Amended in Senate April 9, 2014

Senate Bill No. 998

Introduced by Senator Knight

February 13, 2014

An act begin insert to add Article 8 (commencing with Section 12099.8) to Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government Code, to amend Section 510 of, and to add Section 511.5 to, the Labor Code, to add Sections 21080.38 and 21168.6.8 to the Public Resources Code, to amend Sections 17059.2 and 23689 of, and to add Sections 17053.35, 17053.36, 23635, and 23636 to, the Revenue and Taxation Code, and to add Section 10215.2 to the Unemployment Insurance Code, end insert relating to aerospace.

LEGISLATIVE COUNSEL’S DIGEST

SB 998, as amended, Knight. California Aerospace Innovation Hub Act of 2014.

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Existing

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begin insert (1) end insert begin insert   end insert begin insert Existing end insert law provides various incentives for industries such as the aerospace industry to locate and invest in this state, such as a program that allows local governments to establish a capital investment incentive program to pay a capital investment incentive amount to the proponents of a qualified manufacturing facility in the aerospace business, and a sales and use tax exemption for the gross receipts from the sale of, and the storage, use, or other consumption of, qualified tangible personal property purchased by a person engaged in aerospace products and parts manufacturing for use primarily in manufacturing, processing, refining, fabricating, or recycling of property. begin insert Existing law also creates the California Innovation Hub Program within the Governor’s Office of Business and Economic Development and requires the office to designate innovation hubs and to oversee, coordinate, and provide assistance to each innovation hub. end insert

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The bill would require the Governor’s Office of Business and Economic Development to design and implement Aerospace Innovation Hubs, as specified, based on existing geographically based clusters of facilities of aerospace manufacturers and related businesses.

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(2) The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

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The bill, for taxable years beginning on or after January 1, 2015, and before January 1, 2025, would allow a credit against these taxes to an aerospace manufacturer or related business operating within an Aerospace Innovation Hub equal 10% of the qualified cost, as defined, of qualified property, as defined, placed in service during the taxable year, as provided. This credit would be in lieu of a specified sales and use tax exemption.

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The bill, for the same taxable years, would allow a credit against these taxes for each taxable year equal to 25% of the charges for electricity paid or incurred by an aerospace manufacturer or related business operating within an Aerospace Innovation Hub during the taxable year.

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The Personal Income Tax Law and the Corporation Tax Law, for taxable years beginning before January 1, 2025, allow a credit against the taxes imposed by those laws for each taxable year in an amount as determined by the Governor’s Office of Business and Economic Development, pursuant to a contractual agreement with the taxpayer, agreed upon by the California Competes Tax Credit Committee, and based on specified factors.

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The bill would include among those factors whether the taxpayer is an aerospace manufacturer or related business operating within an Aerospace Innovation Hub.

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(3) Existing law, with certain exceptions, establishes 8 hours as a day’s work and a 40-hour workweek, and requires payment of prescribed overtime compensation for additional hours worked. Existing law authorizes the adoption by 2⁄3 of employees in a work unit of alternative workweek schedules providing for workdays no longer than 10 hours within a 40-hour workweek. Under existing law, any person who violates the provisions regulating work hours is guilty of a misdemeanor.

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The bill would allow an individual nonexempt employee of an aerospace manufacturer or related business operating within an Aerospace Innovation Hub to request an employee-selected flexible work schedule providing for workdays up to 10 hours per day within a 40-hour workweek, and would allow the employer to implement this schedule without the obligation to pay overtime compensation for those additional hours in a workday, except as specified. The bill would require the Division of Labor Standards Enforcement in the Department of Industrial Relations to enforce this provision and adopt regulations.

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(4) Existing law specifies that moneys in the Employment Training Fund are to be expended only for particular purposes relating to employment training and related administrative costs. Existing law authorizes the Employment Training Panel to allocate money in the fund for particular purposes related to employment training.

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The bill would allow the Employment Training Panel to expend moneys in the Employment Training Fund to reimburse an aerospace manufacturer or related business operating within an Aerospace Innovation Hub for its reasonable costs of workforce training upon appropriation by the Legislature.

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(5) The California Environmental Quality Act (CEQA) requires a lead agency, as defined, to prepare, or cause to be prepared, and certify the completion of, an environmental impact report (EIR) on a project that it proposes to carry out or approve that may have a significant effect on the environment or to adopt a negative declaration if it finds that the project will not have that effect. CEQA also requires a lead agency to prepare a mitigated negative declaration for a project that may have a significant effect on the environment if revisions in the project would avoid or mitigate that effect and there is no substantial evidence that the project, as revised, would have a significant effect on the environment.

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CEQA establishes a procedure by which a person may seek judicial review of the decision of the lead agency made pursuant to CEQA.

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The bill would require the lead agency to undertake specified steps in the preparation of the EIR for certain aerospace projects, which would be designated by the Governor. The bill would require a public agency, in certifying the EIR and in granting approvals for those designated aerospace projects, to concurrently prepare the record of proceeding and to certify the record of proceeding within 5 days of the filing of a specified notice. The bill would require the Judicial Council, on or before July 1, 2015, to adopt a rule of court to establish procedures applicable to actions or proceedings seeking judicial review of a public agency’s action in certifying the EIR and in granting approval of those designated aerospace manufacturing projects that requires the actions or proceedings, including any appeals therefrom, be resolved, to the extent feasible, within 270 days of the certification of the record of proceeding. The bill would, for the calendar years from 2015 to 2020, inclusive, require the Governor to designate 4 aerospace projects each year meeting specified requirements for which the above provisions would apply.

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The bill would exempt from the requirements of CEQA a project or an activity related to the retooling or alteration for manufacturing purposes of an existing aerospace manufacturing facility or aerospace-related facility in an Aerospace Innovation Hub within the facility’s existing footprint.

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Because this bill would impose additional duties on local agencies, it would impose a state-mandated local program.

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The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

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The bill would provide that no reimbursement is required by this act for a specified reason.

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This bill would state the intent of the Legislature to enact legislation to create the California Aerospace Innovation Hub Act of 2014. This bill would state the intent of the Legislature to enact legislation that would create geographically based aerospace hubs around existing aerospace manufacturing clusters, and that within the aerospace hubs aerospace manufacturers and related businesses would benefit from special tax preferences, streamlined regulations, and work schedule flexibility.

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Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program:  begin delete no end delete begin insert yes end insert .

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

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begin insert SECTION 1. end insert   

end insert

begin insert Article 8 (commencing with Section 12099.8) is
added to Chapter 1.6 of Part 2 of Division 3 of Title 2 of the end insert begin insert Government Code end insert begin insert , to read: end insert

begin insert

 

Article begin insert 8. end insert   Aerospace Innovation Hubs

 

begin insert 12099.8. end insert   

For the purposes of this article, the following terms
have the following meanings:

(a) “Aerospace Innovation Hub” means a geographic area that,
based on a determination by the Governor’s Office of Business
and Economic Development, contains a cluster of aerospace
manufacturing facilities or related business facilities.

(b) “Aerospace manufacturer” means a person that is primarily
engaged in those lines of business described in Code 3364 of the
North American Industry Classification System (NAICS) published
by the United States Office of Management and Budget (OMB),
2012 edition.

(c) “Related business” means a person that is primarily engaged
in those lines of business described in Codes 222512, 325211,
332710, 332812, 333299, 333514, 333517, 333611, 333612,
333613, 333618, 334419, 334511, 334513, 334515, 334519,
335311, 335314, 335991, and 335999 of the North American
Industry Classification System (NAICS) published by the United
States Office of Management and Budget (OMB), 2012 edition.

begin insert 12099.81. end insert   

The Governor’s Office of Business and Economic
Development shall designate and implement Aerospace Innovation
Hubs based on existing geographically based clusters of facilities
of aerospace manufacturers and related businesses. The
Governor’s Office of Business and Economic Development shall
consider several factors when designating an area as an Aerospace
Innovation Hub, including the location of facilities, the proximity
of facilities to each other, the size of facilities, and the number of
employees working in those facilities.

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begin insert

begin insert SEC. 2. end insert   

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begin insert Section 510 of the end insert begin insert Labor Code end insert begin insert is amended to read: end insert

510.  

