under Section 25137.
(c) (1) The Franchise Tax Board shall annually revise the amounts
in paragraphs (2), (3), and (4) of subdivision (b) in accordance with
subdivision (h) of Section 17041.
(2) For purposes of the adjustment required by paragraph (1),
subdivision (h) of Section 17041 shall be applied by substituting
"2012" in lieu of "1988."
(d) The sales, property, and payroll of the taxpayer include the
taxpayer's pro rata or distributive share of pass-through entities.
For purposes of this subdivision, "pass-through entities" means a
partnership or an "S" corporation.
SEC. 8. Section 23623 is added to the Revenue and Taxation Code,
to read:
23623. (a) For each taxable year beginning on or after January 1,
2009, there shall be allowed as a credit against the "tax," as
defined in Section 23036, three thousand dollars ($3,000) for each
net increase in qualified full-time employees, as specified in
subdivision (c), hired during the taxable year by a qualified
employer.
(b) For purposes of this section:
(1) "Acquired" includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.
(2) "Qualified full-time employee" means:
(A) A qualified employee who was paid qualified wages during the
taxable year by the qualified employer for services of not less than
an average of 35 hours per week.
(B) A qualified employee who was a salaried employee and was paid
compensation during the taxable year for full-time employment, within
the meaning of Section 515 of the Labor Code, by the qualified
employer.
(3) A "qualified employee" shall not include any of the following:
(A) An employee certified as a qualified employee in an enterprise
zone designated in accordance with Chapter 12.8 (commencing with
Section 7070) of Division 7 of Title 1 of the Government Code.
(B) An employee certified as a qualified disadvantaged individual
in a manufacturing enhancement area designated in accordance with
Section 7073.8 of the Government Code.
(C) An employee certified as a qualified employee in a targeted
tax area designated in accordance with Section 7097 of the Government
Code.
(D) An employee certified as a qualified disadvantaged individual
or a qualified displaced employee in a local agency military base
recovery area (LAMBRA) designated in accordance with Chapter 12.97
(commencing with Section 7105) of Division 7 of Title 1 of the
Government Code.
(E) An employee whose wages are included in calculating any other
credit allowed under this part.
(4) "Qualified employer" means a taxpayer that, as of the last day
of the preceding taxable year, employed a total of 20 or fewer
employees.
(5) "Qualified wages" means wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance Code.
(6) "Annual full-time equivalent" means either of the following:
(A) In the case of a full-time employee paid hourly qualified
wages, "annual full-time equivalent" means the total number of hours
worked for the taxpayer by the employee (not to exceed 2,000 hours
per employee) divided by 2,000.
(B) In the case of a salaried full-time employee, "annual
full-time equivalent" means the total number of weeks worked for the
taxpayer by the employee divided by 52.
(c) The net increase in qualified full-time employees of a
qualified employer shall be determined as provided by this
subdivision:
(1) (A) The net increase in qualified full-time employees shall be
determined on an annual full-time equivalent basis by subtracting
from the amount determined in subparagraph (C) the amount determined
in subparagraph (B).
(B) The total number of qualified full-time employees employed in
the preceding taxable year by the taxpayer and by any trade or
business acquired by the taxpayer during the current taxable year.
(C) The total number of full-time employees employed in the
current taxable year by the taxpayer and by any trade or business
acquired during the current taxable year.
(2) For taxpayers who first commence doing business in this state
during the taxable year, the number of full-time employees for the
immediately preceding prior taxable year shall be zero.
(d) 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 seven years if necessary, until the
credit is exhausted.
(e) Any deduction otherwise allowed under this part for qualified
wages shall not be reduced by the amount of the credit allowed under
this section.
(f) For purposes of this section:
(1) All employees of the trades or businesses that are treated as
related under either Section 267, 318, or 707 of the Internal Revenue
Code shall be treated as employed by a single taxpayer.
(2) In determining whether the taxpayer has first commenced doing
business in this state during the taxable year, the provisions of
subdivision (f) of Section 17276, without application of paragraph
(7) of that subdivision, shall apply.
(g) (1) (A) Credit under this section and Section 17053.80 shall
be allowed only for credits claimed on timely filed original returns
received by the Franchise Tax Board on or before the cut-off date
established by the Franchise Tax Board.
