Bill Text: CA AB1564 | 2013-2014 | Regular Session | Amended
Bill Title: Income taxes: research and development credit.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2014-05-23 - In committee: Set, second hearing. Held under submission. [AB1564 Detail]
Download: California-2013-AB1564-Amended.html
BILL NUMBER: AB 1564 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MAY 6, 2014
AMENDED IN ASSEMBLY APRIL 22, 2014
AMENDED IN ASSEMBLY APRIL 8, 2014
INTRODUCED BY Assembly Member V. Manuel Pérez
JANUARY 29, 2014
An act to add Article 4.5 (commencing with Section 12097)
to Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government
Code, and to amend Sections 17052.12 and 23609 of the
Revenue and Taxation Code, relating to taxation, and making
an appropriation therefor. to take effect immediately,
tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 1564, as amended, V. Manuel Pérez. Income taxes: research and
development credit: credit sale and purchase.
credit.
The Personal Income Tax Law and the Corporation Tax Law allow
various credits against the taxes imposed by those laws, including a
credit for a percentage of specified research expenses.
This bill would increase that percentage by 3% each taxable year
for 5 taxable years and then return to the current rate.
This bill would create a Research and Development Tax Credit Trade
Program, which the Treasurer's office would administer to authorize
taxpayers to purchase and sell the credits. This bill would limit the
total amount of credits sold to $100 million per taxable year. This
bill would appropriate a portion of the money made from the sale of
the credits to the Treasurer's office and the Franchise Tax Board for
the costs incurred by the agencies in administering the program.
This bill would take effect immediately as a tax levy.
Vote: 2/3 majority . Appropriation:
yes 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 the following:
(a) California's greatest economic asset is its diverse economy
that supports key industry clusters that rely upon innovation to
compete globally.
(b) California is uniquely situated to benefit from increasing
research and development tax credits because of California's world
renowned academic institutions, industry clusters, and diverse
population that attracts worldwide talent.
(c) Recent studies conducted by the Public Policy Institute of
California ranked California fourth in the nation in entrepreneurial
energy and second in the nation in innovation capacity. However,
California was ranked as having only the 43rd most favorable
corporate tax structure. This low ranking artificially reduces the
capacity of research and development that could occur in the state
because companies are more likely to expand to other states or
countries where they will be taxed at a lower level.
(d) Creating an environment rich in research and development
spawns the growth of manufacturing. In the last 10 years, California
has declined from the sixth largest economy in the world to the
ninth, which is behind Brazil. During that time, manufacturing
declined in California from 1.865 million jobs to 1.257 million jobs.
(e) California needs to invest in the innovation economy by
eliminating the roadblocks in state law and regulations and by
developing a tax system that rewards capital expenditures in order to
ensure that the private sector will invest financial capital and
intellectual capital in California.
(f) California needs to support the creation of new manufacturing
jobs created by the private sector in the innovation economy with a
highly skilled workforce.
SEC. 2. It is the intent of the Legislature to incrementally
increase the research and development tax credits under the Personal
Income Tax Law and the Corporation Tax Law up to
from 15 percent to 30 percent for the general
research credit and from 24 percent to 39 percent for the university
basic research credit for a five-year period.
SEC. 3. Article 4.5 (commencing with Section
12097) is added to Chapter 1.6 of Part 2 of Division 3 of Title 2 of
the Government Code, to read:
Article 4.5. The Research and Development Tax Credit Trade
Program
12097. The Treasurer's office shall develop and administer a
program to allow the sale or purchase of research and development tax
credits allowed under Sections 17052.12 and 23609 of the Revenue and
Taxation Code. The Treasurer's office shall create an Internet Web
site through which approved taxpayers may, by January 1, 2017, make
such sale or purchase.
(a) The Franchise Tax Board shall notify the Treasurer's office
quarterly of all taxpayers that claim a credit under Sections
17052.12 and 23609 of the Revenue and Taxation Code, and the amount
of credit claimed.
(b) A taxpayer may request approval by the Treasurer's office to
sell or purchase a credit.
