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 wouldbegin insert, for taxable years beginning on or after January 1, 2015,end insert not apply the provisions of the Internal Revenue Code, relating to the election of alternative incrementalbegin delete credit, andend deletebegin insert
credit. This billend insert wouldbegin insert, for taxable years beginning on or after January 1, 2015, and before January 1, 2022,end insert apply the provisions of the Internal Revenue Code, relating to election of alternative simplified credit in modifiedbegin delete conformity. This billend deletebegin insert conformity, and for taxable years beginning on or after January 1, 2015,end insert 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.begin delete This bill would provide that these changes would apply to taxable years beginning on or after January 1, 2014. end delete
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,”
5defined by Section 17039, for the taxable year an amount
6determined in accordance with Section 41 of the Internal Revenue
7Code, relating to credit for increasing research activities, 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.”
P3 1(c) Section 41(a)(2) of the Internal Revenue Code shall not
2apply.
3(d) “Qualified research” shall include only research conducted
4in California.
5(e) In the case where the credit allowed under this section
6
exceeds the “net tax,” the excess may be carried over to reduce
7the “net tax” in the following year, and succeeding years if
8necessary, until the credit has been exhausted.
9(f) (1) With respect to any expense paid or incurred after the
10operative date of Section 6378, Section 41(b)(1) of the Internal
11Revenue Code, relating to qualified research expenses, is modified
12to exclude from the definition of “qualified research expense” any
13amount paid or incurred for tangible personal property that is
14eligible for the exemption from sales and use taxes, as provided
15by Section 6378.
16(2) For each taxable year beginning on or after January 1, 1998,
17the reference to “Section 501(a)” in Section 41(b)(3)(C) of the
18Internal Revenue Code, relating to contract research
expenses, is
19modified to read “this part or Part 11 (commencing with Section
2023001).”
21(g) (1) (A) For each taxable year beginning on or after January
221, 2000, and before January 1,begin delete 2014:end deletebegin insert 2015:end insert
23(i) The reference to “3 percent” in Section 41(c)(4)(A)(i) of the
24Internal Revenue Code is modified to read “one and forty-nine
25hundredths of one percent.”
26(ii) The reference to “4 percent” in Section 41(c)(4)(A)(ii) of
27the Internal Revenue Code is modified to read “one and
28ninety-eight hundredths of one percent.”
29(iii) The reference to “5 percent” in Section 41(c)(4)(A)(iii) of
30the Internal Revenue Code is modified to read “two and forty-eight
31hundredths of one percent.”
32(B) Section 41(c)(4)(B) of the Internal Revenue Code shall not
33apply and in lieu thereof an election under Section 41(c)(4)(A) of
34the Internal Revenue Code may be made for any taxable year of
35the taxpayer beginning on or after January 1, 1998, and before
36January 1,begin delete 2014.end deletebegin insert 2015.end insert That election shall apply to the taxable year
37for which made and all succeeding taxable years unless revoked
38with the consent of the Franchise Tax Board.
39(C) Section 41(h)(2) of the Internal Revenue Code, relating to
40termination of alternative incremental credit, is modified by
P4 1substituting “beginning on or after January 1,begin delete 2014”end deletebegin insert 2015end insertbegin insert”end insert for
2“beginning after December 31, 2008”.
3(2) (A) For taxable years beginning on or after January 1,begin delete 2014,end delete
4begin insert 2015, and before January 1, 2022,end insert Section
41(c)(5) of the Internal
5Revenue Code, relating to election of alternative simplified credit,
6shall apply, except as otherwise provided.
7(i) The reference to “14 percent” in Section 41(c)(5)(A) of the
8Internal Revenue Code is modified to read “10.5 percent”.
9(ii) The reference to “6 percent” in Section 41(c)(5)(B)(ii) of
10the Internal Revenue Code is modified to read “4.5 percent”.
11(B) Section 41(c)(5)(C) of the Internal Revenue Code, relating
12to election, shall not apply and in lieu thereof an election under
13Sections 41(c)(5)(A) and 41(c)(5)(B) of the Internal Revenue Code
14may be made for any taxable year of the taxpayer beginning on or
15after January 1,begin delete 2014.end deletebegin insert
2015, and before January 1, 2022.end insert That
16election shall apply to the taxable year for which made and all
17succeeding taxable years unless revoked with the consent of the
18Franchise Tax Board.
