Bill Text: CA AB2037 | 2011-2012 | Regular Session | Amended
Bill Title: Income taxes: hiring credits: investment credits.
Spectrum: Partisan Bill (Democrat 6-0)
Status: (Introduced - Dead) 2012-08-16 - In committee: Set, second hearing. Held under submission. [AB2037 Detail]
Download: California-2011-AB2037-Amended.html
BILL NUMBER: AB 2037 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MAY 3, 2012
INTRODUCED BY Assembly Members Davis and V. Manuel Pérez
(Principal coauthors: Assembly Members Furutani, Gatto, and
Solorio)
(Principal coauthor: Senator Price)
FEBRUARY 23, 2012
An act to add and repeal Sections 17053.9 and 23622.9 of, and to
repeal and amend Sections 17053.80 and 23623 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 2037, as amended, Davis. Income taxes: hiring credits:
investment credits.
The Personal Income Tax Law and the Corporation Tax Law allow
various credits against the taxes imposed by those laws, including a
credit in the amount of $3,000 for each full-time employee hired by a
qualified employer applicable to taxable years beginning on or after
January 1, 2009, and ending upon a cut-off date calculated based
upon an estimate by the Franchise Tax Board of claims cumulatively
totaling $400,000,000 for all taxable years, as specified. Existing
law also creates the California Tax Credit Allocation Committee,
which has specified duties in regard to low-income housing credits.
This bill would instead calculate the cut-off date for the
above-described hiring credit based upon an estimate by the Franchise
Tax Board of claims cumulatively totaling $100,000,000 for all
taxable years, as specified.
This bill would also allow a credit under both laws, for taxable
years beginning on or after January 1, 2013, and before January 1,
2020, in a specified amount for investments in low-income
communities. The bill would limit the total amount of credit allowed
pursuant to these provisions to $50,000,000 per year. This bill would
impose specified duties on the California Tax Credit Allocation
Committee with regard to the application for, and allocation of, the
credit. The bill would require the committee to establish and impose
reasonable fees upon entities that apply for the allocation of the
credit and use the revenue to defray the cost of administering the
program, as specified, thereby making an appropriation. This bill
would also appropriate $150,000 from the Tax Credit Allocation Fee
Account to the committee for purposes of implementing the tax credit.
This bill would result in a change in state taxes for the purpose
of increasing state revenues 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 bill would take effect immediately as a tax levy.
Vote: 2/3. Appropriation: yes. 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) California is entering the sixth year of the worst economic
recession since the Great Depression.
(b) Due to a systemic budget problem, the state is suffering from
chronic revenue shortfalls based in part on increasing reliance on
revenues from personal income tax rolls.
(c) Investment in small business ventures is a proven method of
stimulating economic activity, creating new jobs, and generating
revenue by expanding the tax base.
(d) The federal New Markets Credit Tax Program, created in 2000
with bipartisan support, has been an effective means of stimulating
state and regional economies due to its provision allowing
the creation of matching state programs ability
to leverage additional federal funds for
investment capital benefitting local communities to
drive private investment in communities that would otherwise not have
had access to capital . These investments accrue to small
businesses, schools, and other business-related real estate projects.
(e) As of 2010, nine states, Ohio, Florida, Missouri, Louisiana,
Mississippi, Kentucky, Illinois, Oklahoma, and Connecticut, had
enacted matching state programs. On average, these states
successfully leveraged $13 in federal new Markets Tax Credit for
every dollar of state credits initially allocated for the state
program.
(f) In the 2010-11 fiscal year, $350 million of California's State
Hiring Tax Credit credits went unused.
(g) Given the current economic climate and the lack of use of the
state hiring tax credit, it is reasonable for the Legislature to
search for and consider other alternatives to stimulate hiring and
generate economic activity with a view to shortening the current
recession and promoting permanent economic recovery through the
creation of a New Markets Tax Credit Program .
(h) There are low-income communities in the state that face
multiple challenges in attracting private investment, including, but
not limited to, developing and maintaining a workforce that meets the
skill needs of local employers, an infrastructure that connects
local businesses to external markets, and neighborhoods that are not
disproportionately burdened with environmental pollutants, including
air, soil, and water contamination.
(i) Given the ability of the New Markets Tax Credit Program to
stimulate private investment activity in areas that would otherwise
not have access to investment capital, it is appropriate that the
state consider prioritizing a portion of the California New Markets
Tax Credit Program to encourage private investment in areas that face
multiple challenges in attracting investment capital.
SEC. 2. Section 17053.80 of the Revenue and Taxation Code, as
added by Section 3 of Chapter 10 of the Third Extraordinary Session
of the Statutes of 2009, is repealed.