(a) Eight hours of labor constitutes a day’s work. Any
work in excess of eight hours in one workday and any work in
excess of 40 hours in any one workweek and the first eight hours
worked on the seventh day of work in any one workweek shall be
compensated at the rate of no less than one and one-half times the
regular rate of pay for an employee. Any work in excess of 12
hours in one day shall be compensated at the rate of no less than
twice the regular rate of pay for an employee. In addition, any
work in excess of eight hours on any seventh day of a workweek
shall be compensated at the rate of no less than twice the regular
rate of pay of an employee. Nothing in this section requires an
employer to combine more than one rate of overtime compensation
in order to calculate the amount to be paid to an employee for any
hour of overtime work. The requirements of this section do not
apply to the payment of overtime compensation to an employee
working pursuant to any of the following:

(1) An alternative workweek schedule adopted pursuant to
Section 511.

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(2) An employee-selected flexible work schedule adopted
pursuant to Section 511.5.

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(2)

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begin insert (3) end insert  An alternative workweek schedule adopted pursuant to a
collective bargaining agreement pursuant to Section 514.

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(3)

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begin insert (4) end insert  An alternative workweek schedule to which this chapter is
inapplicable pursuant to Section 554.

(b) Time spent commuting to and from the first place at which
an employee’s presence is required by the employer shall not be
considered to be a part of a day’s work, when the employee
commutes in a vehicle that is owned, leased, or subsidized by the
employer and is used for the purpose of ridesharing, as defined in
Section 522 of the Vehicle Code.

(c) This section does not affect, change, or limit an employer’s
liability under the workers’ compensation law.

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begin insert SEC. 3. end insert   

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begin insert Section 511.5 is added to the end insert begin insert Labor Code end insert begin insert , to read: end insert

begin insert

begin insert 511.5. end insert   

(a) Notwithstanding Section 511 or any other law or
order of the Industrial Welfare Commission, an individual
nonexempt employee of a qualified employer may work up to 10
hours per workday without any obligation on the part of the
employer to pay an overtime rate of compensation, except as
provided in subdivision (b), if the employee requests this schedule
in writing and the employer approves the request. This shall be
referred to as an overtime exemption for an employee-selected
flexible work schedule.

(b) If an employee-selected flexible work schedule is adopted
pursuant to subdivision (a), the employer shall pay overtime at
one and one-half times the employee’s regular rate of pay for all
hours worked over 40 hours in a workweek or over 10 hours in a
workday, whichever is the greater number of hours. All work
performed in excess of 12 hours per workday and in excess of eight
hours on a fifth, sixth, or seventh day in the workweek shall be
paid at double the employee’s regular rate of pay.

(c) The employer may inform its employees that it is willing to
consider an employee request to work an employee-selected flexible
work schedule, but shall not induce a request by promising an
employment benefit or threatening an employment detriment.

(d) The employee or employer may discontinue the
employee-selected flexible work schedule at any time by giving
written notice to the other party. The request will be effective the
first day of the next pay period or the fifth day after notice is given
if there are fewer than five days before the start of the next pay
period, unless otherwise agreed to by the employer and the
employee.

(e) This section does not apply to any employee covered by a
valid collective bargaining agreement or employed by the state,
a city, county, city and county, district, municipality, or other
public, quasi-public, or municipal corporation, or any political
subdivision of this state.

(f) This section shall be liberally construed to accomplish its
purposes.

(g) (1) The Division of Labor Standards Enforcement shall
enforce this section and shall adopt or revise regulations in a
manner necessary to conform and implement this section.

(2) This section shall prevail over any inconsistent provisions
in any wage order of the Industrial Welfare Commission.

(h) (1) For the purposes of this section, “qualified employer”
means any employer that is an aerospace manufacturer or related
business operating within an Aerospace Innovation Hub.

(2) For purposes of this subdivision, “Aerospace Innovation
Hub,” “aerospace manufacturer,” and “related business” have
the same meanings as defined in subdivisions (a), (b), and (c),
respectively, of Section 12099.8 of the Government Code.

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begin insert SEC. 4. end insert   

end insert

begin insert Section 21080.38 is added to the end insert begin insert Public Resources
Code end insert begin insert , to read: end insert

begin insert

begin insert 21080.38. end insert   

(a) This division does not apply to a project or an
activity related to the retooling or alteration for manufacturing
purposes of an existing facility of an aerospace manufacturer or
a related business in an Aerospace Innovation Hub within the
facility’s existing footprint.

(b) For purposes of this division, “Aerospace Innovation Hub,”
“aerospace manufacturer,” and “related business” have the same
meanings as defined in subdivisions (a), (b), and (c), respectively,
of Section 12099.8 of the Government Code.

end insert

begin insert

begin insert SEC. 5. end insert   

end insert

begin insert Section 21168.6.8 is added to the end insert begin insert Public Resources
Code end insert begin insert , to read: end insert

begin insert

begin insert 21168.6.8. end insert   

(a) For the purposes of this section, the following
terms have the following meanings:

(1) “Aerospace project” means either of the following:

(A) A project related to the construction of a new facility of an
aerospace manufacturer or a related business.

(B) A project related to the expansion of an existing facility of
an aerospace manufacturer or a related business outside of the
facility’s existing footprint.

(2) “Designated aerospace project” means an aerospace project
designated pursuant to subdivision (b).

(b) For each calendar year from 2015 to 2020, inclusive, the
Governor shall designate four aerospace projects within Aerospace
Innovation Hubs designated pursuant to Section 12099.81 of the
Government Code. Each designated project shall have a capital
investment of at least 75 million dollars ($75,000,000).

(c) (1) On or before July 1, 2015, the Judicial Council shall
adopt a rule of court to establish procedures applicable to actions
or proceedings brought to attack, review, set aside, void, or annul
the certification of the environmental impact report for a
designated aerospace project or the granting of any project
approvals that require the actions or proceedings, including any
potential appeals therefrom, be resolved, to the extent feasible,
within 270 days of certification of the record of proceedings
pursuant to subdivision (e).

(2) Notwithstanding any other law, the procedures established
pursuant to paragraph (1) shall apply to an action or proceeding
brought to attack, review, set aside, void, or annul the certification
of the environmental impact report for a designated aerospace
project or the granting of any project approvals.

(d) (1) The draft and final environmental impact report for a
designated aerospace project shall include a notice in not less
than 12-point type stating the following:


THIS EIR IS SUBJECT TO SECTION 21168.6.8 OF THE PUBLIC
RESOURCES CODE, WHICH PROVIDES, AMONG OTHER
THINGS, THAT THE LEAD AGENCY NEED NOT CONSIDER
CERTAIN COMMENTS FILED AFTER THE CLOSE OF THE
PUBLIC COMMENT PERIOD FOR THE DRAFT EIR. ANY
JUDICIAL ACTION CHALLENGING THE CERTIFICATION OF
THE EIR OR THE APPROVAL OF THE PROJECT DESCRIBED
IN THE EIR IS SUBJECT TO THE PROCEDURES SET FORTH
IN SECTION 21168.6.8 OF THE PUBLIC RESOURCES CODE.
A COPY OF SECTION 21168.6.8 OF THE PUBLIC RESOURCES
CODE IS INCLUDED IN THE APPENDIX TO THIS EIR.

(2) The draft environmental impact report and final
environmental impact report shall contain, as an appendix, the
full text of this section.

(3) Within 10 days after the release of the draft environmental
impact report, the lead agency shall conduct an informational
workshop to inform the public of the key analyses and conclusions
of that report.

(4) Within 10 days before the close of the public comment
period, the lead agency shall hold a public hearing to receive
testimony on the draft environmental impact report. A transcript
of the hearing shall be included as an appendix to the final
environmental impact report.

(5) (A) Within five days following the close of the public
comment period, a commenter on the draft environmental impact
report may submit to the lead agency a written request for
nonbinding mediation. The lead agency and the designated
aerospace project applicant shall participate in nonbinding
mediation with all commenters who submitted timely comments
on the draft environmental impact report and who requested the
mediation. Mediation conducted pursuant to this paragraph shall
end no later than 35 days after the close of the public comment
period.

(B) A request for mediation shall identify all areas of dispute
raised in the comment submitted by the commenter that are to be
mediated.

(C) The lead agency shall select one or more mediators who
shall be retired judges or recognized experts with at least five
years experience in land use and environmental law or science,
or mediation. The applicant shall bear the costs of mediation.