(B) For purposes of this paragraph, the cut-off date shall be the
last day of the calendar quarter within which the Franchise Tax Board
estimates it will have received timely filed original returns
claiming credits under this section and Section 17053.80 that
cumulatively total four hundred million dollars ($400,000,000) for
all taxable years.
(2) The date a return is received shall be determined by the
Franchise Tax Board.
(3) (A) The determinations of the Franchise Tax Board with respect
to the cut-off date, the date a return is received, and whether a
return has been timely filed for purposes of this subdivision may not
be reviewed in any administrative or judicial proceeding.
(B) Any disallowance of a credit claimed due to a determination
under this subdivision, including the application of the limitation
specified in paragraph (1), shall be treated as a mathematical error
appearing on the return. Any amount of tax resulting from such
disallowance may be assessed by the Franchise Tax Board in the same
manner as provided by Section 19051.
(4) The Franchise Tax Board shall periodically provide notice on
its Web site with respect to the amount of credit under this section
and Section 17053.80 claimed on timely filed original returns
received by the Franchise Tax Board.
(h) (1) The Franchise Tax Board may prescribe rules, guidelines or
procedures necessary or appropriate to carry out the purposes of
this section, including any guidelines regarding the limitation on
total credits allowable under this section and Section 17053.80 and
guidelines necessary to avoid the application of paragraph (2) of
subdivision (f) through split-ups, shell corporations, partnerships,
tiered ownership structures, or otherwise.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this section.
(i) This section shall remain in effect only until December 1 of
the calendar year after the year of the cut-off date, and as of that
December 1 is repealed.
SEC. 9. Section 23685 is added to the Revenue and Taxation Code,
to read:
23685. (a) (1) For taxable years beginning on or after January 1,
2011, there shall be allowed to a qualified taxpayer a credit
against the "tax," as defined in Section 23036, in an amount equal to
the applicable percentage, as specified in paragraph (4), of the
qualified expenditures for the production of a qualified motion
picture in California.
(2) The credit shall be allowed for the taxable year in which the
California Film Commission issues the credit certificate pursuant to
subdivision (g) for the qualified motion picture, and shall be for
the applicable percentage of all qualified expenditures paid or
incurred by the qualified taxpayer in all taxable years for that
qualified motion picture.
(3) The amount of the credit allowed to a qualified taxpayer shall
be limited to the amount specified in the credit certificate issued
to the qualified taxpayer by the California Film Commission pursuant
to subdivision (g).
(4) For purposes of paragraphs (1) and (2), the applicable
percentage shall be:
(A) Twenty percent of the qualified expenditures attributable to
the production of a qualified motion picture in California.
(B) Twenty-five percent of the qualified expenditures attributable
to the production of a qualified motion picture in California where
the qualified motion picture is a television series that relocated to
California or an independent film.
(b) For purposes of this section:
(1) "Ancillary product" means any article for sale to the public
that contains a portion of, or any element of, the qualified motion
picture.
(2) "Budget" means an estimate of all expenses paid or incurred
during the production period of a qualified motion picture. It shall
be the same budget used by the qualified taxpayer and production
company for all qualified motion picture purposes.
(3) "Clip use" means a use of any portion of a motion picture,
other than the qualified motion picture, used in the qualified motion
picture.
(4) "Credit certificate" means the certificate issued by the
California Film Commission pursuant to subparagraph (C) of paragraph
(2) of subdivision (g).
(5) (A) "Employee fringe benefits" means the amount allowable as a
deduction under this part to the qualified taxpayer involved in the
production of the qualified motion picture, exclusive of any amounts
contributed by employees, for any year during the production period
with respect to any of the following:
(i) Employer contributions under any pension, profit-sharing,
annuity, or similar plan.
(ii) Employer-provided coverage under any accident or health plan
for employees.
(iii) The employer's cost of life or disability insurance provided
to employees.
(B) Any amount treated as wages under clause (i) of subparagraph
(A) of paragraph (18) shall not be taken into account under this
paragraph.
(6) "Independent film" means a motion picture with a minimum
budget of one million dollars ($1,000,000) and a maximum budget of
ten million dollars ($10,000,000) that is produced by a company that
is not publicly traded and publicly traded companies do not own,
directly or indirectly, more than 25 percent of the producing
company.
(7) "Licensing" means any grant of rights to distribute the
qualified motion picture, in whole or in part.
(8) "New use" means any use of a motion picture in a medium other
than the medium for which it was initially created.
