AB 2330, as introduced, Mullin. Income taxes: credits: research activities.
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. These laws, in modified conformity, apply the provisions of the Internal Revenue Code, relating to the election of alternative incremental credit. These laws provide that the provisions of the Internal Revenue Code relating to election of alternative simplified credit shall not apply.
This bill would not apply the provisions of the Internal Revenue Code, relating to the election of alternative incremental credit, and would apply the provisions of the Internal Revenue Code, relating to election of alternative simplified credit in modified conformity. This bill would apply the provisions of the Internal Revenue Code, relating to the inclusion of qualified research expenses and gross receipts of an acquired person and aggregation of expenditures. This bill would provide that these changes shall apply to taxable years beginning on or after January 1, 2014.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2⁄3 of the membership of each house of the Legislature.
This bill would take effect immediately as a tax levy.
Vote: 2⁄3. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.
The people of the State of California do enact as follows:
Section 17052.12 of the Revenue and Taxation
2Code is amended to read:
For each taxable year beginning on or after January
41, 1987, there shall be allowed as a credit against the “net tax” (as
5defined by Section 17039) for the taxable year an amount
6determined in accordance with Section 41 of the Internal Revenue
7Code,begin insert relating to credit for increasing research activities,end insert except
8as follows:
9(a) For each taxable year beginning before January 1, 1997, the
10reference to “20 percent” in Section 41(a)(1) of the Internal
11Revenue Code is modified to read “8 percent.”
12(b) (1) For each taxable year beginning on or after January 1,
131997, and before January 1, 1999, the
reference to “20 percent”
14in Section 41(a)(1) of the Internal Revenue Code is modified to
15read “11 percent.”
16(2) For each taxable year beginning on or after January 1, 1999,
17and before January 1, 2000, the reference to “20 percent” in Section
1841(a)(1) of the Internal Revenue Code is modified to read “12
19percent.”
20(3) For each taxable year beginning on or after January 1, 2000,
21the reference to “20 percent” in Section 41(a)(1) of the Internal
22Revenue Code is modified to read “15 percent.”
23(c) Section 41(a)(2) of the Internal Revenue Code shall not
24apply.
25(d) “Qualified research” shall include only research conducted
26in California.
27(e) In the case where the credit allowed under this section
28
exceeds the “net tax,” the excess may be carried over to reduce
29the “net tax” in the following year, and succeeding years if
30necessary, until the credit has been exhausted.
P3 1(f) (1) With respect to any expense paid or incurred after the
2operative date of Section 6378, Section 41(b)(1) of the Internal
3Revenue Codebegin insert, relating to qualified research expenses,end insert is modified
4to exclude from the definition of “qualified research expense” any
5amount paid or incurred for tangible personal property that is
6eligible for the exemption from sales or use tax provided by Section
76378.
8(2) For each taxable year beginning on or after January 1, 1998,
9the reference to “Section 501(a)” in Section 41(b)(3)(C) of the
10Internal Revenue Code, relating to contract research
expenses, is
11modified to read “this part or Part 11 (commencing with Section
1223001).”
13(g) (1) begin insert(A)end insertbegin insert end insert For each taxable year beginning on or after January
141, 2000begin insert, and before January 1, 2014end insert:
15(A)
end delete
16begin insert(i)end insert The reference to “3 percent” in Section 41(c)(4)(A)(i)
of the
17Internal Revenue Code is modified to read “one and forty-nine
18hundredths of one percent.”
19(B)
end delete
20begin insert(ii)end insert The reference to “4 percent” in Section 41(c)(4)(A)(ii) of
21the Internal Revenue Code is modified to read “one and
22ninety-eight hundredths of one percent.”
23(C)
end delete
24begin insert(iii)end insert The reference to “5 percent” in Section 41(c)(4)(A)(iii) of
25the Internal
Revenue Code is modified to read “two and forty-eight
26hundredths of one percent.”
27(2)
end delete
28begin insert(B)end insert Section 41(c)(4)(B)begin insert of the Internal Revenue Codeend insert shall not
29apply and in lieu thereof an election under Section 41(c)(4)(A) of
30the Internal Revenue Code may be made for any taxable year of
31the taxpayer beginning on or after January 1, 1998begin insert, and before
32January 1, 2014end insert. That election shall apply to the taxable year for
33which made and all succeeding taxable years unless revoked
with
34the consent of the Franchise Tax Board.
