Amended in Senate April 1, 2014

Senate Bill No. 1372

Introduced by Senators DeSaulnier and Hancock

February 21, 2014

An act to amend Section begin delete 17151 end delete begin insert 23151 end insert of the Revenue and Taxation Code, relating to taxation begin insert , to take effect immediately, tax levy end insert .

LEGISLATIVE COUNSEL’S DIGEST

SB 1372, as amended, DeSaulnier. begin delete Personal income tax: educational assistance credit. end delete begin insert Corporation taxes: tax rates: publicly held corporations. end insert

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The Corporation Tax Law imposes taxes according to or measured by net income at a rate of 8.84%, or for financial institutions, at a rate of 10.84%, as specified.

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This bill would, for taxable years beginning on and after January 1, 2015, revise that rate for taxpayers that are publicly held corporations, as defined, and instead impose an applicable tax rate from 7% to 13%, or for financial institutions, from 9% to 15%, based on the compensation ratio, as defined, of the corporation. This bill would increase the applicable tax rate by 50% for those taxpayers that have a specified decrease in full-time employees employed in the United States as compared to an increase in contracted and foreign full-time employees, as described.

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This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2⁄3 of the membership of each house of the Legislature.

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This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.

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The Personal Income Tax Law provides for an exclusion from the gross income of an employee for amounts paid or incurred by an employer for educational assistance to the employee, as specified, up to $5,250 during a calendar year.

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This bill would make technical, nonsubstantive changes to these provisions.

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Vote:  begin delete majority end delete begin insert ²⁄₃ end insert . Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program: no.

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 Section 23151 of the end insert begin insert Revenue and Taxation Code end insert
begin insert is amended to read: end insert

23151.  

(a) With the exception of banks and financial
corporations, every corporation doing business within the limits
of this state and not expressly exempted from taxation by the
provisions of the Constitution of this state or by this part, shall
annually pay to the state, for the privilege of exercising its
corporate franchises within this state, a tax according to or
measured by its net income, to be computed at the rate of 7.6
percent upon the basis of its net income for the next preceding
income year, or if greater, the minimum tax specified in Section
23153.

(b) For calendar or fiscal years ending after June 30, 1973, the
rate of tax shall be 9 percent instead of 7.6 percent as provided by
subdivision (a).

(c) For calendar or fiscal years ending in 1980 to 1986, inclusive,
the rate of tax shall be 9.6 percent.

(d) For calendar or fiscal years ending in 1987 to 1996,
inclusive, and for any income year beginning before January 1,
1997, the tax rate shall be 9.3 percent.

(e) For any income year beginning on or after January 1, 1997,
the tax rate shall be 8.84 percent. The change in rate provided in
this subdivision shall be made without proration otherwise required
by Section 24251.

(f) (1) For the first taxable year beginning on or after January
1, 2000, the tax imposed under this section shall be the sum of
both of the following:

(A) A tax according to or measured by net income, to be
computed at the rate of 8.84 percent upon the basis of the net
income for the next preceding income year, but not less than the
minimum tax specified in Section 23153.

(B) A tax according to or measured by net income, to be
computed at the rate of 8.84 percent upon the basis of the net
income for the first taxable year beginning on or after January 1,
2000, but not less than the minimum tax specified in Section 23153.

(2) Except as provided in paragraph (1) begin insert and end insert begin insert subdivision (g) end insert , for
taxable years beginning on or after January 1, 2000, the tax
imposed under this section shall be a tax according to or measured
by net income, to be computed at the rate of 8.84 percent upon the
basis of the net income for that taxable year, but not less than the
minimum tax specified in Section 23153.

begin insert

(g) (1) For taxable years beginning on or after January 1, 2015,
the tax imposed under this section upon a publicly held
corporation, as defined in Section 162(m)(2), relating to publicly
held corporation, of the Internal Revenue Code, shall be a tax
according to or measured by net income, to be computed at the
applicable tax rate upon the basis of the net income for that taxable
year, as determined by paragraph (2), but not less than the
minimum tax specified in Section 23153.

