Amended in Senate August 22, 2014

Amended in Senate June 16, 2014

Amended in Assembly May 23, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2754

Introduced by Committee on Revenue and Taxation (Bocanegra (Chair), Gordon, Mullin, Pan, V. Manuel Pérez, and Ting)

March 24, 2014

An act to amend Sections 17039, 17054, and 23036 of, begin delete and end delete to add Sections 18621.10 and 19171 to, begin insert and to repeal and add Section 17755 of, end insert the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL’S DIGEST

AB 2754, as amended, Committee on Revenue and Taxation. begin delete Franchise Tax Board: end delete begin insert Income taxes: end insert credits: electronic begin delete filing. end delete begin insert filing: charitable remainder trusts. end insert

The Personal Income Tax Law allows for the computation of, and the order of allowance of, various credits against the “net tax,” as defined. The Corporation Tax Law provides for a tentative minimum tax and further provides that, except for specified credits, no other credit shall reduce the tax imposed below the tentative minimum tax.

This bill would, for taxable years beginning on or after January 1, 2014, include the specified tax credit allocated by GO-Biz in the order of credits allowed against the “net tax.” This bill would also, for taxable years beginning on or after January 1, 2014, additionally allow the specified credit under the Corporation Tax Law allocated by GO-Biz to reduce the tentative minimum tax.

The Personal Income Tax Law allows a credit for each dependent of a taxpayer and does not require a tax identification number of the dependent to be included on the return filed with the Franchise Board.

This bill would require, for taxable years beginning on or after January 1, 2015, the tax identification number of a dependent to be included on the taxpayer’s return and would allow the taxpayer who did not provide the taxpayer identification number on the return to thereafter claim a credit or refund of that amount, as provided.

Existing law requires every taxpayer subject to the Personal Income Tax Law or the Corporation Tax Law to timely file a return with the Franchise Tax Board, unless exempt, on a form prescribed by the Franchise Tax Board.

This bill, for taxable years beginning on or after January 1, 2014, would require an acceptable return, as defined, of a business entity, as defined, that was prepared using a tax preparation software to be filed using electronic technology in a form and manner prescribed by the Franchise Tax Board. This bill would require a business entity that fails to comply with that filing requirement for returns filed for taxable years beginning on or after January 1, 2017, to pay specified penalties for each failure unless the failure is due to reasonable cause, and not willful neglect. This bill would require the Franchise Tax Board to conduct programs to educate business entities on these requirements and liberally interpret and grant waivers of the penalty, as specified.

begin insert

The Personal Income Tax Law does not conform to specified provisions of federal law relating to the taxation of specified trusts. Existing law exempts from tax for the taxable year any charitable remainder annuity trust or charitable remainder unitrust unless that trust has unrelated business taxable income for the taxable year, in which case that trust shall be subject to tax, as provided.

end insert begin insert

This bill, for taxable years beginning on or after January 1, 2014, would conform, as modified, to the federal provisions for a charitable remainder annuity trust and a charitable remainder unitrust by providing that a trust shall remain tax-exempt, even if that trust has unrelated business taxable income, in which case that income shall be taxed as provided.

end insert

This bill would incorporate additional changes in Section 23036 of the Revenue and Taxation Code, proposed by AB 1839, to be operative only if AB 1839 and this bill are both chaptered and become effective on or before January 1, 2015, and this bill is chaptered last.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

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

SECTION 1.  

Section 17039 of the Revenue and Taxation Code
is amended to read:

17039.  

(a) Notwithstanding any provision in this part to the
contrary, for the purposes of computing tax credits, the term “net
tax” means the tax imposed under either Section 17041 or 17048
plus the tax imposed under Section 17504 (relating to lump-sum
distributions) less the credits allowed by Section 17054 (relating
to personal exemption credits) and any amount imposed under
paragraph (1) of subdivision (d) and paragraph (1) of subdivision
(e) of Section 17560. Notwithstanding the preceding sentence, the
“net tax” shall not be less than the tax imposed under Section
17504 (relating to the separate tax on lump-sum distributions), if
any. Credits shall be allowed against “net tax” in the following
order:

(1) Credits that do not contain carryover or refundable
provisions, except those described in paragraphs (4) and (5).

(2) Credits that contain carryover provisions but do not contain
refundable provisions, except for those that are allowed to reduce
“net tax” below the tentative minimum tax, as defined by Section
17062.

(3) Credits that contain both carryover and refundable
provisions.

(4) The minimum tax credit allowed by Section 17063 (relating
to the alternative minimum tax).