SEC. 3. Section 17053.80 of the Revenue and Taxation Code, as
added by Section 3 of Chapter 17 of the Third Extraordinary Session
of the Statutes of 2009, is amended to read:
17053.80. (a) For each taxable year beginning on or after January
1, 2009, there shall be allowed as a credit against the "net tax,"
as defined in Section 17039, three thousand dollars ($3,000) for each
net increase in qualified full-time employees, as specified in
subdivision (c), hired during the taxable year by a qualified
employer.
(b) For purposes of this section:
(1) "Acquired" includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.
(2) "Qualified full-time employee" means:
(A) A qualified employee who was paid qualified wages during the
taxable year by the qualified employer for services of not less than
an average of 35 hours per week.
(B) A qualified employee who was a salaried employee and was paid
compensation during the taxable year for full-time employment, within
the meaning of Section 515 of the Labor Code, by the qualified
employer.
(3) A "qualified employee" shall not include any of the following:
(A) An employee certified as a qualified employee in an enterprise
zone designated in accordance with Chapter 12.8 (commencing with
Section 7070) of Division 7 of Title 1 of the Government Code.
(B) An employee certified as a qualified disadvantaged individual
in a manufacturing enhancement area designated in accordance with
Section 7073.8 of the Government Code.
(C) An employee certified as a qualified employee in a targeted
tax area designated in accordance with Section 7097 of the Government
Code.
(D) An employee certified as a qualified disadvantaged individual
or a qualified displaced employee in a local agency military base
recovery area (LAMBRA) designated in accordance with Chapter 12.97
(commencing with Section 7105) of Division 7 of Title 1 of the
Government Code.
(E) An employee whose wages are included in calculating any other
credit allowed under this part.
(4) "Qualified employer" means a taxpayer that, as of the last day
of the preceding taxable year, employed a total of 20 or fewer
employees.
(5) "Qualified wages" means wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance Code.
(6) "Annual full-time equivalent" means either of the following:
(A) 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 taxpayer by the employee (not to exceed 2,000 hours
per employee) divided by 2,000.
(B) In the case of a salaried full-time employee, "annual
full-time equivalent" means the total number of weeks worked for the
taxpayer by the employee divided by 52.
(c) The net increase in qualified full-time employees of a
qualified employer shall be determined as provided by this
subdivision:
(1) (A) The net increase in qualified full-time employees shall be
determined on an annual full-time equivalent basis by subtracting
from the amount determined in subparagraph (C) the amount determined
in subparagraph (B).
(B) The total number of qualified full-time employees employed in
the preceding taxable year by the taxpayer and by any trade or
business acquired by the taxpayer during the current taxable year.
(C) The total number of full-time employees employed in the
current taxable year by the taxpayer and by any trade or business
acquired during the current taxable year.
(2) For taxpayers who first commence doing business in this state
during the taxable year, the number of full-time employees for the
immediately preceding prior taxable year shall be zero.
(d) In the case where the credit allowed by this section exceeds
the "net tax," the excess may be carried over to reduce the "net tax"
in the following year, and succeeding seven years if necessary,
until the credit is exhausted.
(e) Any deduction otherwise allowed under this part for qualified
wages shall not be reduced by the amount of the credit allowed under
this section.
(f) For purposes of this section:
(1) All employees of the trades or businesses that are treated as
related under either Section 267, 318, or 707 of the Internal Revenue
Code shall be treated as employed by a single taxpayer.
(2) In determining whether the taxpayer has first commenced doing
business in this state during the taxable year, the provisions of
subdivision (f) of Section 17276.20, without application of paragraph
(7) of that subdivision, shall apply.
(g) (1) (A) Credit under this section and Section 23623 shall be
allowed only for credits claimed on timely filed original returns
received by the Franchise Tax Board on or before the cutoff date
established by the Franchise Tax Board.
(B) For purposes of this paragraph, the cutoff date shall be the
last day of the calendar quarter within which the Franchise Tax Board
estimates it will have received timely filed original returns
claiming credits under this section and Section 23623 that
cumulatively total one hundred million dollars ($100,000,000) for all
taxable years.
(2) The date a return is received shall be determined by the
Franchise Tax Board.
(3) (A) The determinations of the Franchise Tax Board with respect
to the cutoff date, the date a return is received, and whether a
return has been timely filed for purposes of this subdivision may not
be reviewed in any administrative or judicial proceeding.
(B) Any disallowance of a credit claimed due to a determination
under this subdivision, including the application of the limitation
specified in paragraph (1), shall be treated as a mathematical error
appearing on the return. Any amount of tax resulting from such
disallowance may be assessed by the Franchise Tax Board in the same
manner as provided by Section 19051.
