AB 1661, as amended, Bonta. The Healthy Options for Everyone (HOPE) Act of 2014.
The Urban Agriculture Incentive Zones Act authorizes a city, county, or city and county to establish by ordinance an Urban Agriculture Incentive Zone within its boundaries for the purpose of entering into enforceable contracts with landowners, on a voluntary basis, for the use of vacant, unimproved, or blighted lands for small-scale agricultural use.
This bill would enact the Healthy Options for Everyone (HOPE) Act of 2014, and authorize a city, county, or city and county, after a public hearing, to establish by ordinance a HOPE Incentive Zone within its boundaries for the purpose of increasing the availability of fresh fruits and vegetables, and other grown foods within the zone. This bill would require a city, county, or city and county to analyze specific factors, including, but not limited to, population density and transportation, when
considering whether to establish a HOPE Incentive Zone within an area. This bill would encouragebegin delete citiesend deletebegin insert those local entitiesend insert to issue annual permits at a discounted rate to any farmers’ market operating within a HOPE Incentive Zonebegin insert, and would require those local entities to waive all business license fees for a qualified business within the zoneend insert.
The Personal Income Tax Law and Corporation Tax Law, in modified conformity with federal law, allow taxpayers to utilize net operating losses and carryovers and carrybacks of those losses for purposes of offsetting their tax liabilities. Existing law allows net operating losses for taxable years beginning on or after January 1, 2008, to be carried over to each of the 20 taxable years following the taxable year of the loss.
This bill would allow, under both laws, a qualified business, which is any trade or business that has primarily done business within a HOPE Incentive Zone, for taxable years beginning on or after January 1, 2015,begin insert and before January 1, 2022,end insert to carryover a net operating loss to each of the 25 taxable years following the taxable year of the loss.
The Personal Income Tax Law and the Corporation Tax Law authorize various credits against the taxes imposed by those laws.
This bill would allowbegin insert, under both laws,end insert a credit in the amount of 20% of the gross sales of a qualified business, as defined, that has primarily done business within a HOPE Incentive Zone during the taxable yearbegin insert for taxable years beginning on or after January 1, 2015, and before January 1, 2022end insert.
Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.
The people of the State of California do enact as follows:
The Legislature finds and declares all of the
2following:
3(a) The Healthy Options for Everyone (HOPE) Act of 2014
4provides cities, counties, and cities and counties with the ability
5to provide incentives for businesses and individuals working within
6HOPE Incentive Zones that can be tailored by local governments
7to fit their area’s unique needs.
8(b) These incentives are intended to reduce the tax burden and
9costs of doing business within a HOPE Incentive Zone which, in
P3 1turn, will spur the creation of new businesses, or the expansion of
2existing businesses, within the zone.
3(c) Incentives that will be available for individuals and
4businesses working or doing business within a HOPE Incentive
5Zone will include, but are not limited to, a hiring tax credit, an
6expansion of the period for which a net operating loss may be
7carried over, a tax credit for low-income individuals employed
8within a zone, reductions in electricity rates, assistance for
9developing sites within a zone, and low-interest loans for the
10installation and maintenance of electricity and water services.
Chapter 6.4 (commencing with Section 51043) is added
12to Part 1 of Division 1 of Title 5 of the Government Code, to read:
13
This chapter shall be known, and may be cited, as the
18Healthy Options for Everyone (HOPE) Act of 2014.
(a) begin insert(1)end insertbegin insert end insert A city, county, or city and county may, after
20a public hearing, establish by ordinance a HOPE Incentive Zone
21within its boundaries for the purpose of increasing the availability
22of fresh fruits and vegetables, and other grown foods.
23(2) A HOPE Incentive Zone shall only be established in a
24geographic area within the boundaries of the city, county, or city
25and county that qualifies as a food
desert.
26(3) A designation of a HOPE Incentive Zone shall be effective
27only for a period of seven years from the date of the ordinance
28that established that zone.
29(b) A city, county, or city and county shall analyze the following
30factors within a geographic area when considering whether to
31establish a HOPE Incentive Zone within that area pursuant to
32subdivision (a):
33(1) Transportation.
34(2) Population density.
35(3) Income of population.
36(4) Whether the area qualifies as a “food desert” by the United
37States Department of Agriculture.
26 38(5)
end delete
P4 1begin insert(4)end insert Percentage of population that participates in food assistance
2programs, including, but not limited to, a free school lunch
3program.
29 4(6)
end delete5begin insert(5)end insert Percentage of population with dietary-related illnesses.
30 6(7)
end delete7begin insert(6)end insert Neglected real property.
