BILL NUMBER: SB 1391 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY AUGUST 17, 2010
AMENDED IN ASSEMBLY AUGUST 2, 2010
AMENDED IN SENATE MAY 19, 2010
AMENDED IN SENATE APRIL 6, 2010
INTRODUCED BY Senator Yee
FEBRUARY 19, 2010
An act to add Sections 17060 and 23603 to the Revenue and Taxation
Code, relating to taxation , to take effect immediately,
tax levy .
LEGISLATIVE COUNSEL'S DIGEST
SB 1391, as amended, Yee. Income taxes: business tax incentives:
reporting information and recapture.
The Personal Income Tax Law and the Corporation Tax Law authorize
various credits, deductions, exclusions, exemptions, and other tax
benefits with respect to the taxes imposed by those laws.
This bill would require a taxpayer, as described, doing business
in California that claims a business tax incentive, as provided, to
submit to the Franchise Tax Board on the original return specified
information, including the number of employees employed by the
taxpayer in the state.
The bill would also require, in cases in which a taxpayer has a
disqualifying event resulting in a net decrease in the
number of full-time employees for a business tax incentive added by
statute on or after January 1, 2011, the business tax incentive to be
disallowed and the entire amount of any business tax
incentives previously allowed to be recaptured or the tax liability
to be recomputed and the taxpayer to be liable for any credits on
previous tax returns, as specified recaptured, and the
taxable amount computed in accordance with specified procedures
.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 17060 is added to the Revenue and Taxation
Code, to read:
17060. (a) Notwithstanding any other provision of this part, for
taxable years beginning on or after January 1, 2011, a taxpayer doing
business in this state that claims any business tax incentive shall
annually include on the timely filed original return, in the form and
manner as required by forms and instructions prescribed by the
Franchise Tax Board, the number of full-time, part-time, and
temporary employees, as defined, employed by the taxpayer in the
state for the current and preceding taxable years.
(b) (1) Notwithstanding any other law, for any business tax
incentive that is allowed by an act that takes effect on or after
January 1, 2011, both of the following shall apply if the taxpayer
has a net decrease, as determined under subdivision (c), in the
number of full-time equivalent employees in the state according to
the information provided pursuant to subdivision (a):
(A) The entire amount of the business tax incentives for all
taxable years shall be disallowed.
(B) Any previously allowed business tax incentives shall be
recaptured or the tax liability shall be recomputed and the taxpayer
shall be liable for the entire amount of any tax from disallowed
business tax incentives on previous tax returns.
(b) (1) Notwithstanding any other law, for any business tax
incentive that is allowed by an act that takes effect in a taxable
year beginning on or after January 1, 2011, if the taxpayer has a
disqualifying event occur before the close of the recapture period,
the business tax incentive shall be subject to recapture as specified
in subdivision (e).
(2) For purposes of this section, "disqualifying event" means a
net decrease, as determined under subdivision (c), in the average
number of full-time equivalent employees, calculated as of the last
day of the current taxable year.
(3) For purposes of this section, "recapture period" shall, with
respect to the amount of any business tax incentive that reduces a
taxpayer's taxable income or "net tax" in the current taxable year,
be the first full taxable year beginning after the close of the
taxable year in which the business tax incentive reduces either the
taxpayer's taxable income or "net tax," as defined in Section 17039,
and the four succeeding taxable years.
(2)
(4) For purposes of this subdivision, a "business tax
incentive" means a credit, deduction, exclusion, exemption, or any
other tax benefit provided by the state added to this part
by an act that takes effect beginning on or
after January 1, 2011, enacted with the principal
purpose of creating new jobs in the state, and allowed to taxpayers
engaged in or carrying on any trade, business, profession, vocation
or calling, or commercial activity in the state , including
activities in the state that benefit an affiliated entity of the
taxpayer, with respect to the income attributable to the taxpayer's
trade, business, profession, vocation or calling, or commercial
activity. .
(c) (1) The net decrease in full-time equivalent employees in the
state shall be determined, on and after January 1, 2014, on a
full-time equivalent basis by subtracting from the amount determined
in subparagraph (A) the amount determined in subparagraph (B).
(A) The total number of full-time equivalent employees in the
state employed in the three preceding taxable years by the taxpayer
and by any trade or business acquired by the taxpayer during the
current taxable year, divided by three.
(B) The total number of full-time equivalent employees employed in
the state in the current taxable year by the taxpayer and by any
trade or business acquired by the taxpayer during the current taxable
year.
(C) For purposes of this paragraph, employees in the state who are
employed in any trade or business sold by a taxpayer shall be
excluded in the determination of the amounts in subparagraphs (A) and
(B).
(2) "Full-time equivalent" means either of the following:
(A) In the case of a full-time employee paid hourly qualified
wages, "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, "full-time
equivalent" means the total number of weeks worked for the taxpayer
by the employee divided by 52.
(3) 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.
(d)
(e) Section 19521, related to computation of interest, shall apply
to any tax from disallowed business tax incentives. For purposes of
this section, all of the following definitions apply:
(d) For purposes of this section, all of the following definitions
apply:
(1) "Full-time employee" means an employee who works an average of
35 hours in a week, calculated monthly.
