Amended in Assembly August 7, 2014

Amended in Assembly July 3, 2014

Amended in Assembly April 2, 2014

Amended in Assembly March 5, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 1560

Introduced by Assembly Member Quirk-Silva

(Principal coauthors: Assembly Members Gorell, Linder, Muratsuchi, Salas, and Wilk)

January 29, 2014

An act to amend Sections 17059.2 and 23689 of the Revenue and Taxation Code, relating to economic development, begin delete and declaring the urgency thereof, to take effect immediately end delete begin insert to take effect immediately, tax levy end insert .

LEGISLATIVE COUNSEL’S DIGEST

AB 1560, as amended, Quirk-Silva. Income taxes: credits: California Competes Tax Credit.

Existing law allows a credit against the taxes imposed under the Corporation Tax Law and the Personal Income Tax Law for each taxable year beginning on or after January 1, 2014, and before January 1, 2025, in an amount as provided in a written agreement between the Governor’s Office of Business and Economic Development and the taxpayer, agreed upon by the California Competes Tax Credit Committee, and based on specified factors, including the number of jobs the taxpayer will create or retain in the state and the amount of investment in the state by the taxpayer. Existing law limits the aggregate amount of credits allocated to taxpayers to a specified sum per fiscal year.

This bill would begin delete reduce this aggregate amount of credits that may be allocated to taxpayers per fiscal year by the phased aggregate amount allowed to taxpayers pursuant to the credit proposed by Assembly Bill 2389 with regard to the manufacture of a new advanced strategic aircraft, and would also end delete authorize the Director of Finance to increase the aggregate amount of the economic development credits that may be allocated to taxpayers each year by $25 million per year through 2019. begin delete These provisions would become operative only if AB 2389 is enacted and becomes effective on or before January 1, 2015. end delete

begin delete

This bill would declare that it is to take effect immediately as an urgency statute.

end delete begin insert

This bill would take effect immediately as a tax levy.

end insert

Vote:  begin delete ²⁄₃ end delete begin insert majority end insert . Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 17059.2 of the end insert begin insert Revenue and Taxation
Code end insert begin insert is amended to read: end insert

17059.2.  

(a) (1) For each taxable year beginning on and after
January 1, 2014, and before January 1, 2025, there shall be allowed
as a credit against the “net tax,” as defined in Section 17039, an
amount as determined by the committee pursuant to paragraph (2)
and approved pursuant to Section 18410.2.

(2) The credit under this section shall be allocated by GO-Biz
with respect to the 2013-14 fiscal year through and including the
2017-18 fiscal year. The amount of credit allocated to a taxpayer
with respect to a fiscal year pursuant to this section shall be as set
forth in a written agreement between GO-Biz and the taxpayer and
shall be based on the following factors:

(A) The number of jobs the taxpayer will create or retain in this
state.

(B) The compensation paid or proposed to be paid by the
taxpayer to its employees, including wages and fringe benefits.

(C) The amount of investment in this state by the taxpayer.

(D) The extent of unemployment or poverty in the area
according to the United States Census in which the taxpayer’s
project or business is proposed or located.

(E) The incentives available to the taxpayer in this state,
including incentives from the state, local government, and other
entities.

(F) The incentives available to the taxpayer in other states.

(G) The duration of the proposed project and the duration the
taxpayer commits to remain in this state.

(H) The overall economic impact in this state of the taxpayer’s
project or business.

(I) The strategic importance of the taxpayer’s project or business
to the state, region, or locality.

(J) The opportunity for future growth and expansion in this state
by the taxpayer’s business.

(K) The extent to which the anticipated benefit to the state
exceeds the projected benefit to the taxpayer from the tax credit.

(3) The written agreement entered into pursuant to paragraph
(2) shall include:

(A) Terms and conditions that include the taxable year or years
for which the credit allocated shall be allowed, a minimum
compensation level, and a minimum job retention period.

(B) Provisions indicating whether the credit is to be allocated
in full upon approval or in increments based on mutually agreed
upon milestones when satisfactorily met by the taxpayer.

(C) Provisions that allow the committee to recapture the credit,
in whole or in part, if the taxpayer fails to fulfill the terms and
conditions of the written agreement.

(b) For purposes of this section:

(1) “Committee” means the California Competes Tax Credit
Committee established pursuant to Section 18410.2.

(2) “GO-Biz” means the Governor’s Office of Business and
Economic Development.

(c) For purposes of this section, GO-Biz shall do the following:

(1) Give priority to a taxpayer whose project or business is
located or proposed to be located in an area of high unemployment
or poverty.