(c) The Treasurer's office shall approve a taxpayer before that
taxpayer may sell or purchase the credits.
(1) The Treasurer's office shall approve a taxpayer to sell its
credits if that taxpayer has all of the following:
(A) A facility in which research and development occurs in the
state.
(B) Less than fifty million dollars ($50,000,000) in earnings
before income tax, depreciation, and amortization.
(C) Unused research and development tax credits from a previous
taxable year.
(D) A determination from the Franchise Tax Board that the credits
to be sold are valid.
(2) The Treasurer's office shall approve a taxpayer to purchase a
research and development tax credit if all of the following
requirements are met:
(A) The taxpayer has had qualified research expenses, as defined
in Sections 17052.12 and 23609 of the Revenue and Taxation Code and
Section 41 of the Internal Revenue Code, within the past five years.
(B) The taxpayer conducts a trade or business in the state.
(d) If a taxpayer is approved, the Treasurer's office shall create
an online account for the taxpayer to allow the taxpayer to log into
the Internet Web site to sell or purchase the credits.
(e) A taxpayer shall not be approved to sell or purchase more than
five million dollars ($5,000,000) in unused research and development
tax credits per taxable year.
(f) If the taxpayer does not reinvest the money received from the
sale of the credit into the taxpayer's trade or business or if the
purchased credits reduce the taxpayer's tax liability by more than 50
percent, any remaining unapplied credit shall be canceled and any
previously applied credit that was not reinvested or that exceeds 50
percent of the taxpayer's tax liability shall be recaptured, and the
taxpayer shall be liable for any increase in tax attributable to the
recapture of any credit previously allowed under this section.
(g) The price of the credit shall be based on the open-market
demand, but shall not be less than 75 percent of the face value of
the credit.
(h) The Treasurer's office shall notify the Franchise Tax Board of
each sale or purchase of a credit, the identity of the taxpayer
selling the credit, the identity of the taxpayer that purchased the
credit, and the amount of the credit sold quarterly. The Franchise
Tax Board shall review this information to ensure that a credit is
not being used multiple times.
(i) The total amount of the credits sold shall not exceed one
hundred million dollars ($100 million) per calendar year.
12097.1. (a) There is hereby established in the State Treasury
the Research and Development Tax Credit Trade Fund.
(b) (1) Until the Treasurer's office has been fully reimbursed for
its costs of developing, creating, and starting the Research and
Development Tax Credit Trade Program, moneys in an amount equal to 15
percent of the face value of each credit sold or purchased on the
Internet Web site established by the Treasurer's office shall be
deposited into the Research and Development Tax Credit Trade Fund for
the purpose of funding this program pursuant to Section 12097, and
appropriated as follows:
(A) Moneys in an amount equal to 13 percent of the face value of
each credit to the Treasurer's office for the administrative and
start-up costs of implementing this program.
(B) Moneys in an amount equal 2 percent of the face value of each
credit to the Franchise Tax Board for the administrative costs of
implementing this program.
(2) Eighty-five percent of the face value of each credit may be
used as a credit against the "net tax" or "tax," as applicable of the
taxpayer that purchased the credit.
(c) (1) Once the Treasurer's office has been fully reimbursed for
its costs of developing, creating, and starting this program, moneys
in an amount equal to 5 percent of the face value of each credit sold
through the Internet Web site established by the Treasurer's office
shall be deposited into the Research and Development Tax Credit Trade
Fund for the purpose of funding the Research and Development Tax
Credit Trade Program pursuant to Section 12097, and appropriated as
follows:
(A) Moneys in an amount equal to 3 percent of the face value of
each credit to the Treasurer's office for the administrative costs of
implementing this program.
(B) Moneys in an amount equal to 2 percent of the face value of
each credit to the Franchise Tax Board for the administrative costs
of implementing this program.
(2) Ninety-five percent of the amount of each credit may be used
as a credit against the "net tax" or "tax," as applicable of the
taxpayer that purchased the credit.