19(C) (i) For taxable years beginning on or after January 1, 2022,
20Section 41(c)(5) of the Internal Revenue Code shall not apply.
21(ii) No election under Section 41(c)(5) shall apply to taxable
22years beginning after December 31, 2021.
23(3) Section 41(c)(7) of the Internal Revenue Code, relating to
24gross receipts, is modified to take into account only those gross
25receipts from the sale of property held
primarily for sale to
26customers in the ordinary course of the taxpayer’s trade or business
27that is delivered or shipped to a purchaser within this state,
28regardless of f.o.b. point or any other condition of the sale.
29(h) Except as otherwise provided in this section, Section 41(h)
30of the Internal Revenue Code, relating to termination, shall not
31apply.
32(i) Section 41(g) of the Internal Revenue Code, relating to
33special rule for passthrough of credit, is modified by each of the
34following:
35(1) The last sentence shall not apply.
36(2) If the amount determined under Section 41(a) of the Internal
37Revenue Code for any taxable year exceeds the limitation of
38Section
41(g) of the Internal Revenue Code, that amount may be
39carried over to other taxable years under the rules of subdivision
40(e); except that the limitation of Section 41(g) of the Internal
P5 1Revenue Code shall be taken into account in each subsequent
2taxable year.
3(j) Section 41(a)(3) of the Internal Revenue Code shall not apply.
4(k) Section 41(b)(3)(D) of the Internal Revenue Code, relating
5to amounts paid to eligible small businesses, universities, and
6federal laboratories, shall not apply.
7(l) Section 41(f)(6) of the Internal Revenue Code, relating to
8energy research consortium, shall not apply.
9(m) begin deleteThe end deletebegin insertFor
taxable years beginning on or after January 1,
102015, the end insertamendments made by subdivisions (b) and (c) of Section
11301 of the American Taxpayer Relief Act of 2012 (Public Law
12112-240), relating to inclusion of qualified research expenses and
13gross receipts of an acquired person and aggregation of
14expenditures, shall apply, except as otherwise provided.
15(n) The amendments made to this section by the act adding this
16subdivision shall apply to taxable years beginning on or after
17January 1, 2014.
Section 23609 of the Revenue and Taxation Code is
19amended to read:
For each taxable year beginning on or after January 1,
211987, there shall be allowed as a credit against the “tax,” as defined
22by Section 23036, an amount determined in accordance with
23Section 41 of the Internal Revenue Code, relating to credit for
24increasing research activities, except as follows:
25(a) For each taxable year beginning before January 1, 1997,
26both of the following modifications shall apply:
27(1) The reference to “20 percent” in Section 41(a)(1) of the
28Internal Revenue Code is modified to read “8 percent.”
29(2) The reference to “20 percent” in Section 41(a)(2) of the
30Internal
Revenue Code is modified to read “12 percent.”
31(b) (1) For each taxable year beginning on or after January 1,
321997, and before January 1, 1999, both of the following
33modifications shall apply:
34(A) The reference to “20 percent” in Section 41(a)(1) of the
35Internal Revenue Code is modified to read “11 percent.”
36(B) The reference to “20 percent” in Section 41(a)(2) of the
37Internal Revenue Code is modified to read “24 percent.”
38(2) For each taxable year beginning on or after January 1, 1999,
39and before January 1, 2000, both of the following shall apply:
P6 1(A) The reference to “20 percent” in
Section 41(a)(1) of the
2Internal Revenue Code is modified to read “12 percent.”
3(B) The reference to “20 percent” in Section 41(a)(2) of the
4Internal Revenue Code is modified to read “24 percent.”
5(3) For each taxable year beginning on or after January 1, 2000,
6both of the following shall apply:
7(A) The reference to “20 percent” in Section 41(a)(1) of the
8Internal Revenue Code is modified to read “15 percent.”
9(B) The reference to “20 percent” in Section 41(a)(2) of the
10Internal Revenue Code is modified to read “24 percent.”