35(C) Section 41(h)(2) of the Internal Revenue Code, relating to
36termination of alternative incremental credit, is modified by
37substituting “beginning on or after January 1, 2014” for
38“beginning after December 31, 2008”.
39(2) (A) For taxable years beginning on or after January 1,
402014, Section 41(c)(5) of the Internal Revenue Code, relating to
P4 1election of alternative simplified credit, shall apply, except as
2otherwise provided.
3(i) The reference to “14 percent” in Section 41(c)(5)(A) of the
4Internal Revenue Code is modified to read “10.5 percent”.
5(ii) The reference to “6 percent” in Section 41(c)(5)(B)(ii)
of
6the Internal Revenue Code is modified to read “4.5 percent”.
7(B) Section 41(c)(5)(C) of the Internal Revenue Code, relating
8to election, shall not apply and in lieu thereof an election under
9Sections 41(c)(5)(A) and 41(c)(5)(B) of the Internal Revenue Code
10may be made for any taxable year of the taxpayer beginning on
11or after January 1, 2014. That election shall apply to the taxable
12year for which made and all succeeding taxable years unless
13revoked with the consent of the Franchise Tax Board.
14(3) Section 41(c)(7) of the Internal Revenue Code, relating to
15gross receipts, is modified to take into account only those gross
16receipts from the sale of property held primarily for sale to
17customers in the ordinary course of the taxpayer’s trade or business
18that is delivered or shipped to a purchaser within this state,
19regardless of f.o.b. point or any other
condition of the sale.
20(4) Section 41(c)(5) of the Internal Revenue Code, relating to
21
election of alternative simplified credit, shall not apply.
22(h) begin insertExcept as otherwise provided in this section, end insertSection 41(h)
23of the Internal Revenue Code, relating to termination, shall not
24apply.
25(i) Section 41(g) of the Internal Revenue Code, relating to
26special rule for passthrough of credit, is modified by each of the
27following:
28(1) The last sentence shall not apply.
29(2) If the amount determined under Section 41(a) of the Internal
30Revenue Code for any taxable year exceeds the limitation of
31Section 41(g) of the Internal Revenue Code, that amount may be
32carried over to other taxable years under the rules of subdivision
33(e);
except that the limitation of Section 41(g) of the Internal
34Revenue Code shall be taken into account in each subsequent
35taxable year.
36(j) Section 41(a)(3) of the Internal Revenue Code shall not apply.
37(k) Section 41(b)(3)(D) of the Internal Revenue Code, relating
38to amounts paid to eligible small businesses, universities, and
39federal laboratories, shall not apply.
P5 1(l) Section 41(f)(6)begin insert of the Internal Revenue Codeend insert, relating to
2energy research consortium, shall not apply.
3(m) The amendments made by subdivisions (b) and (c) of Section
4301 of the American
Taxpayer Relief Act of 2012 (Public Law
5112-240), relating to inclusion of qualified research expenses and
6gross receipts of an acquired person and aggregation of
7expenditures, shall apply, except as otherwise provided.
8(n) The amendments made to this section by the act adding this
9subdivision shall apply to taxable years beginning on or after
10January 1, 2014.
Section 23609 of the Revenue and Taxation Code is
12amended to read:
For each taxable year beginning on or after January 1,
141987, there shall be allowed as a credit against the “tax” (as defined
15by Section 23036) an amount determined in accordance with
16Section 41 of the Internal Revenue Code,begin insert relating to credit for
17increasing research activities,end insert except as follows:
18(a) For each taxable year beginning before January 1, 1997,
19both of the following modifications shall apply:
20(1) The reference to “20 percent” in Section 41(a)(1) of the
21Internal Revenue Code is modified to read “8 percent.”
22(2) The reference to “20 percent” in
Section 41(a)(2) of the
23Internal Revenue Code is modified to read “12 percent.”
24(b) (1) For each taxable year beginning on or after January 1,
251997, and before January 1, 1999, both of the following
26modifications shall apply:
27(A) The reference to “20 percent” in Section 41(a)(1) of the
28Internal Revenue Code is modified to read “11 percent.”
29(B) The reference to “20 percent” in Section 41(a)(2) of the
30Internal Revenue Code is modified to read “24 percent.”
31(2) For each taxable year beginning on or after January 1, 1999,
32and before January 1, 2000, both of the following shall apply:
33(A) The reference to “20 percent” in Section 41(a)(1) of the
34Internal Revenue Code is
modified to read “12 percent.”