(9) (A) "Postproduction" means the final activities in a qualified
motion picture's production, including editing, foley recording,
automatic dialogue replacement, sound editing, scoring and music
editing, beginning and end credits, negative cutting, negative
processing and duplication, the addition of sound and visual effects,
soundmixing, film-to-tape transfers, encoding, and color correction.
(B) "Postproduction" does not include the manufacture or shipping
of release prints.
(10) "Preproduction" means the process of preparation for actual
physical production which begins after a qualified motion picture has
received a firm agreement of financial commitment, or is greenlit,
with, for example, the establishment of a dedicated production
office, the hiring of key crew members, and includes, but is not
limited to, activities that include location scouting and execution
of contracts with vendors of equipment and stage space.
(11) "Principal photography" means the phase of production during
which the motion picture is actually shot, as distinguished from
preproduction and postproduction.
(12) "Production period" means the period beginning with
preproduction and ending upon completion of postproduction.
(13) "Qualified entity" means a personal service corporation as
defined in Section 269A(b)(1) of the Internal Revenue Code, a payroll
services corporation, or any entity receiving qualified wages with
respect to services performed by a qualified individual.
(14) (A) "Qualified individual" means any individual who performs
services during the production period in an activity related to the
production of a qualified motion picture.
(B) "Qualified individual" shall not include either of the
following:
(i) Any individual related to the qualified taxpayer as described
in subparagraph (A), (B), or (C) of Section 51(i)(1) of the Internal
Revenue Code.
(ii) Any 5 percent owner, as defined in Section 416(i)(1)(B) of
the Internal Revenue Code, of the qualified taxpayer.
(15) (A) "Qualified motion picture" means a motion picture that is
produced for distribution to the general public, regardless of
medium that is one of the following:
(i) A feature with a minimum production budget of one million
dollars ($1,000,000) and a maximum production budget of seventy-five
million dollars ($75,000,000).
(ii) A movie of the week or miniseries with a minimum production
budget of five hundred thousand dollars ($500,000).
(iii) A new television series produced in California with a
minimum production budget of one million dollars ($1,000,000)
licensed for original distribution on basic cable.
(iv) An independent film.
(v) A television series that relocated to California.
(B) To qualify as a "qualified motion picture," all of the
following conditions shall be satisfied:
(i) At least 75 percent of the production days occur wholly in
California or 75 percent of the production budget is incurred for
payment for services performed within the state and the purchase or
rental of property used within the state.
(ii) Production of the qualified motion picture is completed
within 30 months from the date on which the qualified taxpayer's
application is approved by the California Film Commission. For
purposes of this section, a qualified motion picture is "completed"
when the process of postproduction has been finished.
(iii) The copyright for the motion picture is registered with the
United States Copyright Office pursuant to Title 17 of the United
States Code.
(iv) Principal photography of the
qualified motion picture commences after the date on which the
application is approved by the California Film Commission, but no
later than 180 days after the date of that approval.
(C) For the purposes of subparagraph (A), in computing the total
wages paid or incurred for the production of a qualified motion
picture, all amounts paid or incurred by all persons or entities that
share in the costs of the qualified motion picture shall be
aggregated.
(D) "Qualified motion picture" shall not include commercial
advertising, music videos, a motion picture produced for private
noncommercial use, such as weddings, graduations, or as part of an
educational course and made by students, a news program, current
events or public events program, talk show, game show, sporting event
or activity, awards show, telethon or other production that solicits
funds, reality television program, clip-based programming if more
than 50 percent of the content is comprised of licensed footage,
documentaries, variety programs, daytime dramas, strip shows,
one-half hour (air time) episodic television shows, or any production
that falls within the recordkeeping requirements of Section 2257 of
Title 18 of the United States Code.
(16) "Qualified expenditures" means amounts paid or incurred to
purchase or lease tangible personal property used within this state
in the production of a qualified motion picture and payments,
including qualified wages, for services performed within this state
in the production of a qualified motion picture.
(17) (A) "Qualified taxpayer" means a taxpayer who has paid or
incurred qualified expenditures and has been issued a credit
certificate by the California Film Commission pursuant to subdivision
(g).
(B) (i) In the case of any passthrough 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
is not allowed to the passthrough entity, but shall be 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,
"passthrough entity" means any entity taxed as a partnership or "S"
corporation.