SEC. 4. SEC. 3. Section 17052.12 of
the Revenue and Taxation Code is amended to read:
17052.12. For each taxable year beginning on or after January 1,
1987, there shall be allowed as a credit against the "net tax" (as
defined by Section 17039) for the taxable year an amount determined
in accordance with Section 41 of the Internal Revenue Code, except as
follows:
(a) For each taxable year beginning before January 1, 1997, the
reference to "20 percent" in Section 41(a)(1) of the Internal Revenue
Code is modified to read "8 percent."
(b) (1) For each taxable year beginning on or after January 1,
1997, and before January 1, 1999, the reference to "20 percent" in
Section 41(a)(1) of the Internal Revenue Code is modified to read "11
percent."
(2) For each taxable year beginning on or after January 1, 1999,
and before January 1, 2000, the reference to "20 percent" in Section
41(a)(1) of the Internal Revenue Code is modified to read "12
percent."
(3) For each taxable year beginning on or after January 1, 2000,
and before January 1, 2014, the reference to "20 percent" in Section
41(a)(1) of the Internal Revenue Code is modified to read "15
percent."
(4) For each taxable year beginning on or after January 1, 2014,
and before January 1, 2015, the reference to "20 percent" in Section
41(a)(1) of the Internal Revenue Code is modified to read "18
percent."
(5) For each taxable year beginning on or after January 1, 2015,
and before January 1, 2016, the reference to "20 percent" in Section
41(a)(1) of the Internal Revenue Code is modified to read "21
percent."
(6) For each taxable year beginning on or after January 1, 2016,
and before January 1, 2017, the reference to "20 percent" in Section
41(a)(1) of the Internal Revenue Code is modified to read "24
percent."
(7) For each taxable year beginning on or after January 1, 2017,
and before January 1, 2018, the reference to "20 percent" in Section
41(a)(1) of the Internal Revenue Code is modified to read "27
percent."
(8) For each taxable year beginning on or after January 1, 2018,
and before January 1, 2019, the reference to "20 percent" in Section
41(a)(1) of the Internal Revenue Code is modified to read "30
percent."
(9) For each taxable year beginning on or after January 1, 2019,
the reference to "20 percent" in Section 41(a)(1) of the Internal
Revenue Code is modified to read "15 percent."
(c) Section 41(a)(2) of the Internal Revenue Code shall not apply.
(d) "Qualified research" shall include only research conducted in
California.
(e) In the case where the credit allowed under this section
exceeds the "net tax," the excess may be carried over to reduce the
"net tax" in the following year, and succeeding years if necessary,
until the credit has been exhausted.
(f) (1) With respect to any expense paid or incurred after the
operative date of Section 6378, Section 41(b)(1) of the Internal
Revenue Code is modified to exclude from the definition of "qualified
research expense" any amount paid or incurred for tangible personal
property that is eligible for the exemption from sales or use tax
provided by Section 6378.
(2) For each taxable year beginning on or after January 1, 1998,
the reference to "Section 501(a)" in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read "this part or Part 11 (commencing with Section
23001)."
(g) (1) For each taxable year beginning on or after January 1,
2000:
(A) The reference to "3 percent" in Section 41(c)(4)(A)(i) of the
Internal Revenue Code is modified to read "one and forty-nine
hundredths of one percent."
(B) The reference to "4 percent" in Section 41(c)(4)(A)(ii) of the
Internal Revenue Code is modified to read "one and ninety-eight
hundredths of one 1 percent."
(C) The reference to "5 percent" in Section 41(c)(4)(A)(iii) of
the Internal Revenue Code is modified to read "two and forty-eight
hundredths of one 1 percent."
(2) Section 41(c)(4)(B) shall not apply and in lieu thereof an
election under Section 41(c)(4)(A) of the Internal Revenue Code may
be made for any taxable year of the taxpayer beginning on or after
January 1, 1998. That election shall apply to the taxable year for
which made and all succeeding taxable years unless revoked with the
consent of the Franchise Tax Board.