(5) Credits that are allowed to reduce “net tax” below the
tentative minimum tax, as defined by Section 17062.

(6) Credits for taxes paid to other states allowed by Chapter 12
(commencing with Section 18001).

(7) Credits that contain refundable provisions but do not contain
carryover provisions.

The order within each paragraph shall be determined by the
Franchise Tax Board.

(b) Notwithstanding the provisions of Sections 17061 (relating
to refunds pursuant to the Unemployment Insurance Code) and
19002 (relating to tax withholding), the credits provided in those
sections shall be allowed in the order provided in paragraph (6) of
subdivision (a).

(c) (1) Notwithstanding any other provision of this part, no tax
credit shall reduce the tax imposed under Section 17041 or 17048
plus the tax imposed under Section 17504 (relating to the separate
tax on lump-sum distributions) below the tentative minimum tax,
as defined by Section 17062, except the following credits:

(A) The credit allowed by Section 17052.2 (relating to teacher
retention tax credit).

(B) The credit allowed by former Section 17052.4 (relating to
solar energy).

(C) The credit allowed by former Section 17052.5 (relating to
solar energy, repealed on January 1, 1987).

(D) The credit allowed by former Section 17052.5 (relating to
solar energy, repealed on December 1, 1994).

(E) The credit allowed by Section 17052.12 (relating to research
expenses).

(F) The credit allowed by former Section 17052.13 (relating to
sales and use tax credit).

(G) The credit allowed by former Section 17052.15 (relating to
Los Angeles Revitalization Zone sales tax credit).

(H) The credit allowed by Section 17052.25 (relating to the
adoption costs credit).

(I) The credit allowed by Section 17053.5 (relating to the
renter’s credit).

(J) The credit allowed by former Section 17053.8 (relating to
enterprise zone hiring credit).

(K) The credit allowed by former Section 17053.10 (relating to
Los Angeles Revitalization Zone hiring credit).

(L) The credit allowed by former Section 17053.11 (relating to
program area hiring credit).

(M) For each taxable year beginning on or after January 1, 1994,
the credit allowed by former Section 17053.17 (relating to Los
Angeles Revitalization Zone hiring credit).

(N) The credit allowed by Section 17053.33 (relating to targeted
tax area sales or use tax credit).

(O) The credit allowed by Section 17053.34 (relating to targeted
tax area hiring credit).

(P) The credit allowed by Section 17053.49 (relating to qualified
property).

(Q) The credit allowed by Section 17053.70 (relating to
enterprise zone sales or use tax credit).

(R) The credit allowed by Section 17053.74 (relating to
enterprise zone hiring credit).

(S) The credit allowed by Section 17054 (relating to credits for
personal exemption).

(T) The credit allowed by Section 17054.5 (relating to the credits
for a qualified joint custody head of household and a qualified
taxpayer with a dependent parent).

(U) The credit allowed by Section 17054.7 (relating to the credit
for a senior head of household).

(V) The credit allowed by former Section 17057 (relating to
clinical testing expenses).

(W) The credit allowed by Section 17058 (relating to
low-income housing).

(X) For taxable years beginning on or after January 1, 2014, the
credit allowed by Section 17059.2 (relating to GO-Biz California
Competes Credit).

(Y) The credit allowed by Section 17061 (relating to refunds
pursuant to the Unemployment Insurance Code).

(Z) Credits for taxes paid to other states allowed by Chapter 12
(commencing with Section 18001).

(AA) The credit allowed by Section 19002 (relating to tax
withholding).

(2) Any credit that is partially or totally denied under paragraph
(1) shall be allowed to be carried over and applied to the net tax
in succeeding taxable years, if the provisions relating to that credit
include a provision to allow a carryover when that credit exceeds
the net tax.

(d) Unless otherwise provided, any remaining carryover of a
credit allowed by a section that has been repealed or made
inoperative shall continue to be allowed to be carried over under
the provisions of that section as it read immediately prior to being
repealed or becoming inoperative.

(e) (1) Unless otherwise provided, if two or more taxpayers
(other than husband and wife) share in costs that would be eligible
for a tax credit allowed under this part, each taxpayer shall be
eligible to receive the tax credit in proportion to his or her
respective share of the costs paid or incurred.

(2) In the case of a partnership, the credit shall be allocated
among the partners pursuant to a written partnership agreement in
accordance with Section 704 of the Internal Revenue Code, relating
to partner’s distributive share.

(3) In the case of a husband and wife who file separate returns,
the credit may be taken by either or equally divided between them.