(2) Negotiate with a taxpayer the terms and conditions of
proposed written agreements that provide the credit allowed
pursuant to this section to a taxpayer.

(3) Provide the negotiated written agreement to the committee
for its approval pursuant to Section 18410.2.

(4) Inform the Franchise Tax Board of the terms and conditions
of the written agreement upon approval of the written agreement
by the committee.

(5) Inform the Franchise Tax Board of any recapture, in whole
or in part, of a previously allocated credit upon approval of the
recapture by the committee.

(6) Post on its Internet Web site all of the following:

(A) The name of each taxpayer allocated a credit pursuant to
this section.

(B) The estimated amount of the investment by each taxpayer.

(C) The estimated number of jobs created or retained.

(D) The amount of the credit allocated to the taxpayer.

(E) The amount of the credit recaptured from the taxpayer, if
applicable.

(d) For purposes of this section, the Franchise Tax Board shall
do all of the following:

(1) (A) Except as provided in subparagraph (B), review the
books and records of all taxpayers allocated a credit pursuant to
this section to ensure compliance with the terms and conditions
of the written agreement between the taxpayer and GO-Biz.

(B) In the case of a taxpayer that is a “small business,” as
defined in Section 17053.73, review the books and records of the
taxpayer allocated a credit pursuant to this section to ensure
compliance with the terms and conditions of the written agreement
between the taxpayer and GO-Biz when, in the sole discretion of
the Franchise Tax Board, a review of those books and records is
appropriate or necessary in the best interests of the state.

(2) Notwithstanding Section 19542:

(A) Notify GO-Biz of a possible breach of the written agreement
by a taxpayer and provide detailed information regarding the basis
for that determination.

(B) Provide information to GO-Biz with respect to whether a
taxpayer is a “small business,” as defined in Section 17053.73.

(e) In the case where the credit allowed under this section
exceeds the “net tax,” as defined in Section 17039, for a taxable
year, the excess credit may be carried over to reduce the “net tax”
in the following taxable year, and succeeding five taxable years,
if necessary, until the credit has been exhausted.

(f) Any recapture, in whole or in part, of a credit approved by
the committee pursuant to Section 18410.2 shall be treated as a
mathematical error appearing on the return. Any amount of tax
resulting from that recapture shall be assessed by the Franchise
Tax Board in the same manner as provided by Section 19051. The
amount of tax resulting from the recapture shall be added to the
tax otherwise due by the taxpayer for the taxable year in which
the committee’s recapture determination occurred.

(g) (1) The aggregate amount of credit that may be allocated
in any fiscal year pursuant to this section and Section 23689 shall
be an amount equal to the sum of subparagraphs (A), (B), and (C),
less the amount specified in subparagraphs (D) and begin delete (E): end delete begin insert (E), and
plus the amount specified in subparagraph (F): end insert

(A) Thirty million dollars ($30,000,000) for the 2013-14 fiscal
year, one hundred fifty million dollars ($150,000,000) for the
2014-15 fiscal year, and two hundred million dollars
($200,000,000) for each fiscal year from 2015-16 to 2017-18,
inclusive.

(B) The unallocated credit amount, if any, from the preceding
fiscal year.

(C) The amount of any previously allocated credits that have
been recaptured.

(D) The amount estimated by the Director of Finance, in
consultation with the Franchise Tax Board and the State Board of
Equalization, to be necessary to limit the aggregation of the
estimated amount of exemptions claimed pursuant to Section
6377.1 and of the amounts estimated to be claimed pursuant to
this section and Sections 17053.73, 23626, and 23689 to no more
than seven hundred fifty million dollars ($750,000,000) for either
the current fiscal year or the next fiscal year.

(i) The Director of Finance shall notify the Chairperson of the
Joint Legislative Budget Committee of the estimated annual
allocation authorized by this paragraph. Any allocation pursuant
to these provisions shall be made no sooner than 30 days after
written notification has been provided to the Chairperson of the
Joint Legislative Budget Committee and the chairpersons of the
committees of each house of the Legislature that consider
appropriation, or not sooner than whatever lesser time the
Chairperson of the Joint Legislative Budget Committee, or his or
her designee, may determine.

(ii) In no event shall the amount estimated in this subparagraph
be less than zero dollars ($0).

(E) (i) For the 2015-16 fiscal year and each fiscal year
thereafter, the aggregate amount of credit that may be allocated
pursuant to this section and Section 23689 shall be reduced by the
amount of credit allowed to all qualified taxpayers pursuant to
subparagraph (A) or subparagraph (B) of paragraph (1) of
subdivision (c) of Section 23636.

