Amended in Assembly April 22, 2014

Amended in Assembly April 8, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 1564

Introduced by Assembly Member V. Manuel Pérez

January 29, 2014

An act to add Article 4.5 (commencing with Section 12097) to Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government Code, and to amend Sections 17052.12 and 23609 begin delete of, and to add Section 19535 to, end delete begin insert of end insert the Revenue and Taxation Code, relating to taxation, and making an appropriation therefor.

LEGISLATIVE COUNSEL’S DIGEST

AB 1564, as amended, V. Manuel Pérez. Income taxes: research and development credit: credit sale and purchase.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws, including a credit for a percentage of specified research expenses.

This bill would increase that percentage by 3% each taxable year for 5 taxable years and then return to the current rate. This bill would create a Research and Development Tax Credit Trade Program, which the begin delete Governor’s Office of Business and Economic Development (GO-Biz) end delete begin insert Treasurer’s office end insert would administer to authorize taxpayers to begin delete purchases end delete begin insert purchase end insert and sell the credits. begin insert This bill would limit the total amount of credits sold to $100 million per taxable year. end insert This bill would appropriate a portion of the money made from the sale of the credits to begin delete GO-Biz end delete begin insert the Treasurer’s office end insert and the Franchise Tax Board for the costs incurred by the agencies in administering the program. begin delete This bill would impose specified auditing requirements on the Franchise Tax Board related to this credit, as specified. end delete

Vote: ²⁄₃. Appropriation: yes. Fiscal committee: yes. State-mandated local program: no.

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

SECTION 1.  

The Legislature finds and declares the following:

(a) California’s greatest economic asset is its diverse economy
that supports key industry clusters that rely upon innovation to
compete globally.

(b) California is uniquely situated to benefit from increasing
research and development tax credits because of California’s world
renowned academic institutions, industry clusters, and diverse
population that attracts worldwide talent.

(c) Recent studies conducted by the Public Policy Institute of
California ranked California fourth in the nation in entrepreneurial
energy and second in the nation in innovation capacity. However,
California was ranked as having only the 43rd most favorable
corporate tax structure. This low ranking artificially reduces the
capacity of research and development that could occur in the state
because companies are more likely to expand to other states or
countries where they will be taxed at a lower level.

(d) Creating an environment rich in research and development
spawns the growth of manufacturing. In the last 10 years, California
has declined from the sixth largest economy in the world to the
ninth, which is behind Brazil. During that time, manufacturing
declined in California from 1.865 million jobs to 1.257 million
jobs.

(e) California needs to invest in the innovation economy by
eliminating the roadblocks in state law and regulations and by
developing a tax system that rewards capital expenditures in order
to ensure that the private sector will invest financial capital and
intellectual capital in California.

(f) California needs to support the creation of new manufacturing
jobs created by the private sector in the innovation economy with
a highly skilled workforce.

SEC. 2.  

It is the intent of the Legislature to begin delete do the following: end delete
begin insert incrementally increase the research and development tax credits
under the Personal Income Tax Law and the Corporation Tax Law
up to 15 percent for a five-year period. end insert

begin delete

(a) Incrementally increase the research and development tax
credits under the Personal Income Tax Law and the Corporation
Tax Law up to 15 percent for a five-year period.

end delete begin delete

(b) Create new and clearly defined auditing procedures for the
Franchise Tax Board relating to this credit to allow taxpayers
claiming a research and development tax credit to defend their
research and development activities.

end delete

SEC. 3.  

Article 4.5 (commencing with Section 12097) is added
to Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government
Code, to read:

 

Article 4.5.  The Research and Development Tax Credit Trade
Program

 

12097.  

The begin delete Governor’s Office of Business and Economic
Development (GO-Biz) end delete begin insert Treasurer’s office end insert shall develop and
administer a program to allow the sale or purchase of research and
development tax credits allowed under Sections 17052.12 and
23609 of the Revenue and Taxation Code. begin delete GO-Biz end delete begin insert The Treasurer’s
office end insert shall create an Internet Web site through which approved
taxpayers may, by January 1, 2017, make such sale or purchase.

(a) The Franchise Tax Board shall notify begin delete GO-Biz end delete begin insert the
Treasurer’s office end insert quarterly of all taxpayers that claim a credit
under Sections 17052.12 and 23609 of the Revenue and Taxation
Code, and the amount of credit claimed.

