Bill Text: CA AB1661 | 2013-2014 | Regular Session | Amended
Bill Title: The Healthy Options for Everyone (HOPE) Act of 2014.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2014-05-23 - In committee: Set, second hearing. Held under submission. [AB1661 Detail]
Download: California-2013-AB1661-Amended.html
BILL NUMBER: AB 1661 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MAY 7, 2014
AMENDED IN ASSEMBLY APRIL 21, 2014
AMENDED IN ASSEMBLY APRIL 1, 2014
INTRODUCED BY Assembly Member Bonta
FEBRUARY 12, 2014
An act to add Chapter 6.4 (commencing with Section 51043) to Part
1 of Division 1 of Title 5 of the Government Code, and to amend
Sections 17276.20 and 24416.20 of, and to add and repeal
Sections 17053.31 and 23631 to of , the
Revenue and Taxation Code, relating to local government.
LEGISLATIVE COUNSEL'S DIGEST
AB 1661, as amended, Bonta. The Healthy Options for Everyone
(HOPE) Act of 2014.
The Urban Agriculture Incentive Zones Act authorizes a city,
county, or city and county to establish by ordinance an Urban
Agriculture Incentive Zone within its boundaries for the purpose of
entering into enforceable contracts with landowners, on a voluntary
basis, for the use of vacant, unimproved, or blighted lands for
small-scale agricultural use.
This bill would enact the Healthy Options for Everyone (HOPE) Act
of 2014, and authorize a city, county, or city and county, after a
public hearing, to establish by ordinance a HOPE Incentive Zone
within its boundaries for the purpose of increasing the availability
of fresh fruits and vegetables, and other grown foods within the
zone. This bill would require a city, county, or city and county to
analyze specific factors, including, but not limited to, population
density and transportation, when considering whether to establish a
HOPE Incentive Zone within an area. This bill would encourage
cities those local entities to issue
annual permits at a discounted rate to any farmers' market operating
within a HOPE Incentive Zone , and would require those local
entities to waive all business license fees for a qualified business
within the zone .
The Personal Income Tax Law and Corporation Tax Law, in modified
conformity with federal law, allow taxpayers to utilize net operating
losses and carryovers and carrybacks of those losses for purposes of
offsetting their tax liabilities. Existing law allows net operating
losses for taxable years beginning on or after January 1, 2008, to be
carried over to each of the 20 taxable years following the taxable
year of the loss.
This bill would allow, under both laws, a qualified business,
which is any trade or business that has primarily done business
within a HOPE Incentive Zone, for taxable years beginning on or after
January 1, 2015, and before January 1, 2022, to carryover
a net operating loss to each of the 25 taxable years following the
taxable year of the loss.
The Personal Income Tax Law and the Corporation Tax Law authorize
various credits against the taxes imposed by those laws.
This bill would allow , under both laws, a credit in
the amount of 20% of the gross sales of a qualified business, as
defined, that has primarily done business within a HOPE Incentive
Zone during the taxable year for taxable years beginning on or
after January 1, 2015, and before January 1, 2022 .
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) The Healthy Options for Everyone (HOPE) Act of 2014 provides
cities, counties, and cities and counties with the ability to provide
incentives for businesses and individuals working within HOPE
Incentive Zones that can be tailored by local governments to fit
their area's unique needs.
(b) These incentives are intended to reduce the tax burden and
costs of doing business within a HOPE Incentive Zone which, in turn,
will spur the creation of new businesses, or the expansion of
existing businesses, within the zone.
(c) Incentives that will be available for individuals and
businesses working or doing business within a HOPE Incentive Zone
will include, but are not limited to, a hiring tax credit, an
expansion of the period for which a net operating loss may be carried
over, a tax credit for low-income individuals employed within a
zone, reductions in electricity rates, assistance for developing
sites within a zone, and low-interest loans for the installation and
maintenance of electricity and water services.
SEC. 2. Chapter 6.4 (commencing with Section 51043) is added to
Part 1 of Division 1 of Title 5 of the Government Code, to read:
CHAPTER 6.4. HEALTHY OPTIONS FOR EVERYONE (HOPE) ACT OF 2014
51043. This chapter shall be known, and may be cited, as the
Healthy Options for Everyone (HOPE) Act of 2014.
51043.1. (a) (1) A city, county, or city
and county may, after a public hearing, establish by ordinance a HOPE
Incentive Zone within its boundaries for the purpose of increasing
the availability of fresh fruits and vegetables, and other grown
foods.
