BILL NUMBER: AB 2045 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 16, 2012
AMENDED IN ASSEMBLY APRIL 9, 2012
INTRODUCED BY Assembly Member Perea
FEBRUARY 23, 2012
An act to add Chapter 4.5 (commencing with Section 13996) to Part
4.7 of Division 3 of Title 2 of the Government Code, relating to
economic development.
LEGISLATIVE COUNSEL'S DIGEST
AB 2045, as amended, Perea. Emerging technology and biotechnology
company: income taxes: net operating losses: transfers.
The Personal Income Tax Law and Corporation Tax Law impose taxes
measured by income, and allow individual and corporate taxpayers to
utilize net operating losses as carryovers and carrybacks of those
losses for purposes of offsetting their individual and corporate tax
liabilities.
This bill would require the Department of ____
Treasurer , in cooperation with the Franchise Tax Board, to
establish a corporation business tax benefit certificate transfer
program to allow a new or expanding emerging technology and
biotechnology company in this state with unused net operating losses
to surrender those net operating losses for use by a taxpayer subject
to the Corporation Tax Law in this state in exchange for private
financial assistance to be provided by that taxpayer to assist in the
funding of costs incurred by the new or expanding emerging
technology and biotechnology company, as provided.
This bill would provide that any net operating losses that are
transferred pursuant to a corporation business tax benefit transfer
certificate issued to a taxpayer is allowed beginning on or after the
first day of the 4th taxable year after the date of issue of that
certificate.
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. Chapter 4.5 (commencing with Section 13996) is added to
Part 4.7 of Division 3 of Title 2 of the Government Code, to read:
CHAPTER 4.5. EMERGING TECHNOLOGY AND BIOTECHNOLOGY COMPANIES
TAX LOSS TRANSFER PROGRAM
13996. (a) The Department of ____
Treasurer , in cooperation with the Franchise Tax Board, shall
establish a corporation business tax benefit certificate transfer
program to allow new or expanding emerging technology and
biotechnology companies in this state with unused net operating
losses, as described in Section 17276.20 or Section 24416.20 of the
Revenue and Taxation Code, to surrender those net operating losses
for use by other taxpayers in this state.
(b) The tax benefits of those net operating losses may be used on
a tax return required to be filed pursuant to Part 10.2 (commencing
with Section 18401) of Division 2 of the Revenue and Taxation Code by
a taxpayer subject to the Corporation Tax Law (Part 11 (commencing
with Section 23001) of Division 2 of the Revenue and Taxation Code)
in exchange for private financial assistance to be provided by the
taxpayer that is the recipient of the corporation business tax
benefit certificate to assist in the funding of costs incurred by the
new or expanding emerging technology and biotechnology company.
(c) (1) The department Treasurer , in
cooperation with the Franchise Tax Board, shall review and approve
applications by new or expanding emerging technology and
biotechnology companies in this state with unused but otherwise
allowable net operating losses to surrender those net operating
losses in exchange for private financial assistance to be made by the
taxpayer that is the recipient of the corporation business tax
benefit certificate in an amount equal to at least 80 percent of the
amount of the surrendered tax net operating losses.
(2) For purposes of this section, "amount of surrendered net
operating losses" means the amount of the net operating loss
multiplied by the new or expanding emerging technology or
biotechnology company's anticipated apportionment factor, as
determined pursuant to Section 25128 or Section 25128.5 of the
Revenue and Taxation Code, for the taxable year in which the net
operating loss is transferred and subsequently multiplied by the rate
of tax imposed by Section 23151 or Section 23501 of the Revenue and
Taxation Code.
(d) The department Treasurer shall
not approve the transfer of more than sixty million dollars
($60,000,000) of transferable net operating losses in a fiscal year.
If the total amount of transferable net operating losses requested to
be surrendered by approved applicants exceeds sixty million dollars
($60,000,000) in a fiscal year, the department
Treasurer , in cooperation with the Franchise Tax Board,
shall allocate the transfer of surrendered net operating losses as
follows:
(1) An eligible applicant with two hundred fifty thousand dollars
($250,000) or less of transferable net operating losses shall be
authorized to surrender the entire amount of its transferable net
operating losses.
(2) An eligible applicant with more than two hundred fifty
thousand dollars ($250,000) of transferable net operating losses
shall be authorized to surrender a minimum of two hundred fifty
thousand dollars ($250,000) of its transferable net operating losses.