(b) A taxpayer may request approval by begin delete GO-Biz end delete begin insert the Treasurer’s
office end insert to sell or purchase a credit.

(c)  begin delete GO-Biz end delete begin insert The Treasurer's office end insert shall approve a taxpayer
before that taxpayer may sell or purchase the credits.

(1)  begin delete GO-Biz end delete begin insert The Treasurer's office end insert shall approve a taxpayer to
sell its credits if that taxpayer has all of the following:

(A) A facility in which research and development occurs in the
state.

(B) Less than fifty million dollars ($50,000,000) in earnings
before income tax, depreciation, and amortization.

(C) Unused research and development tax credits from a
previous taxable year.

begin insert

(D) A determination from the Franchise Tax Board that the
credits to be sold are valid.

end insert

(2)  begin delete GO-Biz end delete begin insert The Treasurer's office end insert shall approve a taxpayer to
purchase a research and development tax credit if all of the
following requirements are met:

(A) The taxpayer has had qualified research expenses, as defined
in Sections 17052.12 and 23609 of the Revenue and Taxation Code
and Section 41 of the Internal Revenue Code, within the past five
years.

(B) The taxpayer conducts a trade or business in the state.

(d) If a taxpayer is approved, begin delete GO-Biz end delete begin insert the Treasurer’s office end insert
shall create an online account for the taxpayer to allow the taxpayer
to log into the Internet Web site to sell or purchase the credits.

(e) A taxpayer shall not be approved to sell or purchase more
than five million dollars ($5,000,000) in unused research and
development tax credits per taxable year.

(f) If the taxpayer does not reinvest the money received from
the sale of the credit into the taxpayer’s trade or business or if the
purchased credits reduce the taxpayer’s tax liability by more than
50 percent, any remaining unapplied credit shall be canceled and
any previously applied credit that was not reinvested or that
exceeds 50 percent of the taxpayer’s tax liability shall be
recaptured, and the taxpayer shall be liable for any increase in tax
attributable to the recapture of any credit previously allowed under
this section.

(g) The price of the credit shall be based on the open-market
demand begin insert , but shall not be less than 75 percent of the face value of
the credit end insert .

(h)  begin delete GO-Biz end delete begin insert The Treasurer's office end insert shall notify the Franchise
Tax Board of each sale or purchase of a credit, the identity of the
taxpayer selling the credit, the identity of the taxpayer that
purchased the credit, and the amount of the credit sold quarterly.
The Franchise Tax Board shall review this information to ensure
that a credit is not being used multiple times.

begin insert

(i) The total amount of the credits sold shall not exceed one
hundred million dollars ($100 million) per calendar year.

end insert

12097.1.  

(a) There is hereby established in the State Treasury
the Research and Development Tax Credit Trade Fund.

(b) (1) Until begin delete GO-Biz end delete begin insert the Treasurer’s office end insert has been fully
reimbursed for its costs of developing, creating, and starting the
Research and Development Tax Credit Trade Program, moneys
in an amount equal to 15 percent of the face value of each credit
sold or purchased on the Internet Web site established by begin delete GO-Biz end delete
begin insert the Treasurer’s office end insert shall be deposited into the Research and
Development Tax Credit Trade Fund for the purpose of funding
this program pursuant to Section 12097, and appropriated as
follows:

(A) Moneys in an amount equal to 13 percent of the face value
of each credit to begin delete GO-Biz end delete begin insert the Treasurer’s office end insert for the
administrative and start-up costs of implementing this program.

(B) Moneys in an amount equal 2 percent of the face value of
each credit to the Franchise Tax Board for the administrative costs
of implementing this program.

(2) Eighty-five percent of the face value of each credit may be
used as a credit against the “net tax” or “tax,” as applicable of the
taxpayer that purchased the credit.

(c) (1) Once begin delete GO-Biz end delete begin insert the Treasurer’s office end insert has been fully
reimbursed for its costs of developing, creating, and starting this
program, moneys in an amount equal to 5 percent of the face value
of each credit sold through the Internet Web site established by
begin delete GO-Biz end delete begin insert the Treasurer’s office end insert shall be deposited into the Research
and Development Tax Credit Trade Fund for the purpose of funding
the Research and Development Tax Credit Trade Program pursuant
to Section 12097, and appropriated as follows:

(A) Moneys in an amount equal to 3 percent of the face value
of each credit to begin delete GO-Biz end delete begin insert the Treasurer’s office end insert for the
administrative costs of implementing this program.