(2) A HOPE Incentive Zone shall only be established in a
geographic area within the boundaries of the city, county, or city
and county that qualifies as a food desert.
(3) A designation of a HOPE Incentive Zone shall be effective only
for a period of seven years from the date of the ordinance that
established that zone.
(b) A city, county, or city and county shall analyze the following
factors within a geographic area when considering whether to
establish a HOPE Incentive Zone within that area pursuant to
subdivision (a):
(1) Transportation.
(2) Population density.
(3) Income of population.
(4) Whether the area qualifies as a "food desert" by the United
States Department of Agriculture.
(5)
(4) Percentage of population that participates in food
assistance programs, including, but not limited to, a free school
lunch program.
(6)
(5) Percentage of population with dietary-related
illnesses.
(7)
(6) Neglected real property.
51043.2. (a) A city, county, or city and county may, after
establishing a HOPE Incentive Zone pursuant to Section 51043.1, enact
an ordinance to create incentives for qualified businesses to
conduct business within the zone.
(b) The Legislature encourages cities, counties, or a city and
county to issue annual permits at a discounted rate to a farmers'
market operating within a HOPE Incentive Zone.
(c) A city, county, or city and county shall, after establishing a
HOPE Incentive Zone pursuant to Section 51043.1, waive all business
license fees imposed by the city, county, or city and county for a
qualified business within the zone.
51043.3. For the purposes of this chapter, the following terms
have the following meanings:
(a)
(a) "Food desert" means a low-income census tract where at least
33 percent of the tract's population or a minimum of 500 people in
the tract have low access to a supermarket or large grocery store.
(b) (1) "Low access to a supermarket or large grocery store" means
more than one mile from a supermarket or large grocery store in a
census tract that is in an urban area, as designated by the United
States Census Bureau, and more than 10 miles from a supermarket or
large grocery store in a census tract that is not in an urban area.
(2) For purposes of this subdivision, the distance to supermarkets
and large grocery stores is measured by the distance between the
geographic center of the 1 kilometer square grid that contains
estimates of the population and the nearest supermarket or large
grocery store.
(c) "Low-income census tract" means any census tract where the
poverty rate for the tract is at least 20 percent or, for tracts not
located within a metropolitan area, the median family income for the
tract does not exceed 80 percent of statewide median family income,
or, for tracts located within a metropolitan area, the median family
income for the tract does not exceed 80 percent of the greater
statewide median family income or the metropolitan area median family
income.
(d) "Primarily" means 80 percent or more.
(b)
(e) "Qualified business" means a business primarily
engaged in the retail sale of canned food, dry foods
goods, fresh fruits and vegetables, and fresh meats, fish, and
poultry.
SEC. 3. Section 17053.31 is added to the Revenue and Taxation
Code, to read:
17053.31. (a) There For taxable years
beginning on or after January 1, 2015, and before January 1, 2022,
there shall be allowed as a credit against the "net tax," as
defined by Section 17039, an amount equal to 20 percent of the gross
sales within a HOPE Incentive Zone of a qualified taxpayer during the
taxable year.
(b) For purposes of this section, "qualified taxpayer" means a
qualified business, as that term is used in Section 51043.3 of the
Government Code, that has primarily done business within a HOPE
Incentive Zone during the taxable year.
(c) "HOPE Incentive Zone" means a zone as established by Section
51043.1 of the Government Code.
(d) This section shall remain in effect only until December 1,
2022, and as of that date is repealed.
SEC. 4. Section 17276.20 of the Revenue and Taxation Code is
amended to read:
17276.20. Except as provided in Sections 17276.1, 17276.2,
17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by
Section 172 of the Internal Revenue Code, relating to net operating
loss deduction, shall be modified as follows:
(a) (1) Net operating losses attributable to taxable years
beginning before January 1, 1987, shall not be allowed.
(2) A net operating loss shall not be carried forward to any
taxable year beginning before January 1, 1987.
(b) (1) Except as provided in paragraphs (2) and (3), the
provisions of Section 172(b)(2) of the Internal Revenue Code,
relating to amount of carrybacks and carryovers, shall be modified so
that the applicable percentage of the entire amount of the net
operating loss for any taxable year shall be eligible for carryover
to any subsequent taxable year. For purposes of this subdivision, the
applicable percentage shall be:
(A) Fifty percent for any taxable year beginning before January 1,
2000.