11(c) (1) With respect to any expense paid or incurred after
the
12operative date of Section 6378, Section 41(b)(1) of the Internal
13Revenue Code, relating to qualified research expenses, is modified
14to exclude from the definition of “qualified research expense” any
15amount paid or incurred for tangible personal property that is
16eligible for the exemption from sales and use taxes, as provided
17by Section 6378.
18(2) “Qualified research” and “basic research” shall include only
19research conducted in California.
20(d) The provisions of Section 41(e)(7)(A) of the Internal
21Revenue Code, relating to basic research, shall be modified so that
22“basic research,” for purposes of this section, includes any basic
23or applied research including scientific inquiry or original
24investigation for the advancement of scientific or engineering
25knowledge or the improved
effectiveness of commercial products,
26except that the term does not include any of the following:
27(1) Basic research conducted outside California.
28(2) Basic research in the social sciences, arts, or humanities.
29(3) Basic research for the purpose of improving a commercial
30product if the improvements relate to style, taste, cosmetic, or
31seasonal design factors.
32(4) Any expenditure paid or incurred for the purpose of
33ascertaining the existence, location, extent, or quality of any deposit
34of ore or other mineral (including oil and gas).
35(e) (1) In the case of a taxpayer engaged in any
36biopharmaceutical
research activities that are described in codes
372833 to 2836, inclusive, or any research activities that are described
38in codes 3826, 3829, or 3841 to 3845, inclusive, of the Standard
39Industrial Classification (SIC) Manual published by the United
40States Office of Management and Budget, 1987 edition, or any
P7 1other biotechnology research and development activities, the
2provisions of Section 41(e)(6) of the Internal Revenue Code,
3relating to qualified organizations, shall be modified to include
4both of the following:
5(A) A qualified organization as described in Section
6170(b)(1)(A)(iii) of the Internal Revenue Code and owned by an
7institution of higher education as described in Section 3304(f) of
8the Internal Revenue Code, relating to definition of institution of
9higher education.
10(B) A charitable research hospital owned by an organization
11that is described in Section 501(c)(3) of the Internal Revenue Code,
12is exempt from taxation under Section 501(a) of the Internal
13Revenue Code, relating to exemption from taxation, is not a private
14foundation, is designated a “specialized laboratory cancer center,”
15and has received Clinical Cancer Research Center status from the
16National Cancer Institute.
17(2) For purposes of this subdivision:
18(A) “Biopharmaceutical research activities” means those
19activities that use organisms or materials derived from organisms,
20and their cellular, subcellular, or molecular components, in order
21to provide pharmaceutical products for human or animal
22therapeutics and diagnostics. Biopharmaceutical activities make
23use of living
organisms to make commercial products, as opposed
24to pharmaceutical activities that make use of chemical compounds
25to produce commercial products.
26(B) “Other biotechnology research and development activities”
27means research and development activities consisting of the
28application of recombinant DNA technology to produce
29commercial products, as well as research and development
30activities regarding pharmaceutical delivery systems designed to
31provide a measure of control over the rate, duration, and site of
32pharmaceutical delivery.
33(f) In the case where the credit allowed by this section exceeds
34the “tax,” the excess may be carried over to reduce the “tax” in
35the following year, and succeeding years if necessary, until the
36credit has been exhausted.
37(g) For each taxable year beginning on or after January 1, 1998,
38the reference to “Section 501(a)” in Section 41(b)(3)(C) of the
39Internal Revenue Code, relating to contract research expenses, is
P8 1modified to read “this part or Part 10 (commencing with Section
217001).”
3(h) (1) (A) For each taxable year beginning on or after January
41, 2000, and before January 1,begin delete 2014:end deletebegin insert 2015:end insert
5(i) The reference to “3 percent” in Section 41(c)(4)(A)(i) of the
6Internal Revenue Code is modified to read “one and forty-nine
7hundredths
of one percent.”
8(ii) The reference to “4 percent” in Section 41(c)(4)(A)(ii) of
9the Internal Revenue Code is modified to read “one and
10ninety-eight hundredths of one percent.”
11(iii) The reference to “5 percent” in Section 41(c)(4)(A)(iii) of
12the Internal Revenue Code is modified to read “two and forty-eight
13hundredths of one percent.”
