BILL NUMBER: AB 2100 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Coto
FEBRUARY 18, 2010
An act to amend Sections 17276, 17276.9, 17276.10, 23101, 24416,
24416.9, 24416.10, 25120, and 25135 of, to repeal Sections 23663 and
25128.5 of, and to repeal and amend Section 25136 of, the Revenue and
Taxation Code, relating to taxation, to take effect immediately, tax
levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 2100, as introduced, Coto. Income taxation: deductions: net
operating loss carrybacks: credits: eligible assignees: single sales
factor.
The Personal Income Tax Law and the Corporation Tax Law allow
various deductions in computing the income that is subject to the
taxes imposed by those laws. Existing law allows a deduction for
specified net operating losses, including allowing net operating loss
carrybacks attributable to taxable years beginning on or after
January 1, 2011.
This bill would disallow the use of net operating loss carrybacks
by individual and corporate taxpayers.
The Corporation Tax Law authorize various credits against the
taxes imposed by that law. Existing law provides, for taxable years
beginning on or after July 1, 2008, that any credit that is an
eligible credit, as defined, may be assigned to any eligible
assignees, as defined, that may be used by that eligible assignee for
taxable years beginning on or after January 1, 2010.
This bill would repeal these provisions authorizing the
assignation of credits and the use of those credits by eligible
assignees.
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. Existing law, for
taxable years beginning on or after January 1, 2011, allows a
taxpayer to have that income apportioned in accordance with a single
sales factor formula, except as provided.
This bill would repeal the provisions that allow a taxpayer to
have income apportioned in accordance with a single sale factor
formula.
This bill would result in a change in state taxes for the purpose
of increasing state revenues within the meaning of Section 3 of
Article XIII A of the California Constitution, and thus would
require for passage the approval of 2/3 of the membership of each
house of the Legislature.
This bill would take effect immediately as a tax levy.
Vote: 2/3. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 17276 of the Revenue and Taxation Code is
amended to read:
17276. Except as provided in Sections 17276.1, 17276.2, 17276.4,
17276.5, 17276.6, and 17276.7, the deduction provided by Section 172
of the Internal Revenue Code, relating to a net operating loss
deduction, shall be modified as follows:
(a) (1) Net operating losses attributable to taxable years
beginning before January 1, 1987, shall not be allowed.
(2) A net operating loss shall not be carried forward to any
taxable year beginning before January 1, 1987.
(b) (1) Except as provided in paragraphs (2) and (3), the
provisions of Section 172(b)(2) of the Internal Revenue Code,
relating to the amount of carryovers, shall be modified so that the
applicable percentage of the entire amount of the net operating loss
for any taxable year shall be eligible for carryover to any
subsequent taxable year. For purposes of this subdivision, the
applicable percentage shall be:
(A) Fifty percent for any taxable year beginning before January 1,
2000.
(B) Fifty-five percent for any taxable year beginning on or after
January 1, 2000, and before January 1, 2002.
(C) Sixty percent for any taxable year beginning on or after
January 1, 2002, and before January 1, 2004.
(D) One hundred percent for any taxable year beginning on or after
January 1, 2004.
(2) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
a new business during that taxable year, each of the following shall
apply to each loss incurred during the first three taxable years of
operating the new business:
(A) If the net operating loss is equal to or less than the net
loss from the new business, 100 percent of the net operating loss
shall be carried forward as provided in subdivision (d).
(B) If the net operating loss is greater than the net loss from
the new business, the net operating loss shall be carried over as
follows:
(i) With respect to an amount equal to the net loss from the new
business, 100 percent of that amount shall be carried forward as
provided in subdivision (d).
(ii) With respect to the portion of the net operating loss that
exceeds the net loss from the new business, the applicable percentage
of that amount shall be carried forward as provided in subdivision
(d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(3) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
an eligible small business during that taxable year, each of the
following shall apply:
(A) If the net operating loss is equal to or less than the net
loss from the eligible small business, 100 percent of the net
operating loss shall be carried forward to the taxable years
specified in subdivision (d).