(f) Unless otherwise provided, in the case of a partnership, any
credit allowed by this part shall be computed at the partnership
level, and any limitation on the expenses qualifying for the credit
or limitation upon the amount of the credit shall be applied to the
partnership and to each partner.

(g) (1) With respect to any taxpayer that directly or indirectly
owns an interest in a business entity that is disregarded for tax
purposes pursuant to Section 23038 and any regulations thereunder,
the amount of any credit or credit carryforward allowable for any
taxable year attributable to the disregarded business entity shall
be limited in accordance with paragraphs (2) and (3).

(2) The amount of any credit otherwise allowed under this part,
including any credit carryover from prior years, that may be applied
to reduce the taxpayer’s “net tax,” as defined in subdivision (a),
for the taxable year shall be limited to an amount equal to the
excess of the taxpayer’s regular tax (as defined in Section 17062),
determined by including income attributable to the disregarded
business entity that generated the credit or credit carryover, over
the taxpayer’s regular tax (as defined in Section 17062), determined
by excluding the income attributable to that disregarded business
entity. No credit shall be allowed if the taxpayer’s regular tax (as
defined in Section 17062), determined by including the income
attributable to the disregarded business entity, is less than the
taxpayer’s regular tax (as defined in Section 17062), determined
by excluding the income attributable to the disregarded business
entity.

(3) If the amount of a credit allowed pursuant to the section
establishing the credit exceeds the amount allowable under this
subdivision in any taxable year, the excess amount may be carried
over to subsequent taxable years pursuant to subdivisions (c) and
(d).

(h) (1) Unless otherwise specifically provided, in the case of a
taxpayer that is a partner or shareholder of an eligible begin delete pass-through end delete
begin insert pass-thru end insert entity described in paragraph (2), any credit passed
through to the taxpayer in the taxpayer’s first taxable year
beginning on or after the date the credit is no longer operative may
be claimed by the taxpayer in that taxable year, notwithstanding
the repeal of the statute authorizing the credit prior to the close of
that taxable year.

(2) For purposes of this subdivision, “eligible begin delete pass-through end delete
begin insert pass-thru end insert entity” means any partnership or begin delete S end delete begin insert “S end insert begin insert ” end insert corporation that
files its return on a fiscal year basis pursuant to Section 18566,
and that is entitled to a credit pursuant to this part for the taxable
year that begins during the last year the credit is operative.

(3) This subdivision shall apply to credits that become
inoperative on or after the operative date of the act adding this
subdivision.

SEC. 2.  

Section 17054 of the Revenue and Taxation Code is
amended to read:

17054.  

In the case of individuals, the following credits for
personal exemption may be deducted from the tax imposed under
Section 17041 or 17048, less any increases imposed under
paragraph (1) of subdivision (d) or paragraph (1) of subdivision
(e), or both, of Section 17560.

(a) In the case of a single individual, a head of household, or a
married individual making a separate return, a credit of fifty-two
dollars ($52).

(b) In the case of a surviving spouse (as defined in Section
17046), or a husband and wife making a joint return, a credit of
one hundred four dollars ($104). If one spouse was a resident for
the entire taxable year and the other spouse was a nonresident for
all or any portion of the taxable year, the personal exemption shall
be divided equally.

(c) In addition to any other credit provided in this section, in
the case of an individual who is 65 years of age or over by the end
of the taxable year, a credit of fifty-two dollars ($52).

(d) (1) A credit of two hundred twenty-seven dollars ($227)
for each dependent (as defined in Section 17056) for whom an
exemption is allowable under Section 151(c) of the Internal
Revenue Code, relating to additional exemption for dependents.
The credit allowed under this subdivision for taxable years
beginning on or after January 1, 1999, shall not be adjusted
pursuant to subdivision (i) for any taxable year beginning before
January 1, 2000.

(2) (A) For taxable years beginning on or after January 1, 2015,
a credit shall not be allowed under paragraph (1) with respect to
any individual unless the identification number, as defined in
Section 6109 of the Internal Revenue Code, of that individual is
included on the return claiming the credit.

(B) A disallowance of a credit due to the omission of a correct
identification number required under this paragraph, may be
assessed by the Franchise Tax Board in the same manner as is
provided by Section 19051 in the case of a mathematical error
appearing on the return. A claimant shall have the right to claim
a credit or refund of adjusted amounts within the period provided
in Section 19306, 19307, 19308, or 19311, whichever period
expires later.