(B) Fifty-five percent for any taxable year beginning on or after
January 1, 2000, and before January 1, 2002.
(C) Sixty percent for any taxable year beginning on or after
January 1, 2002, and before January 1, 2004.
(D) One hundred percent for any taxable year beginning on or after
January 1, 2004.
(2) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
a new business during that taxable year, each of the following shall
apply to each loss incurred during the first three taxable years of
operating the new business:
(A) If the net operating loss is equal to or less than the net
loss from the new business, 100 percent of the net operating loss
shall be carried forward as provided in subdivision (d).
(B) If the net operating loss is greater than the net loss from
the new business, the net operating loss shall be carried over as
follows:
(i) With respect to an amount equal to the net loss from the new
business, 100 percent of that amount shall be carried forward as
provided in subdivision (d).
(ii) With respect to the portion of the net operating loss that
exceeds the net loss from the new business, the applicable percentage
of that amount shall be carried forward as provided in subdivision
(d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(3) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
an eligible small business during that taxable year, each of the
following shall apply:
(A) If the net operating loss is equal to or less than the net
loss from the eligible small business, 100 percent of the net
operating loss shall be carried forward to the taxable years
specified in subdivision (d).
(B) If the net operating loss is greater than the net loss from
the eligible small business, the net operating loss shall be carried
over as follows:
(i) With respect to an amount equal to the net loss from the
eligible small business, 100 percent of that amount shall be carried
forward as provided in subdivision (d).
(ii) With respect to that portion of the net operating loss that
exceeds the net loss from the eligible small business, the applicable
percentage of that amount shall be carried forward as provided in
subdivision (d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(4) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
a business that qualifies as both a new business and an eligible
small business under this section, that business shall be treated as
a new business for the first three taxable years of the new business.
(5) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
more than one business, and more than one of those businesses
qualifies as either a new business or an eligible small business
under this section, paragraph (2) shall be applied first, except that
if there is any remaining portion of the net operating loss after
application of clause (i) of subparagraph (B) of that paragraph,
paragraph (3) shall be applied to the remaining portion of the net
operating loss as though that remaining portion of the net operating
loss constituted the entire net operating loss.
(6) For purposes of this section, the term "net loss" means the
amount of net loss after application of Sections 465 and 469 of the
Internal Revenue Code.
(c) Section 172(b)(1) of the Internal Revenue Code, relating to
years to which the loss may be carried, is modified as follows:
(1) Net operating loss carrybacks shall not be allowed for any net
operating losses attributable to taxable years beginning before
January 1, 2013.
(2) A net operating loss attributable to taxable years beginning
on or after January 1, 2013, shall be a net operating loss carryback
to each of the two taxable years preceding the taxable year of the
loss in lieu of the number of years provided therein.
(A) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2013, and before January 1, 2014,
the amount of carryback to any taxable year shall not exceed 50
percent of the net operating loss.
(B) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2014, and before January 1, 2015,
the amount of carryback to any taxable year shall not exceed 75
percent of the net operating loss.
(C) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2015, the amount of carryback to any
taxable year shall not exceed 100 percent of the net operating loss.
(3) Notwithstanding paragraph (2), Section 172(b)(1)(B) of the
Internal Revenue Code, relating to special rules for REITs, and
Section 172(b)(1)(E) of the Internal Revenue Code, relating to excess
interest loss, and Section 172(h) of the Internal Revenue Code,
relating to corporate equity reduction interest losses, shall apply
as provided.
(4) A net operating loss carryback shall not be carried back to
any taxable year beginning before January 1, 2011.
(d) (1) (A) For a net operating loss for any taxable year
beginning on or after January 1, 1987, and before January 1, 2000,
Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to
substitute "five taxable years" in lieu of "20 taxable years" except
as otherwise provided in paragraphs (2) and (3).
(B) For a net operating loss for any taxable year beginning on or
after January 1, 2000, and before January 1, 2008, Section 172(b)(1)
(A)(ii) of the Internal Revenue Code is modified to substitute "10
taxable years" in lieu of "20 taxable years."
(2) For any taxable year beginning before January 1, 2000, in the
case of a "new business," the "five taxable years" in paragraph (1)
shall be modified to read as follows:
(A) "Eight taxable years" for a net operating loss attributable to
the first taxable year of that new business.
(B) "Seven taxable years" for a net operating loss attributable to
the second taxable year of that new business.