(B) Moneys in an amount equal to 2 percent of the face value
of each credit to the Franchise Tax Board for the administrative
costs of implementing this program.

(2) Ninety-five percent of the amount of each credit may be
used as a credit against the “net tax” or “tax,” as applicable of the
taxpayer that purchased the credit.

SEC. 4.  

Section 17052.12 of the Revenue and Taxation Code
is amended to read:

17052.12.  

For each taxable year beginning on or after January
1, 1987, there shall be allowed as a credit against the “net tax” (as
defined by Section 17039) for the taxable year an amount
determined in accordance with Section 41 of the Internal Revenue
Code, except as follows:

(a) For each taxable year beginning before January 1, 1997, the
reference to “20 percent” in Section 41(a)(1) of the Internal
Revenue Code is modified to read “8 percent.”

(b) (1) For each taxable year beginning on or after January 1,
1997, and before January 1, 1999, the reference to “20 percent”
in Section 41(a)(1) of the Internal Revenue Code is modified to
read “11 percent.”

(2) For each taxable year beginning on or after January 1, 1999,
and before January 1, 2000, the reference to “20 percent” in Section
41(a)(1) of the Internal Revenue Code is modified to read “12
percent.”

(3) For each taxable year beginning on or after January 1, 2000,
and before January 1, 2014, the reference to “20 percent” in Section
41(a)(1) of the Internal Revenue Code is modified to read “15
percent.”

(4) For each taxable year beginning on or after January 1, 2014,
and before January 1, 2015, the reference to “20 percent” in Section
41(a)(1) of the Internal Revenue Code is modified to read “18
percent.”

(5) For each taxable year beginning on or after January 1, 2015,
and before January 1, 2016, the reference to “20 percent” in Section
41(a)(1) of the Internal Revenue Code is modified to read “21
percent.”

(6) For each taxable year beginning on or after January 1, 2016,
and before January 1, 2017, the reference to “20 percent” in Section
41(a)(1) of the Internal Revenue Code is modified to read “24
percent.”

(7) For each taxable year beginning on or after January 1, 2017,
and before January 1, 2018, the reference to “20 percent” in Section
41(a)(1) of the Internal Revenue Code is modified to read “27
percent.”

(8) For each taxable year beginning on or after January 1, 2018,
and before January 1, 2019, the reference to “20 percent” in Section
41(a)(1) of the Internal Revenue Code is modified to read “30
percent.”

(9) For each taxable year beginning on or after January 1, 2019,
the reference to “20 percent” in Section 41(a)(1) of the Internal
Revenue Code is modified to read “15 percent.”

(c) Section 41(a)(2) of the Internal Revenue Code shall not
apply.

(d) “Qualified research” shall include only research conducted
in California.

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

(f) (1) With respect to any expense paid or incurred after the
operative date of Section 6378, Section 41(b)(1) of the Internal
Revenue Code is modified to exclude from the definition of
“qualified research expense” any amount paid or incurred for
tangible personal property that is eligible for the exemption from
sales or use tax provided by Section 6378.

(2) For each taxable year beginning on or after January 1, 1998,
the reference to “Section 501(a)” in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read “this part or Part 11 (commencing with Section
23001).”

(g) (1) For each taxable year beginning on or after January 1,
2000:

(A) The reference to “3 percent” in Section 41(c)(4)(A)(i) of
the Internal Revenue Code is modified to read “one and forty-nine
hundredths of one percent.”

(B) The reference to “4 percent” in Section 41(c)(4)(A)(ii) of
the Internal Revenue Code is modified to read “one and
ninety-eight hundredths of one percent.”

(C) The reference to “5 percent” in Section 41(c)(4)(A)(iii) of
the Internal Revenue Code is modified to read “two and forty-eight
hundredths of one percent.”

(2) Section 41(c)(4)(B) shall not apply and in lieu thereof an
election under Section 41(c)(4)(A) of the Internal Revenue Code
may be made for any taxable year of the taxpayer beginning on or
after January 1, 1998. That election shall apply to the taxable year
for which made and all succeeding taxable years unless revoked
with the consent of the Franchise Tax Board.