(B) If the net operating loss is greater than the net loss from
the eligible small business, the net operating loss shall be carried
over as follows:
(i) With respect to an amount equal to the net loss from the
eligible small business, 100 percent of that amount shall be carried
forward as provided in subdivision (d).
(ii) With respect to that portion of the net operating loss that
exceeds the net loss from the eligible small business, the applicable
percentage of that amount shall be carried forward as provided in
subdivision (d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(4) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
a business that qualifies as both a new business and an eligible
small business under this section, that business shall be treated as
a new business for the first three taxable years of the new business.
(5) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
more than one business, and more than one of those businesses
qualifies as either a new business or an eligible small business
under this section, paragraph (2) shall be applied first, except that
if there is any remaining portion of the net operating loss after
application of clause (i) of subparagraph (B) of that paragraph,
paragraph (3) shall be applied to the remaining portion of the net
operating loss as though that remaining portion of the net operating
loss constituted the entire net operating loss.
(6) For purposes of this section, the term "net loss" means the
amount of net loss after application of Sections 465 and 469 of the
Internal Revenue Code.
(c) Section 172(b)(1) of the Internal Revenue Code, relating to
net operating loss carrybacks and carryovers and the years to which
the loss may be carried, is modified as follows:
(1)
(c) Net operating loss carrybacks shall not be allowed
for any net operating losses attributable to taxable years
beginning before January 1, 2011 .
(2) A net operating loss attributable to taxable years beginning
on or after January 1, 2011, shall be a net operating loss carryback
to each of the two taxable years preceding the taxable year of the
loss in lieu of the number of years provided therein.
(A) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2011, and before January 1, 2012,
the amount of carryback to any taxable year shall not exceed 50
percent of the net operating loss.
(B) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2012, and before January 1, 2013,
the amount of carryback to any taxable year shall not exceed 75
percent of the net operating loss.
(C) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2013, the amount of carryback to any
taxable year shall not exceed 100 percent of the net operating loss.
(3) Notwithstanding paragraph (2), Section 172(b)(1)(B) of the
Internal Revenue Code, relating to special rules for REITs, and
Sections 172(b)(1)(E) and 172(h) of the Internal Revenue Code,
relating to corporate equity reduction interest loss, shall apply as
provided.
(4) A net operating loss carryback shall not be carried back to
any taxable year beginning before January 1, 2009.
(d) (1) (A) For a net operating loss for any taxable year
beginning on or after January 1, 1987, and before January 1, 2000,
Section 172(b)(1)(A)(ii) of the Internal Revenue Code, relating to
years to which net operating losses may be carried, is modified to
substitute "five taxable years" in lieu of "20 taxable years" except
as otherwise provided in paragraphs (2) and (3).
(B) For a net operating loss for any taxable year beginning on or
after January 1, 2000, and before January 1, 2008, Section 172(b)(1)
(A)(ii) of the Internal Revenue Code, relating to years to which net
operating losses may be carried, is modified to substitute "10
taxable years" in lieu of "20 taxable years."
(2) For any taxable year beginning before January 1, 2000, in the
case of a "new business," the "five taxable years" in paragraph (1)
shall be modified to read as follows:
(A) "Eight taxable years" for a net operating loss attributable to
the first taxable year of that new business.
(B) "Seven taxable years" for a net operating loss attributable to
the second taxable year of that new business.
(C) "Six taxable years" for a net operating loss attributable to
the third taxable year of that new business.
(3) For any carryover of a net operating loss for which a
deduction is denied by Section 17276.3, the carryover period
specified in this subdivision shall be extended as follows:
(A) By one year for a net operating loss attributable to taxable
years beginning in 1991.
(B) By two years for a net operating loss attributable to taxable
years beginning prior to January 1, 1991.
(4) The net operating loss attributable to taxable years beginning
on or after January 1, 1987, and before January 1, 1994, shall be a
net operating loss carryover to each of the 10 taxable years
following the year of the loss if it is incurred by a taxpayer that
is under the jurisdiction of the court in a Title 11 or similar case
at any time during the income year. The loss carryover provided in
the preceding sentence shall not apply to any loss incurred after the
date the taxpayer is no longer under the jurisdiction of the court
in a Title 11 or similar case.