(4) The Franchise Tax Board shall periodically provide notice on
its Internet Web site with respect to the amount of credit under this
section and Section 23623 claimed on timely filed original returns
received by the Franchise Tax Board.
(h) (1) The Franchise Tax Board may prescribe rules, guidelines,
or procedures necessary or appropriate to carry out the purposes of
this section, including any guidelines regarding the limitation on
total credits allowable under this section and Section 23623 and
guidelines necessary to avoid the application of paragraph (2) of
subdivision (f) through splitups, shell corporations, partnerships,
tiered ownership structures, or otherwise.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this section.
(i) This section shall remain in effect only until December 1 of
the calendar year after the year of the cutoff date, and as of that
December 1 is repealed.
SEC. 4. Section 17053.9 is added to the Revenue and Taxation Code,
to read:
17053.9. There is hereby created the California New Markets Tax
Credit Program as provided in this section and Section 23622.9. The
purpose of this program is to stimulate economic development, and
hasten California's economic recovery, by granting tax credits for
investment in California, including, but not limited to, retail
businesses, real property, financial institutions, and schools. The
California Tax Credit Allocation Committee shall have responsibility
for the administration of this program as provided in this section
and Section 23622.9. The program shall be as follows:
(a) (1) For taxable years beginning on or after January 1, 2013,
and before January 1, 2020, there shall be allowed to a taxpayer that
holds a qualified equity investment on a credit allowance date of
the investment which occurs during the taxable year, as a credit
against the "net tax," as defined in Section 17039, an amount equal
to the applicable percentage described in paragraph (2).
(2) For purposes of paragraph (1), the applicable percentage shall
be 39 percent of the qualified equity investment.
(b) For purposes of this section:
(1) "Credit allowance date" means, with respect to any qualified
equity investment, the date on which the investment is initially
made.
(2) "Equity investment" means either of the following:
(A) Any stock, other than nonqualified preferred stock as defined
in Section 351(g)(2) of the Internal Revenue Code, in an entity which
is a corporation.
(B) Any capital interest in an entity which is a partnership.
(3) (A) "Low-income community" means a population census tract
where any of the following applies:
(i) The tract has a poverty rate of at least 20 percent.
(ii) The tract is not located within a metropolitan area, and the
median family income does not exceed 80 percent of the statewide
median family income.
(iii) The tract is located within a metropolitan area, and the
median family income does not exceed 80 percent of the greater
statewide median family income or the metropolitan area median family
income.
(iv) The tract is located within a high migration rural county,
and the median income does not exceed 85 percent of the statewide
median family income. For purposes of this clause, "high migration
rural county" means a county which, during the 20-year period ending
with the year in which the most recent census was conducted, has a
net out migration of inhabitants from the county of at least 10
percent of the population of the county at the beginning of that
period.
(B) Where a community is in a location that is not tracted for
population census tracts, the equivalent county divisions shall be
used for purposes of determining poverty rates and median family
income.
(C) Where a community is in a population census tract with a
population of less than 2,000, the community shall be treated as a
low-income community if the tract is within an empowerment zone
designated under Section 1391 of the Internal Revenue Code and is
contiguous to one or more low-income communities, as determined under
this paragraph.
(D) When the United States Census Bureau discontinues using the
decennial census to report median family income on a census tract
basis, census block group data shall be used based on the American
Community Survey.
(4) (A) "Qualified active low-income community business" means,
with respect to any taxable year, a corporation, including a
nonprofit corporation, or partnership that, for that taxable year,
meets all of the following conditions:
(i) Derives at least 50 percent of its total gross income from the
active conduct of a qualified business in a low-income community in
California.
(ii) A substantial portion of the use of the tangible property of
the entity, whether owned or leased, is within a low-income community
in California. "Substantial portion" shall be defined as 40 percent
or more of the tangible property of the entity.
(iii) Less than 5 percent of the average of the aggregate
unadjusted base of the property of the entity is attributable to
collectibles, as defined in Section 408(m)(2) of the Internal Revenue
Code.
(iv) Less than 5 percent of the average of the aggregate
unadjusted base of the property of the entity is attributable to
nonqualified financial property, as defined in Section 1397C(e) of
the Internal Revenue Code.
(B) A "qualified active low-income community business" shall
include a business carried on by an individual as a proprietor, if
that business meets the requirements of subparagraph (A) were it
incorporated or a trade or business that would qualify if that trade
or business were separately incorporated.
(C) A "qualified active low-income community business" shall
include startup businesses.
(5) "Qualified business" has the same meaning as that in Section
1397C(d) of the Internal Revenue Code except that:
(A) In lieu of applying subparagraph (B) of paragraph (2), the
rental to others of real property located in any low-income community
shall be treated as a qualified business if there are substantial
improvements located on that real property.