(3) Section 41(c)(7) of the Internal Revenue Code, relating to
gross receipts, is modified to take into account only those gross
receipts from the sale of property held primarily for sale to
customers in the ordinary course of the taxpayer’s trade or business
that is delivered or shipped to a purchaser within this state,
regardless of f.o.b. point or any other condition of the sale.

(4) Section 41(c)(5) of the Internal Revenue Code, relating to
election of alternative simplified credit, shall not apply.

(h) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.

(i) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough of credit, is modified by each of the
following:

(1) The last sentence shall not apply.

(2) If the amount determined under Section 41(a) of the Internal
Revenue Code for any taxable year exceeds the limitation of
Section 41(g) of the Internal Revenue Code, that amount may be
carried over to other taxable years under the rules of subdivision
(e); except that the limitation of Section 41(g) of the Internal
Revenue Code shall be taken into account in each subsequent
taxable year.

(j) Section 41(a)(3) of the Internal Revenue Code shall not apply.

(k) Section 41(b)(3)(D) of the Internal Revenue Code, relating
to amounts paid to eligible small businesses, universities, and
federal laboratories, shall not apply.

(l) Section 41(f)(6), relating to energy research consortium,
shall not apply.

(m) A taxpayer may sell a credit allowed under this section
pursuant to Article 4.5 (commencing with Section 12097) of
Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government
Code.

begin delete

SEC. 5.  

Section 19535 is added to the Revenue and Taxation
Code, to read:

19535.  

(a) The Franchise Tax Board shall perform the
following audit procedures if a taxpayer filed for a credit under
Section 17052.12 or 23609 and was not allowed that credit:

(1) Use a risk-based approach to conduct an audit. The
risk-based approach shall focus on identifying areas of a taxpayer’s
business or trade in which there may be subjectivity in determining
whether an employee of the taxpayer is performing qualified
research or nonqualified research, and what percentage of that
employee’s time is devoted to performing qualified research.

(2) Require a general explanation of the taxpayer’s trade or
business, the role of research and development in the trade or
business, the development of new and improved products,
processes, and software from the taxpayer.

(3) Determine whether the Internal Revenue Service has
conducted an examination of the credit allowed under Section 41
of the Internal Revenue Code and request a copy of the audit report.
If the Internal Revenue Service has conducted an examination, the
Franchise Tax Board shall rely upon the findings of the
examination, subject to verifying that the research activities and
costs were incurred in state.

(4) Conduct a physical tour of the taxpayer’s facilities and
interview employees of the taxpayer that are performing qualified
research. A physical tour should be conducted prior to arriving at
a determination that a taxpayer’s activities do not qualify as
qualified research, as defined in Sections 17052.12 and 23609.
The tour shall include the area in which research is performed and
follow a product or process through its life cycle beginning with
development and ending in production.

(5) Identify the types of employees dedicated to research,
production, or administrative duties, or a mixture of any of those
activities.

(b) The Franchise Tax Board may perform the following audit
procedures if a taxpayer filed for a credit under Section 17052.12
or 23609 and was not allowed that credit and the auditor deems it
necessary:

(1) Ask the taxpayer to provide examples of research projects
from the examination years and to describe projects that are
currently under development.

(2) Ask the taxpayer to explain each step of the development
process, where mixed-services are performed, and distinguish
between production or administration functions and research.

(c) If the Franchise Tax Board determines a particular expense
to not be a qualified research expenditure, a taxpayer shall be
allowed an opportunity to provide additional supporting records.
If an adjustment in whether an expense is considered a qualified
research expense is necessary based on the taxpayer’s additional
supporting records, the Franchise Tax Board shall explain and
document the discrepancy. An adjustment based upon mere
criticism of a taxpayer’s workpapers, study, methods, or vague
disallowance for law of substantiation, without actual information
or evidence that contradict a taxpayer’s documents or other
evidence shall not be upheld. A lack of substantiation shall be a
valid reason for disallowing a credit when the taxpayer only
submits vague testimony.

end delete

begin delete SEC. 6. end delete
begin insert SEC. 5. end insert   

Section 23609 of the Revenue and Taxation Code is
amended to read:

23609.  