(D) A mediation session shall be conducted on each area of
dispute with the parties requesting mediation on that area of
dispute.

(E) The lead agency shall adopt, as a condition of approval,
any measures agreed upon by the lead agency, the applicant, and
any other commenter who requested mediation. A commenter who
agrees to a measure pursuant to this subparagraph shall not raise
the issue addressed by that measure as a basis for an action or
proceeding challenging the lead agency’s decision to certify the
environmental impact report or to grant one or more initial project
approvals.

(6) The lead agency need not consider written comments
submitted after the close of the public comment period, unless
those comments address any of the following:

(A) New issues raised in the response to comments by the lead
agency.

(B) New information released by the public agency subsequent
to the release of the draft environmental impact report, such as
new information set forth or embodied in a staff report, proposed
permit, proposed resolution, ordinance, or similar documents.

(C) Changes made to the project after the close of the public
comment period.

(D) Proposed conditions for approval, mitigation measures, or
proposed findings required by Section 21081 or a proposed
reporting and monitoring program required by paragraph (1) of
subdivision (a) of Section 21081.6, where the lead agency releases
those documents subsequent to the release of the draft
environmental impact report.

(E) New information that was not reasonably known and could
not have been reasonably known during the public comment period.

(7) The lead agency shall file the notice required by subdivision
(a) of Section 21152 within five days after the last initial project
approval.

(e) (1)   The lead agency shall prepare and certify the record of
the proceedings in accordance with this subdivision and in
accordance with Rule 3.1365 of the California Rules of Court. The
applicant shall pay the lead agency for all costs of preparing and
certifying the record of proceedings.

(2) No later than three business days following the date of the
release of the draft environmental impact report, the lead agency
shall make available to the public in a readily accessible electronic
format the draft environmental impact report and all other
documents submitted to or relied on by the lead agency in the
preparation of the draft environmental impact report. A document
prepared by the lead agency or submitted by the applicant after
the date of the release of the draft environmental impact report
that is a part of the record of the proceedings shall be made
available to the public in a readily accessible electronic format
within five business days after the document is prepared or received
by the lead agency.

(3) Notwithstanding paragraph (2), documents submitted to or
relied on by the lead agency that were not prepared specifically
for the project and are copyright protected are not required to be
made readily accessible in an electronic format. For those
copyright protected documents, the lead agency shall make an
index of these documents available in an electronic format no later
than the date of the release of the draft environmental impact
report, or within five business days if the document is received or
relied on by the lead agency after the release of the draft
environmental impact report. The index must specify the libraries
or lead agency offices in which hardcopies of the copyrighted
materials are available for public review.

(4) The lead agency shall encourage written comments on the
project to be submitted in a readily accessible electronic format,
and shall make any such comment available to the public in a
readily accessible electronic format within five days of its receipt.

(5) Within seven business days after the receipt of any comment
that is not in an electronic format, the lead agency shall convert
that comment into a readily accessible electronic format and make
it available to the public in that format.

(6) The lead agency shall indicate in the record of the
proceedings comments received that were not considered by the
lead agency pursuant to paragraph (6) of subdivision (d) and need
not include the content of the comments as a part of the record.

(7) Within five days after the filing of the notice required by
subdivision (a) of Section 21152, the lead agency shall certify the
record of the proceedings for the approval or determination and
shall provide an electronic copy of the record to a party that has
submitted a written request for a copy. The lead agency may charge
and collect a reasonable fee from a party requesting a copy of the
record for the electronic copy, which shall not exceed the
reasonable cost of reproducing that copy.

(8) Within 10 days after being served with a complaint or a
petition for a writ of mandate, the lead agency shall lodge a copy
of the certified record of proceedings with the superior court.

(9) Any dispute over the content of the record of the proceedings
shall be resolved by the superior court. Unless the superior court
directs otherwise, a party disputing the content of the record shall
file a motion to augment the record at the time it files its initial
brief.

(10) The contents of the record of proceedings shall be as set
forth in subdivision (e) of Section 21167.6.

end insert

begin insert

begin insert SEC. 6. end insert   

end insert

begin insert Section 17053.35 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 17053.35. end insert   

(a) For taxable years beginning on or after January
1, 2015, and before January 1, 2025, a qualified taxpayer shall
be allowed a credit against the “net tax,” as defined in Section
17039, an amount equal to 10 percent of the qualified cost of
qualified property that is placed in service in this state during the
taxable year.

(b) For purposes of this section, “qualified cost” means any
cost that satisfies each of the following conditions:

(1) Is a cost paid or incurred by the qualified taxpayer for the
construction, reconstruction, or acquisition of qualified property
during the taxable year.

(2) Except as provided in paragraph (2) of subdivision (d) and
subparagraph (B) of paragraph (3) of subdivision (d), is an amount
upon which the qualified taxpayer has paid, directly or indirectly,
as a separately stated contract amount or as determined from the
records of the qualified taxpayer, sales tax reimbursement or use
tax under Part 1 (commencing with Section 6001).

(3) Is an amount properly chargeable to the capital account of
the qualified taxpayer.

(c) (1) (A) For purposes of this section, “qualified taxpayer”
means any taxpayer that is an aerospace manufacturer or related
business operating within an Aerospace Innovation Hub.

(B) For the purposes of this subdivision, “Aerospace Innovation
Hub,” “aerospace manufacturer,” and “related business” have
the same meanings as defined in subdivisions (a), (b), and (c),
respectively, of Section 12099.8 of the Government Code.

(2) “Qualified taxpayer” does not include a taxpayer whose
acquisition of tangible personal property is subject to the
exemption provided by Section 6377.1.

(3) In the case of any pass thru entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section or
Section 23649 shall be allowed to the pass thru entity and passed
through to the partners or shareholders in accordance with
applicable provisions of Part 10 (commencing with Section 17001)
or Part 11 (commencing with Section 23001). For purposes of this
paragraph, the term “pass thru entity” means any partnership or
“S” corporation.

(4) The Franchise Tax Board may prescribe regulations to carry
out the purposes of this section, including any regulations
necessary to prevent the avoidance of the effect of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, sale-leaseback transactions, or otherwise.

(d) For purposes of this section, “qualified property” means
property that is described as any of the following:

(1) Tangible personal property that is defined in Section 1245(a)
of the Internal Revenue Code that is primarily used for any of the
following:

(A) For the manufacturing, processing, refining, fabricating,
or recycling of property, beginning at the point at which any raw
materials are received by the qualified taxpayer and introduced
into the process and ending at the point at which the
manufacturing, processing, refining, fabricating, or recycling has
altered tangible personal property to its completed form, including
packaging, if required.

(B) In research and development.

(C) To maintain, repair, measure, or test any property described
in this paragraph.

(D) For pollution control that meets or exceeds standards
established by the state or by any local or regional governmental
agency within the state.

(E) For recycling.

(2) The value of any capitalized labor costs that are directly
allocable to the construction or modification of property described
in paragraph (1).

(3) (A) Special purpose buildings and foundations that are
constructed or modified for use by the qualified taxpayer primarily
in a manufacturing, processing, refining, fabricating, or recycling
process, or as a research or storage facility primarily used in
connection with those processes.

(B) The value of any capitalized labor costs that are directly
allocable to the construction or modification of special purpose
buildings and foundations that are used primarily in the
manufacturing, processing, refining, fabricating, or recycling
process, or as a research or storage facility primarily used in
connection with those processes.

(C) (i) For purposes of this paragraph, “special purpose
building and foundation” means only a building and the foundation
immediately underlying the building that is specifically designed
and constructed or reconstructed for the installation, operation,
and use of specific machinery and equipment with a special
purpose, which machinery and equipment, after installation, will
become affixed to or a fixture of the real property, and the
construction or reconstruction of which is specifically designed
and used exclusively for the specified purposes as set forth in
subparagraph (A).

(ii) A building is specifically designed and constructed or
modified for a qualified purpose if it is not economical to design
and construct the building for the intended purpose and then use
the structure for a different purpose.

(iii) For purposes of clause (i) and clause (vi), a building is
used exclusively for a qualified purpose only if its use does not
include a use for which it was not specifically designed and
constructed or modified. Incidental use of a building for
nonqualified purposes does not preclude the building from being
a special purpose building. “Incidental use” means a use that is
both related and subordinate to the qualified purpose. It will be
conclusively presumed that a use is not subordinate if more than
one-third of the total usable volume of the building is devoted to
a use that is not a qualified purpose.