(3) An eligible applicant with more than two hundred fifty
thousand dollars ($250,000) of transferable net operating losses
shall be authorized to surrender additional transferable net
operating losses determined by multiplying the applicant's
transferable net operating losses less the minimum transferable net
operating losses that company is authorized to surrender under
paragraph (2) by a fraction, the numerator of which is the total
amount of transferable net operating losses that the department is
authorized to approve less the total amount of transferable tax
benefit approved under paragraphs (1) and (2), and the denominator of
which is the total amount of transferable net operating losses
requested to be surrendered by all eligible applicants less the total
amount of transferable net operating losses approved under
paragraphs (1) and (2).
(e) If the total amount of transferable net operating losses that
would be authorized using the method in subdivision (d) exceeds sixty
million dollars ($60,000,000) in a fiscal year, then the
department Treasurer , in cooperation with the
Franchise Tax Board, shall limit the total amount of net operating
losses authorized to be transferred to sixty million dollars
($60,000,000) by applying the method in subdivision (d) on an
apportioned basis.
(f) For purposes of this section, "transferable tax benefits"
include an eligible applicant's unused but otherwise allowable net
operating losses multiplied by the applicant's anticipated
apportionment factor as determined pursuant to Section 25128 or
Section 25128.5 of the Revenue and Taxation Code for the taxable year
in which the net operating loss is transferred and subsequently
multiplied by the tax imposed by Section 23151 or Section 23501 of
the Revenue and Taxation Code. An eligible applicant's transferable
net operating losses shall be limited to net operating losses that
the applicant requests to surrender in its application to the
department and shall not, in total, exceed the maximum amount of net
operating losses that the applicant is eligible to surrender.
13996.1. No application for a corporation business tax benefit
transfer certificate shall be approved for a new or expanding
emerging technology or biotechnology company that meets either of the
following:
(a) Has demonstrated positive net operating income in any of the
two previous full years of ongoing operations as determined on its
financial statements issued according to generally accepted
accounting standards endorsed by the Financial Accounting Standards
Board.
(b) Is directly or indirectly at least 50 percent owned or
controlled by another corporation that has demonstrated positive net
operating income in any of the two previous full years of ongoing
operations as determined on its financial statements issued according
to generally accepted accounting standards endorsed by the Financial
Accounting Standards Board or is part of a consolidated group of
affiliated corporations, as filed for federal income tax purposes,
that in the aggregate has demonstrated positive net operating income
in any of the two previous full years of ongoing operations as
determined on its combined financial statements issued according to
generally accepted accounting standards endorsed by the Financial
Accounting Standards Board.
13996.2. (a) The maximum lifetime value of surrendered net
operating losses that a corporation shall be permitted to surrender
pursuant to this chapter is fifteen million dollars ($15,000,000).
(b) Applications must be received on or before June 30 of each
fiscal year.
13996.3. The department Treasurer ,
in consultation with the Franchise Tax Board, shall establish rules
for the recapture of all, or a portion of, the amount of a grant of a
corporation business tax benefit certificate from the new or
expanding emerging technology and biotechnology company having
surrendered tax benefits pursuant to this chapter in the event the
company fails to use the private financial assistance received for
the surrender of tax benefits as required by this chapter or fails to
maintain a headquarters or a base of operation in this state during
the five years following receipt of the private financial assistance;
except if the failure to maintain a headquarters or a base of
operation in this state is due to the liquidation of the new or
expanding emerging technology and biotechnology company.
13996.4. (a) The department Treasurer
, in cooperation with the Franchise Tax Board, shall review and
approve applications by taxpayers subject to the Corporation Tax Law
(Part 11 (commencing with Section 23001) of Division 2 of the
Revenue and Taxation Code) to acquire surrendered tax net operating
losses approved pursuant to this chapter, which shall be issued in
the form of corporation business tax benefit transfer certificates,
in exchange for private financial assistance to be made by the
taxpayer in an amount equal to at least 80 percent of the amount of
the surrendered net operating loss of an emerging technology or
biotechnology company in the state.
(b) A corporation business tax benefit transfer certificate shall
not be issued unless the applicant certifies that as of the date of
the exchange of the corporation business tax benefit certificate it
is operating as a new or expanding emerging technology or
biotechnology company and has no current intention to cease operating
as a new or expanding emerging technology or biotechnology company.