(3) (A) For taxable years beginning on or after January 1, 2009,
the credit allowed under paragraph (1) for each dependent shall
be equal to the credit allowed under subdivision (a). This
subparagraph shall cease to be operative for taxable years beginning
on or after January 1, 2011, unless the Director of Finance makes
the notification pursuant to Section 99040 of the Government
Code, in which case this subparagraph shall cease to be operative
for taxable years beginning on or after January 1, 2013.

(B) For taxable years that subparagraph (A) ceases to be
operative, the credit allowed under paragraph (1) for each
dependent shall be equal to the amount that would be allowed if
subparagraph (A) had never been operative.

(e) A credit for personal exemption of fifty-two dollars ($52)
for the taxpayer if he or she is blind at the end of his or her taxable
year.

(f) A credit for personal exemption of fifty-two dollars ($52)
for the spouse of the taxpayer if a separate return is made by the
taxpayer, and if the spouse is blind and, for the calendar year in
which the taxable year of the taxpayer begins, has no gross income
and is not the dependent of another taxpayer.

(g) For the purposes of this section, an individual is blind only
if either (1) his or her central visual acuity does not exceed 20/200
in the better eye with correcting lenses, or (2) his or her visual
acuity is greater than 20/200 but is accompanied by a limitation
in the fields of vision such that the widest diameter of the visual
field subtends an angle no greater than 20 degrees.

(h) In the case of an individual with respect to whom a credit
under this section is allowable to another taxpayer for a taxable
year beginning in the calendar year in which the individual’s
taxable year begins, the credit amount applicable to that individual
for that individual’s taxable year is zero.

(i) For each taxable year beginning on or after January 1, 1989,
the Franchise Tax Board shall compute the credits prescribed in
this section. That computation shall be made as follows:

(1) The California Department of Industrial Relations shall
transmit annually to the Franchise Tax Board the percentage change
in the California Consumer Price Index for all items from June of
the prior calendar year to June of the current calendar year, no
later than August 1 of the current calendar year.

(2) The Franchise Tax Board shall add 100 percent to the
percentage change figure which is furnished to them pursuant to
paragraph (1), and divide the result by 100.

(3) The Franchise Tax Board shall multiply the immediately
preceding taxable year credits by the inflation adjustment factor
determined in paragraph (2), and round off the resulting products
to the nearest one dollar ($1).

(4) In computing the credits pursuant to this subdivision, the
credit provided in subdivision (b) shall be twice the credit provided
in subdivision (a).

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 17755 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
repealed. end insert

begin delete

17755.  

Section 664(c) of the Internal Revenue Code, relating
to the taxation of trusts, shall not apply and, in lieu thereof, a
charitable remainder annuity trust and a charitable remainder
unitrust shall, for any taxable year, not be subject to any tax
imposed under this part, unless that trust, for the taxable year, has
unrelated business taxable income, within the meaning of Section
23732, determined as if Chapter 4 (commencing with Section
23701) of Part 11, applied to that trust.

end delete

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 17755 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 17755. end insert   

For taxable years beginning on or after January 1,
2014, Section 664(c)(2) of the Internal Revenue Code, relating to
excise tax, shall not apply and, in lieu thereof, the unrelated
business taxable income, as defined in Section 23732, of every
charitable remainder annuity trust or charitable remainder unitrust
shall be subject to tax under Section 17651.

end insert

begin delete SEC. 3. end delete
begin insert SEC. 5. end insert   

Section 18621.10 is added to the Revenue and Taxation
Code, to read:

18621.10.  

(a) For taxable years beginning on or after January
1, 2014, if an acceptable return of a business entity was prepared
using a tax preparation software, that return shall be filed using
electronic technology in a form and manner prescribed by the
Franchise Tax Board.

(b) For purposes of this section:

(1) “Acceptable return” means any original or amended return
that is required to be filed pursuant to Article 2 (commencing with
Section 18601), Section 18633, Section 18633.5, or Article 3
(commencing with Section 23771) of Chapter 4 of Part 11, other
than the return for unrelated business taxable income required by
Section 23771.

(2) “Business entity” means a corporation, including an “S”
corporation, an organization exempt from tax pursuant to Chapter
4 (commencing with Section 23701) of Part 11, a partnership, or
a limited liability company.

(3) “Tax preparation software” means any computer software
program used to prepare an acceptable return or for use in tax
compliance.

(4) “Electronic technology” includes, but is not limited to, the
Internet, cloud computing, or an electronic information delivery
system.

(5) “Technology constraints” means an inability of the tax
preparation software used by a business entity to electronically
file the acceptable return as required by this section as a result of
the complex nature of the return or inadequacy of the software.