end insert begin insert

(2) The applicable tax rate shall be determined as follows:

end insert begin insert

 

begin insert If the compensation ratio is: end insert	begin insert The applicable tax rate is: end insert
begin insert Over zero but not over 25 end insert	begin insert 7% upon the basis of net income end insert
begin insert Over 25 but not over 50 end insert	begin insert 7.5% upon the basis of net income end insert
begin insert Over 50 but not over 100 end insert	begin insert 8% upon the basis of net income end insert
begin insert Over 100 but not over 150 end insert	begin insert 9% upon the basis of net income end insert
begin insert Over 150 but not over 200 end insert	begin insert 9.5% upon the basis of net income end insert
begin insert Over 200 but not over 250 end insert	begin insert 10% upon the basis of net income end insert
begin insert Over 250 but not over 300 end insert	begin insert 11% upon the basis of net income end insert
begin insert Over 300 but not over 400 end insert	begin insert 12% upon the basis of net income end insert
begin insert Over 400 end insert	begin insert 13% upon the basis of net income end insert

 

end insert begin insert

(3) For purposes of this subdivision:

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(A) (i) “Compensation,” in the case of employees of the
taxpayer other than the chief operating officer or the highest paid
employee, means wages as defined in Section 3121(a) of the
Internal Revenue Code, relating to wages, paid by the taxpayer
during a calendar year to employees of the taxpayer.

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(ii) “Compensation,” in the case of the chief operating officer
and the highest paid employee of the taxpayer, means total
compensation as reported in the Summary Compensation Table
reported to the Securities and Exchange Commission pursuant to
Item 402 of Regulation S-K of the Securities and Exchange
Commission.

end insert begin insert

(B) (i) “Compensation ratio” for a taxable year means a ratio
where the numerator is the amount equal to the greater of the
compensation of the chief operating officer or the highest paid
employee of the taxpayer for the calendar year preceding the
beginning of the taxable year and the denominator is the amount
equal to the median compensation of all employees employed by
the taxpayer in the United States for the calendar year preceding
the beginning of the taxable year.

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(ii) For taxpayers that are required to be included in a combined
report under Section 25101 or authorized to be included in a
combined report under Section 25101.15, the calculation of the
ratio in clause (i) shall be made by treating all taxpayers that are
required to be or authorized to be included in a combined report
as a single taxpayer.

end insert begin insert

(4) A taxpayer subject to this subdivision shall furnish a detailed
compensation report to the Franchise Tax Board with its timely
filed original return.

end insert begin insert

(5) (A) If the total number of full-time employees, determined
on an annual full-time equivalent basis, employed by the taxpayer
in the United States for a taxable year is reduced by more than 10
percent, as compared to the total number of full-time employees,
determined on an annual full-time equivalent basis, employed by
the taxpayer in the United States for the preceding taxable year
and the total number of contracted employees or foreign full-time
employees, determined on an annual full-time equivalent basis, of
the taxpayer for that taxable year has increased, as compared with
the total number of contracted employees or foreign full-time
employees, determined on an annual full-time equivalent basis, of
the taxpayer for the preceding taxable year, then the applicable
tax rate determined under paragraph (2) shall be increased by 50
percent. For taxpayers who first commence doing business in this
state during the taxable year, the number of full-time employees,
contracted employees, and foreign full-time employees for the
immediately preceding prior taxable year shall be zero.

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(B) For purposes of this paragraph:

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(i) “Annual full-time equivalent” means either of the following:

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(I) In the case of a full-time employee paid hourly qualified
wages, “annual full-time equivalent” means the total number of
hours worked for the qualified taxpayer by the employee, not to
exceed 2,000 hours per employee, divided by 2,000.

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(II) In the case of a salaried full-time employee, “annual
full-time equivalent” means the total number of weeks worked for
the qualified taxpayer by the employee divided by 52.

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(ii) “Contracted full-time employee” means an individual
engaged by the taxpayer to provide a specific set of services
established pursuant to the terms and conditions of a written
employment contract that delineates the length of employment, the
salary and bonuses (if any) to be paid, and the benefits that accrue
to that individual.

end insert begin insert

(iii) “Foreign full-time employee” means a full-time employee
of the taxpayer that is employed at a location other than the United
States.

end insert begin insert

(iv) “Full-time employee” means an employee of the taxpayer
that satisfies either of the following requirements:

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(I) Is paid compensation by the taxpayer for services of not less
than an average of 35 hours per week.

end insert begin insert

(II) Is a salaried employee of the taxpayer and is paid
compensation during the taxable year for full-time employment,
within the meaning of Section 515 of the Labor Code.

end insert begin insert

(6) The Franchise Tax Board may prescribe rules, guidelines,
or procedures necessary or appropriate to carry out the purposes
of this subdivision, including any guidelines regarding the
determination of wages, average compensation, and compensation
ratio. Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code shall not apply to
any rule, guideline, or procedure prescribed by the Franchise Tax
Board pursuant to this subdivision.

end insert

begin insert

begin insert SEC. 2. end insert   

end insert begin insert

This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.

end insert

begin delete

SECTION 1.  