(B) Paragraph (3) of that section shall not apply.
(6) (A) "Qualified community development entity" means a domestic
corporation or partnership that meets all of the following
conditions:
(i) Has a primary mission of serving, or providing investment
capital for, low-income communities or low-income persons.
(ii) Maintains accountability to residents of low-income
communities through their representation on any governing board of
the entity or on any advisory board to the entity.
(iii) Is certified by the California Tax Credit Allocation
Committee for purposes of this section as being a qualified community
development entity.
(B) A domestic corporation or partnership shall be deemed a
"qualified community development entity" if it has entered into an
allocation agreement with the Community Development Financial
Institutions Fund of the United States Department of the Treasury
with respect to credits authorized by Section 45D of the Internal
Revenue Code of 1986, as amended, and if the allocation agreement
includes the state within its service area.
(7) (A) "Qualified equity investment" means any equity investment
in a qualified community development entity if all of the following
conditions are met:
(i) The investment is acquired by the taxpayer at its original
issue, directly or through an underwriter, solely in exchange for
cash.
(ii) Substantially all of the cash is used by the qualified
community development entity to make low-income community
investments. This requirement shall be deemed met if at least 85
percent of the aggregate gross assets of the qualified community
development entity are invested in qualified low-income community
investments in California.
(iii) The investment is designated for purposes of this section by
the qualified community development entity.
(B) "Qualified equity investment" does not include any equity
investment issued by a qualified community development entity more
than one year after the date that the entity receives an allocation
under subdivision (d).
(C) A "qualified equity investment" shall include any equity
investment which would, notwithstanding clause (i) of subparagraph
(A), be a qualified equity investment in the hands of the taxpayer if
the investment was a qualified equity investment in the hands of a
prior holder.
(D) Section 1202(c)(3) of the Internal Revenue Code, relating to
purchases by a corporation of its own stock, shall apply.
(8) "Qualified low-income community investment" means any of the
following:
(A) Any capital or equity investment in, or loan to, a qualified
low-income community business.
(B) Any capital or equity investment in, or loan to, a real estate
project in a low-income community.
(C) The purchase from another qualified community development
entity of any loan made by that entity which is a qualified
low-income community investment.
(D) Financial counseling and other services in support of business
activities to businesses located in, and residents of, low-income
communities.
(E) Any equity investment in, or loan to, a qualified community
development entity.
(c) (1) The California Tax Credit Allocation Committee shall adopt
guidelines necessary or appropriate to carry out the purposes of
this section. The adoption of the guidelines shall not be subject to
the rulemaking provisions of the Administrative Procedure Act of
Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3
of Title 2 of the Government Code.
(2) The committee shall establish and impose reasonable fees upon
entities that apply for the allocation pursuant to subdivision (d)
and use the revenue to defray the cost of administering the program.
The committee shall establish the fees in a manner that ensures that
(A) the total amount collected equals the amount reasonably necessary
to defray the commission's costs in performing its administrative
duties under this section, and (B) the amount paid by each entity
reasonably corresponds with the value of the services provided to the
entity.
(3) In developing guidelines the committee shall adopt an
allocation process that does all of the following:
(A) Creates an equitable distribution process that ensures that
low-income communities across the state have an opportunity to
benefit from the program.
(B) Sets minimum organizational capacity standards that applicants
must meet in order to receive an allocation of credits.
(C) Requires annual reporting by each community development
organization that receives an allocation. The report shall include,
but is not limited to, the impact the credit had on the low-income
community, the amount of moneys used, and the types of activities
funded through the equity investment. The reporting period shall be
for a period of eight years following the allocation of credits.
(D) Provides for an annual return of unused credits so that they
may be reallocated to other community development entities.
(E) Requires the committee to annually reserve the following:
(i) At least 15 percent of the tax credits for community
development entities that target businesses located in low-income
communities facing disproportionate environmental pollution.
(ii) At least 15 percent of the tax credits for community
development entities that target rural areas, including businesses
providing equipment or supplies to agricultural producers, packers,
handlers, and processors.
(iii) At least 20 percent of the tax credits for community
development entities that target businesses in inner-city areas.
(4) The committee shall annually report on its Internet Web site
the information provided by low-income community development entities
and on the geographic distribution of the credits.
(d) (1) The aggregate amount of credit that may be allowed in any
calendar year pursuant to this section and Section 23622.9 shall be
an amount equal to the sum of the following:
(A) Fifty million dollars ($50,000,000) in credits for the 2012
calendar year and each calendar year thereafter, through and
including the 2019 calendar year.
(B) The unused credit amount, if any, for the preceding calendar
year.