(c) Any business entity required to file a return electronically
under this section may annually request a waiver of the
requirements of this section from the Franchise Tax Board with
respect to an acceptable return filed for a taxable year. The
Franchise Tax Board may grant a waiver if it determines the
business entity is unable to comply with the requirements of this
section due to, but not limited to, technology constraints, where
compliance would result in undue financial burden, or due to
circumstances that constitute reasonable cause, and not willful
neglect, as applicable with respect to the penalty imposed under
Section 19171.

(d) This section applies to an acceptable return required to be
filed on or after January 1, 2015.

begin delete SEC. 4. end delete
begin insert SEC. 6. end insert   

Section 19171 is added to the Revenue and Taxation
Code, to read:

19171.  

(a) A business entity required to electronically file a
return pursuant to Section 18621.10 that files a return in a manner
that fails to comply with Section 18621.10, shall be subject to a
penalty in the amount of one hundred dollars ($100) for an initial
failure and a penalty in the amount of five hundred dollars ($500)
for each subsequent failure unless the failure is due to reasonable
cause, and not willful neglect.

(b) If a group return is filed on behalf of eligible electing
taxpayer members of a combined reporting group, the penalties
described in subdivision (a) shall apply to the combined reporting
group and not to a taxpayer member of the combined reporting
group.

(c) This section shall apply to returns filed for taxable years
beginning on or after January 1, 2017.

begin delete SEC. 5. end delete
begin insert SEC. 7. end insert   

Section 23036 of the Revenue and Taxation Code is
amended to read:

23036.  

(a) (1) The term “tax” includes any of the following:

(A) The tax imposed under Chapter 2 (commencing with Section
23101).

(B) The tax imposed under Chapter 3 (commencing with Section
23501).

(C) The tax on unrelated business taxable income, imposed
under Section 23731.

(D) The tax on begin delete S end delete begin insert “S end insert begin insert ” end insert corporations imposed under Section
23802.

(2) The term “tax” does not include any amount imposed under
paragraph (1) of subdivision (e) of Section 24667 or paragraph (2)
of subdivision (f) of Section 24667.

(b) For purposes of Article 5 (commencing with Section 18661)
of Chapter 2, Article 3 (commencing with Section 19031) of
Chapter 4, Article 6 (commencing with Section 19101) of Chapter
4, and Chapter 7 (commencing with Section 19501) of Part 10.2,
and for purposes of Sections 18601, 19001, and 19005, the term
“tax” also includes all of the following:

(1) The tax on limited partnerships, imposed under Section
17935, the tax on limited liability companies, imposed under
Section 17941, and the tax on registered limited liability
partnerships and foreign limited liability partnerships imposed
under Section 17948.

(2) The alternative minimum tax imposed under Chapter 2.5
(commencing with Section 23400).

(3) The tax on built-in gains of begin delete S end delete begin insert “S end insert begin insert ” end insert corporations, imposed
under Section 23809.

(4) The tax on excess passive investment income of begin delete S end delete begin insert “S end insert begin insert ” end insert
corporations, imposed under Section 23811.

(c) Notwithstanding any other provision of this part, credits are
allowed against the “tax” in the following order:

(1) Credits that do not contain carryover provisions.

(2) Credits that, when the credit exceeds the “tax,” allow the
excess to be carried over to offset the “tax” in succeeding taxable
years, except for those credits that are allowed to reduce the “tax”
below the tentative minimum tax, as defined by Section 23455.
The order of credits within this paragraph shall be determined by
the Franchise Tax Board.

(3) The minimum tax credit allowed by Section 23453.

(4) Credits that are allowed to reduce the “tax” below the
tentative minimum tax, as defined by Section 23455.

(5) Credits for taxes withheld under Section 18662.

(d) Notwithstanding any other provision of this part, each of
the following applies:

(1) A credit may not reduce the “tax” below the tentative
minimum tax (as defined by paragraph (1) of subdivision (a) of
Section 23455), except the following credits:

(A) The credit allowed by former Section 23601 (relating to
solar energy).

(B) The credit allowed by former Section 23601.4 (relating to
solar energy).

(C) The credit allowed by former Section 23601.5 (relating to
solar energy).

(D) The credit allowed by Section 23609 (relating to research
expenditures).

(E) The credit allowed by former Section 23609.5 (relating to
clinical testing expenses).

(F) The credit allowed by Section 23610.5 (relating to
low-income housing).

(G) The credit allowed by former Section 23612 (relating to
sales and use tax credit).