35(B) The reference to “20 percent” in Section 41(a)(2) of the
36Internal Revenue Code is modified to read “24 percent.”
37(3) For each taxable year beginning on or after January 1, 2000,
38both of the following shall apply:
39(A) The reference to “20 percent” in Section 41(a)(1) of the
40Internal Revenue Code is modified to read “15 percent.”
P6 1(B) The reference to “20 percent” in Section 41(a)(2) of the
2Internal Revenue Code is modified to read “24 percent.”
3(c) (1) With respect to any expense paid or incurred after the
4operative date of Section 6378, Section 41(b)(1) of the Internal
5Revenue Codebegin insert,
relating to qualified research expenses,end insert is modified
6to exclude from the definition of “qualified research expense” any
7amount paid or incurred for tangible personal property that is
8eligible for the exemption from sales or use tax provided by Section
96378.
10(2) “Qualified research” and “basic research” shall include only
11research conducted in California.
12(d) The provisions of Section 41(e)(7)(A) of the Internal
13Revenue Code,begin insert relating to basic research,end insert shall be modified so
14that “basic research,” for purposes of this section, includes any
15basic or applied research including scientific inquiry or original
16investigation for the advancement of scientific or engineering
17knowledge or the improved effectiveness of commercial products,
18except that the term
does not include any of the following:
19(1) Basic research conducted outside California.
20(2) Basic research in the social sciences, arts, or humanities.
21(3) Basic research for the purpose of improving a commercial
22product if the improvements relate to style, taste, cosmetic, or
23seasonal design factors.
24(4) Any expenditure paid or incurred for the purpose of
25ascertaining the existence, location, extent, or quality of any deposit
26of ore or other mineral (including oil and gas).
27(e) (1) In the case of a taxpayer engaged in any
28biopharmaceutical research activities that are described in codes
292833 to 2836, inclusive, or any research activities that are described
30in codes
3826, 3829, or 3841 to 3845, inclusive, of the Standard
31Industrial Classification (SIC) Manual published by the United
32States Office of Management and Budget, 1987 edition, or any
33other biotechnology research and development activities, the
34provisions of Section 41(e)(6) of the Internal Revenue Codebegin insert,
35relating to qualified organizations,end insert shall be modified to include
36both of the following:
37(A) A qualified organization as described in Section
38170(b)(1)(A)(iii) of the Internal Revenue Code and owned by an
39institution of higher education as described in Section 3304(f) of
P7 1the Internal Revenue Codebegin insert, relating to definition of institution of
2higher educationend insert.
3(B) A charitable
research hospital owned by an organization
4that is described in Section 501(c)(3) of the Internal Revenue Code,
5is exempt from taxation under Section 501(a) of the Internal
6Revenue Code,begin insert relating to exemption from taxation,end insert is not a private
7foundation, is designated a “specialized laboratory cancer center,”
8and has received Clinical Cancer Research Center status from the
9National Cancer Institute.
10(2) For purposes of this subdivision:
11(A) “Biopharmaceutical research activities” means those
12activities that use organisms or materials derived from organisms,
13and their cellular, subcellular, or molecular components, in order
14to provide pharmaceutical products for human or animal
15therapeutics and diagnostics. Biopharmaceutical activities make
16use of living organisms to make
commercial products, as opposed
17to pharmaceutical activities that make use of chemical compounds
18to produce commercial products.
19(B) “Other biotechnology research and development activities”
20means research and development activities consisting of the
21application of recombinant DNA technology to produce
22commercial products, as well as research and development
23activities regarding pharmaceutical delivery systems designed to
24provide a measure of control over the rate, duration, and site of
25pharmaceutical delivery.
26(f) In the case where the credit allowed by this section exceeds
27the “tax,” the excess may be carried over to reduce the “tax” in
28the following year, and succeeding years if necessary, until the
29credit has been exhausted.
30(g) For each taxable year beginning on or after January 1, 1998,
31the reference to
“Section 501(a)” in Section 41(b)(3)(C) of the
32Internal Revenue Code, relating to contract research expenses, is
33modified to read “this part or Part 10 (commencing with Section
3417001).”