(2) The aggregate amount of credit specified under paragraph (1)
shall be allocated by the California Tax Credit Allocation Committee
among entities that apply for the allocation. The California Tax
Credit Allocation Committee shall give priority to applications that
either are submitted by an entity that has a record of successfully
providing capital or technical assistance to disadvantaged businesses
or communities or entities that intend to make qualified low-income
community investments in one or more businesses in which persons
unrelated to the entity hold the majority equity interest.
(e) Any credits used under subdivision (a) for a qualified equity
investment where a recapture event occurs at any time before the
close of the seventh taxable year after the qualified equity
investment shall be included in the income in the taxable year in
which the recapture event occurred. For purposes of this subdivision,
a "recapture event" shall include any of the following that occur
any time before the close of the seventh taxable year after the
qualified equity investment in a qualified community development
entity:
(1) The qualified community development entity ceases to be a
qualified community development entity.
(2) The proceeds of the investment cease to be used as required
under clause (ii) of subparagraph (A) of paragraph (7) of subdivision
(b).
(3) The investment is redeemed by a qualified community
development entity.
(f) An exception to the provisions of clause (ii) of subparagraph
(A) of paragraph (7) of subdivision (b) shall exist wherein an
investment shall be considered held by a community development entity
even if the investment has been sold or repaid, provided that the
community development entity reinvests an amount equal to the capital
returned to or recovered by the community development entity from
the original investment, exclusive of any profits realized, in
another qualified low-income community investment within 12 months of
the receipt of that capital. A community development entity shall
not be required to reinvest capital returned from qualified
low-income community investments after the sixth anniversary of the
issuance of the qualified equity investment, the proceeds of which
were used to make the qualified low-income community investment, and
the qualified low-income community investment shall be considered
held by the community development entity through the seventh
anniversary of the qualified equity investment's issuance.
(g) This section shall remain in effect only until December 1,
2020, and as of that date is repealed.
SEC. 5. Section 23622.9 is added to the Revenue and Taxation Code,
to read:
23622.9. There is hereby created the California New Markets Tax
Credit Program as provided in this section and Section 17053.9. The
purpose of this program is to stimulate economic development, and
hasten California's economic recovery, by granting tax credits for
investment in California, including, but not limited to, retail
businesses, real property, financial institutions, and schools. The
California Tax Credit Allocation Committee shall have responsibility
for the administration of this program as provided in this section
and Section 17053.9. The program shall be as follows:
(a) (1) For taxable years beginning on or after January 1, 2013,
and before January 1, 2020, there shall be allowed to a taxpayer that
holds a qualified equity investment on a credit allowance date of
the investment which occurs during the taxable year, as a credit
against the "tax," as defined in Section 23036, an amount equal to
the applicable percentage described in paragraph (2).
(2) For purposes of paragraph (1), the applicable percentage shall
be 39 percent of the qualified equity investment.
(b) For purposes of this section:
(1) "Credit allowance date" means, with respect to any qualified
equity investment, the date on which the investment is initially
made.
(2) "Equity investment" means either of the following:
(A) Any stock, other than nonqualified preferred stock as defined
in Section 351(g)(2) of the Internal Revenue Code, in an entity which
is a corporation.
(B) Any capital interest in an entity which is a partnership.
(3) (A) "Low-income community" means a population census tract
where any of the following applies:
(i) The tract has a poverty rate of at least 20 percent.
(ii) The tract is not located within a metropolitan area, and the
median family income does not exceed 80 percent of the statewide
median family income.
(iii) The tract is located within a metropolitan area, and the
median family income does not exceed 80 percent of the greater
statewide median family income or the metropolitan area median family
income.
(iv) The tract is located within a high migration rural county and
the median income does not exceed 85 percent of the statewide median
family income. For purposes of this clause, "high migration rural
county" means a county which, during the 20-year period ending with
the year in which the most recent census was conducted, has a net out
migration of inhabitants from the county of at least 10 percent of
the population of the county at the beginning of that period.
(B) Where a
community is in a location that is not tracted for population census
tracts, the equivalent county divisions shall be used for purposes of
determining poverty rates and median family income.
(C) Where a community is in a population census tract with a
population of less than 2,000, the community shall be treated as a
low-income community if the tract is within an empowerment zone
designated under Section 1391 of the Internal Revenue Code and is
contiguous to one or more low-income communities, as determined under
this paragraph.
(D) When the United States Census Bureau discontinues using the
decennial census to report median family income on a census tract
basis, census block group data shall be used based on the American
Community Survey.