(2) "Part-time employee" means an employee who works less than an
average of 35 hours in a week, calculated monthly.
(3) "Temporary employee" means an employee who works less than 120
days per year.
(e) (1) In the case of a disqualifying event, there shall be added
to taxable income, or the "net tax" as defined in Section 17039, as
the case may be, of the taxpayer for the taxable year in which the
disqualifying event occurs, the recapture amount computed pursuant to
subparagraph (A) and the interest amount computed pursuant to
subparagraph (B).
(A) The recapture amount shall be computed by multiplying the
total amount of the business tax incentive allowed to the taxpayer in
the current taxable year and prior taxable years excluding the
amounts previously recaptured, by a fraction, the numerator of which
is the net decrease in full-time equivalent employees as determined
under subdivision (c), and the denominator of which is the cumulative
increase in the full-time equivalent employees calculated from the
last day of the first taxable year the business tax incentive was
claimed on the return to the last day of the taxable year immediately
preceding the taxable year of the disqualifying event.
(i) If the denominator of the fraction computed under subparagraph
(A) equals zero or a negative amount, 100 percent of the business
tax incentive shall be subject to recapture.
(ii) If the fraction computed under subparagraph (A) is greater
than one, not more than 100 percent of the business tax incentive
shall be subject to recapture.
(B) The interest amount shall be computed using the adjusted
annual rate established by Section 19521 from the due date of the
return for each taxable year in which the business tax incentive
reduced a taxpayer's taxable income or "net tax" to the date of the
payment of additional tax resulting from the application of this
subdivision.
(2) The amount of recapture computed under this subdivision shall
be first applied against the applicable business tax incentive that
reduced income or "net tax" for the earliest taxable year, and then
to the succeeding taxable year and thereafter, and if there is any
excess amount of recapture computed under this subdivision that
exceeds the amount of business tax incentives that reduced a taxpayer'
s taxable income or "net tax" in a prior taxable year, then such
excess shall be applied against remaining carryovers of such business
tax incentives, if any.
(3) The recapture amount imposed under this section shall be in
addition to any other recapture amounts imposed under this part.
(f) This section shall not apply to a taxpayer with 50
25 or fewer employees and 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.
(g) Nothing in this section shall limit the authority of the
Franchise Tax Board to audit the information provided by the taxpayer
pursuant to subdivision (a).
(h) 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 subdivision (a).
(i) The amount of the understatement of tax for the taxable year
that is attributable to the disallowance or recapture of a business
tax incentive, as defined in subdivision (b), shall be excluded from
the calculation of any penalty imposed under Part 10 (commencing with
Section 17001) and Part 10.2 (commencing with Section 18401).
SEC. 2. Section 23603 is added to the Revenue and Taxation Code,
to read:
23603. (a) Notwithstanding any other provision of this part, for
taxable years on or after January 1, 2011, a taxpayer doing business
in the state that claims any business tax incentive shall annually
include on the timely filed original return, in the form and manner
as required by forms and instructions prescribed by the Franchise Tax
Board, the number of full-time, part-time, and temporary employees,
as defined, employed by the taxpayer in the state for the current and
preceding taxable years.
(b) (1) Notwithstanding any other law, for any business tax
incentive that is allowed by an act that takes effect on or after
January 1, 2011, both of the following shall apply if the taxpayer
has a net decrease, as determined under subdivision (c), in the
number of full-time equivalent employees in the state according to
the information provided pursuant to subdivision (a):
(A) The entire amount of the business tax incentives for all
taxable years shall be disallowed.
(B) Any previously allowed business tax incentives shall be
recaptured or the tax liability shall be recomputed and the taxpayer
shall be liable for the entire amount of any tax from disallowed
business tax incentives on previous tax returns.
(b) (1) Notwithstanding any other law, for any business tax
incentive that is allowed by an act that takes effect in a taxable
year beginning on or after January 1, 2011, if the taxpayer has a
disqualifying event, as defined, occur before the close of the
recapture period, the business tax incentive shall be subject to
recapture as specified in subdivision (e).
(2) For purposes of this section, "disqualifying event" means a
net decrease, as determined under subdivision (c), in the average
number of full-time equivalent employees, calculated as of the last
day of the current taxable year.
(3) For purposes of this section, "recapture period" shall, with
respect to the amount of any business tax incentive that reduces a
taxpayer's net income or "tax" in the current taxable year, be the
first full taxable year beginning after the close of the taxable year
in which the business tax incentive reduces either the taxpayer's
net income or "tax," as defined in Section 23036, and the four
succeeding taxable years.
(2)
(4) For purposes of this subdivision, a "business tax
incentive" means a credit, deduction, exclusion, exemption, or any
other tax benefit provided by the state added to this part
by an act that takes effect beginning on or
after January 1, 2011, enacted with the principal
purpose of creating new jobs in the state, and allowed to taxpayers
engaged in or carrying on any trade, business, profession, vocation
or calling, or commercial activity in the state, including
activities in the state that benefit an affiliated entity of the
taxpayer, with respect to the income attributable to the taxpayer's
trade, business, profession, vocation or calling, or commercial
activity. activity in this state.