(e) For purposes of this section:
(1) "Eligible small business" means any trade or business that has
gross receipts, less returns and allowances, of less than one
million dollars ($1,000,000) during the taxable year.
(2) Except as provided in subdivision (f), "new business" means
any trade or business activity that is first commenced in this state
on or after January 1, 1994.
(3) "Title 11 or similar case" shall have the same meaning as in
Section 368(a)(3) of the Internal Revenue Code.
(4) In the case of any trade or business activity conducted by a
partnership or "S" corporation paragraphs (1) and (2) shall be
applied to the partnership or "S" corporation.
(f) For purposes of this section, in determining whether a trade
or business activity qualifies as a new business under paragraph (2)
of subdivision (e), the following rules shall apply:
(1) In any case where a taxpayer purchases or otherwise acquires
all or any portion of the assets of an existing trade or business
(irrespective of the form of entity) that is doing business in this
state (within the meaning of Section 23101), the trade or business
thereafter conducted by the taxpayer (or any related person) shall
not be treated as a new business if the aggregate fair market value
of the acquired assets (including real, personal, tangible, and
intangible property) used by the taxpayer (or any related person) in
the conduct of its trade or business exceeds 20 percent of the
aggregate fair market value of the total assets of the trade or
business being conducted by the taxpayer (or any related person). For
purposes of this paragraph only, the following rules shall apply:
(A) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the first taxable year in which the taxpayer (or any related
person) first uses any of the acquired trade or business assets in
its business activity.
(B) Any acquired assets that constituted property described in
Section 1221(1) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(1) of the Internal Revenue Code in the
hands of the acquiring taxpayer (or related person).
(2) In any case where a taxpayer (or any related person) is
engaged in one or more trade or business activities in this state, or
has been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, than are
any of the taxpayer's (or any related person's) current or prior
trade or business activities.
(3) In any case where a taxpayer, including all related persons,
is engaged in trade or business activities wholly outside of this
state and the taxpayer first commences doing business in this state
(within the meaning of Section 23101) after December 31, 1993 (other
than by purchase or other acquisition described in paragraph (1)),
the trade or business activity shall be treated as a new business
under paragraph (2) of subdivision (e).
(4) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
taxpayer as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
paragraph (1) of this subdivision.
(5) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
(6) "Acquire" shall include any gift, inheritance, transfer
incident to divorce, or any other transfer, whether or not for
consideration.
(7) (A) For taxable years beginning on or after January 1, 1997,
the term "new business" shall include any taxpayer that is engaged in
biopharmaceutical activities or other biotechnology activities that
are described in Codes 2833 to 2836, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, and as further
amended, and that has not received regulatory approval for any
product from the United States Food and Drug Administration.
(B) For purposes of this paragraph:
(i) "Biopharmaceutical activities" means those activities 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 that make use of chemical compounds to produce commercial
products.
(ii) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
(g) In computing the modifications under Section 172(d)(2) of the
Internal Revenue Code, relating to capital gains and losses of
taxpayers other than corporations, the exclusion provided by Section
18152.5 shall not be allowed.
(h) Notwithstanding any provisions of this section to the
contrary, a deduction shall be allowed to a "qualified taxpayer" as
provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and
17276.7.
(i) The Franchise Tax Board may prescribe appropriate regulations
to carry out the purposes of this section, including any regulations
necessary to prevent the avoidance of the purposes of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, or otherwise.
(j) The Franchise Tax Board may reclassify any net operating loss
carryover determined under either paragraph (2) or (3) of subdivision
(b) as a net operating loss carryover under paragraph (1) of
subdivision (b) upon a showing that the reclassification is necessary
to prevent evasion of the purposes of this section.
(k) Except as otherwise provided, the amendments made by Chapter
107 of the Statutes of 2000 shall apply to net operating losses for
taxable years beginning on or after January 1, 2000.