(iv) In the event an entire building does not qualify as a special
purpose building, a taxpayer may establish that a portion of a
building, and the foundation immediately underlying the portion,
qualifies for treatment as a special purpose building and
foundation if the portion satisfies all of the definitional provisions
in this subparagraph.

(v) To the extent that a building is not a special purpose building
as defined above, but a portion of the building qualifies for
treatment as a special purpose building, then all equipment that
exclusively supports the qualified purpose occurring within that
portion and that would qualify as Internal Revenue Code Section
1245 property if it were not a fixture or affixed to the building
shall be treated as a cost of the portion of the building that qualifies
for treatment as a special purpose building.

(vi) Buildings and foundations that do not meet the definition
of a special purpose building and foundation set forth above
include, but are not limited to: buildings designed and constructed
or reconstructed principally to function as a general purpose
manufacturing, industrial, or commercial building; research
facilities that are used primarily prior to or after, or prior to and
after, the manufacturing process; or storage facilities that are
used primarily prior to or after, or prior to and after, completion
of the manufacturing process.

(4) Subject to the provisions in paragraph (2) of subdivision
(b), qualified property also includes computer software that is
primarily used for those purposes set forth in paragraph (1) of
this subdivision.

(5) Qualified property does not include any of the following:

(A) Furniture.

(B) Facilities used for warehousing purposes after completion
of the manufacturing process.

(C) Inventory.

(D) Equipment used in the extraction process.

(E) Equipment used to store finished products that have
completed the manufacturing process.

(F) Any tangible personal property that is used in
administration, general management, or marketing.

(e) For purposes of this section:

(1) “Fabricating” means to make, build, create, produce, or
assemble components or property to work in a new or different
manner.

(2) “Manufacturing” means the activity of converting or
conditioning property by changing the form, composition, quality,
or character of the property for ultimate sale at retail or use in
the manufacturing of a product to be ultimately sold at retail.
Manufacturing includes any improvements to tangible personal
property that result in a greater service life or greater functionality
than that of the original property.

(3) “Primarily” means more than 50 percent.

(4) “Process” means the period beginning at the point at which
any raw materials are received by the qualified taxpayer and
introduced into that activity of the qualified taxpayer and ending
at the point at which the manufacturing, processing, refining,
fabricating, or recycling activity of the qualified taxpayer has
altered tangible personal property to its completed form, including
packaging, if required. Raw materials are considered to have been
introduced into the process when the raw materials are stored on
the same premises where the qualified taxpayer’s manufacturing,
processing, refining, fabricating, or recycling activity is conducted.
Raw materials that are stored on premises other than where the
qualified taxpayer’s manufacturing, processing, refining,
fabricating, or recycling activity is conducted, are not considered
to have been introduced into the manufacturing, processing,
refining, fabricating, or recycling process.

(5) “Processing” means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.

(6) “Refining” means the process of converting a natural
resource to an intermediate or finished product.

(7) “Research and development” means those activities that
are described in Section 174 of the Internal Revenue Code or in
any regulations thereunder.

(f) The credit allowed under subdivision (a) shall apply to
qualified property that is acquired by or subject to lease by a
qualified taxpayer, subject to the following special rules:

(1) A lessor of qualified property, irrespective of whether the
lessor is a qualified taxpayer, is not allowed the credit provided
under subdivision (a) with respect to any qualified property leased
to another qualified taxpayer.

(2) (A)   For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is not treated
as a sale under Part 1 (commencing with Section 6001), the
following rules apply:

(i) Except as provided by subparagraph (C) of this paragraph,
paragraphs (1) and (3) of subdivision (b) do not apply.

(ii) Except as provided in subparagraph (B) and clause (iii),
the “qualified cost” upon which the lessee shall compute the credit
provided under this section shall be equal to the original cost to
the lessor (within the meaning of Section 18031) of the qualified
property that is the subject of the lease.

(iii) The requirement of paragraph (2) of subdivision (b) shall
be treated as satisfied only if the lessor has made a timely election
under either Section 6094.1 or subdivision (d) of Section 6244 and
has paid sales tax reimbursement or use tax measured by the
purchase price of the qualified property (within the meaning of
paragraph (5) of subdivision (g) of Section 6006). For purposes
of this subdivision, the amount of original cost to the lessor that
may be taken into account under clause (ii) may not exceed the
purchase price upon which sales tax reimbursement or use tax has
been paid under the preceding sentence.

(B) For purposes of applying subparagraph (A) only, the
following special rules shall apply:

(i) The original cost to the lessor of the qualified property shall
be reduced by the amount of any original cost of that property that
was taken into account by any predecessor lessee in computing
the credit allowable under this section.

(ii) Clause (i) does not apply in any case where the predecessor
lessee was required to recapture the credit provided under this
section pursuant to subdivision (g).

(iii) For purposes of this section only, in any case where a
successor lessor has acquired qualified property from a
predecessor lessor in a transaction not treated as a sale under
Part 1 (commencing with Section 6001), the original cost to the
successor lessor of the qualified property shall be reduced by the
amount of the original cost of the qualified property that was taken
into account by any lessee of the predecessor lessor in computing
the credit allowable under this section.

(C) In determining the original cost of any qualified property
under this paragraph, only amounts paid or incurred by the lessor
on or after January 1, 2015, shall be taken into account.

(D) Notwithstanding subparagraph (A), in the case of any
leasing transaction for which the lessee is allowed the credit under
this section and thereafter the lessee (or any party related to the
lessee within the meaning of Section 267 or 318 of the Internal
Revenue Code) acquires the qualified property from the lessor (or
any successor lessor) within one year from the date the qualified
property is first used by the lessee under the terms of the lease,
the lessee’s (or related party’s) acquisition of the qualified property
from the lessor (or successor lessor) shall be treated as a
disposition by the lessee of the qualified property that was subject
to the lease under subdivision (g).

(3) For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is treated as
a sale under Part 1 (commencing with Section 6001), the following
rules apply:

(A) Paragraph (1) of subdivision (b) is applied by substituting
the term “purchase” for the term “construction, reconstruction,
or acquisition.”

(B) Paragraph (3) of subdivision (b) applies.

(C) The requirement of paragraph (2) of subdivision (b) are
treated as satisfied at the time that either the lessor or the qualified
taxpayer pays sales tax reimbursement or use tax under Part 1
(commencing with Section 6001).

(4) (A)   In the case of any leasing transaction described in
paragraph (2), the lessor shall provide a statement to the lessee
specifying the amount of the lessor’s original cost of the qualified
property and the amount of that cost upon which a sales or use
tax was paid within 45 days after the close of the lessee’s taxable
year in which the credit is allowable to the lessee under this
section.

(B) The statement required under subparagraph (A) shall be
made available to the Franchise Tax Board upon request.

(g) A credit is not allowed if the qualified property is removed
from the state, is disposed of to an unrelated party, or is used for
any purpose not qualifying for the credit provided in this section
in the same taxable year in which the qualified property is first
placed in service in this state. If any qualified property for which
a credit is allowed pursuant to this section is thereafter removed
from this state, disposed of to an unrelated party, or used for any
purpose not qualifying for the credit provided in this section within
one year from the date the qualified property is first placed in
service in this state, the amount of the credit allowed by this section
for that qualified property shall be recaptured by adding that credit
amount to the net tax of the qualified taxpayer for the taxable year
in which the qualified property is disposed of, removed, or put to
an ineligible use.

(h) In the case where the credit allowed by this section exceeds
the “net tax,” the excess may be carried over to reduce the “net
tax” in the following year, and the seven succeeding years if
necessary, until the credit is exhausted.

(i) This credit shall be in lieu of any other credit or deduction
that the qualified taxpayer may otherwise be allowed pursuant to
this part.

end insert

begin insert

begin insert SEC. 7. end insert   

end insert

begin insert Section 17053.36 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 17053.36. end insert   

(a) For taxable years beginning January 1, 2015,
and before January 1, 2025, there shall be allowed as a credit
against the “net tax,” as defined in Section 17039, an amount
equal to 25 percent of the charges for electricity paid or incurred
by a qualified taxpayer during the taxable year.