(a) A city, county, or city and county may, after
9establishing a HOPE Incentive Zone pursuant to Section 51043.1,
10enact an ordinance to create incentives for qualified businesses to
11conduct business within the zone.
12(b) The Legislature encourages cities, counties, or a city and
13county to issue annual permits at a discounted rate to a farmers’
14market operating within a HOPE Incentive Zone.
15(c) A city, county, or city and county shall, after establishing a
16HOPE Incentive Zone pursuant to Section 51043.1, waive all
17business license fees imposed by
the city, county, or city and county
18for a qualified business within the zone.
For the purposes of this chapter, the following terms
20have the following meanings:
21(a)
end delete
22(a) “Food desert” means a low-income census tract where at
23least 33 percent of the tract’s population or a minimum of 500
24people in the tract have low access to a supermarket or large
25grocery store.
26(b) (1) “Low access to a supermarket or large grocery store”
27means more than one mile from a supermarket or large grocery
28store in a census tract that is in an urban area, as designated by
29the United
States Census Bureau, and more than 10 miles from a
30supermarket or large grocery store in a census tract that is not in
31an urban area.
32(2) For purposes of this subdivision, the distance to
33supermarkets and large grocery stores is measured by the distance
34between the geographic center of the 1 kilometer square grid that
35contains estimates of the population and the nearest supermarket
36or large grocery store.
37(c) “Low-income census tract” means any census tract where
38the poverty rate for the tract is at least 20 percent or, for tracts
39not located within a metropolitan area, the median family income
40for the tract does not exceed 80 percent of statewide median family
P5 1income, or, for tracts located within a metropolitan area, the
2median family income for the tract does not exceed 80 percent of
3the greater statewide median family income or the metropolitan
4area median family income.
5begin insert(d)end insert “Primarily” means 80 percent or more.
4 6(b)
end delete
7begin insert(e)end insert “Qualified business” means a business primarily engaged
8in the retail sale of canned food, drybegin insert foodsend insert goods, fresh fruits and
9vegetables, and fresh meats, fish, and poultry.
Section 17053.31 is added to the Revenue and Taxation
11Code, to read:
(a) begin deleteThere end deletebegin insertFor taxable years beginning on or after
13January 1, 2015, and before January 1, 2022, there end insertshall be
14allowed as a credit against the “net tax,” as defined by Section
1517039, an amount equal to 20 percent of the gross sales within a
16HOPE Incentive Zone of a qualified taxpayer during the taxable
17year.
18(b) For purposes of this section, “qualified taxpayer” means a
19qualified business, as that term is used in Section 51043.3 of the
20Government Code, that has primarily done business within a HOPE
21Incentive
Zone during the taxable year.
22(c) “HOPE Incentive Zone” means a zone as established by
23Section 51043.1 of the Government Code.
24(d) This section shall remain in effect only until December 1,
252022, and as of that date is repealed.
Section 17276.20 of the Revenue and Taxation Code
27 is amended to read:
Except as provided in Sections 17276.1, 17276.2,
2917276.4, 17276.5, 17276.6, and 17276.7, the deduction provided
30by Section 172 of the Internal Revenue Code, relating to net
31operating loss deduction, shall be modified as follows:
32(a) (1) Net operating losses attributable to taxable years
33beginning before January 1, 1987, shall not be allowed.
34(2) A net operating loss shall not be carried forward to any
35taxable year beginning before January 1, 1987.
36(b) (1) Except as provided in paragraphs (2) and (3), the
37provisions of Section 172(b)(2) of the
Internal Revenue Code,
38relating to amount of carrybacks and carryovers, shall be modified
39so that the applicable percentage of the entire amount of the net
40operating loss for any taxable year shall be eligible for carryover
P6 1to any subsequent taxable year. For purposes of this subdivision,
2the applicable percentage shall be:
3(A) Fifty percent for any taxable year beginning before January
41, 2000.
5(B) Fifty-five percent for any taxable year beginning on or after
6January 1, 2000, and before January 1, 2002.
7(C) Sixty percent for any taxable year beginning on or after
8January 1, 2002, and before January 1, 2004.
9(D) One hundred percent for any taxable year
beginning on or
10after January 1, 2004.
11(2) In the case of a taxpayer who has a net operating loss in any
12taxable year beginning on or after January 1, 1994, and who
13operates a new business during that taxable year, each of the
14following shall apply to each loss incurred during the first three
15taxable years of operating the new business:
16(A) If the net operating loss is equal to or less than the net loss
17from the new business, 100 percent of the net operating loss shall
18be carried forward as provided in subdivision (d).
19(B) If the net operating loss is greater than the net loss from the
20new business, the net operating loss shall be carried over as
21follows:
22(i) With respect to an amount equal to the net loss from the new
23business, 100 percent of that amount shall be carried forward as
24provided in subdivision (d).