SEC. 2. Section 17276.9 of the Revenue and Taxation Code is
amended to read:
17276.9. (a) Notwithstanding Sections 17276, 17276.1, 17276.2,
17276.4, 17276.5, 17276.6, and 17276.7 of this code and Section 172
of the Internal Revenue Code, no net operating loss deduction shall
be allowed for any taxable year beginning on or after January 1,
2008, and before January 1, 2010.
(b) For any net operating loss or carryover of a net operating
loss for which a deduction is denied by subdivision (a), the
carryover period under Section 172 of the Internal Revenue Code shall
be extended as follows:
(1) By one year, for losses incurred in taxable years beginning on
or after January 1, 2008, and before January 1, 2009.
(2) By two years, for losses incurred in taxable years beginning
before January 1, 2008.
(c) Notwithstanding subdivision (a), a net operating loss
deduction shall be allowed for carryback of a net operating loss
attributable to a taxable year beginning on or after January 1, 2011.
(d)
(c) 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 passthrough 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 17276.10 of the Revenue and Taxation Code is
amended to read:
17276.10. Notwithstanding Section 17276.1, 17276.2, 17276.4,
17276.5, 17276.6, or 17276.7 to the contrary, a net operating loss
attributable to a taxable year beginning on or after January 1, 2008,
shall be a net operating carryover to each of the 20 taxable years
following the year of the loss , and a net operating loss
attributable to a taxable year beginning on or after January 1, 2011,
shall also be a net operating loss carryback to each of the two
taxable years preceding the taxable year of loss .
SEC. 4. 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. 5. Section 23663 of the Revenue and Taxation Code is
repealed.
23663. (a) (1) Notwithstanding any other law to the contrary, for
each taxable year beginning on or after July 1, 2008, any credit
allowed to a taxpayer under this chapter that is an "eligible credit
(within the meaning of paragraph (2) of subdivision (b)) may be
assigned by that taxpayer to any "eligible assignee" (within the
meaning of paragraph (3) of subdivision (b)).
(2) A credit assigned under paragraph (1) may only be applied by
the eligible assignee against the "tax" of the eligible assignee in a
taxable year beginning on or after January 1, 2010.
(3) Except as specifically provided in this section, following an
assignment of any eligible credit under this section, the eligible
assignee shall be treated as if it originally earned the assigned
credit.
(b) For purposes of this section, the following definitions shall
apply:
(1) "Affiliated corporation" means a corporation that is a member
of a commonly controlled group as defined in Section 25105.
(2) "Eligible credit" shall mean:
(A) Any credit earned by the taxpayer in a taxable year beginning
on or after July 1, 2008, or
(B) Any credit earned in any taxable year beginning before July 1,
2008, that is eligible to be carried forward to the taxpayer's first
taxable year beginning on or after July 1, 2008, under the
provisions of this part.
(3) "Eligible assignee" shall mean any affiliated corporation that
is properly treated as a member of the same combined reporting group
pursuant to Section 25101 or 25110 as the taxpayer assigning the
eligible credit as of:
(A) In the case of credits earned in taxable years beginning
before July 1, 2008:
(i) June 30, 2008, and
(ii) The last day of the taxable year of the assigning taxpayer in
which the eligible credit is assigned.
(B) In the case of credits earned in taxable years beginning on or
after July 1, 2008.
(i) The last day of the first taxable year in which the credit was
allowed to the taxpayer, and
(ii) The last day of the taxable year of the assigning taxpayer in
which the eligible credit is assigned.
(c) (1) The election to assign any credit under subdivision (a)
shall be irrevocable once made, and shall be made by the taxpayer
allowed that credit on its original return for the taxable year in
which the assignment is made.
(2) The taxpayer assigning any credit under this section shall
reduce the amount of its unused credit by the face amount of any
credit assigned under this section, and the amount of the assigned
credit shall not be available for application against the assigning
taxpayer's "tax" in any taxable year, nor shall it thereafter be
included in the amount of any credit carryover of the assigning
taxpayer.
(3) The eligible assignee of any credit under this section may
apply all or any portion of the assigned credits against the "tax"
(as defined in Section 23036) of the eligible assignee for the
taxable year in which the assignment occurs, or any subsequent
taxable year, subject to any carryover period limitations that apply
to the assigned credit and also subject to the limitation in
paragraph (2) of subdivision (a).