(b) (1) For purposes of this section, “qualified taxpayer” means
any taxpayer that is an aerospace manufacturer or related business
operating within an Aerospace Innovation Hub.

(2) For the purposes of this subdivision, “Aerospace Innovation
Hub,” “aerospace manufacturer,” and “related business” have
the same meanings as defined in subdivisions (a), (b), and (c),
respectively, of Section 12099.8 of the Government Code.

(c) If the credit allowed by this section exceeds the “net tax,”
the excess may be carried over to reduce the “net tax” in the
following year, and the succeeding seven years if necessary, until
the credit is exhausted.

(d) This credit shall be in lieu of any other credit or deduction
that the qualified taxpayer may otherwise be allowed pursuant to
this part.

end insert

begin insert

begin insert SEC. 8. end insert   

end insert

begin insert Section 17059.2 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

17059.2.  

(a) (1) For each taxable year beginning on and after
January 1, 2014, and before January 1, 2025, there shall be allowed
as a credit against the “net tax,” as defined in Section 17039, an
amount as determined by the committee pursuant to paragraph (2)
and approved pursuant to Section 18410.2.

(2) The credit under this section shall be allocated by GO-Biz
with respect to the 2013-14 fiscal year through and including the
2017-18 fiscal year. The amount of credit allocated to a taxpayer
with respect to a fiscal year pursuant to this section shall be as set
forth in a written agreement between GO-Biz and the taxpayer and
shall be based on the following factors:

(A) The number of jobs the taxpayer will create or retain in this
state.

(B) The compensation paid or proposed to be paid by the
taxpayer to its employees, including wages and fringe benefits.

(C) The amount of investment in this state by the taxpayer.

(D) The extent of unemployment or poverty in the area
according to the United States Census in which the taxpayer’s
project or business is proposed or located.

(E) The incentives available to the taxpayer in this state,
including incentives from the state, local government, and other
entities.

(F) The incentives available to the taxpayer in other states.

(G) The duration of the proposed project and the duration the
taxpayer commits to remain in this state.

(H) The overall economic impact in this state of the taxpayer’s
project or business.

(I) The strategic importance of the taxpayer’s project or business
to the state, region, or locality.

(J) The opportunity for future growth and expansion in this state
by the taxpayer’s business.

(K) The extent to which the anticipated benefit to the state
exceeds the projected benefit to the taxpayer from the tax credit.

begin insert

(L) (i) Whether the taxpayer is an aerospace manufacturer or
related business operating within an Aerospace Innovation Hub.

end insert begin insert

(ii) For the purposes of this subparagraph, “Aerospace
Innovation Hub,” “aerospace manufacturer,” and “related
business” have the same meanings as defined in subdivisions (a),
(b), and (c), respectively, of Section 12099.8 of the Government
Code.

end insert

(3) The written agreement entered into pursuant to paragraph
(2) shall include:

(A) Terms and conditions that include the taxable year or years
for which the credit allocated shall be allowed, a minimum
compensation level, and a minimum job retention period.

(B) Provisions indicating whether the credit is to be allocated
in full upon approval or in increments based on mutually agreed
upon milestones when satisfactorily met by the taxpayer.

(C) Provisions that allow the committee to recapture the credit,
in whole or in part, if the taxpayer fails to fulfill the terms and
conditions of the written agreement.

(b) For purposes of this section:

(1) “Committee” means the California Competes Tax Credit
Committee established pursuant to Section 18410.2.

(2) “GO-Biz” means the Governor’s Office of Business and
Economic Development.

(c) For purposes of this section, GO-Biz shall do the following:

(1) Give priority to a taxpayer whose project or business is
located or proposed to be located in an area of high unemployment
or poverty.

(2) Negotiate with a taxpayer the terms and conditions of
proposed written agreements that provide the credit allowed
pursuant to this section to a taxpayer.

(3) Provide the negotiated written agreement to the committee
for its approval pursuant to Section 18410.2.

(4) Inform the Franchise Tax Board of the terms and conditions
of the written agreement upon approval of the written agreement
by the committee.

(5) Inform the Franchise Tax Board of any recapture, in whole
or in part, of a previously allocated credit upon approval of the
recapture by the committee.

(6) Post on its Internet Web site all of the following:

(A) The name of each taxpayer allocated a credit pursuant to
this section.

(B) The estimated amount of the investment by each taxpayer.

(C) The estimated number of jobs created or retained.

(D) The amount of the credit allocated to the taxpayer.

(E) The amount of the credit recaptured from the taxpayer, if
applicable.

(d) For purposes of this section, the Franchise Tax Board shall
do all of the following:

(1) (A) Except as provided in subparagraph (B), review the
books and records of all taxpayers allocated a credit pursuant to
this section to ensure compliance with the terms and conditions
of the written agreement between the taxpayer and GO-Biz.

(B) In the case of a taxpayer that is a “small business,” as
defined in Section 17053.73, review the books and records of the
taxpayer allocated a credit pursuant to this section to ensure
compliance with the terms and conditions of the written agreement
between the taxpayer and GO-Biz when, in the sole discretion of
the Franchise Tax Board, a review of those books and records is
appropriate or necessary in the best interests of the state.

(2) Notwithstanding Section 19542:

(A) Notify GO-Biz of a possible breach of the written agreement
by a taxpayer and provide detailed information regarding the basis
for that determination.

(B) Provide information to GO-Biz with respect to whether a
taxpayer is a “small business,” as defined in Section 17053.73.

(e) In the case where the credit allowed under this section
exceeds the “net tax,” as defined in Section 17039, for a taxable
year, the excess credit may be carried over to reduce the “net tax”
in the following taxable year, and succeeding five taxable years,
if necessary, until the credit has been exhausted.

(f) Any recapture, in whole or in part, of a credit approved by
the committee pursuant to Section 18410.2 shall be treated as a
mathematical error appearing on the return. Any amount of tax
resulting from that recapture shall be assessed by the Franchise
Tax Board in the same manner as provided by Section 19051. The
amount of tax resulting from the recapture shall be added to the
tax otherwise due by the taxpayer for the taxable year in which
the committee’s recapture determination occurred.

(g) (1) The aggregate amount of credit that may be allocated
in any fiscal year pursuant to this section and Section 23689 shall
be an amount equal to the sum of subparagraphs (A), (B), and (C),
less the amount specified in subparagraph (D):

(A) Thirty million dollars ($30,000,000) for the 2013-14 fiscal
year, one hundred fifty million dollars ($150,000,000) for the
2014-15 fiscal year, and two hundred million dollars
($200,000,000) for each fiscal year from 2015-16 to 2017-18,
inclusive.

(B) The unallocated credit amount, if any, from the preceding
fiscal year.

(C) The amount of any previously allocated credits that have
been recaptured.

(D) The amount estimated by the Director of Finance, in
consultation with the Franchise Tax Board and the State Board of
Equalization, to be necessary to limit the aggregation of the
estimated amount of exemptions claimed pursuant to Section
6377.1 and of the amounts estimated to be claimed pursuant to
this section and Sections 17053.73, 23626, and 23689 to no more
than seven hundred fifty million dollars ($750,000,000) for either
the current fiscal year or the next fiscal year.

(i) The Director of Finance shall notify the Chairperson of the
Joint Legislative Budget Committee of the estimated annual
allocation authorized by this paragraph. Any allocation pursuant
to these provisions shall be made no sooner than 30 days after
written notification has been provided to the Chairperson of the
Joint Legislative Budget Committee and the chairpersons of the
committees of each house of the Legislature that consider
appropriation, or not sooner than whatever lesser time the
Chairperson of the Joint Legislative Budget Committee, or his or
her designee, may determine.

(ii) In no event shall the amount estimated in this subparagraph
be less than zero dollars ($0).

(2) Each fiscal year, 25 percent of the aggregate amount of the
credit that may be allocated pursuant to this section and Section
23689 shall be reserved for small business, as defined in Section
17053.73 or 23626.

(3) Each fiscal year, no more than 20 percent of the aggregate
amount of the credit that may be allocated pursuant to this section
shall be allocated to any one taxpayer.

(h) GO-Biz may prescribe rules and regulations as necessary to
carry out the purposes of this section. Any rule or regulation
prescribed pursuant to this section may be by adoption of an
emergency regulation in accordance with Chapter 3.5 (commencing
with Section 11340) of Part 1 of Division 3 of Title 2 of the
Government Code.