25(ii) With respect to the portion of the net operating loss that
26exceeds the net loss from the new business, the applicable
27percentage of that amount shall be carried forward as provided in
28subdivision (d).
29(C) For purposes of Section 172(b)(2) of the Internal Revenue
30Code, the amount described in clause (ii) of subparagraph (B) shall
31be absorbed before the amount described in clause (i) of
32subparagraph (B).
33(3) In the case of a taxpayer who has a net operating loss in any
34taxable year beginning on or after January 1, 1994, and who
35operates an
eligible small business during that taxable year, each
36of the following shall apply:
37(A) If the net operating loss is equal to or less than the net loss
38from the eligible small business, 100 percent of the net operating
39loss shall be carried forward to the taxable years specified in
40subdivision (d).
P7 1(B) If the net operating loss is greater than the net loss from the
2eligible small business, the net operating loss shall be carried over
3as follows:
4(i) With respect to an amount equal to the net loss from the
5eligible small business, 100 percent of that amount shall be carried
6forward as provided in subdivision (d).
7(ii) With respect to that portion of the
net operating loss that
8exceeds the net loss from the eligible small business, the applicable
9percentage of that amount shall be carried forward as provided in
10subdivision (d).
11(C) For purposes of Section 172(b)(2) of the Internal Revenue
12Code, the amount described in clause (ii) of subparagraph (B) shall
13be absorbed before the amount described in clause (i) of
14subparagraph (B).
15(4) In the case of a taxpayer who has a net operating loss in a
16taxable year beginning on or after January 1, 1994, and who
17operates a business that qualifies as both a new business and an
18eligible small business under this section, that business shall be
19treated as a new business for the first three taxable years of the
20new business.
21(5) In the case of a taxpayer who has a net operating loss in a
22taxable year beginning on or after January 1, 1994, and who
23operates more than one business, and more than one of those
24businesses qualifies as either a new business or an eligible small
25business under this section, paragraph (2) shall be applied first,
26except that if there is any remaining portion of the net operating
27loss after application of clause (i) of subparagraph (B) of that
28paragraph, paragraph (3) shall be applied to the remaining portion
29of the net operating loss as though that remaining portion of the
30net operating loss constituted the entire net operating loss.
31(6) For purposes of this section, the term “net loss” means the
32amount of net loss after application of Sections 465 and 469 of the
33Internal Revenue Code.
34(c) Section 172(b)(1) of the Internal Revenue Code, relating to
35years to which the loss may be carried, is modified as follows:
36(1) Net operating loss carrybacks shall not be allowed for any
37net operating losses attributable to taxable years beginning before
38January 1, 2013.
39(2) A net operating loss attributable to taxable years beginning
40on or after January 1, 2013, shall be a net operating loss carryback
P8 1to each of the two taxable years preceding the taxable year of the
2loss in lieu of the number of years provided therein.
3(A) For a net operating loss attributable to a taxable year
4beginning on or after January 1, 2013, and before January 1, 2014,
5the amount of carryback to any taxable year shall not exceed 50
6percent
of the net operating loss.
7(B) For a net operating loss attributable to a taxable year
8beginning on or after January 1, 2014, and before January 1, 2015,
9the amount of carryback to any taxable year shall not exceed 75
10percent of the net operating loss.
11(C) For a net operating loss attributable to a taxable year
12beginning on or after January 1, 2015, the amount of carryback to
13any taxable year shall not exceed 100 percent of the net operating
14loss.
15(3) Notwithstanding paragraph (2), Section 172(b)(1)(B) of the
16Internal Revenue Code, relating to special rules for REITs, and
17Section 172(b)(1)(E) of the Internal Revenue Code, relating to
18excess interest loss, and Section 172(h) of the Internal Revenue
19Code, relating to
corporate equity reduction interest losses, shall
20apply as provided.
21(4) A net operating loss carryback shall not be carried back to
22any taxable year beginning before January 1, 2011.
23(d) (1) (A) For a net operating loss for any taxable year
24beginning on or after January 1, 1987, and before January 1, 2000,
25Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified
26to substitute “five taxable years” in lieu of “20 taxable years”
27except as otherwise provided in paragraphs (2) and (3).
28(B) For a net operating loss for any taxable year beginning on
29or after January 1, 2000, and before January 1, 2008, Section
30172(b)(1)(A)(ii) of the Internal Revenue Code is modified to
31substitute
“10 taxable years” in lieu of “20 taxable years.”