For each taxable year beginning on or after January 1,
1987, there shall be allowed as a credit against the “tax” (as defined
by Section 23036) an amount determined in accordance with
Section 41 of the Internal Revenue Code, except as follows:

(a) For each taxable year beginning before January 1, 1997,
both of the following modifications shall apply:

(1) The reference to “20 percent” in Section 41(a)(1) of the
Internal Revenue Code is modified to read “8 percent.”

(2) The reference to “20 percent” in Section 41(a)(2) of the
Internal Revenue Code is modified to read “12 percent.”

(b) (1) For each taxable year beginning on or after January 1,
1997, and before January 1, 1999, both of the following
modifications shall apply:

(A) The reference to “20 percent” in Section 41(a)(1) of the
Internal Revenue Code is modified to read “11 percent.”

(B) The reference to “20 percent” in Section 41(a)(2) of the
Internal Revenue Code is modified to read “24 percent.”

(2) For each taxable year beginning on or after January 1, 1999,
and before January 1, 2000, both of the following shall apply:

(A) The reference to “20 percent” in Section 41(a)(1) of the
Internal Revenue Code is modified to read “12 percent.”

(B) The reference to “20 percent” in Section 41(a)(2) of the
Internal Revenue Code is modified to read “24 percent.”

(3) For each taxable year beginning on or after January 1, 2000,
and before January 1, 2014, both of the following shall apply:

(A) The reference to “20 percent” in Section 41(a)(1) of the
Internal Revenue Code is modified to read “15 percent.”

(B) The reference to “20 percent” in Section 41(a)(2) of the
Internal Revenue Code is modified to read “24 percent.”

(4) For each taxable year beginning on or after January 1, 2014,
and before January 1, 2015, both of the following shall apply:

(A) The reference to “20 percent” in Section 41(a)(1) of the
Internal Revenue Code is modified to read “18 percent.”

(B) The reference to “20 percent” in Section 41(a)(2) of the
Internal Revenue Code is modified to read “27 percent.”

(5) For each taxable year beginning on or after January 1, 2015,
and before January 1, 2016, both of the following shall apply:

(A) The reference to “20 percent” in Section 41(a)(1) of the
Internal Revenue Code is modified to read “21 percent.”

(B) The reference to “20 percent” in Section 41(a)(2) of the
Internal Revenue Code is modified to read “30 percent.”

(6) For each taxable year beginning on or after January 1, 2016,
and before January 1, 2017, both of the following shall apply:

(A) The reference to “20 percent” in Section 41(a)(1) of the
Internal Revenue Code is modified to read “24 percent.”

(B) The reference to “20 percent” in Section 41(a)(2) of the
Internal Revenue Code is modified to read “33 percent.”

(7) For each taxable year beginning on or after January 1, 2017,
and before January 1, 2018, both of the following shall apply:

(A) The reference to “20 percent” in Section 41(a)(1) of the
Internal Revenue Code is modified to read “27 percent.”

(B) The reference to “20 percent” in Section 41(a)(2) of the
Internal Revenue Code is modified to read “36 percent.”

(8) For each taxable year beginning on or after January 1, 2018,
and before January 1, 2019, both of the following shall apply:

(A) The reference to “20 percent” in Section 41(a)(1) of the
Internal Revenue Code is modified to read “30 percent.”

(B) The reference to “20 percent” in Section 41(a)(2) of the
Internal Revenue Code is modified to read “39 percent.”

(9) For each taxable year beginning on or after January 1, 2019,
both of the following shall apply:

(A) The reference to “20 percent” in Section 41(a)(1) of the
Internal Revenue Code is modified to read “15 percent.”

(B) The reference to “20 percent” in Section 41(a)(2) of the
Internal Revenue Code is modified to read “24 percent.”

(c) (1) With respect to any expense paid or incurred after the
operative date of Section 6378, Section 41(b)(1) of the Internal
Revenue Code is modified to exclude from the definition of
“qualified research expense” any amount paid or incurred for
tangible personal property that is eligible for the exemption from
sales or use tax provided by Section 6378.

(2) “Qualified research” and “basic research” shall include only
research conducted in California.

(d) The provisions of Section 41(e)(7)(A) of the Internal
Revenue Code, shall be modified so that “basic research,” for
purposes of this section, includes any basic or applied research
including scientific inquiry or original investigation for the
advancement of scientific or engineering knowledge or the
improved effectiveness of commercial products, except that the
term does not include any of the following:

(1) Basic research conducted outside California.