(4) In no case may the eligible assignee sell, otherwise transfer,
or thereafter assign the assigned credit to any other taxpayer.
(d) (1) No consideration shall be required to be paid by the
eligible assignee to the assigning taxpayer for assignment of any
credit under this section.
(2) In the event that any consideration is paid by the eligible
assignee to the assigning taxpayer for the transfer of an eligible
credit under this section, then:
(A) No deduction shall be allowed to the eligible assignee under
this part with respect to any amounts so paid, and
(B) No amounts so received by the assigning taxpayer shall be
includable in gross income under this part.
(e) (1) The Franchise Tax Board shall specify the form and manner
in which the election required under this section shall be made, as
well as any necessary information that shall be required to be
provided by the taxpayer assigning the credit to the eligible
assignee.
(2) Any taxpayer who assigns any credit under this section shall
report any information, in the form and manner specified by the
Franchise Tax Board, necessary to substantiate any credit assigned
under this section and verify the assignment and subsequent
application of any assigned credit.
(3) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code shall not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to paragraphs (1) and (2).
(4) The Franchise Tax Board may issue any regulations necessary to
implement the purposes of this section, including any regulations
necessary to specify the treatment of any assignment that does not
comply with the
requirements of this section (including, for example, where the
taxpayer and eligible assignee are not properly treated as members of
the same combined reporting group on any of the dates specified in
paragraph (3) of subdivision (b).
(f) (1) The taxpayer and the eligible assignee shall be jointly
and severally liable for any tax, addition to tax, or penalty that
results from the disallowance, in whole or in part, of any eligible
credit assigned under this section.
(2) Nothing in this section shall limit the authority of the
Franchise Tax Board to audit either the assigning taxpayer or the
eligible assignee with respect to any eligible credit assigned under
this section.
(g) On or before June 30, 2013, the Franchise Tax Board shall
report to the Joint Legislative Budget Committee, the Legislative
Analyst, and the relevant policy committees of both houses on the
effects of this section. The report shall include, but need not be
limited to, the following:
(1) An estimate of use of credits in the 2010 and 2011 taxable
years by eligible taxpayers.
(2) An analysis of effect of this section on expanding business
activity in the state related to these credits.
(3) An estimate of the resulting tax revenue loss to the state.
(4) The report shall cover all credits covered in this section,
but focus on the credits related to research and development,
economic incentive areas, and low income housing.
SEC. 6. Section 24416 of the Revenue and Taxation Code is amended
to read:
24416. Except as provided in Sections 24416.1, 24416.2, 24416.4,
24416.5, 24416.6, and 24416.7, a net operating loss deduction shall
be allowed in computing net income under Section 24341 and shall be
determined in accordance with Section 172 of the Internal Revenue
Code, except as otherwise provided.
(a) (1) Net operating losses attributable to taxable years
beginning before January 1, 1987, shall not be allowed.
(2) A net operating loss shall not be carried forward to any
taxable year beginning before January 1, 1987.
(b) (1) Except as provided in paragraphs (2) and (3), the
provisions of Section 172(b)(2) of the Internal Revenue Code,
relating to the amount of carryovers, shall be modified so that the
applicable percentage of the entire amount of the net operating loss
for any taxable year shall be eligible for carryover to any
subsequent taxable year. For purposes of this subdivision, the
applicable percentage shall be:
(A) Fifty percent for any taxable year beginning before January 1,
2000.
(B) Fifty-five percent for any taxable year beginning on or after
January 1, 2000, and before January 1, 2002.
(C) Sixty percent for any taxable year beginning on or after
January 1, 2002, and before January 1, 2004.
(D) One hundred percent for any taxable year beginning on or after
January 1, 2004.
(2) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
a new business during that taxable year, each of the following shall
apply to each loss incurred during the first three taxable years of
operating the new business:
(A) If the net operating loss is equal to or less than the net
loss from the new business, 100 percent of the net operating loss
shall be carried forward as provided in subdivision (e).