35(h) (1) begin insert(A)end insertbegin insert end insert For each taxable year beginning on or after January
361, 2000begin insert, and before January 1, 2014end insert:
37(A)
end delete
38begin insert(i)end insert The reference to “3 percent” in Section 41(c)(4)(A)(i) of the
39Internal Revenue Code is modified to read “one and forty-nine
40hundredths of one percent.”
P8 1(B)
end delete
2begin insert(ii)end insert The reference to “4 percent” in Section 41(c)(4)(A)(ii) of
3the Internal Revenue Code is modified to read “one and
4ninety-eight hundredths of one percent.”
5(C)
end delete
6begin insert(iii)end insert The reference to “5 percent” in Section 41(c)(4)(A)(iii) of
7the Internal Revenue Code is modified to read “two and forty-eight
8hundredths of one percent.”
9(2)
end delete
10begin insert(B)end insert Section 41(c)(4)(B)begin insert of the Internal Revenue Codeend insert shall not
11apply and in lieu thereof an election under Section 41(c)(4)(A) of
12the Internal Revenue Code may be made for any taxable year of
13the taxpayer beginning on or after January 1, 1998begin insert, and before
14January 1, 2014end insert. That election shall
apply to the taxable year for
15which made and all succeeding taxable years unless revoked with
16the consent of the Franchise Tax Board.
17(C) Section 41(h)(2) of the Internal Revenue Code, relating to
18termination of alternative incremental credit, is modified by
19substituting “beginning on or after January 1, 2014,” for
20“beginning after December 31, 2008”.
21(2) (A) For taxable years beginning on or after January 1,
222014, Section 41(c)(5) of the Internal Revenue Code, relating to
23election of alternative simplified credit, shall apply, except as
24otherwise provided.
25(i) The reference to “14 percent” in Section 41(c)(5)(A) of the
26Internal Revenue Code is modified to read “10.5 percent”.
27(ii) The reference to “6 percent” in Section 41(c)(5)(B)(ii) of
28the Internal Revenue Code is modified to read “4.5 percent”.
29(B) Section 41(c)(5)(C) of the Internal Revenue Code, relating
30to election, shall not apply and in lieu thereof an election under
31Sections 41(c)(5)(A) and 41(c)(5)(B) of the Internal Revenue Code
32may be made for any taxable year of the taxpayer beginning on
33or after January 1, 2014. That election shall apply to the taxable
34year for which made and all succeeding taxable years unless
35revoked with the consent of the Franchise Tax Board.
36(3) Section 41(c)(7) of the Internal Revenue Code, relating to
37gross receipts, is modified to take into account only those gross
38receipts from the sale of property held primarily for sale to
39customers in the ordinary course of the taxpayer’s
trade or business
P9 1that is delivered or shipped to a purchaser within this state,
2regardless of f.o.b. point or any other condition of the sale.
3(4) Section 41(c)(5) of the Internal Revenue Code, relating to
4election of the alternative simplified credit, shall not apply.
5(i) begin insertExcept as otherwise provided in this section, end insertSection 41(h)
6of the Internal Revenue Code, relating to termination, shall not
7apply.
8(j) Section 41(g) of the Internal Revenue Code, relating to
9special rule for passthrough of credit, is modified by each of the
10following:
11(1) The last sentence shall not apply.
12(2) If the amount determined under Section 41(a) of the Internal
13Revenue Code for any taxable year exceeds the limitation of
14Section 41(g) of the Internal Revenue Code, that amount may be
15carried over to other taxable years under the rules of subdivision
16(f), except that the limitation of Section 41(g) of the Internal
17Revenue Code shall be taken into account in each subsequent
18taxable year.
19(k) Section 41(a)(3) of the Internal Revenue Code shall not
20apply.
21(l) Section 41(b)(3)(D) of the Internal Revenue Code, relating
22to amounts paid to eligible small businesses, universities, and
23federal laboratories, shall not apply.
24(m) Section 41(f)(6) of the
Internal Revenue Code, relating to
25energy research consortium, shall not apply.
26(n) The amendments made by subdivisions (b) and (c) of Section
27301 of the American Taxpayer Relief Act of 2012 (Public Law
28112-240), relating to inclusion of qualified research expenses and
29gross receipts of an acquired person and aggregation of
30expenditures, shall apply, except as otherwise provided.
31(o) The amendments made to this section by the act adding this
32subdivision shall apply to taxable years beginning on or after
33January 1, 2014.
This act provides for a tax levy within the meaning of
35Article IV of the Constitution and shall go into immediate effect.
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