(i) A written agreement between GO-Biz and a taxpayer with
respect to the credit authorized by this section shall comply with
existing law on the date the agreement is executed.

(j) (1) Upon the effective date of this section, the Department
of Finance shall estimate the total dollar amount of credits that
will be claimed under this section with respect to each fiscal year
from the 2013-14 fiscal year to the 2024-25 fiscal year, inclusive.

(2) The Franchise Tax Board shall annually provide to the Joint
Legislative Budget Committee, by no later than March 1, a report
of the total dollar amount of the credits claimed under this section
with respect to the relevant fiscal year. The report shall compare
the total dollar amount of credits claimed under this section with
respect to that fiscal year with the department’s estimate with
respect to that same fiscal year. If the total dollar amount of credits
claimed for the fiscal year is less than the estimate for that fiscal
year, the report shall identify options for increasing annual claims
of the credit so as to meet estimated amounts.

(k) This section is repealed on December 1, 2025.

begin insert

begin insert SEC. 9. end insert   

end insert

begin insert Section 23635 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 23635. end insert   

(a) For taxable years beginning on or after January
1, 2015, and before January 1, 2025, a qualified taxpayer shall
be allowed a credit against the “tax,” as defined in Section 23036,
an amount equal to 10 percent of the qualified cost of qualified
property that is placed in service in this state during the taxable
year.

(b) For purposes of this section, “qualified cost” means any
cost that satisfies each of the following conditions:

(1) Is a cost paid or incurred by the qualified taxpayer for the
construction, reconstruction, or acquisition of qualified property
during the taxable year.

(2) Except as provided in paragraph (2) of subdivision (d) and
subparagraph (B) of paragraph (3) of subdivision (d), is an amount
upon which the qualified taxpayer has paid, directly or indirectly,
as a separately stated contract amount or as determined from the
records of the qualified taxpayer, sales tax reimbursement or use
tax under Part 1 (commencing with Section 6001).

(3) Is an amount properly chargeable to the capital account of
the qualified taxpayer.

(c) (1) (A) For purposes of this section, “qualified taxpayer”
means any taxpayer that is an aerospace manufacturer or related
business operating within an Aerospace Innovation Hub.

(B) For the purposes of this subdivision, “Aerospace Innovation
Hub,” “aerospace manufacturer,” and “related business” have
the same meanings as defined in subdivisions (a), (b), and (c),
respectively, of Section 12099.8 of the Government Code.

(2) “Qualified taxpayer” does not include a taxpayer whose
acquisition of tangible personal property is subject to the
exemption provided by Section 6377.1.

(3) In the case of any pass thru entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section or
Section 23649 shall be allowed to the pass thru entity and passed
through to the partners or shareholders in accordance with
applicable provisions of Part 10 (commencing with Section 17001)
or Part 11 (commencing with Section 23001). For purposes of this
paragraph, the term “pass thru entity” means any partnership or
“S” corporation.

(4) The Franchise Tax Board may prescribe regulations to carry
out the purposes of this section, including any regulations
necessary to prevent the avoidance of the effect of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, sale-leaseback transactions, or otherwise.

(d) For purposes of this section, “qualified property” means
property that is described as any of the following:

(1) Tangible personal property that is defined in Section 1245(a)
of the Internal Revenue Code that is primarily used for any of the
following:

(A) For the manufacturing, processing, refining, fabricating,
or recycling of property, beginning at the point at which any raw
materials are received by the qualified taxpayer and introduced
into the process and ending at the point at which the
manufacturing, processing, refining, fabricating, or recycling has
altered tangible personal property to its completed form, including
packaging, if required.

(B) In research and development.

(C) To maintain, repair, measure, or test any property described
in this paragraph.

(D) For pollution control that meets or exceeds standards
established by the state or by any local or regional governmental
agency within the state.

(E) For recycling.

(2) The value of any capitalized labor costs that are directly
allocable to the construction or modification of property described
in paragraph (1).

(3) (A) Special purpose buildings and foundations that are
constructed or modified for use by the qualified taxpayer primarily
in a manufacturing, processing, refining, fabricating, or recycling
process, or as a research or storage facility primarily used in
connection with those processes.

(B) The value of any capitalized labor costs that are directly
allocable to the construction or modification of special purpose
buildings and foundations that are used primarily in the
manufacturing, processing, refining, fabricating, or recycling
process, or as a research or storage facility primarily used in
connection with those processes.

(C) (i) For purposes of this paragraph, “special purpose
building and foundation” means only a building and the foundation
immediately underlying the building that is specifically designed
and constructed or reconstructed for the installation, operation,
and use of specific machinery and equipment with a special
purpose, which machinery and equipment, after installation, will
become affixed to or a fixture of the real property, and the
construction or reconstruction of which is specifically designed
and used exclusively for the specified purposes as set forth in
subparagraph (A).

(ii) A building is specifically designed and constructed or
modified for a qualified purpose if it is not economical to design
and construct the building for the intended purpose and then use
the structure for a different purpose.

(iii) For purposes of clause (i) and clause (vi), a building is
used exclusively for a qualified purpose only if its use does not
include a use for which it was not specifically designed and
constructed or modified. Incidental use of a building for
nonqualified purposes does not preclude the building from being
a special purpose building. “Incidental use” means a use that is
both related and subordinate to the qualified purpose. It will be
conclusively presumed that a use is not subordinate if more than
one-third of the total usable volume of the building is devoted to
a use that is not a qualified purpose.

(iv) In the event an entire building does not qualify as a special
purpose building, a taxpayer may establish that a portion of a
building, and the foundation immediately underlying the portion,
qualifies for treatment as a special purpose building and
foundation if the portion satisfies all of the definitional provisions
in this subparagraph.

(v) To the extent that a building is not a special purpose building
as defined above, but a portion of the building qualifies for
treatment as a special purpose building, then all equipment that
exclusively supports the qualified purpose occurring within that
portion and that would qualify as Internal Revenue Code Section
1245 property if it were not a fixture or affixed to the building
shall be treated as a cost of the portion of the building that qualifies
for treatment as a special purpose building.

(vi) Buildings and foundations that do not meet the definition
of a special purpose building and foundation set forth above
include, but are not limited to: buildings designed and constructed
or reconstructed principally to function as a general purpose
manufacturing, industrial, or commercial building; research
facilities that are used primarily prior to or after, or prior to and
after, the manufacturing process; or storage facilities that are
used primarily prior to or after, or prior to and after, completion
of the manufacturing process.

(4) Subject to the provisions in paragraph (2) of subdivision
(b), qualified property also includes computer software that is
primarily used for those purposes set forth in paragraph (1) of
this subdivision.

(5) Qualified property does not include any of the following:

(A) Furniture.

(B) Facilities used for warehousing purposes after completion
of the manufacturing process.

(C) Inventory.

(D) Equipment used in the extraction process.

(E) Equipment used to store finished products that have
completed the manufacturing process.

(F) Any tangible personal property that is used in
administration, general management, or marketing.

(e) For purposes of this section:

(1) “Fabricating” means to make, build, create, produce, or
assemble components or property to work in a new or different
manner.

(2) “Manufacturing” means the activity of converting or
conditioning property by changing the form, composition, quality,
or character of the property for ultimate sale at retail or use in
the manufacturing of a product to be ultimately sold at retail.
Manufacturing includes any improvements to tangible personal
property that result in a greater service life or greater functionality
than that of the original property.

(3) “Primarily” means more than 50 percent.

(4) “Process” means the period beginning at the point at which
any raw materials are received by the qualified taxpayer and
introduced into that activity of the qualified taxpayer and ending
at the point at which the manufacturing, processing, refining,
fabricating, or recycling activity of the qualified taxpayer has
altered tangible personal property to its completed form, including
packaging, if required. Raw materials are considered to have been
introduced into the process when the raw materials are stored on
the same premises where the qualified taxpayer’s manufacturing,
processing, refining, fabricating, or recycling activity is conducted.
Raw materials that are stored on premises other than where the
qualified taxpayer’s manufacturing, processing, refining,
fabricating, or recycling activity is conducted, are not considered
to have been introduced into the manufacturing, processing,
refining, fabricating, or recycling process.