(2) Basic research in the social sciences, arts, or humanities.

(3) Basic research for the purpose of improving a commercial
product if the improvements relate to style, taste, cosmetic, or
seasonal design factors.

(4) Any expenditure paid or incurred for the purpose of
ascertaining the existence, location, extent, or quality of any deposit
of ore or other mineral (including oil and gas).

(e) (1) In the case of a taxpayer engaged in any
biopharmaceutical research activities that are described in codes
2833 to 2836, inclusive, or any research activities that are described
in codes 3826, 3829, or 3841 to 3845, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United
States Office of Management and Budget, 1987 edition, or any
other biotechnology research and development activities, the
provisions of Section 41(e)(6) of the Internal Revenue Code shall
be modified to include both of the following:

(A) A qualified organization as described in Section
170(b)(1)(A)(iii) of the Internal Revenue Code and owned by an
institution of higher education as described in Section 3304(f) of
the Internal Revenue Code.

(B) A charitable research hospital owned by an organization
that is described in Section 501(c)(3) of the Internal Revenue Code,
is exempt from taxation under Section 501(a) of the Internal
Revenue Code, is not a private foundation, is designated a
“specialized laboratory cancer center,” and has received Clinical
Cancer Research Center status from the National Cancer Institute.

(2) For purposes of this subdivision:

(A) “Biopharmaceutical research 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.

(B) “Other biotechnology research and development activities”
means research and development activities consisting of the
application of recombinant DNA technology to produce
commercial products, as well as research and development
activities regarding pharmaceutical delivery systems designed to
provide a measure of control over the rate, duration, and site of
pharmaceutical delivery.

(f) In the case where the credit allowed by this section exceeds
the “tax,” the excess may be carried over to reduce the “tax” in
the following year, and succeeding years if necessary, until the
credit has been exhausted.

(g) For each taxable year beginning on or after January 1, 1998,
the reference to “Section 501(a)” in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read “this part or Part 10 (commencing with Section
17001).”

(h) (1) For each taxable year beginning on or after January 1,
2000:

(A) The reference to “3 percent” in Section 41(c)(4)(A)(i) of
the Internal Revenue Code is modified to read “one and forty-nine
hundredths of one percent.”

(B) The reference to “4 percent” in Section 41(c)(4)(A)(ii) of
the Internal Revenue Code is modified to read “one and
ninety-eight hundredths of one percent.”

(C) The reference to “5 percent” in Section 41(c)(4)(A)(iii) of
the Internal Revenue Code is modified to read “two and forty-eight
hundredths of one percent.”

(2) Section 41(c)(4)(B) shall not apply and in lieu thereof an
election under Section 41(c)(4)(A) of the Internal Revenue Code
may be made for any taxable year of the taxpayer beginning on or
after January 1, 1998. That election shall apply to the taxable year
for which made and all succeeding taxable years unless revoked
with the consent of the Franchise Tax Board.

(3) Section 41(c)(7) of the Internal Revenue Code, relating to
gross receipts, is modified to take into account only those gross
receipts from the sale of property held primarily for sale to
customers in the ordinary course of the taxpayer’s trade or business
that is delivered or shipped to a purchaser within this state,
regardless of f.o.b. point or any other condition of the sale.

(4) Section 41(c)(5) of the Internal Revenue Code, relating to
election of the alternative simplified credit, shall not apply.

(i) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.

(j) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough of credit, is modified by each of the
following:

(1) The last sentence shall not apply.

(2) If the amount determined under Section 41(a) of the Internal
Revenue Code for any taxable year exceeds the limitation of
Section 41(g) of the Internal Revenue Code, that amount may be
carried over to other taxable years under the rules of subdivision
(f), except that the limitation of Section 41(g) of the Internal
Revenue Code shall be taken into account in each subsequent
taxable year.

(k) Section 41(a)(3) of the Internal Revenue Code shall not
apply.

(l) Section 41(b)(3)(D) of the Internal Revenue Code, relating
to amounts paid to eligible small businesses, universities, and
federal laboratories, shall not apply.

(m) Section 41(f)(6) of the Internal Revenue Code, relating to
energy research consortium, shall not apply.

(n) A taxpayer may sell a credit allowed under this section
pursuant to Article 4.5 (commencing with Section 12097) of
Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government
Code.