32(2) For any taxable year beginning before January 1, 2000, in
33the case of a “new business,” the “five taxable years” in paragraph
34(1) shall be modified to read as follows:
35(A) “Eight taxable years” for a net operating loss attributable
36to the first taxable year of that new business.
37(B) “Seven taxable years” for a net operating loss attributable
38to the second taxable year of that new business.
39(C) “Six taxable years” for a net operating loss attributable to
40the third taxable year of that new business.
P9 1(3) For any carryover of a net operating loss for which a
2deduction
is denied by Section 17276.3, the carryover period
3specified in this subdivision shall be extended as follows:
4(A) By one year for a net operating loss attributable to taxable
5years beginning in 1991.
6(B) By two years for a net operating loss attributable to taxable
7years beginning prior to January 1, 1991.
8(4) The net operating loss attributable to taxable years beginning
9on or after January 1, 1987, and before January 1, 1994, shall be
10a net operating loss carryover to each of the 10 taxable years
11following the year of the loss if it is incurred by a taxpayer that is
12under the jurisdiction of the court in a Title 11 or similar case at
13any time during the income year. The loss carryover provided in
14the preceding sentence
shall not apply to any loss incurred after
15the date the taxpayer is no longer under the jurisdiction of the court
16in a Title 11 or similar case.
17(5) (A) For a net operating loss for any taxable year beginning
18on or after January 1, 2015,begin insert and before January 1, 2022,end insert in the
19case of a “qualified business,” Section 172(b)(1)(A)(ii) of the
20Internal Revenue Code is modified to substitute “25 taxable years”
21in lieu of “20 taxable years.”
22(B) For purposes of this paragraph, “qualified business” means
23a qualified business, as that term is used in Section 51043.3 of the
24Government Code, that has primarily done
business within a HOPE
25Incentive Zone, as established by Section 51043.1 of the
26Government Code, during the taxable year.
27(e) For purposes of this section:
28(1) “Eligible small business” means any trade or business that
29has gross receipts, less returns and allowances, of less than one
30million dollars ($1,000,000) during the taxable year.
31(2) Except as provided in subdivision (f), “new business” means
32any trade or business activity that is first commenced in this state
33on or after January 1, 1994.
34(3) “Title 11 or similar case” shall have the same meaning as
35in Section 368(a)(3) of the Internal Revenue Code.
36(4) In the case of any trade or business activity conducted by a
37partnership or “S” corporation paragraphs (1) and (2) shall be
38applied to the partnership or “S” corporation.
P10 1(f) For purposes of this section, in determining whether a trade
2or business activity qualifies as a new business under paragraph
3(2) of subdivision (e), the following rules shall apply:
4(1) In any case where a taxpayer purchases or otherwise acquires
5all or any portion of the assets of an existing trade or business
6(irrespective of the form of entity) that is doing business in this
7state (within the meaning of Section 23101), the trade or business
8thereafter conducted by the taxpayer (or any related person) shall
9not be treated as a new business if the aggregate fair market value
10of the acquired
assets (including real, personal, tangible, and
11intangible property) used by the taxpayer (or any related person)
12in the conduct of its trade or business exceeds 20 percent of the
13aggregate fair market value of the total assets of the trade or
14business being conducted by the taxpayer (or any related person).
15For purposes of this paragraph only, the following rules shall apply:
16(A) The determination of the relative fair market values of the
17acquired assets and the total assets shall be made as of the last day
18of the first taxable year in which the taxpayer (or any related
19person) first uses any of the acquired trade or business assets in
20its business activity.
21(B) Any acquired assets that constituted property described in
22Section 1221(1) of the Internal Revenue Code in the hands of the
23transferor
shall not be treated as assets acquired from an existing
24trade or business, unless those assets also constitute property
25described in Section 1221(1) of the Internal Revenue Code in the
26hands of the acquiring taxpayer (or related person).
27(2) In any case where a taxpayer (or any related person) is
28engaged in one or more trade or business activities in this state, or
29has been engaged in one or more trade or business activities in this
30state within the preceding 36 months (“prior trade or business
31activity”), and thereafter commences an additional trade or business
32activity in this state, the additional trade or business activity shall
33only be treated as a new business if the additional trade or business
34activity is classified under a different division of the Standard
35Industrial Classification (SIC) Manual published by the United
36States Office
of Management and Budget, 1987 edition, than are
37any of the taxpayer’s (or any related person’s) current or prior
38trade or business activities.
39(3) In any case where a taxpayer, including all related persons,
40is engaged in trade or business activities wholly outside of this
P11 1state and the taxpayer first commences doing business in this state
2(within the meaning of Section 23101) after December 31, 1993
3(other than by purchase or other acquisition described in paragraph
4(1)), the trade or business activity shall be treated as a new business
5under paragraph (2) of subdivision (e).