(ii) If the amount available per fiscal year pursuant to this section
and Section 23689 is less than the aggregate amount of credit
allowed to qualified taxpayers pursuant to subparagraph (A) or
subparagraph (B) of paragraph (1) of subdivision (c) of Section
23636, the aggregate amount allowed pursuant to Section 23636
shall not be reduced and, in addition to the reduction required by
clause (i), the aggregate amount of credit that may be allocated
pursuant to this section and Section 23689 for the next fiscal year
shall be reduced by the amount of that deficit.

(iii) It is the intent of the Legislature that the reductions specified
in this subparagraph of the aggregate amount of credit that may
be allocated pursuant to this section and Section 23689 shall
continue if the repeal dates of the credits allowed by this section
and Section 23689 are removed or extended.

begin insert

(F) In addition to the other amounts determined pursuant this
paragraph, the Director of Finance may increase the aggregate
amount by up to twenty-five million dollars ($25,000,000) per year
through 2019. The amount of any increase made pursuant to this
subparagraph, when combined with any increase made pursuant
to subparagraph (F) of paragraph (1) of subdivision (g) of Section
23689, shall not exceed twenty-five million dollars ($25,000,000)
per year through 2019.

end insert begin insert

(G) It is the intent of the Legislature that the Director of Finance
increase the aggregate amount under subparagraph (F) in order
to mitigate the reduction of the amount available due to the credit
allowed to all qualified taxpayers pursuant to subparagraph (A)
or (B) of paragraph (1) of subdivision (c) of Section 23636.

end insert

(2) Each fiscal year, 25 percent of the aggregate amount of the
credit that may be allocated pursuant to this section and Section
23689 shall be reserved for small business, as defined in Section
17053.73 or 23626.

(3) Each fiscal year, no more than 20 percent of the aggregate
amount of the credit that may be allocated pursuant to this section
shall be allocated to any one taxpayer.

(h) GO-Biz may prescribe rules and regulations as necessary to
carry out the purposes of this section. Any rule or regulation
prescribed pursuant to this section may be by adoption of an
emergency regulation in accordance with Chapter 3.5 (commencing
with Section 11340) of Part 1 of Division 3 of Title 2 of the
Government Code.

(i) A written agreement between GO-Biz and a taxpayer with
respect to the credit authorized by this section shall comply with
existing law on the date the agreement is executed.

(j) (1) Upon the effective date of this section, the Department
of Finance shall estimate the total dollar amount of credits that
will be claimed under this section with respect to each fiscal year
from the 2013-14 fiscal year to the 2024-25 fiscal year, inclusive.

(2) The Franchise Tax Board shall annually provide to the Joint
Legislative Budget Committee, by no later than March 1, a report
of the total dollar amount of the credits claimed under this section
with respect to the relevant fiscal year. The report shall compare
the total dollar amount of credits claimed under this section with
respect to that fiscal year with the department’s estimate with
respect to that same fiscal year. If the total dollar amount of credits
claimed for the fiscal year is less than the estimate for that fiscal
year, the report shall identify options for increasing annual claims
of the credit so as to meet estimated amounts.

(k) This section is repealed on December 1, 2025.

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 23689 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

23689.  

(a) (1) For each taxable year beginning on and after
January 1, 2014, and before January 1, 2025, there shall be allowed
as a credit against the “tax,” as defined in Section 23036, an amount
as determined by the committee pursuant to paragraph (2) and
approved pursuant to Section 18410.2.

(2) The credit under this section shall be allocated by GO-Biz
with respect to the 2013-14 fiscal year through and including the
2017-18 fiscal year. The amount of credit allocated to a taxpayer
with respect to a fiscal year pursuant to this section shall be as set
forth in a written agreement between GO-Biz and the taxpayer and
shall be based on the following factors:

(A) The number of jobs the taxpayer will create or retain in this
state.

(B) The compensation paid or proposed to be paid by the
taxpayer to its employees, including wages and fringe benefits.

(C) The amount of investment in this state by the taxpayer.

(D) The extent of unemployment or poverty in the area
according to the United States Census in which the taxpayer’s
project or business is proposed or located.

(E) The incentives available to the taxpayer in the state,
including incentives from the state, local government and other
entities.

(F) The incentives available to the taxpayer in other states.

(G) The duration of the proposed project and the duration the
taxpayer commits to remain in this state.

(H) The overall economic impact in this state of the taxpayer’s
project or business.

(I) The strategic importance of the taxpayer’s project or business
to the state, region, or locality.

(J) The opportunity for future growth and expansion in this state
by the taxpayer’s business.