14(B) Section 41(c)(4)(B) of the Internal Revenue Code shall not
15apply and in lieu thereof an election under Section 41(c)(4)(A) of
16the Internal Revenue Code may be made for any taxable year of
17the taxpayer beginning on or after January 1, 1998, and before
18January 1,begin delete 2014.end deletebegin insert
2015.end insert That election shall apply to the taxable year
19for which made and all succeeding taxable years unless revoked
20with the consent of the Franchise Tax Board.
21(C) Section 41(h)(2) of the Internal Revenue Code, relating to
22termination of alternative incremental credit, is modified by
23substituting “beginning on or after January 1,begin delete 2014,”end deletebegin insert 2015”end insert for
24“beginning after December 31, 2008”.
25(2) (A) For taxable years beginning on or after January 1,begin delete 2014,end delete
26begin insert
2015, and before January 1, 2022,end insert Section 41(c)(5) of the Internal
27Revenue Code, relating to election of alternative simplified credit,
28shall apply, except as otherwise provided.
29(i) The reference to “14 percent” in Section 41(c)(5)(A) of the
30Internal Revenue Code is modified to read “10.5 percent”.
31(ii) The reference to “6 percent” in Section 41(c)(5)(B)(ii) of
32the Internal Revenue Code is modified to read “4.5 percent”.
33(B) Section 41(c)(5)(C) of the Internal Revenue Code, relating
34to election, shall not apply and in lieu thereof an election under
35Sections 41(c)(5)(A) and 41(c)(5)(B) of the Internal Revenue Code
36may be made for any taxable year of the taxpayer beginning on or
37after January 1,begin delete 2014.end deletebegin insert
2015, and before January 1, 2022.end insert That
38election shall apply to the taxable year for which made and all
39succeeding taxable years unless revoked with the consent of the
40Franchise Tax Board.
P9 1(C) (i) For taxable years beginning on or after January 1, 2022,
2Section 41(c)(5) of the Internal Revenue Code shall not apply.
3(ii) No election under Section 41(c)(5) shall apply to taxable
4years beginning after December 31, 2021.
5(3) Section 41(c)(7) of the Internal Revenue Code, relating to
6gross receipts, is modified to take into account only those gross
7receipts from the sale of property held primarily
for sale to
8customers in the ordinary course of the taxpayer’s trade or business
9that is delivered or shipped to a purchaser within this state,
10regardless of f.o.b. point or any other condition of the sale.
11(i) Except as otherwise provided in this section, Section 41(h)
12of the Internal Revenue Code, relating to termination, shall not
13apply.
14(j) Section 41(g) of the Internal Revenue Code, relating to
15special rule for passthrough of credit, is modified by each of the
16following:
17(1) The last sentence shall not apply.
18(2) If the amount determined under Section 41(a) of the Internal
19Revenue Code for any taxable year exceeds the limitation of
20Section 41(g)
of the Internal Revenue Code, that amount may be
21carried over to other taxable years under the rules of subdivision
22(f), except that the limitation of Section 41(g) of the Internal
23Revenue Code shall be taken into account in each subsequent
24taxable year.
25(k) Section 41(a)(3) of the Internal Revenue Code shall not
26apply.
27(l) Section 41(b)(3)(D) of the Internal Revenue Code, relating
28to amounts paid to eligible small businesses, universities, and
29federal laboratories, shall not apply.
30(m) Section 41(f)(6) of the Internal Revenue Code, relating to
31energy research consortium, shall not apply.
32(n) begin deleteThe end deletebegin insertFor
taxable years beginning on or after January 1,
332015, the end insertamendments made by subdivisions (b) and (c) of Section
34301 of the American Taxpayer Relief Act of 2012 (Public Law
35112-240), relating to inclusion of qualified research expenses and
36gross receipts of an acquired person and aggregation of
37expenditures, shall apply, except as otherwise provided.
38(o) The amendments made to this section by the act adding this
39subdivision shall apply to taxable years beginning on or after
40January 1, 2014.
This act provides for a tax levy within the meaning of
2Article IV of the Constitution and shall go into immediate effect.
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