(5) “Processing” means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.

(6) “Refining” means the process of converting a natural
resource to an intermediate or finished product.

(7) “Research and development” means those activities that
are described in Section 174 of the Internal Revenue Code or in
any regulations thereunder.

(f) The credit allowed under subdivision (a) shall apply to
qualified property that is acquired by or subject to lease by a
qualified taxpayer, subject to the following special rules:

(1) A lessor of qualified property, irrespective of whether the
lessor is a qualified taxpayer, is not allowed the credit provided
under subdivision (a) with respect to any qualified property leased
to another qualified taxpayer.

(2) (A)   For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is not treated
as a sale under Part 1 (commencing with Section 6001), the
following rules apply:

(i) Except as provided by subparagraph (C) of this paragraph,
paragraphs (1) and (3) of subdivision (b) do not apply.

(ii) Except as provided in subparagraph (B) and clause (iii),
the “qualified cost” upon which the lessee shall compute the credit
provided under this section shall be equal to the original cost to
the lessor (within the meaning of Section 18031) of the qualified
property that is the subject of the lease.

(iii) The requirement of paragraph (2) of subdivision (b) shall
be treated as satisfied only if the lessor has made a timely election
under either Section 6094.1 or subdivision (d) of Section 6244 and
has paid sales tax reimbursement or use tax measured by the
purchase price of the qualified property (within the meaning of
paragraph (5) of subdivision (g) of Section 6006). For purposes
of this subdivision, the amount of original cost to the lessor that
may be taken into account under clause (ii) may not exceed the
purchase price upon which sales tax reimbursement or use tax has
been paid under the preceding sentence.

(B) For purposes of applying subparagraph (A) only, the
following special rules shall apply:

(i) The original cost to the lessor of the qualified property shall
be reduced by the amount of any original cost of that property that
was taken into account by any predecessor lessee in computing
the credit allowable under this section.

(ii) Clause (i) does not apply in any case where the predecessor
lessee was required to recapture the credit provided under this
section pursuant to subdivision (g).

(iii) For purposes of this section only, in any case where a
successor lessor has acquired qualified property from a
predecessor lessor in a transaction not treated as a sale under
Part 1 (commencing with Section 6001), the original cost to the
successor lessor of the qualified property shall be reduced by the
amount of the original cost of the qualified property that was taken
into account by any lessee of the predecessor lessor in computing
the credit allowable under this section.

(C) In determining the original cost of any qualified property
under this paragraph, only amounts paid or incurred by the lessor
on or after January 1, 2015, shall be taken into account.

(D) Notwithstanding subparagraph (A), in the case of any
leasing transaction for which the lessee is allowed the credit under
this section and thereafter the lessee (or any party related to the
lessee within the meaning of Section 267 or 318 of the Internal
Revenue Code) acquires the qualified property from the lessor (or
any successor lessor) within one year from the date the qualified
property is first used by the lessee under the terms of the lease,
the lessee’s (or related party’s) acquisition of the qualified property
from the lessor (or successor lessor) shall be treated as a
disposition by the lessee of the qualified property that was subject
to the lease under subdivision (g).

(3) For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is treated as
a sale under Part 1 (commencing with Section 6001), the following
rules apply:

(A) Paragraph (1) of subdivision (b) is applied by substituting
the term “purchase” for the term “construction, reconstruction,
or acquisition.”

(B) Paragraph (3) of subdivision (b) applies.

(C) The requirement of paragraph (2) of subdivision (b) are
treated as satisfied at the time that either the lessor or the qualified
taxpayer pays sales tax reimbursement or use tax under Part 1
(commencing with Section 6001).

(4) (A)   In the case of any leasing transaction described in
paragraph (2), the lessor shall provide a statement to the lessee
specifying the amount of the lessor’s original cost of the qualified
property and the amount of that cost upon which a sales or use
tax was paid within 45 days after the close of the lessee’s taxable
year in which the credit is allowable to the lessee under this
section.

(B) The statement required under subparagraph (A) shall be
made available to the Franchise Tax Board upon request.

(g) A credit is not allowed if the qualified property is removed
from the state, is disposed of to an unrelated party, or is used for
any purpose not qualifying for the credit provided in this section
in the same taxable year in which the qualified property is first
placed in service in this state. If any qualified property for which
a credit is allowed pursuant to this section is thereafter removed
from this state, disposed of to an unrelated party, or used for any
purpose not qualifying for the credit provided in this section within
one year from the date the qualified property is first placed in
service in this state, the amount of the credit allowed by this section
for that qualified property shall be recaptured by adding that credit
amount to the net tax of the qualified taxpayer for the taxable year
in which the qualified property is disposed of, removed, or put to
an ineligible use.

(h) In the case where the credit allowed by this section exceeds
the “tax,” the excess may be carried over to reduce the “tax” in
the following year, and the seven succeeding years if necessary,
until the credit is exhausted.

(i) This credit shall be in lieu of any other credit or deduction
that the qualified taxpayer may otherwise be allowed pursuant to
this part.

end insert

begin insert

begin insert SEC. 10. end insert   

end insert

begin insert Section 23636 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 23636. end insert   

(a) For taxable years beginning January 1, 2015, and
before January 1, 2025, there shall be allowed as a credit against
the “tax,” as defined in Section 23036, an amount equal to 25
percent of the charges for electricity paid or incurred by a qualified
taxpayer during the taxable year.

(b) (1) For purposes of this section, “qualified taxpayer” means
any taxpayer that is an aerospace manufacturer or related business
operating within an Aerospace Innovation Hub.

(2) For the purposes of this subdivision, “Aerospace Innovation
Hub,” “aerospace manufacturer,” and “related business” have
the same meanings as defined in subdivisions (a), (b), and (c),
respectively, of Section 12099.8 of the Government Code.

(c) If the credit allowed by this section exceeds the “tax,” the
excess may be carried over to reduce the “tax” in the following
year, and the succeeding seven years if necessary, until the credit
is exhausted.

(d) This credit shall be in lieu of any other credit or deduction
that the qualified taxpayer may otherwise be allowed pursuant to
this part.

end insert

begin insert

begin insert SEC. 11. end insert   

end insert

begin insert Section 23689 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

23689.  

(a) (1) For each taxable year beginning on and after
January 1, 2014, and before January 1, 2025, there shall be allowed
as a credit against the “tax,” as defined in Section 23036, an amount
as determined by the committee pursuant to paragraph (2) and
approved pursuant to Section 18410.2.

(2) The credit under this section shall be allocated by GO-Biz
with respect to the 2013-14 fiscal year through and including the
2017-18 fiscal year. The amount of credit allocated to a taxpayer
with respect to a fiscal year pursuant to this section shall be as set
forth in a written agreement between GO-Biz and the taxpayer and
shall be based on the following factors:

(A) The number of jobs the taxpayer will create or retain in this
state.

(B) The compensation paid or proposed to be paid by the
taxpayer to its employees, including wages and fringe benefits.

(C) The amount of investment in this state by the taxpayer.

(D) The extent of unemployment or poverty in the area
according to the United States Census in which the taxpayer’s
project or business is proposed or located.

(E) The incentives available to the taxpayer in the state,
including incentives from the state, local government and other
entities.

(F) The incentives available to the taxpayer in other states.

(G) The duration of the proposed project and the duration the
taxpayer commits to remain in this state.

(H) The overall economic impact in this state of the taxpayer’s
project or business.

(I) The strategic importance of the taxpayer’s project or business
to the state, region, or locality.

(J) The opportunity for future growth and expansion in this state
by the taxpayer’s business.

(K) The extent to which the anticipated benefit to the state
exceeds the projected benefit to the taxpayer from the tax credit.

begin insert

(L) (i) Whether the taxpayer is an aerospace manufacturer or
related business operating within an Aerospace Innovation Hub.

end insert begin insert

(ii) For the purposes of this subparagraph, “Aerospace
Innovation Hub,” “aerospace manufacturer,” and “related
business” have the same meanings as defined in subdivisions (a),
(b), and (c), respectively, of Section 12099.8 of the Government
Code.

end insert

(3) The written agreement entered into pursuant to paragraph
(2) shall include:

(A) Terms and conditions that include the taxable year or years
for which the credit allocated shall be allowed, a minimum
compensation level, and a minimum job retention period.