6(4) In any case where the legal form under which a trade or
7business activity is being conducted is changed, the change in form
8shall be disregarded and the determination of whether the trade or
9business
activity is a new business shall be made by treating the
10taxpayer as having purchased or otherwise acquired all or any
11portion of the assets of an existing trade or business under the rules
12of paragraph (1).
13(5) “Related person” shall mean any person that is related to
14the taxpayer under either Section 267 or 318 of the Internal
15Revenue Code.
16(6) “Acquire” shall include any gift, inheritance, transfer incident
17to divorce, or any other transfer, whether or not for consideration.
18(7) (A) For taxable years beginning on or after January 1, 1997,
19the term “new business” shall include any taxpayer that is engaged
20in biopharmaceutical activities or other biotechnology activities
21that are described in Codes 2833 to
2836, inclusive, of the Standard
22Industrial Classification (SIC) Manual published by the United
23States Office of Management and Budget, 1987 edition, and as
24further amended, and that has not received regulatory approval for
25any product from the Food and Drug Administration.
26(B) For purposes of this paragraph:
27(i) “Biopharmaceutical activities” means those activities that
28use organisms or materials derived from organisms, and their
29cellular, subcellular, or molecular components, in order to provide
30pharmaceutical products for human or animal therapeutics and
31diagnostics. Biopharmaceutical activities make use of living
32organisms to make commercial products, as opposed to
33pharmaceutical activities that make use of chemical compounds
34to produce commercial products.
35(ii) “Other biotechnology activities” means activities consisting
36of the application of recombinant DNA technology to produce
37commercial products, as well as activities regarding pharmaceutical
38delivery systems designed to provide a measure of control over
39the rate, duration, and site of pharmaceutical delivery.
P12 1(g) In computing the modifications under Section 172(d)(2) of
2the Internal Revenue Code, relating to capital gains and losses of
3taxpayers other than corporations, the exclusion provided by
4Section 18152.5 shall not be allowed.
5(h) Notwithstanding any provisions of this section to the
6contrary, a deduction shall be allowed to a “qualified taxpayer” as
7provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6,
8and
17276.7.
9(i) The Franchise Tax Board may prescribe appropriate
10regulations to carry out the purposes of this section, including any
11regulations necessary to prevent the avoidance of the purposes of
12this section through splitups, shell corporations, partnerships, tiered
13ownership structures, or otherwise.
14(j) The Franchise Tax Board may reclassify any net operating
15loss carryover determined under either paragraph (2) or (3) of
16subdivision (b) as a net operating loss carryover under paragraph
17(1) of subdivision (b) upon a showing that the reclassification is
18necessary to prevent evasion of the purposes of this section.
19(k) Except as otherwise provided, the amendments made by
20Chapter 107 of the Statutes of 2000 shall apply to
net operating
21losses for taxable years beginning on or after January 1, 2000.
Section 23631 is added to the Revenue and Taxation
23Code, to read:
(a) begin deleteThere end deletebegin insertFor taxable years beginning on or after
25January 1, 2015, and before January 1, 2022, there end insertshall be
26allowed as a credit against the “tax,” as defined by Section 23036,
27an amount equal to 20 percent of the gross sales within a HOPE
28Incentive Zone of a qualified taxpayer during the taxable year.
29(b) For purposes of this section, “qualified taxpayer” means a
30qualified business, as that term is used in Section 51043.3 of the
31Government Code, that has primarily done business within a HOPE
32Incentive
Zone during the taxable year.
33(c) “HOPE Incentive Zone” means a zone as established by
34Section 51043.1 of the Government Code.
35(d) This section shall remain in effect only until December 1,
362022, and as of that date is repealed.
Section 24416.20 of the Revenue and Taxation Code
38 is amended to read:
Except as provided in Sections 24416.1, 24416.2,
4024416.4, 24416.5, 24416.6, and 24416.7, a net operating loss
P13 1deduction shall be allowed in computing net income under Section
224341 and shall be determined in accordance with Section 172 of
3the Internal Revenue Code, except as otherwise provided.
4(a) (1) Net operating losses attributable to taxable years
5beginning before January 1, 1987, shall not be allowed.
6(2) A net operating loss shall not be carried forward to any
7taxable year beginning before January 1, 1987.
8(b) (1) Except as provided in
paragraphs (2) and (3), the
9provisions of Section 172(b)(2) of the Internal Revenue Code,
10relating to amount of carrybacks and carryovers, shall be modified
11so that the applicable percentage of the entire amount of the net
12operating loss for any taxable year shall be eligible for carryover
13to any subsequent taxable year. For purposes of this subdivision,
14the applicable percentage shall be:
15(A) Fifty percent for any taxable year beginning before January
161, 2000.