(ii) In the case of an "S" corporation, the credit allowed under
this section shall not be used by an "S" corporation as a credit
against a tax imposed under Chapter 4.5 (commencing with Section
23800) of Part 11 of Division 2.
(18) (A) "Qualified wages" means all of the following:
(i) Any wages required to be reported under Section 13050 of the
Unemployment Insurance Code that were paid or incurred by any
taxpayer involved in the production of a qualified motion picture
with respect to a qualified individual for services performed on the
qualified motion picture production within California.
(ii) The portion of any employee fringe benefits paid or incurred
by any taxpayer involved in the production of the qualified motion
picture that are properly allocable to qualified wage amounts
described in clause (i).
(iii) Any payments made to a qualified entity for services
performed in California by qualified individuals within the meaning
of paragraph (14).
(iv) Remuneration paid to an independent contractor who is a
qualified individual for services performed within California by that
qualified individual.
(B) "Qualified wages" shall not include any of the following:
(i) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or residual compensation, or the
creation of any ancillary product, including, but not limited to, a
soundtrack album, toy, game, trailer, or teaser.
(ii) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.
(iii) Expenses, including wages, related to financing, overhead,
marketing, promotion, or distribution of a qualified motion picture.
(iv) Expenses, including wages, paid per person per qualified
motion picture for writers, directors, music directors, music
composers, music supervisors, producers, and performers, other than
background actors with no scripted lines.
(19) "Residual compensation" means supplemental compensation paid
at the time that a motion picture is exhibited through new use,
reuse, clip use, or in secondary markets, as distinguished from
payments made during production.
(20) "Reuse" means any use of a qualified motion picture in the
same medium for which it was created, following the initial use in
that medium.
(21) "Secondary markets" means media in which a qualified motion
picture is exhibited following the initial media in which it is
exhibited.
(22) "Television series that relocated to California" means a
television series, without regard to episode length or initial media
exhibition, that filmed all of its prior season or seasons outside of
California and for which the taxpayer certifies that the credit
provided pursuant to this section is the primary reason for
relocating to California.
(c) (1) Notwithstanding subdivision (i) of Section 23036, relating
to credits attributable to a passthrough business entity, in the
case where the credit allowed by this section exceeds the taxpayer's
tax liability computed under this part, a qualified taxpayer may
elect to assign any portion of the credit allowed under this section
to one or more affiliated corporations for each taxable year in which
the credit is allowed. For purposes of this subdivision, "affiliated
corporation" has the meaning provided in subdivision (b) of Section
25110, as that section was amended by Chapter 881 of the Statutes of
1993, as of the last day of the taxable year in which the credit is
allowed, except that "100 percent" is substituted for "more than 50
percent" wherever it appears in the section, and "voting common stock"
is substituted for "voting stock" wherever it appears in the
section.
(2) The election provided in paragraph (1):
(A) May be based on any method selected by the qualified taxpayer
that originally receives the credit.
(B) Shall be irrevocable for the taxable year the credit is
allowed, once made.
(C) May be changed for any subsequent taxable year if the election
to make the assignment is expressly shown on each of the returns of
qualified taxpayer and a qualified taxpayer's affiliated corporations
that assign and receive the credits.
(3) (A) Notwithstanding any other law, a qualified taxpayer, may
sell any credit allowed under this section that is attributable to an
independent film, as defined in paragraph (6) of subdivision (b), to
an unrelated party.
(B) The qualified taxpayer shall report to the Franchise Tax Board
prior to the sale of the credit, in the form and manner specified by
the Franchise Tax Board, all required information regarding the
purchase and sale of the credit, including the social security or
other taxpayer identification number of the unrelated party to whom
the credit has been sold, the face amount of the credit sold, and the
amount of consideration received by the qualified taxpayer for the
sale of the credit.
(4) In the case where the credit allowed under this section
exceeds the "tax," the excess credit may be carried over to reduce
the "tax" in the following taxable year, and succeeding five taxable
years, if necessary, until the credit has been exhausted.
(5) A credit shall not be sold pursuant to this subdivision to
more than one taxpayer, nor may the credit be resold by the unrelated
party to another taxpayer or other party.
(6) A party that has been assigned or acquired tax credits under
this paragraph shall be subject to the requirements of this section.
(7) In no event may a qualified taxpayer assign or sell any tax
credit to the extent the tax credit allowed by this section is
claimed on any tax return of the qualified taxpayer.