(B) If the net operating loss is greater than the net loss from
the new business, the net operating loss shall be carried over as
follows:
(i) With respect to an amount equal to the net loss from the new
business, 100 percent of that amount shall be carried forward as
provided in subdivision (e).
(ii) With respect to the portion of the net operating loss that
exceeds the net loss from the new business, the applicable percentage
of that amount shall be carried forward as provided in subdivision
(d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(3) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
an eligible small business during that taxable year, each of the
following shall apply:
(A) If the net operating loss is equal to or less than the net
loss from the eligible small business, 100 percent of the net
operating loss shall be carried forward to the taxable years
specified in paragraph (1) of subdivision (e).
(B) If the net operating loss is greater than the net loss from
the eligible small business, the net operating loss shall be carried
over as follows:
(i) With respect to an amount equal to the net loss from the
eligible small business, 100 percent of that amount shall be carried
forward as provided in subdivision (e).
(ii) With respect to that portion of the net operating loss that
exceeds the net loss from the eligible small business, the applicable
percentage of that amount shall be carried forward as provided in
subdivision (e).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(4) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
a business that qualifies as both a new business and an eligible
small business under this section, that business shall be treated as
a new business for the first three taxable years of the new business.
(5) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
more than one business, and more than one of those businesses
qualifies as either a new business or an eligible small business
under this section, paragraph (2) shall be applied first, except that
if there is any remaining portion of the net operating loss after
application of clause (i) of subparagraph (B) of paragraph (2),
paragraph (3) shall be applied to the remaining portion of the net
operating loss as though that remaining portion of the net operating
loss constituted the entire net operating loss.
(6) For purposes of this section, "net loss" means the amount of
net loss after application of Sections 465 and 469 of the Internal
Revenue Code.
(c) For any taxable year in which the taxpayer has in effect a
water's-edge election under Section 25110, the deduction of a net
operating loss carryover shall be denied to the extent that the net
operating loss carryover was determined by taking into account the
income and factors of an affiliated corporation in a combined report
whose income and apportionment factors would not have been taken into
account if a water's-edge election under Section 25110 had been in
effect for the taxable year in which the loss was incurred.
(d) Section 172(b)(1) of the Internal Revenue Code, relating to
net operating loss carrybacks and carryovers and the years to which
the loss may be carried, is modified as follows:
(1)
(d) Net operating loss carrybacks shall not be allowed
for any net operating losses attributable to taxable years
beginning before January 1, 2011 .
(2) A net operating loss attributable to taxable years beginning
on or after January 1, 2011, shall be a net operating loss carryback
to each of the two taxable years preceding the taxable year of the
loss in lieu of the number of years provided therein.
(A) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2011, and before January 1, 2012,
the amount of carryback to any taxable year shall not exceed 50
percent of the net operating loss.
(B) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2012, and before January 1, 2013,
the amount of carryback to any taxable year shall not exceed 75
percent of the net operating loss.
(C) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2013, the amount of carryback to any
taxable year shall not exceed 100 percent of the net operating loss.
(3) Notwithstanding paragraph (2), Section 172(b)(1)(B) of the
Internal Revenue Code, relating to special rules for REITs, and
Sections 172(b)(1)(E) and 172(h) of the Internal Revenue Code,
relating to corporate equity reduction interest loss, shall apply as
provided.
(4) A net operating loss carryback shall not be carried back to
any taxable year beginning before January 1, 2009.
(e) (1) (A) For a net operating loss for any taxable year
beginning on or after January 1, 1987, and before January 1, 2000,
Section 172(b)(1)(A)(ii) of the Internal Revenue Code, relating to
years to which net operating losses may be carried, is modified to
substitute "five taxable years" in lieu of "20 years" except as
otherwise provided in paragraphs (2), (3), and (4).
(B) For a net operating loss for any income year beginning on or
after January 1, 2000, and before January 1, 2008, Section 172(b)(1)
(A)(ii) of the Internal Revenue Code, relating to years to which net
operating losses may be carried, is modified to substitute "10
taxable years" in lieu of "20 taxable years."