(c) The private financial assistance shall assist in funding
expenses incurred in connection with the operation of the new or
expanding emerging technology or biotechnology company in the state,
including, but not limited to, the expenses of fixed assets, such as
the construction and acquisition and development of real estate,
materials, startup, tenant fitout, working capital, salaries,
research and development expenditures, and any other similar
expenses.
(d) The department Treasurer shall
require a taxpayer that acquires a corporation business tax benefit
certificate to enter into a written agreement with the new or
expanding emerging technology or biotechnology company concerning the
terms and conditions of the private financial assistance made in
exchange for the certificate. The written agreement may contain terms
concerning the maintenance by the new or expanding emerging
technology or biotechnology company of a headquarters or a base of
operation in this state.
13996.5. (a) Any net operating losses that
are transferred pursuant to a corporation business tax benefit
transfer certificate issued to a taxpayer under this chapter shall
only be allowed beginning on or after the first day of the fourth
taxable year after the date of issue of that certificate.
(b) Any net operating losses that are transferred and have reached
the first day of the fourth taxable year after the date of issue of
that certificate can only be used if the company that transferred the
net operating losses is still in business or has been acquired. If
the company is no longer in business or has not been acquired by
another company, the net operating loss that was transferred no
longer has any value.
13996.6. For purposes of this chapter:
(a) "Biotechnology" means the continually expanding body of
fundamental knowledge about the functioning of biological systems
from the macro level to the molecular and subatomic levels, as well
as novel products, services, technologies, and subtechnologies
developed as a result of insights gained from research advances that
add to that body of fundamental knowledge.
(b) "Biotechnology company" means an emerging corporation that has
its headquarters or base of operations in this state; that owns, has
filed for, or has a valid license to use protected, proprietary
intellectual property; and that is engaged in the research,
development, production, or provision of biotechnology for the
purpose of developing or providing products or processes for specific
commercial or public purposes, including, but not limited to,
medical, pharmaceutical, nutritional, and other health-related
purposes, agricultural purposes, and environmental purposes, or a
person whose headquarters or base of operations is located in this
state, engaged in providing services or products necessary for such
research, development, production, or provision.
(c) "Full-time employee" means a person employed by a new or
expanding emerging technology or biotechnology company for
consideration for at least 35 hours a week, or who renders any other
standard of service generally accepted by custom or practice as
full-time employment and whose wages are subject to withholding as
required by Division 6 (commencing with Section 13000) of the
Unemployment Insurance Code, or who is a partner of a new or
expanding emerging technology or biotechnology company who works for
the partnership other than as an employee for at least 35 hours a
week, or who renders any other standard of service generally accepted
by custom or practice as full-time employment, and whose
distributive share of income, gain, loss, or deduction, or whose
guaranteed payments, or any combination thereof, is subject to the
payment of estimated taxes, as required under the Revenue and
Taxation Code. To qualify as a "full-time employee," an employee
shall also receive from the new or expanding emerging technology or
biotechnology company health benefits under a group health plan, a
health benefits plan, or a policy or contract of health insurance
covering more than one person issued pursuant to the Insurance Code.
"Full-time employee" shall not include any person who works as an
independent contractor or on a consulting basis for the new or
expanding emerging technology or biotechnology company.
(d) "Group health plan" means an employee welfare benefit plan, as
defined in Title 1 of Section 3 of the Employee Retirement Income
Security Act of 1974 (Public Law 93-406; 29 U.S.C. Sec.1002(1)), to
the extent that the plan provides medical care and including items
and services paid for as medical care to employees or their
dependents, as defined under the terms of the plan, directly or
through insurance, reimbursement or otherwise.
(e) "New or expanding" means a technology or biotechnology company
that at the end of the calendar year prior to the year in which the
company files an application for surrender of unused but otherwise
allowable tax benefits, on the date on which the application is
submitted, and on the date on which the company receives the
corporation business tax benefit certificate, has fewer than 225
employees in the United States, that has at least one full-time
employee working in this state if the company has been incorporated
for less than three years, that has at least five full-time employees
working in this state if the company has been incorporated for more
than three years but less than five years, and that has at least 10
full-time employees working in this state if the company has been
incorporated for more than five years.
(f) "Technology company" means an emerging corporation that has
its headquarters or base of operations in this state; that owns, has
filed for, or has a valid license to use protected, proprietary
intellectual property; and that employs some combination of the
following: highly educated or trained managers and workers, or both,
employed in this state who use sophisticated scientific research
service or production equipment, processes or knowledge to discover,
develop, test, transfer, or manufacture a product or service.