(8) In the event that both the taxpayer originally allocated a
credit under this section by the California Film Commission and a
taxpayer to whom the credit has been sold both claim the same amount
of credit on their tax returns, the Franchise Tax Board may disallow
the credit of either taxpayer, so long as the statute of limitations
upon assessment remains open.
(9) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this subdivision.
(d) No credit shall be allowed pursuant to this section unless the
qualified taxpayer provides the following to the California Film
Commission:
(1) Identification of each qualified individual.
(2) The specific start and end dates of production.
(3) The total wages paid.
(4) The amount of qualified wages paid to each qualified
individual.
(5) The copyright registration number, as reflected on the
certificate of registration issued under the authority of Section 410
of Title 17 of the United States Code, relating to registration of
claim and issuance of certificate. The registration number shall be
provided on the return claiming the credit.
(6) The total amounts paid or incurred to purchase or lease
tangible personal property used in the production of a qualified
motion picture.
(7) Information to substantiate its qualified expenditures.
(8) Information required by the California Film Commission under
regulations promulgated pursuant to subdivision (g) necessary to
verify the amount of credit claimed.
(e) The California Film Commission may prescribe rules and
regulations to carry out the purposes of this section including any
rules and regulations necessary to establish procedures, processes,
requirements, and rules identified in or required to implement this
section. The regulations shall include provisions to set aside a
percentage of annual credit allocations for independent films.
(f) If the qualified taxpayer fails to provide the copyright
registration number as required in paragraph (5) of subdivision (d),
the credit shall be disallowed and assessed and collected under
Section 19051 until the procedures are satisfied.
(g) For purposes of this section, the California Film Commission
shall do the following:
(1) On or after July 1, 2009, and before July 1, 2014, allocate
tax credits to applicants.
(A) Establish a procedure for applicants to file with the
commission a written application, on a form jointly prescribed by the
commission and the Franchise Tax Board for the allocation of the tax
credit. The application shall include, but not be limited to, the
following information:
(i) The budget for the motion picture production.
(ii) The number of production days.
(iii) A financing plan for the production.
(iv) The diversity of the workforce employed by the applicant,
including, but not limited to, the ethnic and racial makeup of the
individuals employed by the applicant during the production of the
qualified motion picture, to the extent possible.
(v) Any other information deemed relevant by the commission or the
Franchise Tax Board.
(B) Establish criteria, consistent with the requirements of this
section, for allocating tax credits.
(C) Determine and designate applicants who meet the requirements
of this section.
(D) Process and approve, or reject, all applications on a
first-come-first-served basis.
(E) Subject to the annual cap established as provided in
subdivision (i), allocate an aggregate amount of credits under this
section and Section 17053.85, and allocate any carryover of
unallocated credits from prior years.
(2) Certify tax credits allocated to qualified taxpayers.
(A) Establish a verification procedure for the amount of qualified
expenditures paid or incurred by the applicant.
(B) Establish audit requirements that must be satisfied before a
credit certificate maybe issued by the California Film Commission.
(C) Issue a credit certificate to a qualified taxpayer upon
completion of the qualified motion picture, reflecting the credit
amount allocated after qualified expenditures have been verified
under this section. The amount of a credit shown in the credit
certificate shall not exceed the amount of credit allocated to that
qualified taxpayer pursuant to this section.
(h) The California Film Commission shall provide the Franchise Tax
Board and the board annually with a list of qualified taxpayers and
the tax credit amounts allocated to each qualified taxpayer by the
California Film Commission. The list shall include the names and
taxpayer identification numbers, including taxpayer identification
numbers of each partner or shareholder, as applicable, of the
qualified taxpayer.
(i) (1) The aggregate amount of credits that may be allocated in
any fiscal year pursuant to this section and Section 17053.85 shall
be an amount equal to the sum of all of the following:
(A) One hundred million dollars ($100,000,000) in credits for the
2009-10 fiscal year and each fiscal year thereafter, through and
including the 2013-14 fiscal year.
(B) The unused allocation credit amount, if any, for the preceding
fiscal year.
(C) The amount of previously allocated credits not certified.
(2) If the amount of credits applied for in any particular fiscal
year exceeds the aggregate amount of tax credits authorized to be
allocated for under this section, such excess shall be treated as
having been applied for on the first day of the subsequent fiscal
year. However, credits may not be allocated from a fiscal year other
than the fiscal year in which the credit was originally applied for
or the immediately succeeding fiscal year.
