AB 2330, as amended, 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 would 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 “netbegin delete tax” (asend delete
5begin insert taxend insertbegin insert,” end insertdefined by Sectionbegin delete 17039)end deletebegin insert 17039,end insert for the taxable year an
6amount determined in accordance with Section 41 of the Internal
7Revenue Code, relating to credit for increasing research activities,
8except as
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.
P3 1(e) In the case where the credit allowed under this section
2
exceeds the “net tax,” the excess may be carried over to reduce
3the “net tax” in the following year, and succeeding years if
4necessary, until the credit has been exhausted.
5(f) (1) With respect to any expense paid or incurred after the
6operative date of Section 6378, Section 41(b)(1) of the Internal
7Revenue Code, relating to qualified research expenses, is modified
8to exclude from the definition of “qualified research expense” any
9amount paid or incurred for tangible personal property that is
10eligible for the exemption from sales and use taxes, as
provided
11by Section 6378.
12(2) For each taxable year beginning on or after January 1, 1998,
13the reference to “Section 501(a)” in Section 41(b)(3)(C) of the
14Internal Revenue Code, relating to contract research expenses, is
15modified to read “this part or Part 11 (commencing with Section
1623001).”
17(g) (1) (A) For each taxable year beginning on or after January
181, 2000, and before January 1, 2014:
19(i) The reference to “3 percent” in Section 41(c)(4)(A)(i) of the
20Internal Revenue Code is modified to read “one and forty-nine
21hundredths of one percent.”
22(ii) The reference to “4 percent” in Section 41(c)(4)(A)(ii)
of
23the Internal Revenue Code is modified to read “one and
24ninety-eight hundredths of one percent.”
25(iii) The reference to “5 percent” in Section 41(c)(4)(A)(iii) of
26the Internal Revenue Code is modified to read “two and forty-eight
27hundredths of one percent.”
28(B) Section 41(c)(4)(B) of the Internal Revenue Code 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, 1998, and before
32January 1, 2014. 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 “beginning
38after December 31, 2008”.
39(2) (A) For taxable years beginning on or after January 1, 2014,
40Section 41(c)(5) of the Internal Revenue Code, relating to election
P4 1of alternative simplified credit, shall apply, except as otherwise
2provided.
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 or
11after January 1, 2014. That election shall apply to the taxable year
12for which made and all succeeding taxable years unless revoked
13with 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(h) Except as otherwise provided in this section, Section 41(h)
21of the Internal Revenue Code, relating to termination, shall not
22apply.
23(i) Section 41(g) of the Internal Revenue Code, relating to
24special rule for passthrough of credit, is modified by each of the
25following:
26(1) The last sentence shall not apply.
27(2) If the amount determined under Section 41(a) of the Internal
28Revenue Code for any taxable year exceeds the limitation of
29Section 41(g) of the Internal Revenue Code, that amount may be
30carried over to other taxable years under the rules of subdivision
31(e); except that the limitation of Section 41(g) of the Internal
32Revenue Code shall be taken
into account in each subsequent
33taxable year.
34(j) Section 41(a)(3) of the Internal Revenue Code shall not apply.
35(k) Section 41(b)(3)(D) of the Internal Revenue Code, relating
36to amounts paid to eligible small businesses, universities, and
37federal laboratories, shall not apply.
38(l) Section 41(f)(6) of the Internal Revenue Code, relating to
39energy research consortium, shall not apply.
P5 1(m) The amendments made by subdivisions (b) and (c) of
2Section 301 of the American Taxpayer Relief Act of 2012 (Public
3Law 112-240), relating to inclusion of qualified research expenses
4and gross receipts of an acquired person and aggregation of
5expenditures, shall
apply, except as otherwise provided.
6(n) The amendments made to this section by the act adding this
7subdivision shall apply to taxable years beginning on or after
8January 1, 2014.
Section 23609 of the Revenue and Taxation Code is
10amended to read:
For each taxable year beginning on or after January 1,
121987, there shall be allowed as a credit against thebegin delete “tax” (asend deletebegin insert “tax,”
13asend insert defined by Sectionbegin delete 23036)end deletebegin insert 23036,end insert an amount determined in
14accordance with Section 41 of the Internal Revenue Code, relating
15to credit for increasing research activities, except as follows:
16(a) For each taxable year beginning before January 1, 1997,
17both
of the following modifications shall apply:
18(1) The reference to “20 percent” in Section 41(a)(1) of the
19Internal Revenue Code is modified to read “8 percent.”