(K) The extent to which the anticipated benefit to the state
exceeds the projected benefit to the taxpayer from the tax credit.

(3) The written agreement entered into pursuant to paragraph
(2) shall include:

(A) Terms and conditions that include the taxable year or years
for which the credit allocated shall be allowed, a minimum
compensation level, and a minimum job retention period.

(B) Provisions indicating whether the credit is to be allocated
in full upon approval or in increments based on mutually agreed
upon milestones when satisfactorily met by the taxpayer.

(C) Provisions that allow the committee to recapture the credit,
in whole or in part, if the taxpayer fails to fulfill the terms and
conditions of the written agreement.

(b) For purposes of this section:

(1) “Committee” means the California Competes Tax Credit
Committee established pursuant to Section 18410.2.

(2) “GO-Biz” means the Governor’s Office of Business and
Economic Development.

(c) For purposes of this section, GO-Biz shall do the following:

(1) Give priority to a taxpayer whose project or business is
located or proposed to be located in an area of high unemployment
or poverty.

(2) Negotiate with a taxpayer the terms and conditions of
proposed written agreements that provide the credit allowed
pursuant to this section to a taxpayer.

(3) Provide the negotiated written agreement to the committee
for its approval pursuant to Section 18410.2.

(4) Inform the Franchise Tax Board of the terms and conditions
of the written agreement upon approval of the written agreement
by the committee.

(5) Inform the Franchise Tax Board of any recapture, in whole
or in part, of a previously allocated credit upon approval of the
recapture by the committee.

(6) Post on its Internet Web site all of the following:

(A) The name of each taxpayer allocated a credit pursuant to
this section.

(B) The estimated amount of the investment by each taxpayer.

(C) The estimated number of jobs created or retained.

(D) The amount of the credit allocated to the taxpayer.

(E) The amount of the credit recaptured from the taxpayer, if
applicable.

(d) For purposes of this section, the Franchise Tax Board shall
do all of the following:

(1) (A) Except as provided in subparagraph (B), review the
books and records of all taxpayers allocated a credit pursuant to
this section to ensure compliance with the terms and conditions
of the written agreement between the taxpayer and GO-Biz.

(B) In the case of a taxpayer that is a “small business,” as
defined in Section 23626, review the books and records of the
taxpayer allocated a credit pursuant to this section to ensure
compliance with the terms and conditions of the written agreement
between the taxpayers and GO-Biz when, in the sole discretion of
the Franchise Tax Board, a review of those books and records is
appropriate or necessary in the best interests of the state.

(2) Notwithstanding Section 19542:

(A) Notify GO-Biz of a possible breach of the written agreement
by a taxpayer and provide detailed information regarding the basis
for that determination.

(B) Provide information to GO-Biz with respect to whether a
taxpayer is a “small business,” as defined in Section 23626.

(e) In the case where the credit allowed under this section
exceeds the “tax,” as defined in Section 23036, for a taxable year,
the excess credit may be carried over to reduce the “tax” in the
following taxable year, and succeeding five taxable years, if
necessary, until the credit has been exhausted.

(f) Any recapture, in whole or in part, of a credit approved by
the committee pursuant to Section 18410.2 shall be treated as a
mathematical error appearing on the return. Any amount of tax
resulting from that recapture shall be assessed by the Franchise
Tax Board in the same manner as provided by Section 19051. The
amount of tax resulting from the recapture shall be added to the
tax otherwise due by the taxpayer for the taxable year in which
the committee’s recapture determination occurred.

(g) (1) The aggregate amount of credit that may be allocated
in any fiscal year pursuant to this section and Section 17059.2 shall
be an amount equal to the sum of subparagraphs (A), (B), and (C),
less the amount specified in subparagraphs (D) and begin delete (E): end delete begin insert (E), and
plus the amount specified in subparagraph (F): end insert

(A) Thirty million dollars ($30,000,000) for the 2013-14 fiscal
year, one hundred fifty million dollars ($150,000,000) for the
2014-15 fiscal year, and two hundred million dollars
($200,000,000) for each fiscal year from 2015-16 to 2017-18,
inclusive.

(B) The unallocated credit amount, if any, from the preceding
fiscal year.

(C) The amount of any previously allocated credits that have
been recaptured.

(D) The amount estimated by the Director of Finance, in
consultation with the Franchise Tax Board and the State Board of
Equalization, to be necessary to limit the aggregation of the
estimated amount of exemptions claimed pursuant to Section
6377.1 and of the amounts estimated to be claimed pursuant to
this section and Sections 17053.73, 17059.2, and 23626 to no more
than seven hundred fifty million dollars ($750,000,000) for either
the current fiscal year or the next fiscal year.