(4) (A) "Qualified active low-income community business" means,
with respect to any taxable year, a corporation, including a
nonprofit corporation, or partnership that, for that taxable year,
meets all of the following conditions:
(i) Derives at least 50 percent of its total gross income from the
active conduct of a qualified business in a low-income community in
California.
(ii) A substantial portion of the use of the tangible property of
the entity, whether owned or leased, is within a low-income community
in California. "Substantial portion" shall be defined as 40 percent
or more of the tangible property of the entity.
(iii) Less than 5 percent of the average of the aggregate
unadjusted base of the property of the entity is attributable to
collectibles, as defined in Section 408(m)(2) of the Internal Revenue
Code.
(iv) Less than 5 percent of the average of the aggregate
unadjusted base of the property of the entity is attributable to
nonqualified financial property, as defined in Section 1397C(e) of
the Internal Revenue Code.
(B) A "qualified active low-income community business" shall
include a business carried on by an individual as a proprietor, if
that business meets the requirements of subparagraph (A) were it
incorporated or a trade or business that would qualify if that trade
or business were separately incorporated.
(C) A "qualified active low-income community business" shall
include startup businesses.
(5) "Qualified business" has the same meaning as that in Section
1397C(d) of the Internal Revenue Code except that:
(A) In lieu of applying subparagraph (B) of paragraph (2), the
rental to others of real property located in any low-income community
shall be treated as a qualified business if there are substantial
improvements located on that real property.
(B) Paragraph (3) of that section shall not apply.
(6) (A) "Qualified community development entity" means a domestic
corporation or partnership that meets all of the following
conditions:
(i) Has a primary mission of serving, or providing investment
capital for, low-income communities or low-income persons.
(ii) Maintains accountability to residents of low-income
communities through their representation on any governing board of
the entity or on any advisory board to the entity.
(iii) Is certified by the California Tax Credit Allocation
Committee for purposes of this section as being a qualified community
development entity.
(B) A domestic corporation or partnership shall be deemed a
"qualified community development entity" if it has entered into an
allocation agreement with the Community Development Financial
Institutions Fund of the United States Department of the Treasury
with respect to credits authorized by Section 45D of the Internal
Revenue Code of 1986, as amended, and if the allocation agreement
includes the state within its service area.
(7) (A) "Qualified equity investment" means any equity investment
in a qualified community development entity if all of the following
conditions are met:
(i) The investment is acquired by the taxpayer at its original
issue, directly or through an underwriter, solely in exchange for
cash.
(ii) Substantially all of the cash is used by the qualified
community development entity to make low-income community
investments. This requirement shall be deemed met if at least 85
percent of the aggregate gross assets of the qualified community
development entity are invested in qualified low-income community
investments in California.
(iii) The investment is designated for purposes of this section by
the qualified community development entity.
(B) "Qualified equity investment" does not include any equity
investment issued by a qualified community development entity more
than one year after the date that the entity receives an allocation
under subdivision (d).
(C) A "qualified equity investment" shall include any equity
investment which would, notwithstanding clause (i) of subparagraph
(A), be a qualified equity investment in the hands of the taxpayer if
the investment was a qualified equity investment in the hands of a
prior holder.
(D) Section 1202(c)(3) of the Internal Revenue Code, relating to
purchases by a corporation of its own stock, shall apply.
(8) "Qualified low-income community investment" means any of the
following:
(A) Any capital or equity investment in, or loan to, a qualified
low-income community business.
(B) Any capital or equity investment in, or loan to, a real estate
project in a low-income community.
(C) The purchase from another qualified community development
entity of any loan made by that entity which is a qualified
low-income community investment.
(D) Financial counseling and other services in support of business
activities to businesses located in, and residents of, low-income
communities.
(E) Any equity investment in, or loan to, a qualified community
development entity.
(c) (1) The California Tax Credit Allocation Committee shall
adopt guidelines necessary or appropriate to carry out the purposes
of this section. The adoption of the guidelines shall not be subject
to the rulemaking provisions of the Administrative Procedure Act of
Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3
of Title 2 of the Government Code.
(2) The committee shall establish and impose reasonable fees upon
entities that apply for the allocation pursuant to subdivision (d)
and use the revenue to defray the cost of administering the program.
The committee shall establish the fees in a manner that ensures that
(A) the total amount collected equals the amount reasonably necessary
to defray the commission's costs in performing its administrative
duties under this section, and (B) the amount paid by each entity
reasonably corresponds with the value of the services provided to the
entity.
(3) In developing guidelines the committee shall adopt an
allocation process that does all of the following:
(A) Creates an equitable distribution process that ensures that
low-income communities across the state have an opportunity to
benefit from the program.
(B) Sets minimum organizational capacity standards that applicants
must meet in order to receive an allocation of credits.