(C) "Six taxable years" for a net operating loss attributable to
the third taxable year of that new business.
(3) For any carryover of a net operating loss for which a
deduction is denied by Section 17276.3, the carryover period
specified in this subdivision shall be extended as follows:
(A) By one year for a net operating loss attributable to taxable
years beginning in 1991.
(B) By two years for a net operating loss attributable to taxable
years beginning prior to January 1, 1991.
(4) The net operating loss attributable to taxable years beginning
on or after January 1, 1987, and before January 1, 1994, shall be a
net operating loss carryover to each of the 10 taxable years
following the year of the loss if it is incurred by a taxpayer that
is under the jurisdiction of the court in a Title 11 or similar case
at any time during the income year. The loss carryover provided in
the preceding sentence shall not apply to any loss incurred after the
date the taxpayer is no longer under the jurisdiction of the court
in a Title 11 or similar case.
(5) (A) For a net operating loss for any taxable year beginning on
or after January 1, 2015, and before January 1, 2022, in
the case of a "qualified business," Section 172(b)(1)(A)(ii) of the
Internal Revenue Code is modified to substitute "25 taxable years" in
lieu of "20 taxable years."
(B) For purposes of this paragraph, "qualified business" means a
qualified business, as that term is used in Section 51043.3 of the
Government Code, that has primarily done business within a HOPE
Incentive Zone, as established by Section 51043.1 of the Government
Code, during the taxable year.
(e) For purposes of this section:
(1) "Eligible small business" means any trade or business that has
gross receipts, less returns and allowances, of less than one
million dollars ($1,000,000) during the taxable year.
(2) Except as provided in subdivision (f), "new business" means
any trade or business activity that is first commenced in this state
on or after January 1, 1994.
(3) "Title 11 or similar case" shall have the same meaning as in
Section 368(a)(3) of the Internal Revenue Code.
(4) In the case of any trade or business activity conducted by a
partnership or "S" corporation paragraphs (1) and (2) shall be
applied to the partnership or "S" corporation.
(f) For purposes of this section, in determining whether a trade
or business activity qualifies as a new business under paragraph (2)
of subdivision (e), the following rules shall apply:
(1) In any case where a taxpayer purchases or otherwise acquires
all or any portion of the assets of an existing trade or business
(irrespective of the form of entity) that is doing business in this
state (within the meaning of Section 23101), the trade or business
thereafter conducted by the taxpayer (or any related person) shall
not be treated as a new business if the aggregate fair market value
of the acquired assets (including real, personal, tangible, and
intangible property) used by the taxpayer (or any related person) in
the conduct of its trade or business exceeds 20 percent of the
aggregate fair market value of the total assets of the trade or
business being conducted by the taxpayer (or any related person). For
purposes of this paragraph only, the following rules shall apply:
(A) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the first taxable year in which the taxpayer (or any related
person) first uses any of the acquired trade or business assets in
its business activity.
(B) Any acquired assets that constituted property described in
Section 1221(1) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(1) of the Internal Revenue Code in the
hands of the acquiring taxpayer (or related person).
(2) In any case where a taxpayer (or any related person) is
engaged in one or more trade or business activities in this state, or
has been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, than are
any of the taxpayer's (or any related person's) current or prior
trade or business activities.
(3) In any case where a taxpayer, including all related persons,
is engaged in trade or business activities wholly outside of this
state and the taxpayer first commences doing business in this state
(within the meaning of Section 23101) after December 31, 1993 (other
than by purchase or other acquisition described in paragraph (1)),
the trade or business activity shall be treated as a new business
under paragraph (2) of subdivision (e).
(4) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
taxpayer as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
paragraph (1).
(5) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
(6) "Acquire" shall include any gift, inheritance, transfer
incident to divorce, or any other transfer, whether or not for
consideration.
(7) (A) For taxable years beginning on or after January 1, 1997,
the term "new business" shall include any taxpayer that is engaged in
biopharmaceutical activities or other biotechnology activities that
are described in Codes 2833 to 2836, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, and as further
amended, and that has not received regulatory approval for any
product from the Food and Drug Administration.
(B) For purposes of this paragraph:
(i) "Biopharmaceutical activities" means those activities that use
organisms or materials derived from organisms, and their cellular,
subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities that make use of chemical compounds to produce commercial
products.