Section 17151 of the Revenue and Taxation Code
is amended to read:

17151.  

(a) Gross income of an employee does not include any
amounts, not exceeding an aggregate amount of five thousand two
hundred fifty dollars ($5,250) per calendar year, that is paid or
incurred by the employer for educational assistance to the employee
pursuant to an educational assistance program.

(b) For purposes of this section, the following definitions shall
apply:

(1) “Educational assistance” means the payment by an employer
of expenses incurred by, or on behalf of, an employee for the
employee’s education, and includes, but is not limited to, payments
for books, supplies, equipment, tuition, and fees, and similar
payments. “Educational assistance” includes the provision by an
employer of courses of instruction for an employee, including the
provision of books, supplies, and equipment. “Educational
assistance” does not include any payment for, or the provision of,
any of the following:

(A) Any tools or supplies that may be retained by the employee
after completion of a course of instruction.

(B) Any meals, lodging, or transportation.

(C) Any course or education involving sports, games, or hobbies.

(D) Any course or education taken at the graduate level of a
kind normally taken by an individual pursuing a program leading
to a law, business, medical, or other advanced academic or
professional degree. This subparagraph applies only to any course
or education taken at the graduate level beginning after June 30,
1996, and before January 1, 2000.

(2) “Educational assistance program” means a separate written
plan of an employer for the exclusive benefit of his or her
employees to provide those employees with educational assistance.
The program shall meet the following requirements:

(A) The program benefits employees who qualify under a
classification established by the employer and found by the
Franchise Tax Board not to be discriminatory in favor of employees
who are highly compensated employees (within the meaning of
Section 414(q) of the Internal Revenue Code) or their dependents.
For purposes of this subparagraph, there shall be excluded from
consideration employees who are not included in the program and
who are included in a unit of employees covered by an agreement
that the Franchise Tax Board finds to be a collective bargaining
agreement between employee representatives and one or more
employers, if there is evidence that educational assistance benefits
were the subject of good faith bargaining between the employee
representatives and the employer or employers.

(B) Not more than 5 percent of the amounts paid or incurred by
the employer for educational assistance during the year may be
provided for the class of individuals who are owners (or their
spouses or dependents), each of whom, on any day of the year,
owns more than 5 percent of the capital or profits interest in the
employer.

(C) The program does not provide eligible employees with a
choice between educational assistance and other remuneration
includable in gross income. For purposes of this section, the
business practices of the employer, as well as the written program,
shall be taken into account.

(D) The program need not be funded.

(E) Reasonable notification of the availability and terms of the
program is provided to eligible employees.

(3) “Employee” includes self-employed individuals within the
meaning of Section 401(c)(1) of the Internal Revenue Code.

(c) For purposes of this section:

(1) Any individual who owns the entire interest in an
unincorporated trade or business shall be treated as his or her own
employee.

(2) A partnership shall be treated as the employer of each partner
who is an employee within the meaning of paragraph (3) of
subdivision (b).

(3) (A) An educational assistance program shall not be
considered to fail to meet any of the requirements of paragraph
(2) of subdivision (b) on the sole basis of either of the following:

(i) Different utilization rates for the different types of
educational assistance made available under the program.

(ii) Successful completion or attainment of a particular course
grade is required for or considered in determining reimbursement
under the program.

(B) This section shall not be construed to affect the deduction
or inclusion in income of amounts that are paid or incurred or
received as reimbursement for educational expenses under Section
117, 162, or 212 of the Internal Revenue Code.

(d) A deduction or credit shall not be allowed to the employee
with respect to any amount that the employee excludes from
income pursuant to this section.

(e) Section 127 of the Internal Revenue Code shall not apply.

(f) This section shall apply with respect to expenses relating to
courses beginning after June 30, 1996.

end delete