(C) Requires annual reporting by each community development
organization that receives an allocation. The report shall include,
but is not limited to, the impact the credit had on the low-income
community, the amount of moneys used, and the types of activities
funded through the equity investment. The reporting period shall be
for a period of eight years following the allocation of credits.
(D) Provides for an annual return of unused credits so that they
may be reallocated to other community development entities.
(E) Requires the committee to annually reserve the following:
(i) At least 15 percent of the tax credits for community
development entities that target businesses located in low-income
communities facing disproportionate environmental pollution.
(ii) At least 15 percent of the tax credits for community
development entities that target rural areas, including businesses
providing equipment or supplies to agricultural producers, packers,
handlers, and processors.
(iii) At least 20 percent of the tax credits for community
development entities that target businesses in inner-city areas.
(4) The committee shall annually report on its Internet Web site
the information provided by low-income community development entities
and on the geographic distribution of the credits.
(d) (1) The aggregate amount of credit that may be allowed in any
calendar year pursuant to this section and Section 17053.9 shall be
an amount equal to the sum of the following:
(A) Fifty million dollars ($50,000,000) in credits for the 2012
calendar year and each calendar year thereafter, through and
including the 2019 calendar year.
(B) The unused credit amount, if any, for the preceding calendar
year.
(2) The aggregate amount of credit specified under paragraph (1)
shall be allocated by the California Tax Credit Allocation Committee
among entities that apply for the allocation. The California Tax
Credit Allocation Committee shall give priority to applications that
either are submitted by an entity that has a record of successfully
providing capital or technical assistance to disadvantaged businesses
or communities or entities that intend to make qualified low-income
community investments in one or more businesses in which persons
unrelated to the entity hold the majority equity interest.
(e) Any credits used under subdivision (a) for a qualified equity
investment where a recapture event occurs at any time before the
close of the seventh taxable year after the qualified equity
investment shall be included in the income in the taxable year in
which the recapture event occurred. For purposes of this subdivision,
a "recapture event" shall include any of the following that occur
any time before the close of the seventh taxable year after the
qualified equity investment in a qualified community development
entity:
(1) The qualified community development entity ceases to be a
qualified community development entity.
(2) The proceeds of the investment cease to be used as required
under clause (ii) of subparagraph (A) of paragraph (7) of subdivision
(b).
(3) The investment is redeemed by a qualified community
development entity.
(f) An exception to the provisions of clause (ii) of subparagraph
(A) of paragraph (7) of subdivision (b) shall exist wherein an
investment shall be considered held by a community development entity
even if the investment has been sold or repaid, provided that the
community development entity reinvests an amount equal to the capital
returned to or recovered by the community development entity from
the original investment, exclusive of any profits realized, in
another qualified low-income community investment within 12 months of
the receipt of that capital. A community development entity shall
not be required to reinvest capital returned from qualified
low-income community investments after the sixth anniversary of the
issuance of the qualified equity investment, the proceeds of which
were used to make the qualified low-income community investment, and
the qualified low-income community investment shall be considered
held by the community development entity through the seventh
anniversary of the qualified equity investment's issuance.
(g) This section shall remain in effect only until December 1,
2020, and as of that date is repealed.
SEC. 6. Section 23623 of the Revenue and Taxation Code, as added
by Section 8 of Chapter 10 of the Third Extraordinary Session of the
Statutes of 2009, is repealed.
SEC. 7. Section 23623 of the Revenue and Taxation Code, as added
by Section 8 of Chapter 17 of the Third Extraordinary Session of the
Statutes of 2009, is amended to read:
23623. (a) For each taxable year beginning on or after January 1,
2009, there shall be allowed as a credit against the "tax," as
defined in Section 23036, three thousand dollars ($3,000) for each
net increase in qualified full-time employees, as specified in
subdivision (c), hired during the taxable year by a qualified
employer.
(b) For purposes of this section:
(1) "Acquired" includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.
(2) "Qualified full-time employee" means:
(A) A qualified employee who was paid qualified wages during the
taxable year by the qualified employer for services of not less than
an average of 35 hours per week.
(B) A qualified employee who was a salaried employee and was paid
compensation during the taxable year for full-time employment, within
the meaning of Section 515 of the Labor Code, by the qualified
employer.
(3) A "qualified employee" shall not include any of the following:
(A) An employee certified as a qualified employee in an enterprise
zone designated in accordance with Chapter 12.8 (commencing with
Section 7070) of Division 7 of Title 1 of the Government Code.
(B) An employee certified as a qualified disadvantaged individual
in a manufacturing enhancement area designated in accordance with
Section 7073.8 of the Government Code.
(C) An employee certified as a qualified employee in a targeted
tax area designated in accordance with Section 7097 of the Government
Code.