(ii) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
(g) In computing the modifications under Section 172(d)(2) of the
Internal Revenue Code, relating to capital gains and losses of
taxpayers other than corporations, the exclusion provided by Section
18152.5 shall not be allowed.
(h) Notwithstanding any provisions of this section to the
contrary, a deduction shall be allowed to a "qualified taxpayer" as
provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and
17276.7.
(i) The Franchise Tax Board may prescribe appropriate regulations
to carry out the purposes of this section, including any regulations
necessary to prevent the avoidance of the purposes of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, or otherwise.
(j) The Franchise Tax Board may reclassify any net operating loss
carryover determined under either paragraph (2) or (3) of subdivision
(b) as a net operating loss carryover under paragraph (1) of
subdivision (b) upon a showing that the reclassification is necessary
to prevent evasion of the purposes of this section.
(k) Except as otherwise provided, the amendments made by Chapter
107 of the Statutes of 2000 shall apply to net operating losses for
taxable years beginning on or after January 1, 2000.
SEC. 5. Section 23631 is added to the Revenue and Taxation Code,
to read:
23631. (a) There For taxable years
beginning on or after January 1, 2015, and before January 1, 2022,
there shall be allowed as a credit against the "tax," as
defined by Section 23036, an amount equal to 20 percent of the gross
sales within a HOPE Incentive Zone of a qualified taxpayer during the
taxable year.
(b) For purposes of this section, "qualified taxpayer" means a
qualified business, as that term is used in Section 51043.3 of the
Government Code, that has primarily done business within a HOPE
Incentive Zone during the taxable year.
(c) "HOPE Incentive Zone" means a zone as established by Section
51043.1 of the Government Code.
(d) This section shall remain in effect only until December 1,
2022, and as of that date is repealed.
SEC. 6. Section 24416.20 of the Revenue and Taxation Code is
amended to read:
24416.20. Except as provided in Sections 24416.1, 24416.2,
24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss
deduction shall be allowed in computing net income under Section
24341 and shall be determined in accordance with Section 172 of the
Internal Revenue Code, except as otherwise provided.
(a) (1) Net operating losses attributable to taxable years
beginning before January 1, 1987, shall not be allowed.
(2) A net operating loss shall not be carried forward to any
taxable year beginning before January 1, 1987.
(b) (1) Except as provided in paragraphs (2) and (3), the
provisions of Section 172(b)(2) of the Internal Revenue Code,
relating to amount of carrybacks and carryovers, shall be modified so
that the applicable percentage of the entire amount of the net
operating loss for any taxable year shall be eligible for carryover
to any subsequent taxable year. For purposes of this subdivision, the
applicable percentage shall be:
(A) Fifty percent for any taxable year beginning before January 1,
2000.
(B) Fifty-five percent for any taxable year beginning on or after
January 1, 2000, and before January 1, 2002.
(C) Sixty percent for any taxable year beginning on or after
January 1, 2002, and before January 1, 2004.
(D) One hundred percent for any taxable year beginning on or after
January 1, 2004.
(2) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
a new business during that taxable year, each of the following shall
apply to each loss incurred during the first three taxable years of
operating the new business:
(A) If the net operating loss is equal to or less than the net
loss from the new business, 100 percent of the net operating loss
shall be carried forward as provided in subdivision (e).
(B) If the net operating loss is greater than the net loss from
the new business, the net operating loss shall be carried over as
follows:
(i) With respect to an amount equal to the net loss from the new
business, 100 percent of that amount shall be carried forward as
provided in subdivision (e).
(ii) With respect to the portion of the net operating loss that
exceeds the net loss from the new business, the applicable percentage
of that amount shall be carried forward as provided in subdivision
(d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
(3) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
an eligible small business during that taxable year, each of the
following shall apply:
(A) If the net operating loss is equal to or less than the net
loss from the eligible small business, 100 percent of the net
operating loss shall be carried forward to the taxable years
specified in paragraph (1) of subdivision (e).
(B) If the net operating loss is greater than the net loss from
the eligible small business, the net operating loss shall be carried
over as follows:
(i) With respect to an amount equal to the net loss from the
eligible small business, 100 percent of that amount shall be carried
forward as provided in subdivision (e).
(ii) With respect to that portion of the net operating loss that
exceeds the net loss from the eligible small business, the applicable
percentage of that amount shall be carried forward as provided in
subdivision (e).
(C) For purposes of
Section 172(b)(2) of the Internal Revenue Code, the amount described
in clause (ii) of subparagraph (B) shall be absorbed before the
amount described in clause (i) of subparagraph (B).