(H) The credit allowed by Section 23612.2 (relating to enterprise
zone sales or use tax credit).

(I) The credit allowed by former Section 23612.6 (relating to
Los Angeles Revitalization Zone sales tax credit).

(J) The credit allowed by former Section 23622 (relating to
enterprise zone hiring credit).

(K) The credit allowed by Section 23622.7 (relating to enterprise
zone hiring credit).

(L) The credit allowed by former Section 23623 (relating to
program area hiring credit).

(M) The credit allowed by former Section 23623.5 (relating to
Los Angeles Revitalization Zone hiring credit).

(N) The credit allowed by former Section 23625 (relating to
Los Angeles Revitalization Zone hiring credit).

(O) The credit allowed by Section 23633 (relating to targeted
tax area sales or use tax credit).

(P) The credit allowed by Section 23634 (relating to targeted
tax area hiring credit).

(Q) The credit allowed by former Section 23649 (relating to
qualified property).

(R) For taxable years beginning on or after January 1, 2011, the
credit allowed by Section 23685 (relating to qualified motion
pictures).

(S) For taxable years beginning on or after January 1, 2014, the
credit allowed by Section 23689 (relating to GO-Biz California
Competes Credit).

(2) A credit against the tax may not reduce the minimum
franchise tax imposed under Chapter 2 (commencing with Section
23101).

(e) Any credit which is partially or totally denied under
subdivision (d) is allowed to be carried over to reduce the “tax”
in the following year, and succeeding years if necessary, if the
provisions relating to that credit include a provision to allow a
carryover of the unused portion of that credit.

(f) Unless otherwise provided, any remaining carryover from a
credit that has been repealed or made inoperative is allowed to be
carried over under the provisions of that section as it read
immediately prior to being repealed or becoming inoperative.

(g) Unless otherwise provided, if two or more taxpayers share
in costs that would be eligible for a tax credit allowed under this
part, each taxpayer is eligible to receive the tax credit in proportion
to his or her respective share of the costs paid or incurred.

(h) Unless otherwise provided, in the case of an begin delete S end delete begin insert “S end insert begin insert ” end insert
corporation, any credit allowed by this part is computed at the begin delete S end delete
begin insert “S end insert begin insert ” end insert corporation level, and any limitation on the expenses
qualifying for the credit or limitation upon the amount of the credit
applies to the begin delete S end delete begin insert “S end insert begin insert ” end insert corporation and to each shareholder.

(i) (1) With respect to any taxpayer that directly or indirectly
owns an interest in a business entity that is disregarded for tax
purposes pursuant to Section 23038 and any regulations thereunder,
the amount of any credit or credit carryforward allowable for any
taxable year attributable to the disregarded business entity is limited
in accordance with paragraphs (2) and (3).

(2) The amount of any credit otherwise allowed under this part,
including any credit carryover from prior years, that may be applied
to reduce the taxpayer’s “tax,” as defined in subdivision (a), for
the taxable year is limited to an amount equal to the excess of the
taxpayer’s regular tax (as defined in Section 23455), determined
by including income attributable to the disregarded business entity
that generated the credit or credit carryover, over the taxpayer’s
regular tax (as defined in Section 23455), determined by excluding
the income attributable to that disregarded business entity. A credit
is not allowed if the taxpayer’s regular tax (as defined in Section
23455), determined by including the income attributable to the
disregarded business entity is less than the taxpayer’s regular tax
(as defined in Section 23455), determined by excluding the income
attributable to the disregarded business entity.

(3) If the amount of a credit allowed pursuant to the section
establishing the credit exceeds the amount allowable under this
subdivision in any taxable year, the excess amount may be carried
over to subsequent taxable years pursuant to subdivisions (d), (e),
and (f).

(j) (1) Unless otherwise specifically provided, in the case of a
taxpayer that is a partner or shareholder of an eligible pass-thru
entity described in paragraph (2), any credit passed through to the
taxpayer in the taxpayer’s first taxable year beginning on or after
the date the credit is no longer operative may be claimed by the
taxpayer in that taxable year, notwithstanding the repeal of the
statute authorizing the credit prior to the close of that taxable year.

(2) For purposes of this subdivision, “eligible pass-thru entity”
means any partnership or begin delete S end delete begin insert “S end insert begin insert ” end insert corporation that files its return on
a fiscal year basis pursuant to Section 18566, and that is entitled
to a credit pursuant to this part for the taxable year that begins
during the last year a credit is operative.