(D) An employee certified as a qualified disadvantaged individual
or a qualified displaced employee in a local agency military base
recovery area (LAMBRA) designated in accordance with Chapter 12.97
(commencing with Section 7105) of Division 7 of Title 1 of the
Government Code.
(E) An employee whose wages are included in calculating any other
credit allowed under this part.
(4) "Qualified employer" means a taxpayer that, as of the last day
of the preceding taxable year, employed a total of 20 or fewer
employees.
(5) "Qualified wages" means wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance Code.
(6) "Annual full-time equivalent" means either of the following:
(A) 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 taxpayer by the employee (not to exceed 2,000 hours
per employee) divided by 2,000.
(B) In the case of a salaried full-time employee, "annual
full-time equivalent" means the total number of weeks worked for the
taxpayer by the employee divided by 52.
(c) The net increase in qualified full-time employees of a
qualified employer shall be determined as provided by this
subdivision:
(1) (A) The net increase in qualified full-time employees shall be
determined on an annual full-time equivalent basis by subtracting
from the amount determined in subparagraph (C) the amount determined
in subparagraph (B).
(B) The total number of qualified full-time employees employed in
the preceding taxable year by the taxpayer and by any trade or
business acquired by the taxpayer during the current taxable year.
(C) The total number of full-time employees employed in the
current taxable year by the taxpayer and by any trade or business
acquired during the current taxable year.
(2) For taxpayers who first commence doing business in this state
during the taxable year, the number of full-time employees for the
immediately preceding prior taxable year shall be zero.
(d) 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 seven years if necessary, until the
credit is exhausted.
(e) Any deduction otherwise allowed under this part for qualified
wages shall not be reduced by the amount of the credit allowed under
this section.
(f) For purposes of this section:
(1) All employees of the trades or businesses that are treated as
related under either Section 267, 318, or 707 of the Internal Revenue
Code shall be treated as employed by a single taxpayer.
(2) In determining whether the taxpayer has first commenced doing
business in this state during the taxable year, the provisions of
subdivision (g) of Section 24416.20, without application of paragraph
(7) of that subdivision, shall apply.
(g) (1) (A) Credit under this section and Section 17053.80 shall
be allowed only for credits claimed on timely filed original returns
received by the Franchise Tax Board on or before the cutoff date
established by the Franchise Tax Board.
(B) For purposes of this paragraph, the cutoff date shall be the
last day of the calendar quarter within which the Franchise Tax Board
estimates it will have received timely filed original returns
claiming credits under this section and Section 17053.80 that
cumulatively total one hundred million dollars ($100,000,000) for all
taxable years.
(2) The date a return is received shall be determined by the
Franchise Tax Board.
(3) (A) The determinations of the Franchise Tax Board with respect
to the cutoff date, the date a return is received, and whether a
return has been timely filed for purposes of this subdivision may not
be reviewed in any administrative or judicial proceeding.
(B) Any disallowance of a credit claimed due to a determination
under this subdivision, including the application of the limitation
specified in paragraph (1), shall be treated as a mathematical error
appearing on the return. Any amount of tax resulting from such
disallowance may be assessed by the Franchise Tax Board in the same
manner as provided by Section 19051.
(4) The Franchise Tax Board shall periodically provide notice on
its Internet Web site with respect to the amount of credit under this
section and Section 17053.80 claimed on timely filed original
returns received by the Franchise Tax Board.
(h) (1) The Franchise Tax Board may prescribe rules, guidelines,
or procedures necessary or appropriate to carry out the purposes of
this section, including any guidelines regarding the limitation on
total credits allowable under this section and Section 17053.80 and
guidelines necessary to avoid the application of paragraph (2) of
subdivision (f) through splitups, shell corporations, partnerships,
tiered ownership structures, or otherwise.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this section.
(i) This section shall remain in effect only until December 1 of
the calendar year after the year of the cutoff date, and as of that
December 1 is repealed.
SEC. 8. Notwithstanding Section 50199.9 of the Health and Safety
Code, or any other law, the sum of one hundred fifty thousand dollars
($150,000) is hereby appropriated from the Tax Credit Allocation Fee
Account to the California Tax Credit Allocation Committee for
purposes of implementing the California New Markets Tax Credit
Program as provided in Sections 17053.9 and 23622.9 of the Revenue
and Taxation Code. The appropriated funds shall remain in the Tax
Credit Allocation Fee Account until such time as the funds are
required for purposes of implementing this new program, and shall
only be available for expenditure until January 1, 2020. It is the
intent of the Legislature that these appropriated funds shall be
reimbursed by the application fees collected by the committee for
this new program.
SEC. 9. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.