(4) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
a business that qualifies as both a new business and an eligible
small business under this section, that business shall be treated as
a new business for the first three taxable years of the new business.
(5) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
more than one business, and more than one of those businesses
qualifies as either a new business or an eligible small business
under this section, paragraph (2) shall be applied first, except that
if there is any remaining portion of the net operating loss after
application of clause (i) of subparagraph (B) of paragraph (2),
paragraph (3) shall be applied to the remaining portion of the net
operating loss as though that remaining portion of the net operating
loss constituted the entire net operating loss.
(6) For purposes of this section, "net loss" means the amount of
net loss after application of Sections 465 and 469 of the Internal
Revenue Code.
(c) For any taxable year in which the taxpayer has in effect a
water's-edge election under Section 25110, the deduction of a net
operating loss carryover shall be denied to the extent that the net
operating loss carryover was determined by taking into account the
income and factors of an affiliated corporation in a combined report
whose income and apportionment factors would not have been taken into
account if a water's-edge election under Section 25110 had been in
effect for the taxable year in which the loss was incurred.
(d) Section 172(b)(1) of the Internal Revenue Code, relating to
years to which the loss may be carried, is modified as follows:
(1) Net operating loss carrybacks shall not be allowed for any net
operating losses attributable to taxable years beginning before
January 1, 2013.
(2) A net operating loss attributable to taxable years beginning
on or after January 1, 2013, shall be a net operating loss carryback
to each of the two taxable years preceding the taxable year of the
loss in lieu of the number of years provided therein.
(A) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2013, and before January 1, 2014,
the amount of carryback to any taxable year shall not exceed 50
percent of the net operating loss.
(B) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2014, and before January 1, 2015,
the amount of carryback to any taxable year shall not exceed 75
percent of the net operating loss.
(C) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2015, the amount of carryback to any
taxable year shall not exceed 100 percent of the net operating loss.
(3) Notwithstanding paragraph (2), Section 172(b)(1)(B) of the
Internal Revenue Code, relating to special rules for REITs, and
Section 172(b)(1)(E) of the Internal Revenue Code, relating to excess
interest loss, and Section 172(h) of the Internal Revenue Code,
relating to corporate equity reduction interest losses, shall apply
as provided.
(4) A net operating loss carryback shall not be carried back to
any taxable year beginning before January 1, 2011.
(e) (1) (A) For a net operating loss for any taxable year
beginning on or after January 1, 1987, and before January 1, 2000,
Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to
substitute "five taxable years" in lieu of "20 years" except as
otherwise provided in paragraphs (2), (3), and (4).
(B) For a net operating loss for any income year beginning on or
after January 1, 2000, and before January 1, 2008, Section 172(b)(1)
(A)(ii) of the Internal Revenue Code is modified to substitute "10
taxable years" in lieu of "20 taxable years."
(2) For any income year beginning before January 1, 2000, in the
case of a "new business," the "five taxable years" referred to in
paragraph (1) shall be modified to read as follows:
(A) "Eight taxable years" for a net operating loss attributable to
the first taxable year of that new business.
(B) "Seven taxable years" for a net operating loss attributable to
the second taxable year of that new business.
(C) "Six taxable years" for a net operating loss attributable to
the third taxable year of that new business.
(3) For any carryover of a net operating loss for which a
deduction is denied by Section 24416.3, the carryover period
specified in this subdivision shall be extended as follows:
(A) By one year for a net operating loss attributable to taxable
years beginning in 1991.
(B) By two years for a net operating loss attributable to taxable
years beginning prior to January 1, 1991.
(4) The net operating loss attributable to taxable years beginning
on or after January 1, 1987, and before January 1, 1994, shall be a
net operating loss carryover to each of the 10 taxable years
following the year of the loss if it is incurred by a corporation
that was either of the following:
(A) Under the jurisdiction of the court in a Title 11 or similar
case at any time prior to January 1, 1994. The loss carryover
provided in the preceding sentence shall not apply to any loss
incurred in an income year after the taxable year during which the
corporation is no longer under the jurisdiction of the court in a
Title 11 or similar case.
(B) In receipt of assets acquired in a transaction that qualifies
as a tax-free reorganization under Section 368(a)(1)(G) of the
Internal Revenue Code.