20(2) The reference to “20 percent” in Section 41(a)(2) of the
21Internal Revenue Code is modified to read “12 percent.”
22(b) (1) For each taxable year beginning on or after January 1,
231997, and before January 1, 1999, both of the following
24modifications shall apply:
25(A) The reference to “20 percent” in Section 41(a)(1) of the
26Internal Revenue Code is modified to read “11 percent.”
27(B) The reference to “20 percent” in Section 41(a)(2) of
the
28Internal Revenue Code is modified to read “24 percent.”
29(2) For each taxable year beginning on or after January 1, 1999,
30and before January 1, 2000, both of the following shall apply:
31(A) The reference to “20 percent” in Section 41(a)(1) of the
32Internal Revenue Code is modified to read “12 percent.”
33(B) The reference to “20 percent” in Section 41(a)(2) of the
34Internal Revenue Code is modified to read “24 percent.”
35(3) For each taxable year beginning on or after January 1, 2000,
36both of the following shall apply:
37(A) The reference to “20 percent” in Section 41(a)(1) of the
38Internal Revenue Code is
modified to read “15 percent.”
39(B) The reference to “20 percent” in Section 41(a)(2) of the
40Internal Revenue Code is modified to read “24 percent.”
P6 1(c) (1) With respect to any expense paid or incurred after the
2operative date of Section 6378, Section 41(b)(1) of the Internal
3Revenue Code, relating to qualified research expenses, 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 and use taxes, as provided
7by Section 6378.
8(2) “Qualified research” and “basic research” shall include only
9research conducted in California.
10(d) The provisions of Section 41(e)(7)(A) of the Internal
11Revenue Code, relating to basic research, shall be modified so that
12“basic research,” for purposes of this section, includes any basic
13or applied research including scientific inquiry or original
14investigation for the advancement of scientific or engineering
15knowledge or the improved effectiveness of commercial products,
16except that the term does not include any of the following:
17(1) Basic research conducted outside California.
18(2) Basic research in the social sciences, arts, or humanities.
19(3) Basic research for the purpose of improving a commercial
20product if the improvements relate to style, taste, cosmetic, or
21seasonal design factors.
22(4) Any expenditure paid or incurred for the purpose of
23ascertaining the existence, location, extent, or quality of any deposit
24of ore or other mineral (including oil and gas).
25(e) (1) In the case of a taxpayer engaged in any
26biopharmaceutical research activities that are described in codes
272833 to 2836, inclusive, or any research activities that are described
28in codes 3826, 3829, or 3841 to 3845, inclusive, of the Standard
29Industrial Classification (SIC) Manual published by the United
30States Office of Management and Budget, 1987 edition, or any
31other biotechnology research and development activities, the
32provisions of Section 41(e)(6) of the Internal Revenue Code,
33relating to qualified organizations, shall be modified to include
34both of the following:
35(A) A qualified organization as described in Section
36170(b)(1)(A)(iii) of the Internal Revenue Code and owned by an
37institution of higher education as described in Section 3304(f) of
38the Internal Revenue Code, relating to definition of institution of
39higher education.
P7 1(B) A charitable research hospital owned by an organization
2that is described in Section 501(c)(3) of the Internal Revenue Code,
3is exempt from taxation under Section 501(a) of the Internal
4Revenue Code, relating to exemption from taxation, is not a private
5foundation, is designated a “specialized laboratory cancer center,”
6and has received Clinical Cancer Research Center status from the
7National Cancer Institute.
8(2) For purposes of this subdivision:
9(A) “Biopharmaceutical research activities” means those
10activities that use organisms or materials derived from organisms,
11and their cellular, subcellular, or molecular components, in order
12to provide pharmaceutical products for human or animal
13therapeutics and diagnostics. Biopharmaceutical activities make
14use of living organisms to make commercial products, as opposed
15to pharmaceutical activities that make use of chemical compounds
16to produce commercial products.
17(B) “Other biotechnology research and development activities”
18means research and development activities consisting of the
19application of recombinant DNA technology to produce
20commercial products, as well as research and development
21activities regarding pharmaceutical delivery systems designed to
22provide a measure
of control over the rate, duration, and site of
23pharmaceutical delivery.
24(f) In the case where the credit allowed by this section exceeds
25the “tax,” the excess may be carried over to reduce the “tax” in
26the following year, and succeeding years if necessary, until the
27credit has been exhausted.