(c) (1) The net decrease in full-time equivalent employees in the
state shall be determined, on and after January 1, 2014, on a
full-time equivalent basis by subtracting from the amount determined
in subparagraph (A) the amount determined in subparagraph (B).
(A) The total number of full-time equivalent employees employed in
the three preceding taxable years by the taxpayer and by any trade
or business acquired by the taxpayer during the current taxable year,
divided by three.
(B) The total number of full-time equivalent employees employed in
the state in the current taxable year by the taxpayer and by any
trade or business acquired by the taxpayer during the current taxable
year.
(2) "Full-time equivalent" means either of the following:
(A) In the case of a full-time employee paid hourly qualified
wages, "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, "full-time
equivalent" means the total number of weeks worked for the taxpayer
by the employee divided by 52.
(3) 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.
(d)
(e) 19521, relating to computation of interest, shall apply to
any tax from disallowed business tax incentives. For purposes of this
section, all of the following definitions apply:
(d) For purposes of this section, all of the following definitions
apply:
(1) "Full-time employee" means an employee who works an average of
35 hours in a week, calculated monthly.
(2) "Part-time employee" means an employee who works less than an
average of 35 hours in a week, calculated monthly.
(3) "Temporary employee" means an employee who works less than 120
days per year.
(e) (1) In the case of a disqualifying event, there shall be added
to net income, or the "tax," as defined in Section 23036, as the
case may be, of the taxpayer for the taxable year in which the
disqualifying event occurs, the recapture amount computed pursuant to
subparagraph (A) and the interest amount computed pursuant to
subparagraph (B).
(A) The recapture amount shall be computed by multiplying the
total amount of the business tax incentive allowed to the taxpayer in
the current taxable year and prior taxable years excluding the
amounts previously recaptured, by a fraction, the numerator of which
is the net decrease in full-time equivalent employees as determined
under subdivision (c), and the denominator of which is the cumulative
increase in the full-time equivalent employees calculated from the
last day of the first taxable year the business tax incentive was
claimed on the return to the last day of the taxable year immediately
preceding the taxable year of the disqualifying event.
(i) If the denominator of the fraction computed under subparagraph
(A) equals zero or a negative amount, 100 percent of the business
tax incentive shall be subject to recapture.
(ii) If the fraction computed under subparagraph (A) is greater
than one, not more than 100 percent of the business tax incentive
shall be subject to recapture.
(B) The interest amount shall be computed using the adjusted
annual rate established by Section 19521 from the due date of the
return for each taxable year in which the business tax incentive
reduced a taxpayer's net income or "tax" to the date of the payment
of additional tax resulting from the application of this subdivision.
(2) The amount of recapture computed under this subdivision shall
be first applied against the applicable business tax incentive that
reduced net income or "tax" for the earliest taxable year, and then
to the succeeding taxable year and thereafter, and if there is any
excess amount of recapture computed under this subdivision that
exceeds the amount of business tax incentives that reduced a taxpayer'
s net income or "tax" in a prior taxable year, then such excess shall
be applied against remaining carryovers of such business tax
incentives, if any.
(3) The recapture amount imposed under this section shall be in
addition to any other recapture amounts imposed under this part.
(f) (1) In the case of any business tax incentive that is allowed
to be sold, assigned, or otherwise transferred under the provisions
of this part to another taxpayer, any such sale, assignment, or other
transfer shall only be valid if the seller or assignor expressly
agrees, and continues, to provide to the buyer or assignee and the
Franchise Tax Board, in the form and manner specified by the
Franchise Tax Board, any necessary information to calculate whether a
disqualifying event has occurred with respect to the seller or
assignor under the rules of this section.
(2) In the case where a disqualifying event has occurred under
this section, the buyer or assignee shall be required to include in
its net income or "tax" the amount of any required recapture.
(3) The rules of this subdivision shall apply to any business tax
incentive that is sold, assigned, or otherwise transferred under the
provisions of this part, notwithstanding any other provision of this
part to the contrary.
(4) Notwithstanding any other provision of law, if a seller or
assignor fails to satisfy the reporting requirements of this
subdivision, then a notice of proposed deficiency assessment
attributable to the business tax incentive with respect to which the
reporting requirements were not satisfied may be mailed to the buyer
or assignee within four years from the date on which the reporting
requirements are satisfied by the seller or assignor.
(f)
(g) This section shall not apply to a taxpayer with
50 25 or fewer employees and with
income subject to tax under this part of less than five hundred
thousand dollars ($500,000) for the taxable year.
(g)
(h) Nothing in this section shall limit the authority
of the Franchise Tax Board to audit the information provided by the
taxpayer pursuant to subdivision (a).
(h)
(i) 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 subdivision (a).
(j) The amount of the understatement of tax for the taxable year
that is attributable to the disallowance or recapture of a business
tax incentive, as defined in subdivision (b), shall be excluded from
the calculation of any penalty imposed under Part 10.2 (commencing
with Section 18401) and Part 11 (commencing with Section 23001).
SEC. 3. This act provides for a tax levy within
the meaning of Article IV of the Constitution and shall go into
immediate effect.