17(B) Fifty-five percent for any taxable year beginning on or after
18January 1, 2000, and before January 1, 2002.
19(C) Sixty percent for any taxable year beginning on or after
20January 1, 2002, and before January 1, 2004.
21(D) One hundred percent for any taxable year beginning on or
22after January 1, 2004.
23(2) In the case of a taxpayer who has a net operating loss in any
24taxable year beginning on or after January 1, 1994, and who
25operates a new business during that taxable year, each of the
26following shall apply to each loss incurred during the first three
27taxable years of operating the new business:
28(A) If the net operating loss is equal to or less than the net loss
29from the new business, 100 percent of the net operating loss shall
30be carried forward as provided in subdivision (e).
31(B) If the net operating loss is greater than the net loss from the
32new business, the net operating loss shall be carried over as
33follows:
34(i) With respect to an amount equal to the net loss from the new
35business, 100 percent of that amount shall be carried forward as
36provided in subdivision (e).
37(ii) With respect to the portion of the net operating loss that
38exceeds the net loss from the new business, the applicable
39percentage of that amount shall be carried forward as provided in
40subdivision (d).
P14 1(C) For purposes of Section 172(b)(2) of the Internal Revenue
2Code, the amount described in clause (ii) of subparagraph (B) shall
3be absorbed before the amount described in clause (i) of
4subparagraph (B).
5(3) In the case of a taxpayer who has a net operating loss in any
6taxable year beginning on
or after January 1, 1994, and who
7operates an eligible small business during that taxable year, each
8of the following shall apply:
9(A) If the net operating loss is equal to or less than the net loss
10from the eligible small business, 100 percent of the net operating
11loss shall be carried forward to the taxable years specified in
12paragraph (1) of subdivision (e).
13(B) If the net operating loss is greater than the net loss from the
14eligible small business, the net operating loss shall be carried over
15as follows:
16(i) With respect to an amount equal to the net loss from the
17eligible small business, 100 percent of that amount shall be carried
18forward as provided in subdivision (e).
19(ii) With respect to that portion of the net operating loss that
20exceeds the net loss from the eligible small business, the applicable
21percentage of that amount shall be carried forward as provided in
22subdivision (e).
23(C) For purposes of Section 172(b)(2) of the Internal Revenue
24Code, the amount described in clause (ii) of subparagraph (B) shall
25be absorbed before the amount described in clause (i) of
26subparagraph (B).
27(4) In the case of a taxpayer who has a net operating loss in a
28taxable year beginning on or after January 1, 1994, and who
29operates a business that qualifies as both a new business and an
30eligible small business under this section, that business shall be
31treated as a new business for the first three taxable years of the
32new business.
33(5) In the case of a taxpayer who has a net operating loss in a
34taxable year beginning on or after January 1, 1994, and who
35operates more than one business, and more than one of those
36businesses qualifies as either a new business or an eligible small
37business under this section, paragraph (2) shall be applied first,
38except that if there is any remaining portion of the net operating
39loss after application of clause (i) of subparagraph (B) of paragraph
40
(2), paragraph (3) shall be applied to the remaining portion of the
P15 1net operating loss as though that remaining portion of the net
2operating loss constituted the entire net operating loss.
3(6) For purposes of this section, “net loss” means the amount
4of net loss after application of Sections 465 and 469 of the Internal
5Revenue Code.
6(c) For any taxable year in which the taxpayer has in effect a
7water’s-edge election under Section 25110, the deduction of a net
8operating loss carryover shall be denied to the extent that the net
9operating loss carryover was determined by taking into account
10the income and factors of an affiliated corporation in a combined
11report whose income and apportionment factors would not have
12been taken into account if a water’s-edge election
under Section
1325110 had been in effect for the taxable year in which the loss was
14incurred.
15(d) Section 172(b)(1) of the Internal Revenue Code, relating to
16years to which the loss may be carried, is modified as follows:
17(1) Net operating loss carrybacks shall not be allowed for any
18net operating losses attributable to taxable years beginning before
19January 1, 2013.
20(2) A net operating loss attributable to taxable years beginning
21on or after January 1, 2013, shall be a net operating loss carryback
22to each of the two taxable years preceding the taxable year of the
23loss in lieu of the number of years provided therein.
24(A) For a net operating loss attributable to a
taxable year
25beginning on or after January 1, 2013, and before January 1, 2014,
26the amount of carryback to any taxable year shall not exceed 50
27percent of the net operating loss.