(3) This subdivision applies to credits that become inoperative
on or after the operative date of the act adding this subdivision.

begin delete SEC. 5.5. end delete
begin insert SEC. 7.5. end insert   

Section 23036 of the Revenue and Taxation Code is
amended to read:

23036.  

(a) (1) The term “tax” includes any of the following:

(A) The tax imposed under Chapter 2 (commencing with Section
23101).

(B) The tax imposed under Chapter 3 (commencing with Section
23501).

(C) The tax on unrelated business taxable income, imposed
under Section 23731.

(D) The tax on begin delete S end delete begin insert “S end insert begin insert ” end insert corporations imposed under Section
23802.

(2) The term “tax” does not include any amount imposed under
paragraph (1) of subdivision (e) of Section 24667 or paragraph (2)
of subdivision (f) of Section 24667.

(b) For purposes of Article 5 (commencing with Section 18661)
of Chapter 2, Article 3 (commencing with Section 19031) of
Chapter 4, Article 6 (commencing with Section 19101) of Chapter
4, and Chapter 7 (commencing with Section 19501) of Part 10.2,
and for purposes of Sections 18601, 19001, and 19005, the term
“tax” also includes all of the following:

(1) The tax on limited partnerships, imposed under Section
17935, the tax on limited liability companies, imposed under
Section 17941, and the tax on registered limited liability
partnerships and foreign limited liability partnerships imposed
under Section 17948.

(2) The alternative minimum tax imposed under Chapter 2.5
(commencing with Section 23400).

(3) The tax on built-in gains of begin delete S end delete begin insert “S end insert begin insert ” end insert corporations, imposed
under Section 23809.

(4) The tax on excess passive investment income of begin delete S end delete begin insert “S end insert begin insert ” end insert
corporations, imposed under Section 23811.

(c) Notwithstanding any other provision of this part, credits are
allowed against the “tax” in the following order:

(1) Credits that do not contain carryover provisions.

(2) Credits that, when the credit exceeds the “tax,” allow the
excess to be carried over to offset the “tax” in succeeding taxable
years, except for those credits that are allowed to reduce the “tax”
below the tentative minimum tax, as defined by Section 23455.
The order of credits within this paragraph shall be determined by
the Franchise Tax Board.

(3) The minimum tax credit allowed by Section 23453.

(4) Credits that are allowed to reduce the “tax” below the
tentative minimum tax, as defined by Section 23455.

(5) Credits for taxes withheld under Section 18662.

(d) Notwithstanding any other provision of this part, each of
the following applies:

(1) A credit may not reduce the “tax” below the tentative
minimum tax (as defined by paragraph (1) of subdivision (a) of
Section 23455), except the following credits:

(A) The credit allowed by former Section 23601 (relating to
solar energy).

(B) The credit allowed by former Section 23601.4 (relating to
solar energy).

(C) The credit allowed by former Section 23601.5 (relating to
solar energy).

(D) The credit allowed by Section 23609 (relating to research
expenditures).

(E) The credit allowed by former Section 23609.5 (relating to
clinical testing expenses).

(F) The credit allowed by Section 23610.5 (relating to
low-income housing).

(G) The credit allowed by former Section 23612 (relating to
sales and use tax credit).

(H) The credit allowed by Section 23612.2 (relating to enterprise
zone sales or use tax credit).

(I) The credit allowed by former Section 23612.6 (relating to
Los Angeles Revitalization Zone sales tax credit).

(J) The credit allowed by former Section 23622 (relating to
enterprise zone hiring credit).

(K) The credit allowed by Section 23622.7 (relating to enterprise
zone hiring credit).

(L) The credit allowed by former Section 23623 (relating to
program area hiring credit).

(M) The credit allowed by former Section 23623.5 (relating to
Los Angeles Revitalization Zone hiring credit).

(N) The credit allowed by former Section 23625 (relating to
Los Angeles Revitalization Zone hiring credit).

(O) The credit allowed by Section 23633 (relating to targeted
tax area sales or use tax credit).

(P) The credit allowed by Section 23634 (relating to targeted
tax area hiring credit).

(Q) The credit allowed by former Section 23649 (relating to
qualified property).

(R) For taxable years beginning on or after January 1, 2011, the
credit allowed by Section 23685 (relating to qualified motion
pictures).

(S) For taxable years beginning on or after January 1, 2014, the
credit allowed by Section 23689 (relating to GO-Biz California
Competes Credit).

(T) For taxable years beginning on or after January 1, 2016, the
credit allowed by Section 23695 (relating to qualified motion
pictures).

(2) A credit against the tax may not reduce the minimum
franchise tax imposed under Chapter 2 (commencing with Section
23101).