(3) Notwithstanding the foregoing, the Film Commission shall set
aside up to ten million ($10,000,000) of tax credits each fiscal year
for independent films allocated in accordance with rules and
regulations developed pursuant to subdivision (e).
(4) Any act that reduces the amount that may be allocated pursuant
to paragraph (1) constitutes a change in state taxes for the purpose
of increasing revenues within the meaning of Section 3 of Article
XIII A of the California Constitution and may be passed by not less
than two-thirds of all Members elected to each of the two houses of
the Legislature.
(j) The film commission shall have the authority to allocate tax
credits in accordance with this section and in accordance with any
regulations prescribed pursuant to subdivision (e) upon adoption.
SEC. 10. Section 25120 of the Revenue and Taxation Code is amended
to read:
25120. As used in Sections 25120 to 25139, inclusive, which shall
hereafter be referred to as "this act," unless the context otherwise
requires:
(a) "Business income" means income arising from transactions and
activity in the regular course of the taxpayer's trade or business
and includes income from tangible and intangible property if the
acquisition, management, and disposition of the property constitute
integral parts of the taxpayer's regular trade or business
operations.
(b) "Commercial domicile" means the principal place from which the
trade or business of the taxpayer is directed or managed.
(c) "Compensation" means wages, salaries, commissions and any
other form of remuneration paid to employees for personal services.
(d) "Nonbusiness income" means all income other than business
income.
(e) For taxable years beginning before January 1, 2011, "sales"
means all gross receipts of the taxpayer not allocated under Sections
25123 to 25127, inclusive.
(f) For taxable years beginning on or after January 1, 2011:
(1) "Sales" means all gross receipts of the taxpayer not allocated
under Sections 25123 to 25127, inclusive.
(2) "Gross receipts" means the gross amounts realized (the sum of
money and the fair market value of other property or services
received) on the sale or exchange of property, the performance of
services, or the use of property or capital (including rents,
royalties, interest, and dividends) in a transaction that produces
business income, in which the income, gain, or loss is recognized (or
would be recognized if the transaction were in the United States)
under the Internal Revenue Code, as applicable for purposes of this
part. Amounts realized on the sale or exchange of property shall not
be reduced by the cost of goods sold or the basis of property sold.
Gross receipts, even if business income, shall not include the
following items:
(A) Repayment, maturity, or redemption of the principal of a loan,
bond, mutual fund, certificate of deposit, or similar marketable
instrument.
(B) The principal amount received under a repurchase agreement or
other transaction properly characterized as a loan.
(C) Proceeds from issuance of the taxpayer's own stock or from
sale of treasury stock.
(D) Damages and other amounts received as the result of
litigation.
(E) Property acquired by an agent on behalf of another.
(F) Tax refunds and other tax benefit recoveries.
(G) Pension reversions.
(H) Contributions to capital (except for sales of securities by
securities dealers).
(I) Income from discharge of indebtedness.
(J) Amounts realized from exchanges of inventory that are not
recognized under the Internal Revenue Code.
(K) Amounts received from transactions in intangible assets held
in connection with a treasury function of the taxpayer's unitary
business and the gross receipts and overall net gains from the
maturity, redemption, sale, exchange, or other disposition of those
intangible assets. For purposes of this subparagraph, "treasury
function" means the pooling, management, and investment of intangible
assets for the purpose of satisfying the cash flow needs of the
taxpayer's trade or business, such as providing liquidity for a
taxpayer's business cycle, providing a reserve for business
contingencies, and business acquisitions, and also includes the use
of futures contracts and options contracts to hedge foreign currency
fluctuations. A taxpayer principally engaged in the trade or business
of purchasing and selling intangible assets of the type typically
held in a taxpayer's treasury function, such as a registered
broker-dealer, is not performing a treasury function, for purposes of
this subparagraph, with respect to income so produced.
(L) Amounts received from hedging transactions involving
intangible assets. A "hedging transaction" means a transaction
related to the taxpayer's trading function involving futures and
options transactions for the purpose of hedging price risk of the
products or commodities consumed, produced, or sold by the taxpayer.
(3) Exclusion of an item from the definition of "gross receipts"
shall not be determinative of its character as business or
nonbusiness income.