28(B) For a net operating loss attributable to a taxable year
29beginning on or after January 1, 2014, and before January 1, 2015,
30the amount of carryback to any taxable year shall not exceed 75
31percent of the net operating loss.
32(C) For a net operating loss attributable to a taxable year
33beginning on or after January 1, 2015, the amount of carryback to
34any taxable year shall not exceed 100 percent of the net operating
35loss.
36(3) Notwithstanding paragraph (2), Section 172(b)(1)(B) of the
37Internal Revenue Code, relating to special rules for
REITs, and
38Section 172(b)(1)(E) of the Internal Revenue Code, relating to
39excess interest loss, and Section 172(h) of the Internal Revenue
P16 1Code, relating to corporate equity reduction interest losses, shall
2apply as provided.
3(4) A net operating loss carryback shall not be carried back to
4any taxable year beginning before January 1, 2011.
5(e) (1) (A) For a net operating loss for any taxable year
6beginning on or after January 1, 1987, and before January 1, 2000,
7Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified
8to substitute “five taxable years” in lieu of “20 years” except as
9otherwise provided in paragraphs (2), (3), and (4).
10(B) For a net operating loss for any
income year beginning on
11or after January 1, 2000, and before January 1, 2008, Section
12172(b)(1)(A)(ii) of the Internal Revenue Code is modified to
13substitute “10 taxable years” in lieu of “20 taxable years.”
14(2) For any income year beginning before January 1, 2000, in
15the case of a “new business,” the “five taxable years” referred to
16in paragraph (1) shall be modified to read as follows:
17(A) “Eight taxable years” for a net operating loss attributable
18to the first taxable year of that new business.
19(B) “Seven taxable years” for a net operating loss attributable
20to the second taxable year of that new business.
21(C) “Six taxable years” for a net operating loss
attributable to
22the third taxable year of that new business.
23(3) For any carryover of a net operating loss for which a
24deduction is denied by Section 24416.3, the carryover period
25specified in this subdivision shall be extended as follows:
26(A) By one year for a net operating loss attributable to taxable
27years beginning in 1991.
28(B) By two years for a net operating loss attributable to taxable
29years beginning prior to January 1, 1991.
30(4) The net operating loss attributable to taxable years beginning
31on or after January 1, 1987, and before January 1, 1994, shall be
32a net operating loss carryover to each of the 10 taxable years
33following the year of the loss if
it is incurred by a corporation that
34was either of the following:
35(A) Under the jurisdiction of the court in a Title 11 or similar
36case at any time prior to January 1, 1994. The loss carryover
37provided in the preceding sentence shall not apply to any loss
38incurred in an income year after the taxable year during which the
39corporation is no longer under the jurisdiction of the court in a
40Title 11 or similar case.
P17 1(B) In receipt of assets acquired in a transaction that qualifies
2as a tax-free reorganization under Section 368(a)(1)(G) of the
3Internal Revenue Code.
4(5) (A) For a net operating loss for any taxable year beginning
5on or after January 1, 2015,begin insert
and before January 1, 2022,end insert in the
6case of a “qualified business,” Section 172(b)(1)(A)(ii) of the
7Internal Revenue Code is modified to substitute “25 taxable years”
8in lieu of “20 taxable years.”
9(B) For purposes of this paragraph, “qualified business” means
10a qualified business, as that term is used in Section 51043.3 of the
11Government Code, that has primarily done business within a HOPE
12Incentive Zone, as established by Section 51043.1 of the
13Government Code, during the taxable year.
14(f) For purposes of this section:
15(1) “Eligible small business” means any trade or business that
16has gross receipts, less returns and allowances, of less than one
17million dollars ($1,000,000) during the
income year.
18(2) Except as provided in subdivision (g), “new business” means
19any trade or business activity that is first commenced in this state
20on or after January 1, 1994.
21(3) “Title 11 or similar case” shall have the same meaning as
22in Section 368(a)(3) of the Internal Revenue Code.
23(4) In the case of any trade or business activity conducted by a
24partnership or an “S” corporation, paragraphs (1) and (2) shall be
25applied to the partnership or “S” corporation.
26(g) For purposes of this section, in determining whether a trade
27
or business activity qualifies as a new business under paragraph
28(2) of subdivision (e), the following rules shall apply:
29(1) In any case where a taxpayer purchases or otherwise acquires
30all or any portion of the assets of an existing trade or business
31(irrespective of the form of entity) that is doing business in this
32state (within the meaning of Section 23101), the trade or business
33thereafter conducted by the taxpayer (or any related person) shall
34not be treated as a new business if the aggregate fair market value
35of the acquired assets (including real, personal, tangible, and
36intangible property) used by the taxpayer (or any related person)
37in the conduct of its trade or business exceeds 20 percent of the
38aggregate fair market value of the total assets of the trade or
39business being conducted by the taxpayer (or any related
person).