(3) Section 41(c)(7) of the Internal Revenue Code, relating to
gross receipts, is modified to take into account only those gross
receipts from the sale of property held primarily for sale to
customers in the ordinary course of the taxpayer's trade or business
that is delivered or shipped to a purchaser within this state,
regardless of f.o.b. point or any other condition of the sale.
(4) Section 41(c)(5) of the Internal Revenue Code, relating to
election of alternative simplified credit, shall not apply.
(h) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.
(i) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough of credit, is modified by each of the
following:
(1) The last sentence shall not apply.
(2) If the amount determined under Section 41(a) of the Internal
Revenue Code for any taxable year exceeds the limitation of Section
41(g) of the Internal Revenue Code, that amount may be carried over
to other taxable years under the rules of subdivision (e); except
that the limitation of Section 41(g) of the Internal Revenue Code
shall be taken into account in each subsequent taxable year.
(j) Section 41(a)(3) of the Internal Revenue Code shall not apply.
(k) Section 41(b)(3)(D) of the Internal Revenue Code, relating to
amounts paid to eligible small businesses, universities, and federal
laboratories, shall not apply.
(l) Section 41(f)(6), relating to energy research consortium,
shall not apply.
(m) A taxpayer may sell a credit allowed under this section
pursuant to Article 4.5 (commencing with Section 12097) of Chapter
1.6 of Part 2 of Division 3 of Title 2 of the Government Code.
SEC. 5. SEC. 4. Section 23609 of the
Revenue and Taxation Code is amended to read:
23609. For each taxable year beginning on or after January 1,
1987, there shall be allowed as a credit against the "tax" (as
defined by Section 23036) an amount determined in accordance with
Section 41 of the Internal Revenue Code, except as follows:
(a) For each taxable year beginning before January 1, 1997, both
of the following modifications shall apply:
(1) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "8 percent."
(2) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "12 percent."
(b) (1) For each taxable year beginning on or after January 1,
1997, and before January 1, 1999, both of the following modifications
shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "11 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(2) For each taxable year beginning on or after January 1, 1999,
and before January 1, 2000, both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "12 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(3) For each taxable year beginning on or after January 1, 2000,
and before January 1, 2014, both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "15 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(4) For each taxable year beginning on or after January 1, 2014,
and before January 1, 2015, both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "18 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "27 percent."
(5) For each taxable year beginning on or after January 1, 2015,
and before January 1, 2016, both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "21 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "30 percent."
(6) For each taxable year beginning on or after January 1, 2016,
and before January 1, 2017, both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "24 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "33 percent."
(7) For each taxable year beginning on or after January 1, 2017,
and before January 1, 2018, both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "27 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "36 percent."
(8) For each taxable year beginning on or after January 1, 2018,
and before January 1, 2019, both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "30 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "39 percent."
(9) For each taxable year beginning on or after January 1, 2019,
both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "15 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(c) (1) With respect to any expense paid or incurred after the
operative date of Section 6378, Section 41(b)(1) of the Internal
Revenue Code is modified to exclude from the definition of "qualified
research expense" any amount paid or incurred for tangible personal
property that is eligible for the exemption from sales or use tax
provided by Section 6378.
(2) "Qualified research" and "basic research" shall include only
research conducted in California.
(d) The provisions of Section 41(e)(7)(A) of the Internal Revenue
Code, shall be modified so that "basic research," for purposes of
this section, includes any basic or applied research including
scientific inquiry or original investigation for the advancement of
scientific or engineering knowledge or the improved effectiveness of
commercial products, except that the term does not include any of the
following:
(1) Basic research conducted outside California.
(2) Basic research in the social sciences, arts, or humanities.
(3) Basic research for the purpose of improving a commercial
product if the improvements relate to style, taste, cosmetic, or
seasonal design factors.
(4) Any expenditure paid or incurred for the purpose of
ascertaining the existence, location, extent, or quality of any
deposit of ore or other mineral (including oil and gas).