(5) (A) For a net operating loss for any taxable year beginning on
or after January 1, 2015, and before January 1, 2022, in
the case of a "qualified business," Section 172(b)(1)(A)(ii) of the
Internal Revenue Code is modified to substitute "25 taxable years" in
lieu of "20 taxable years."
(B) For purposes of this paragraph, "qualified business" means a
qualified business, as that term is used in Section 51043.3 of the
Government Code, that has primarily done business within a HOPE
Incentive Zone, as established by Section 51043.1 of the Government
Code, during the taxable year.
(f) For purposes of this section:
(1) "Eligible small business" means any trade or business that has
gross receipts, less returns and allowances, of less than one
million dollars ($1,000,000) during the income year.
(2) Except as provided in subdivision (g), "new business" means
any trade or business activity that is first commenced in this state
on or after January 1, 1994.
(3) "Title 11 or similar case" shall have the same meaning as in
Section 368(a)(3) of the Internal Revenue Code.
(4) In the case of any trade or business activity conducted by a
partnership or an "S" corporation, paragraphs (1) and (2) shall be
applied to the partnership or "S" corporation.
(g) For purposes of this section, in determining whether a trade
or business activity qualifies as a new business under paragraph (2)
of subdivision (e), the following rules shall apply:
(1) In any case where a taxpayer purchases or otherwise acquires
all or any portion of the assets of an existing trade or business
(irrespective of the form of entity) that is doing business in this
state (within the meaning of Section 23101), the trade or business
thereafter conducted by the taxpayer (or any related person) shall
not be treated as a new business if the aggregate fair market value
of the acquired assets (including real, personal, tangible, and
intangible property) used by the taxpayer (or any related person) in
the conduct of its trade or business exceeds 20 percent of the
aggregate fair market value of the total assets of the trade or
business being conducted by the taxpayer (or any related person). For
purposes of this paragraph only, the following rules shall apply:
(A) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the first taxable year in which the taxpayer (or any related
person) first uses any of the acquired trade or business assets in
its business activity.
(B) Any acquired assets that constituted property described in
Section 1221(1) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(1) of the Internal Revenue Code in the
hands of the acquiring taxpayer (or related person).
(2) In any case where a taxpayer (or any related person) is
engaged in one or more trade or business activities in this state, or
has been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, than are
any of the taxpayer's (or any related person's) current or prior
trade or business activities.
(3) In any case where a taxpayer, including all related persons,
is engaged in trade or business activities wholly outside of this
state and the taxpayer first commences doing business in this state
(within the meaning of Section 23101) after December 31, 1993 (other
than by purchase or other acquisition described in paragraph (1)),
the trade or business activity shall be treated as a new business
under paragraph (2) of subdivision (e).
(4) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
taxpayer as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
paragraph (1).
(5) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
(6) "Acquire" shall include any transfer, whether or not for
consideration.
(7) (A) For taxable years beginning on or after January 1, 1997,
the term "new business" shall include any taxpayer that is engaged in
biopharmaceutical activities or other biotechnology activities that
are described in Codes 2833 to 2836, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, and as further
amended, and that has not received regulatory approval for any
product from the Food and Drug Administration.
(B) For purposes of this paragraph:
(i) "Biopharmaceutical activities" means those activities that use
organisms or materials derived from organisms, and their cellular,
subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities that make use of chemical compounds to produce commercial
products.
(ii) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
(h) For purposes of corporations whose net income is determined
under Chapter 17 (commencing with Section 25101), Section 25108 shall
apply to each of the following:
(1) The amount of net operating loss incurred in any taxable year
that may be carried forward to another taxable year.
(2) The amount of any loss carry forward that may be deducted in
any taxable year.
(i) The provisions of Section 172(b)(1)(D) of the Internal Revenue
Code, relating to bad debt losses of commercial banks, shall not be
applicable.
(j) The Franchise Tax Board may prescribe appropriate regulations
to carry out the purposes of this section, including any regulations
necessary to prevent the avoidance of the purposes of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, or otherwise.
(k) The Franchise Tax Board may reclassify any net operating loss
carryover determined under either paragraph (2) or (3) of subdivision
(b) as a net operating loss carryover under paragraph (1) of
subdivision (b) upon a showing that the reclassification is necessary
to prevent evasion of the purposes of this section.
(l) Except as otherwise provided, the amendments made by Chapter
107 of the Statutes of 2000 shall apply to net operating losses for
taxable years beginning on or after January 1, 2000.