(2) For any income year beginning before January 1, 2000, in the
case of a "new business," the "five taxable years" referred to in
paragraph (1) shall be modified to read as follows:
(A) "Eight taxable years" for a net operating loss attributable to
the first taxable year of that new business.
(B) "Seven taxable years" for a net operating loss attributable to
the second taxable year of that new business.
(C) "Six taxable years" for a net operating loss attributable to
the third taxable year of that new business.
(3) For any carryover of a net operating loss for which a
deduction is denied by Section 24416.3, the carryover period
specified in this subdivision shall be extended as follows:
(A) By one year for a net operating loss attributable to taxable
years beginning in 1991.
(B) By two years for a net operating loss attributable to taxable
years beginning prior to January 1, 1991.
(4) The net operating loss attributable to taxable years beginning
on or after January 1, 1987, and before January 1, 1994, shall be a
net operating loss carryover to each of the 10 taxable years
following the year of the loss if it is incurred by a corporation
that was either of the following:
(A) Under the jurisdiction of the court in a Title 11 or similar
case at any time prior to January 1, 1994. The loss carryover
provided in the preceding sentence shall not apply to any loss
incurred in an income year after the taxable year during which the
corporation is no longer under the jurisdiction of the court in a
Title 11 or similar case.
(B) In receipt of assets acquired in a transaction that qualifies
as a tax-free reorganization under Section 368(a)(1)(G) of the
Internal Revenue Code.
(f) For purposes of this section:
(1) "Eligible small business" means any trade or business that has
gross receipts, less returns and allowances, of less than one
million dollars ($1,000,000) during the income year.
(2) Except as provided in subdivision (g), "new business" means
any trade or business activity that is first commenced in this state
on or after January 1, 1994.
(3) "Title 11 or similar case" shall have the same meaning as in
Section 368(a)(3) of the Internal Revenue Code.
(4) In the case of any trade or business activity conducted by a
partnership or an "S corporation," paragraphs (1) and (2) shall be
applied to the partnership or "S corporation."
(g) For purposes of this section, in determining whether a trade
or business activity qualifies as a new business under paragraph (2)
of subdivision (e), the following rules shall apply:
(1) In any case where a taxpayer purchases or otherwise acquires
all or any portion of the assets of an existing trade or business
(irrespective of the form of entity) that is doing business in this
state (within the meaning of Section 23101), the trade or business
thereafter conducted by the taxpayer (or any related person) shall
not be treated as a new business if the aggregate fair market value
of the acquired assets (including real, personal, tangible, and
intangible property) used by the taxpayer (or any related person) in
the conduct of its trade or business exceeds 20 percent of the
aggregate fair market value of the total assets of the trade or
business being conducted by the taxpayer (or any related person). For
purposes of this paragraph only, the following rules shall apply:
(A) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the first taxable year in which the taxpayer (or any related
person) first uses any of the acquired trade or business assets in
its business activity.
(B) Any acquired assets that constituted property described in
Section 1221(1) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(1) of the Internal Revenue Code in the
hands of the acquiring taxpayer (or related person).
(2) In any case where a taxpayer (or any related person) is
engaged in one or more trade or business activities in this state, or
has been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, than are
any of the taxpayer's (or any related person's) current or prior
trade or business activities.
(3) In any case where a taxpayer, including all related persons,
is engaged in trade or business activities wholly outside of this
state and the taxpayer first commences doing business in this state
(within the meaning of Section 23101) after December 31, 1993 (other
than by purchase or other acquisition described in paragraph (1)),
the trade or business activity shall be treated as a new business
under paragraph (2) of subdivision (e).
(4) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
taxpayer as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
paragraph (1) of this subdivision.
(5) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
(6) "Acquire" shall include any transfer, whether or not for
consideration.
(7) (A) For taxable years beginning on or after January 1, 1997,
the term "new business" shall include any taxpayer that is engaged in
biopharmaceutical activities or other biotechnology activities that
are described in Codes 2833 to 2836, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, and as further
amended, and that has not received regulatory approval for any
product from the United States Food and Drug Administration.
(B) For purposes of this paragraph:
(i) "Biopharmaceutical activities" means those activities 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 that make use of chemical compounds to produce commercial
products.