(e) Any credit which is partially or totally denied under
subdivision (d) is allowed to be carried over to reduce the “tax”
in the following year, and succeeding years if necessary, if the
provisions relating to that credit include a provision to allow a
carryover of the unused portion of that credit.

(f) Unless otherwise provided, any remaining carryover from a
credit that has been repealed or made inoperative is allowed to be
carried over under the provisions of that section as it read
immediately prior to being repealed or becoming inoperative.

(g) Unless otherwise provided, if two or more taxpayers share
in costs that would be eligible for a tax credit allowed under this
part, each taxpayer is eligible to receive the tax credit in proportion
to his or her respective share of the costs paid or incurred.

(h) Unless otherwise provided, in the case of an begin delete S end delete begin insert “S end insert begin insert ” end insert
corporation, any credit allowed by this part is computed at the begin delete S end delete
begin insert “S end insert begin insert ” end insert corporation level, and any limitation on the expenses
qualifying for the credit or limitation upon the amount of the credit
applies to the begin delete S end delete begin insert “S end insert begin insert ” end insert corporation and to each shareholder.

(i) (1) With respect to any taxpayer that directly or indirectly
owns an interest in a business entity that is disregarded for tax
purposes pursuant to Section 23038 and any regulations thereunder,
the amount of any credit or credit carryforward allowable for any
taxable year attributable to the disregarded business entity is limited
in accordance with paragraphs (2) and (3).

(2) The amount of any credit otherwise allowed under this part,
including any credit carryover from prior years, that may be applied
to reduce the taxpayer’s “tax,” as defined in subdivision (a), for
the taxable year is limited to an amount equal to the excess of the
taxpayer’s regular tax (as defined in Section 23455), determined
by including income attributable to the disregarded business entity
that generated the credit or credit carryover, over the taxpayer’s
regular tax (as defined in Section 23455), determined by excluding
the income attributable to that disregarded business entity. A credit
is not allowed if the taxpayer’s regular tax (as defined in Section
23455), determined by including the income attributable to the
disregarded business entity is less than the taxpayer’s regular tax
(as defined in Section 23455), determined by excluding the income
attributable to the disregarded business entity.

(3) If the amount of a credit allowed pursuant to the section
establishing the credit exceeds the amount allowable under this
subdivision in any taxable year, the excess amount may be carried
over to subsequent taxable years pursuant to subdivisions (d), (e),
and (f).

(j) (1) Unless otherwise specifically provided, in the case of a
taxpayer that is a partner or shareholder of an eligible pass-thru
entity described in paragraph (2), any credit passed through to the
taxpayer in the taxpayer’s first taxable year beginning on or after
the date the credit is no longer operative may be claimed by the
taxpayer in that taxable year, notwithstanding the repeal of the
statute authorizing the credit prior to the close of that taxable year.

(2) For purposes of this subdivision, “eligible pass-thru entity”
means any partnership or begin delete S end delete begin insert “S end insert begin insert ” end insert corporation that files its return on
a fiscal year basis pursuant to Section 18566, and that is entitled
to a credit pursuant to this part for the taxable year that begins
during the last year a credit is operative.

(3) This subdivision applies to credits that become inoperative
on or after the operative date of the act adding this subdivision.

begin delete SEC. 6. end delete
begin insert SEC. 8. end insert   

The Franchise Tax Board shall conduct a robust
education program advising business entities affected by Section
18621.10 of the Revenue and Taxation Code of the requirements
of that section and liberally interpret and grant waivers of the
penalty imposed under Section 19171 of the Revenue and Taxation
Code to minimize any unnecessary adverse impacts to business
entities that experience difficulty complying with these new
requirements.

begin delete SEC. 7. end delete
begin insert SEC. 9. end insert   

Section begin delete 5.5 end delete begin insert 7.5 end insert of this bill incorporates amendments
to Section 23036 of the Revenue and Taxation Code proposed by
this bill and Assembly Bill 1839. It shall only become operative
if (1) both bills are enacted and become effective on or before
January 1, 2015, (2) each bill amends Section 23036 of the
Revenue and Taxation Code, and (3) this bill is enacted after
Assembly Bill 1839, in which case Section 23036 of the Revenue
and Taxation Code, as amended by Assembly Bill 1839, shall
remain operative only until the operative date of this bill, at which
time Section begin delete 5.5 end delete begin insert 7.5 end insert of this bill shall become operative, and Section
begin delete 5 end delete begin insert 7 end insert of this bill shall not become operative.