28(g) For each taxable year beginning on or after January 1, 1998,
29the reference to “Section 501(a)” in Section 41(b)(3)(C) of the
30Internal Revenue Code, relating to contract research expenses, is
31modified to read “this part or Part 10 (commencing with Section
3217001).”
33(h) (1) (A) For each taxable year beginning on or after January
341, 2000, and before January 1, 2014:
35(i) The reference to “3 percent” in Section 41(c)(4)(A)(i) of the
36Internal Revenue Code is modified to read “one and forty-nine
37hundredths of one percent.”
38(ii) The reference to “4 percent” in Section 41(c)(4)(A)(ii) of
39the Internal Revenue Code is modified to read “one and
40ninety-eight hundredths of one percent.”
P8 1(iii) The reference to “5 percent” in Section 41(c)(4)(A)(iii) of
2the Internal Revenue Code is modified to read “two and forty-eight
3hundredths of one percent.”
4(B) Section 41(c)(4)(B) of the Internal Revenue Code shall not
5apply and in lieu thereof an election under Section 41(c)(4)(A) of
6the Internal Revenue Code may be made for any taxable year of
7the
taxpayer beginning on or after January 1, 1998, and before
8January 1, 2014. That election shall apply to the taxable year for
9which made and all succeeding taxable years unless revoked with
10the consent of the Franchise Tax Board.
11(C) Section 41(h)(2) of the Internal Revenue Code, relating to
12termination of alternative incremental credit, is modified by
13substituting “beginning on or after January 1, 2014,” for “beginning
14after December 31, 2008”.
15(2) (A) For taxable years beginning on or after January 1, 2014,
16Section 41(c)(5) of the Internal Revenue Code, relating to election
17of alternative simplified credit, shall apply, except as otherwise
18provided.
19(i) The reference to “14 percent” in Section
41(c)(5)(A) of the
20Internal Revenue Code is modified to read “10.5 percent”.
21(ii) The reference to “6 percent” in Section 41(c)(5)(B)(ii) of
22the Internal Revenue Code is modified to read “4.5 percent”.
23(B) Section 41(c)(5)(C) of the Internal Revenue Code, relating
24to election, shall not apply and in lieu thereof an election under
25Sections 41(c)(5)(A) and 41(c)(5)(B) of the Internal Revenue Code
26may be made for any taxable year of the taxpayer beginning on or
27after January 1, 2014. That election shall apply to the taxable year
28for which made and all succeeding taxable years unless revoked
29with the consent of the Franchise Tax Board.
30(3) Section 41(c)(7) of the Internal Revenue Code, relating to
31gross receipts, is modified
to take into account only those gross
32receipts from the sale of property held primarily for sale to
33customers in the ordinary course of the taxpayer’s trade or business
34that is delivered or shipped to a purchaser within this state,
35regardless of f.o.b. point or any other condition of the sale.
36(i) Except as otherwise provided in this section, Section 41(h)
37of the Internal Revenue Code, relating to termination, shall not
38apply.
P9 1(j) Section 41(g) of the Internal Revenue Code, relating to
2special rule for passthrough of credit, is modified by each of the
3following:
4(1) The last sentence shall not apply.
5(2) If the amount determined under Section 41(a) of the
Internal
6Revenue Code for any taxable year exceeds the limitation of
7Section 41(g) of the Internal Revenue Code, that amount may be
8carried over to other taxable years under the rules of subdivision
9(f), except that the limitation of Section 41(g) of the Internal
10Revenue Code shall be taken into account in each subsequent
11taxable year.
12(k) Section 41(a)(3) of the Internal Revenue Code shall not
13apply.
14(l) Section 41(b)(3)(D) of the Internal Revenue Code, relating
15to amounts paid to eligible small businesses, universities, and
16federal laboratories, shall not apply.
17(m) Section 41(f)(6) of the Internal Revenue Code, relating to
18energy research consortium, shall not apply.
19(n) The amendments made by subdivisions (b) and (c) of Section
20301 of the American Taxpayer Relief Act of 2012 (Public Law
21112-240), relating to inclusion of qualified research expenses and
22gross receipts of an acquired person and aggregation of
23expenditures, shall apply, except as otherwise provided.
24(o) The amendments made to this section by the act adding this
25subdivision shall apply to taxable years beginning on or after
26January 1, 2014.
This act provides for a tax levy within the meaning of
28Article IV of the Constitution and shall go into immediate effect.
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