(B) Provisions indicating whether the credit is to be allocated
in full upon approval or in increments based on mutually agreed
upon milestones when satisfactorily met by the taxpayer.

(C) Provisions that allow the committee to recapture the credit,
in whole or in part, if the taxpayer fails to fulfill the terms and
conditions of the written agreement.

(b) For purposes of this section:

(1) “Committee” means the California Competes Tax Credit
Committee established pursuant to Section 18410.2.

(2) “GO-Biz” means the Governor’s Office of Business and
Economic Development.

(c) For purposes of this section, GO-Biz shall do the following:

(1) Give priority to a taxpayer whose project or business is
located or proposed to be located in an area of high unemployment
or poverty.

(2) Negotiate with a taxpayer the terms and conditions of
proposed written agreements that provide the credit allowed
pursuant to this section to a taxpayer.

(3) Provide the negotiated written agreement to the committee
for its approval pursuant to Section 18410.2.

(4) Inform the Franchise Tax Board of the terms and conditions
of the written agreement upon approval of the written agreement
by the committee.

(5) Inform the Franchise Tax Board of any recapture, in whole
or in part, of a previously allocated credit upon approval of the
recapture by the committee.

(6) Post on its Internet Web site all of the following:

(A) The name of each taxpayer allocated a credit pursuant to
this section.

(B) The estimated amount of the investment by each taxpayer.

(C) The estimated number of jobs created or retained.

(D) The amount of the credit allocated to the taxpayer.

(E) The amount of the credit recaptured from the taxpayer, if
applicable.

(d) For purposes of this section, the Franchise Tax Board shall
do all of the following:

(1) (A) Except as provided in subparagraph (B), review the
books and records of all taxpayers allocated a credit pursuant to
this section to ensure compliance with the terms and conditions
of the written agreement between the taxpayer and GO-Biz.

(B) In the case of a taxpayer that is a “small business,” as
defined in Section 23626, review the books and records of the
taxpayer allocated a credit pursuant to this section to ensure
compliance with the terms and conditions of the written agreement
between the taxpayers and GO-Biz when, in the sole discretion of
the Franchise Tax Board, a review of those books and records is
appropriate or necessary in the best interests of the state.

(2) Notwithstanding Section 19542:

(A) Notify GO-Biz of a possible breach of the written agreement
by a taxpayer and provide detailed information regarding the basis
for that determination.

(B) Provide information to GO-Biz with respect to whether a
taxpayer is a “small business,” as defined in Section 23626.

(e) In the case where the credit allowed under this section
exceeds the “tax,” as defined in Section 23036, for a taxable year,
the excess credit may be carried over to reduce the “tax” in the
following taxable year, and succeeding five taxable years, if
necessary, until the credit has been exhausted.

(f) Any recapture, in whole or in part, of a credit approved by
the committee pursuant to Section 18410.2 shall be treated as a
mathematical error appearing on the return. Any amount of tax
resulting from that recapture shall be assessed by the Franchise
Tax Board in the same manner as provided by Section 19051. The
amount of tax resulting from the recapture shall be added to the
tax otherwise due by the taxpayer for the taxable year in which
the committee’s recapture determination occurred.

(g) (1) The aggregate amount of credit that may be allocated
in any fiscal year pursuant to this section and Section 17059.2 shall
be an amount equal to the sum of subparagraphs (A), (B), and (C),
less the amount specified in subparagraph (D):

(A) Thirty million dollars ($30,000,000) for the 2013-14 fiscal
year, one hundred fifty million dollars ($150,000,000) for the
2014-15 fiscal year, and two hundred million dollars
($200,000,000) for each fiscal year from 2015-16 to 2017-18,
inclusive.

(B) The unallocated credit amount, if any, from the preceding
fiscal year.

(C) The amount of any previously allocated credits that have
been recaptured.

(D) The amount estimated by the Director of Finance, in
consultation with the Franchise Tax Board and the State Board of
Equalization, to be necessary to limit the aggregation of the
estimated amount of exemptions claimed pursuant to Section
6377.1 and of the amounts estimated to be claimed pursuant to
this section and Sections 17053.73, 17059.2, and 23626 to no more
than seven hundred fifty million dollars ($750,000,000) for either
the current fiscal year or the next fiscal year.

(i) The Director of Finance shall notify the Chairperson of the
Joint Legislative Budget Committee of the estimated annual
allocation authorized by this paragraph. Any allocation pursuant
to these provisions shall be made no sooner than 30 days after
written notification has been provided to the Chairperson of the
Joint Legislative Budget Committee and the chairpersons of the
committees of each house of the Legislature that consider
appropriation, or not sooner than whatever lesser time the
Chairperson of the Joint Legislative Budget Committee, or his or
her designee, may determine.

(ii) In no event shall the amount estimated in this subparagraph
be less than zero dollars ($0).

(2) Each fiscal year, 25 percent of the aggregate amount of the
credit that may be allocated pursuant to this section and Section
17059.2 shall be reserved for “small business,” as defined in
Section 17053.73 or 23626.

(3) Each fiscal year, no more than 20 percent of the aggregate
amount of the credit that shall be allocated pursuant to this section
may be allocated to any one taxpayer.

(h) GO-Biz may prescribe rules and regulations as necessary to
carry out the purposes of this section. Any rule or regulation
prescribed pursuant to this section may be by adoption of an
emergency regulation in accordance with Chapter 3.5 (commencing
with Section 11340) of Part 1 of Division 3 of Title 2 of the
Government Code.

(i) (1) A written agreement between GO-Biz and a taxpayer
with respect to the credit authorized by this section shall not
restrict, broaden, or otherwise alter the ability of the taxpayer to
assign that credit or any portion thereof in accordance with Section
23663.

(2) A written agreement between GO-Biz and a taxpayer with
respect to the credit authorized by this section must comply with
existing law on the date the agreement is executed.

(j) (1) Upon the effective date of this section, the Department
of Finance shall estimate the total dollar amount of credits that
will be claimed under this section with respect to each fiscal year
from the 2013-14 fiscal year to the 2024-25 fiscal year, inclusive.

(2) The Franchise Tax Board shall annually provide to the Joint
Legislative Budget Committee, by no later than March 1, a report
of the total dollar amount of the credits claimed under this section
with respect to the relevant fiscal year. The report shall compare
the total dollar amount of credits claimed under this section with
respect to that fiscal year with the department’s estimate with
respect to that same fiscal year. If the total dollar amount of credits
claimed for the fiscal year is less than the estimate for that fiscal
year, the report shall identify options for increasing annual claims
of the credit so as to meet estimated amounts.

(k) This section is repealed on December 1, 2025.

begin insert

begin insert SEC. 12. end insert   

end insert

begin insert Section 10215.2 is added to the end insert begin insert Unemployment
Insurance Code end insert begin insert , to read: end insert

begin insert

begin insert 10215.2. end insert   

(a) Upon appropriation by the Legislature, the panel
shall reimburse an employer that is an aerospace manufacturer
or related business operating within an Aerospace Innovation Hub
for its reasonable costs of workforce training.

(b) The aerospace manufacturer or related business shall apply
for reimbursement in such form and providing such information
as may be required by the panel.

(c) For the purposes of this section, “Aerospace Innovation
Hub,” “aerospace manufacturer,” and “related business” have
the same meanings as defined in subdivisions (a), (b), and (c),
respectively, of Section 12099.8 of the Government Code.

end insert

begin insert

begin insert SEC. 13. end insert   

end insert begin insert

No reimbursement is required by this act pursuant
to Section 6 of Article XIII B of the California Constitution because
a local agency or school district has the authority to levy service
charges, fees, or assessments sufficient to pay for the program or
level of service mandated by this act, within the meaning of Section
17556 of the Government Code.

end insert

begin delete

SECTION 1.  

It is the intent of the Legislature to enact legislation
to create the California Aerospace Innovation Hub Act of 2014 to
improve the ability of the state to retain and attract aerospace
businesses and the high-wage, middle-class jobs that these
businesses provide. It is the intent of the Legislature to enact
legislation that would create geographically based aerospace hubs
around existing aerospace manufacturing clusters, and that within
the aerospace hubs aerospace manufacturers and related businesses
would benefit from special tax preferences, streamlined regulations,
and work schedule flexibility.

end delete