(ii) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
(h) For purposes of corporations whose net income is determined
under Chapter 17 (commencing with Section 25101), Section 25108 shall
apply to each of the following:
(1) The amount of net operating loss incurred in any taxable year
that may be carried forward to another taxable year.
(2) The amount of any loss carry forward that may be deducted in
any taxable year.
(i) The provisions of Section 172(b)(1)(D) of the Internal Revenue
Code, relating to bad debt losses of commercial banks, shall not be
applicable.
(j) The Franchise Tax Board may prescribe appropriate regulations
to carry out the purposes of this section, including any regulations
necessary to prevent the avoidance of the purposes of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, or otherwise.
(k) The Franchise Tax Board may reclassify any net operating loss
carryover determined under either paragraph (2) or (3) of subdivision
(b) as a net operating loss carryover under paragraph (1) of
subdivision (b) upon a showing that the reclassification is necessary
to prevent evasion of the purposes of this section.
( l ) Except as otherwise provided, the amendments made
by Chapter 107 of the Statutes of 2000 shall apply to net operating
losses for taxable years beginning on or after January 1, 2000.
SEC. 7. Section 24416.9 of the Revenue and Taxation Code is
amended to read:
24416.9. (a) Notwithstanding Sections 24416, 24416.1, 24416.2,
24416.4, 24416.5, 24416.6, and 24416.7 of this code and Section 172
of the Internal Revenue Code, no net operating loss deduction shall
be allowed for any taxable year beginning on or after January 1,
2008, and before January 1, 2010.
(b) For any net operating loss or carryover of a net operating
loss for which a deduction is denied by subdivision (a), the
carryover period under Section 172 of the Internal Revenue Code shall
be extended as follows:
(1) By one year, for losses incurred in taxable years beginning on
or after January 1, 2008, and before January 1, 2009.
(2) By two years, for losses incurred in taxable years beginning
before January 1, 2008.
(c) Notwithstanding subdivision (a), a net operating loss
deduction shall be allowed for carryback of a net operating loss
attributable to a taxable year beginning on or after January 1, 2011.
(d)
(c) The provisions of this section shall not apply to a
taxpayer with income subject to tax under this part of less than
five hundred thousand dollars ($500,000) for the taxable year.
SEC. 8. Section 24416.10 of the Revenue and Taxation Code is
amended to read:
24416.10. Notwithstanding Section 24416.1, 24416.2, 24416.4,
24416.5, 24416.6, or 24416.7 to the contrary, a net operating loss
attributable to a taxable year beginning on or after January 1, 2008,
shall be a net operating carryover to each of the 20 taxable years
following the year of the loss , and a net operating loss
attributable to a taxable year beginning on or after January 1, 2011,
shall also be a net operating loss carryback to each of the two
taxable years preceding the taxable year of loss .
SEC. 9. 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)
(e) "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)
(f) "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. 10. Section 25128.5 of the Revenue and Taxation Code is
repealed.
25128.5. (a) Notwithstanding Section 38006, for taxable years
beginning on or after January 1, 2011, 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 of an apportioning
trade or business making an election described in subdivision (a)
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. 11. 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)
(a) 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)
(b) The property is shipped from an office, store,
warehouse, factory, or other place of storage in this state and
(A) (1) the purchaser is the United
States government or (B) (2) 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. 12. Section 25136 of the Revenue and Taxation Code, as added
by Section 14 of Chapter 10 of the 3rd Extraordinary Session of the
Statutes of 2009, is repealed.
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. 13. Section 25136 of the Revenue and Taxation Code, as added
by Section 14 of Chapter 17 of the 3rd Extraordinary Session of the
Statutes of 2009, is repealed.
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. 14. Section 25136 of the Revenue and Taxation Code, as
amended by Section 13 of Chapter 17 of the 3rd Extraordinary Session
of the Statutes of 2009, is amended to read:
25136. (a) Sales, other
than sales of tangible personal property, are in this state if:
(1)
(a) The income-producing activity is performed in this
state; or
(2)
(b) 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. 15. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.