Amended in Senate August 21, 2014

Amended in Senate April 29, 2014

Amended in Senate April 21, 2014

Amended in Senate April 1, 2014

Senate Bill No. 1372

Introduced by Senators DeSaulnier and Hancock

February 21, 2014

An act to amend begin delete Section end delete begin insert Sections 18410.2 and end insert 23151 of begin insert , and to add Section 23635 to, end insert the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

SB 1372, as amended, DeSaulnier. Corporation taxes: tax rates: publicly held begin delete corporations. end delete begin insert corporations: credits. end insert

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The

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begin insert (1) end insert begin insert   end insert begin insert The end insert 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.

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 begin delete an applicable end delete begin insert a end insert 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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(2) Existing law establishes the California Competes Tax Credit Committee, which has specified duties in regard to tax credits for economic development. Existing law establishes the Governor's Office of Business and Economic Development, also known as “GO-Biz,” to, among other duties, serve the Governor as the lead entity for economic strategy and the marketing of California on issues relating to business development, private sector investment, and economic growth. The Corporation Tax Law allows various credits against the tax imposed by that law.

end insert begin insert

This bill, for taxable years beginning on or after January 1, 2015, would allow a credit to a qualified taxpayer, as defined, in an amount as provided in a written agreement between GO-Biz and the qualified taxpayer, agreed upon by the committee, and based on specified factors, including the number of jobs the qualified taxpayer will create or retain in the state and the amount of investment in the state by the qualified taxpayer. The bill would limit the total amount of the credit available to an amount equal to the amount of revenue generated by the application of the above-referenced tax rates on publicly held corporations. The bill would also impose various duties upon GO-Biz, including the adoption of regulations.

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This

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

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

Vote: ²⁄₃. Appropriation: no. Fiscal committee: yes. 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 18410.2 of the end insert begin insert Revenue and Taxation
Code end insert begin insert is amended to read: end insert

18410.2.  

(a) The California Competes Tax Credit Committee
is hereby established. The committee shall consist of the Treasurer,
the Director of Finance, and the Director of the Governor’s Office
of Business and Economic Development, who shall serve as chair
of the committee, or their designated representatives, and one
appointee each by the Speaker of the Assembly and the Senate
Committee on Rules. A Member of the Legislature shall not be
appointed.

(b) For purposes of Sections begin delete 17059.2 and 23689, end delete begin insert 17059.2,
23635, and 23689, end insert the California Competes Tax Credit Committee
shall do all of the following:

(1) Approve or reject any written agreement for a tax credit
allocation by resolution at a duly noticed public meeting held in
accordance with the Bagley-Keene Open Meeting Act (Article 9
(commencing with Section 11120) of Chapter 1 of Part 1 of
Division 3 of Title 2 of the Government Code), but only after
receipt of the fully executed written agreement between the
taxpayer and the Governor’s Office of Business and Economic
Development.

(2) Approve or reject any recommendation to recapture, in whole
or in part, a tax credit allocation by resolution at a duly noticed
public meeting held in accordance with the Bagley-Keene Open
Meeting Act (Article 9 (commencing with Section 11120) of
Chapter 1 of Part 1 of Division 3 of Title 2 of the Government
Code), but only after receipt of the recommendation from the
Governor’s Office of Business and Economic Development
pursuant to the terms of the fully executed written agreement.

begin delete SECTION 1. end delete
begin insert SEC. 2. end insert   

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

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) and subdivision (g), 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.

(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) begin insert of the Internal Revenue Code end insert ,
relating to publicly held corporation, begin delete of the Internal Revenue Code, end delete
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.

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

 

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

 

(3) For purposes of this subdivision:

(A) “Client employer” means an individual or entity that
receives workers to perform labor or services within the usual
course of business of the individual or entity from a labor
contractor.

(B) (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.

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

(C) (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, including all contracted employees under contract
with the taxpayer, in the United States for the calendar year
preceding the beginning of the taxable year.

(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.

(D) “Contracted employee” means an employee who works for
a labor contractor.

(E) “Labor contractor” means an individual or entity that
contracts with a client employer to supply workers to perform
labor or services or otherwise provides workers to perform labor
or services within the usual course of business for the client
employer.

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

(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.

(B) For purposes of this paragraph:

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

(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.

(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.

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

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

(I) Is paid compensation by the taxpayer for services of not less
than an average of 30 hours per week.

(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.

(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.

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begin insert SEC. 3. 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 each taxable year beginning on or after
January 1, 2015, in taxable years in which there is a qualified
amount, there shall be allowed to each qualified taxpayer a credit
against the “tax,” as defined in Section 23036, in an amount
determined by the committee pursuant to subdivision (c) and
approved pursuant to Section 18410.2.

(b) For purposes of this section:

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

(2) “Compensation ratio” shall be determined for a qualified
corporation in the same manner as under Section 23151.

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

(4) “Qualified amount” means the amount equal to the amount
of revenue derived by subdivision (g) of Section 23151 in excess
of the revenue that would have been derived by subdivision (f) of
Section 23151, as determined by the Franchise Tax Board, for the
taxable year.

(5) “Qualified taxpayer” means a corporation subject to the
tax imposed by subdivision (g) of Section 23151 that has a
compensation ratio that is greater than zero but not more than
100.

(6) “Small business” means a trade or business that has
aggregate gross receipts, less returns and allowances reportable
to this state, of less than two million dollars ($2,000,000) during
the previous taxable year.

(c) The amount of credit allowed to a qualified taxpayer shall
be a portion of the qualified amount as set forth in a written
agreement between GO-Biz and the qualified taxpayer and shall
be based on the following factors:

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

(2) The compensation paid by the taxpayer to its employees,
including wages and fringe benefits.

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

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

(d) The written agreement entered into pursuant to subdivision
(c) shall include:

(1) Verification that the taxpayer is a qualified taxpayer.

(2) The amount of credit that the qualified taxpayer is allocated.

(e) GO-Biz shall do the following:

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

(2) Negotiate with a qualified taxpayer the amount of credit
allowed to that qualified taxpayer based on the factors in
subdivision (c).

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

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

(5) Adopt regulations as necessary or appropriate to carry out
the purposes of this section.

(f) On or before January 1, 2016, and each year thereafter, the
Franchise Tax Board shall provide to GO-Biz an estimate of the
qualified amount.

(g) Each fiscal year, 25 percent of the qualified amount shall
be reserved for small business.

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

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begin delete SEC. 2. end delete
begin insert SEC. 4. end insert   

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