40For purposes of this paragraph only, the following rules shall apply:
P18 1(A) The determination of the relative fair market values of the
2acquired assets and the total assets shall be made as of the last day
3of the first taxable year in which the taxpayer (or any related
4person) first uses any of the acquired trade or business assets in
5its business activity.
6(B) Any acquired assets that constituted property described in
7Section 1221(1) of the Internal Revenue Code in the hands of the
8transferor shall not be treated as assets acquired from an existing
9trade or business, unless those assets also constitute property
10described in Section 1221(1) of the Internal Revenue Code in the
11hands of the acquiring taxpayer (or related person).
12(2) In any case where a taxpayer (or any related person) is
13engaged in one or more trade or business activities in this state, or
14has been engaged in one or more trade or business activities in this
15state within the preceding 36 months (“prior trade or business
16activity”), and thereafter commences an additional trade or business
17activity in this state, the additional trade or business activity shall
18only be treated as a new business if the additional trade or business
19activity is classified under a different division of the Standard
20Industrial Classification (SIC) Manual published by the United
21States Office of Management and Budget, 1987 edition, than are
22any of the taxpayer’s (or any related person’s) current or prior
23trade or business activities.
24(3) In any case where a taxpayer, including all related persons,
25is engaged in trade or
business activities wholly outside of this
26state and the taxpayer first commences doing business in this state
27(within the meaning of Section 23101) after December 31, 1993
28(other than by purchase or other acquisition described in paragraph
29(1)), the trade or business activity shall be treated as a new business
30under paragraph (2) of subdivision (e).
31(4) In any case where the legal form under which a trade or
32business activity is being conducted is changed, the change in form
33shall be disregarded and the determination of whether the trade or
34business activity is a new business shall be made by treating the
35taxpayer as having purchased or otherwise acquired all or any
36portion of the assets of an existing trade or business under the rules
37of paragraph (1).
38(5) “Related person”
shall mean any person that is related to
39the taxpayer under either Section 267 or 318 of the Internal
40Revenue Code.
P19 1(6) “Acquire” shall include any transfer, whether or not for
2consideration.
3(7) (A) For taxable years beginning on or after January 1, 1997,
4the term “new business” shall include any taxpayer that is engaged
5in biopharmaceutical activities or other biotechnology activities
6that are described in Codes 2833 to 2836, inclusive, of the Standard
7Industrial Classification (SIC) Manual published by the United
8States Office of Management and Budget, 1987 edition, and as
9further amended, and that has not received regulatory approval for
10any product from the Food and Drug Administration.
11(B) For purposes of this paragraph:
12(i) “Biopharmaceutical activities” means those activities that
13use organisms or materials derived from organisms, and their
14cellular, subcellular, or molecular components, in order to provide
15pharmaceutical products for human or animal therapeutics and
16diagnostics. Biopharmaceutical activities make use of living
17organisms to make commercial products, as opposed to
18
pharmaceutical activities that make use of chemical compounds
19to produce commercial products.
20(ii) “Other biotechnology activities” means activities consisting
21of the application of recombinant DNA technology to produce
22commercial products, as well as activities regarding pharmaceutical
23delivery systems designed to provide a measure of control over
24the rate, duration, and site of pharmaceutical delivery.
25(h) For purposes of corporations whose net income is determined
26under Chapter 17 (commencing with Section 25101), Section
2725108 shall apply to each of the following:
28(1) The amount of net operating loss incurred in any taxable
29year that may be carried forward to another taxable year.
30(2) The amount of any loss carry forward that may be deducted
31in any taxable year.
32(i) The provisions of Section 172(b)(1)(D) of the Internal
33Revenue Code, relating to bad debt losses of commercial banks,
34shall not be applicable.
35(j) The Franchise Tax Board may prescribe appropriate
36regulations to carry out the purposes of this section, including any
37regulations necessary to prevent the avoidance of the purposes of
38this section through splitups, shell corporations, partnerships, tiered
39ownership structures, or otherwise.
P20 1(k) The Franchise Tax Board may reclassify any net operating
2loss carryover determined under either paragraph (2) or (3) of
3subdivision
(b) as a net operating loss carryover under paragraph
4(1) of subdivision (b) upon a showing that the reclassification is
5necessary to prevent evasion of the purposes of this section.
6(l) Except as otherwise provided, the amendments made by
7Chapter 107 of the Statutes of 2000 shall apply to net operating
8losses for taxable years beginning on or after January 1, 2000.
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