(4) The changes to this section by the act adding this sentence
pertaining to taxable years beginning before January 1, 2011,
constitute clarifying, nonsubstantive changes.
(g) "State" means any state of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, any territory or
possession of the United States, and any foreign country or political
subdivision thereof.
SEC. 11. Section 25128.5 is added to the Revenue and Taxation
Code, to read:
25128.5. (a) Notwithstanding Section 38006, any apportioning
trade or business, other than an apportioning trade or business
described in subdivision (b) of Section 25128, may make an
irrevocable annual election on an original timely filed return, in
the manner and form prescribed by the Franchise Tax Board to
apportion its income in accordance with this section, and not in
accordance with Section 25128.
(b) Notwithstanding Section 38006, for taxable years beginning on
or after January 1, 2011, all business income shall be apportioned to
this state by multiplying the business income by the sales factor.
(c) The Franchise Tax Board is authorized to issue regulations
necessary or appropriate regarding the making of an election under
this section, including regulations that are consistent with rules
prescribed for making an election under Section 25113.
SEC. 12. Section 25135 of the Revenue and Taxation Code is amended
to read:
25135. (a) Sales of tangible personal property are in this state
if:
(1) The property is delivered or shipped to a purchaser, other
than the United States government, within this state regardless of
the f.o.b. point or other conditions of the sale.
(2) The property is shipped from an office, store, warehouse,
factory, or other place of storage in this state and (A) the
purchaser is the United States government or (B) the taxpayer is not
taxable in the state of the purchaser.
(b) For taxable years beginning on or after January 1, 2011, for
purposes of determining whether sales are in this state and included
in the numerator of the sales factor, all sales of the combined
reporting group properly assigned to this state under this section
shall be included in the sales factor numerator for this state
regardless of whether the member of the combined reporting group
making the sale is subject to the taxes imposed under Chapter 2
(commencing with Section 23101) or Chapter 3 (commencing with Section
23501) of this part. All sales not assigned to this state pursuant
to subdivision (a) shall not be included in the sales factor
numerator for this state if a member of the combined reporting group
of the taxpayer is taxable in the state of the purchaser.
(c) The Franchise Tax Board may prescribe regulations as necessary
or appropriate to carry out the purposes of this section.
SEC. 13. Section 25136 of the Revenue and Taxation Code is amended
to read:
25136. (a) Sales, other than sales of tangible personal property,
are in this state if:
(1) The income-producing activity is performed in this state; or
(2) The income-producing activity is performed both in and outside
this state and a greater proportion of the income-producing activity
is performed in this state than in any other state, based on costs
of performance.
(b) This section shall not apply to taxable years beginning on or
after January 1, 2011, and as of that date is repealed.
SEC. 14. Section 25136 is added to the Revenue and Taxation Code,
to read:
25136. For taxable years beginning on or after January 1, 2011:
(a) Sales, other than sales of tangible personal property, are in
this state as follows:
(1) Sales from services are in this state to the extent the
purchaser of the service received the benefit of the service in this
state.
(2) Sales from intangible property are in this state to the extent
the property is used in this state. In the case of marketable
securities, sales are in this state if the customer is in this state.
(3) Sales from the sale, lease, rental, or licensing of real
property are in this state if the real property is located in this
state.
(4) Sales from the rental, lease, or licensing of tangible
personal property are in this state if the property is located in
this state.
(b) The Franchise Tax Board may prescribe regulations as necessary
or appropriate to carry out the purposes of this section.
SEC. 15. (a) On or before December 31, 2015, the Business,
Transportation and Housing Agency shall report to the Legislature on
the economic impact of the tax incentives created by Sections 6902.5,
17053.85 and 23685 of the Revenue and Taxation Code, as added by
this act. In preparing the report, the agency shall consider, but is
not limited to considering, all of the following:
(1) The number and increase or decrease of qualified motion
pictures produced in California.
(2) The amount of total qualified wages paid or incurred in
California.
(3) The level of employment in the production industry in
California.
(b) The agency may consult with the Employment Development
Department, the Franchise Tax Board, the State Board of Equalization,
representatives of industry and labor organizations, and agencies of
local government before completing its report.
SEC. 16. This act addresses the fiscal emergency declared by the
Governor by proclamation on December 19, 2008, pursuant to
subdivision (f) of Section 10 of Article IV of the California
Constitution.
SEC. 17. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.