(e) (1) In the case of a taxpayer engaged in any biopharmaceutical
research activities that are described in codes 2833 to 2836,
inclusive, or any research activities that are described in codes
3826, 3829, or 3841 to 3845, inclusive, of the Standard Industrial
Classification (SIC) Manual published by the United States Office of
Management and Budget, 1987 edition, or any other biotechnology
research and development activities, the provisions of Section 41(e)
(6) of the Internal Revenue Code shall be modified to include both of
the following:
(A) A qualified organization as described in Section 170(b)(1)(A)
(iii) of the Internal Revenue Code and owned by an institution of
higher education as described in Section 3304(f) of the Internal
Revenue Code.
(B) A charitable research hospital owned by an organization that
is described in Section 501(c)(3) of the Internal Revenue Code, is
exempt from taxation under Section 501(a) of the Internal Revenue
Code, is not a private foundation, is designated a "specialized
laboratory cancer center," and has received Clinical Cancer Research
Center status from the National Cancer Institute.
(2) For purposes of this subdivision:
(A) "Biopharmaceutical research 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.
(B) "Other biotechnology research and development activities"
means research and development activities consisting of the
application of recombinant DNA technology to produce commercial
products, as well as research and development activities regarding
pharmaceutical delivery systems designed to provide a measure of
control over the rate, duration, and site of pharmaceutical delivery.
(f) 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 succeeding years if necessary, until the credit
has been exhausted.
(g) For each taxable year beginning on or after January 1, 1998,
the reference to "Section 501(a)" in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read "this part or Part 10 (commencing with Section
17001)."
(h) (1) For each taxable year beginning on or after January 1,
2000:
(A) The reference to "3 percent" in Section 41(c)(4)(A)(i) of the
Internal Revenue Code is modified to read "one and forty-nine
hundredths of one percent."
(B) The reference to "4 percent" in Section 41(c)(4)(A)(ii) of the
Internal Revenue Code is modified to read "one and ninety-eight
hundredths of one 1 percent."
(C) The reference to "5 percent" in Section 41(c)(4)(A)(iii) of
the Internal Revenue Code is modified to read "two and forty-eight
hundredths of one 1 percent."
(2) Section 41(c)(4)(B) shall not apply and in lieu thereof an
election under Section 41(c)(4)(A) of the Internal Revenue Code may
be made for any taxable year of the taxpayer beginning on or after
January 1, 1998. That election shall apply to the taxable year for
which made and all succeeding taxable years unless revoked with the
consent of the Franchise Tax Board.
(3) Section 41(c)(7) of the Internal Revenue Code, relating to
gross receipts, is modified to take into account only those gross
receipts from the sale of property held primarily for sale to
customers in the ordinary course of the taxpayer's trade or business
that is delivered or shipped to a purchaser within this state,
regardless of f.o.b. point or any other condition of the sale.
(4) Section 41(c)(5) of the Internal Revenue Code, relating to
election of the alternative simplified credit, shall not apply.
(i) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.
(j) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough of credit, is modified by each of the
following:
(1) The last sentence shall not apply.
(2) If the amount determined under Section 41(a) of the Internal
Revenue Code for any taxable year exceeds the limitation of Section
41(g) of the Internal Revenue Code, that amount may be carried over
to other taxable years under the rules of subdivision (f), except
that the limitation of Section 41(g) of the Internal Revenue Code
shall be taken into account in each subsequent taxable year.
(k) Section 41(a)(3) of the Internal Revenue Code shall not apply.
(l) Section 41(b)(3)(D) of the Internal Revenue Code, relating to
amounts paid to eligible small businesses, universities, and federal
laboratories, shall not apply.
(m) Section 41(f)(6) of the Internal Revenue Code, relating to
energy research consortium, shall not apply.
(n) A taxpayer may sell a credit allowed under this section
pursuant to Article 4.5 (commencing with Section 12097) of Chapter
1.6 of Part 2 of Division 3 of Title 2 of the Government Code.
SEC. 5. This act provides for a tax levy within
the meaning of Article IV of the Constitution and shall go into
immediate effect.