(i) The Director of Finance shall notify the Chairperson of the
Joint Legislative Budget Committee of the estimated annual
allocation authorized by this paragraph. Any allocation pursuant
to these provisions shall be made no sooner than 30 days after
written notification has been provided to the Chairperson of the
Joint Legislative Budget Committee and the chairpersons of the
committees of each house of the Legislature that consider
appropriation, or not sooner than whatever lesser time the
Chairperson of the Joint Legislative Budget Committee, or his or
her designee, may determine.

(ii) In no event shall the amount estimated in this subparagraph
be less than zero dollars ($0).

(E) (i) For the 2015-16 fiscal year and each fiscal year
thereafter, the aggregate amount of credit that may be allocated
pursuant to this section and Section 17059.2 shall be reduced by
the amount of credit allowed to all qualified taxpayers pursuant to
subparagraph (A) or subparagraph (B) of paragraph (1) of
subdivision (c) of Section 23636.

(ii) If the amount available per fiscal year pursuant to this section
and Section 17059.2 is less than the aggregate amount allowed to
qualified taxpayers pursuant to subparagraph (A) or subparagraph
(B) of paragraph (1) of subdivision (c) of Section 23636, the
aggregate amount allowed pursuant to Section 23636 shall not be
reduced and, in addition to the reduction required by clause (i),
the aggregate amount available pursuant to this section and Section
17059.2 for the next fiscal year shall be reduced by the amount of
that deficit.

(iii) It is the intent of the Legislature that the reductions specified
in this subparagraph of the aggregate amount of credit that may
be allocated pursuant to this section and Section 17059.2 shall
continue if the repeal dates of the credits allowed by this section
and Section 17059.2 are removed or extended.

begin insert

(F) In addition to the other amounts determined pursuant to
this paragraph, the Director of Finance may increase the aggregate
amount by up to twenty-five million dollars ($25,000,000) per year
through 2019. The amount of any increase made pursuant to this
subparagraph, when combined with any increase made pursuant
to subparagraph (F) of paragraph (1) of subdivision (g) of Section
17059.2, shall not exceed twenty-five million dollars ($25,000,000)
per year through 2019.

end insert begin insert

(G) It is the intent of the Legislature that the Director of Finance
increase the aggregate amount under subparagraph (F) in order
to mitigate the reduction of the amount available due to the credit
allowed to all qualified taxpayers pursuant to subparagraph (A)
or (B) of paragraph (1) of subdivision (c).

end insert

(2) Each fiscal year, 25 percent of the aggregate amount of the
credit that may be allocated pursuant to this section and Section
17059.2 shall be reserved for “small business,” as defined in
Section 17053.73 or 23626.

(3) Each fiscal year, no more than 20 percent of the aggregate
amount of the credit that shall be allocated pursuant to this section
may be allocated to any one taxpayer.

(h) GO-Biz may prescribe rules and regulations as necessary to
carry out the purposes of this section. Any rule or regulation
prescribed pursuant to this section may be by adoption of an
emergency regulation in accordance with Chapter 3.5 (commencing
with Section 11340) of Part 1 of Division 3 of Title 2 of the
Government Code.

(i) (1) A written agreement between GO-Biz and a taxpayer
with respect to the credit authorized by this section shall not
restrict, broaden, or otherwise alter the ability of the taxpayer to
assign that credit or any portion thereof in accordance with Section
23663.

(2) A written agreement between GO-Biz and a taxpayer with
respect to the credit authorized by this section must comply with
existing law on the date the agreement is executed.

(j) (1) Upon the effective date of this section, the Department
of Finance shall estimate the total dollar amount of credits that
will be claimed under this section with respect to each fiscal year
from the 2013-14 fiscal year to the 2024-25 fiscal year, inclusive.

(2) The Franchise Tax Board shall annually provide to the Joint
Legislative Budget Committee, by no later than March 1, a report
of the total dollar amount of the credits claimed under this section
with respect to the relevant fiscal year. The report shall compare
the total dollar amount of credits claimed under this section with
respect to that fiscal year with the department’s estimate with
respect to that same fiscal year. If the total dollar amount of credits
claimed for the fiscal year is less than the estimate for that fiscal
year, the report shall identify options for increasing annual claims
of the credit so as to meet estimated amounts.

(k) This section is repealed on December 1, 2025.

begin insert

begin insert SEC. 3. end insert   

end insert begin insert

This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.

end insert

All matter omitted in this version of the bill appears in the bill as amended in the Assembly, July 3, 2014. (JR11)