Bill Text: CA AB829 | 2009-2010 | Regular Session | Amended
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Sales and use tax: exemption: manufacturing equipment.
Spectrum: Slight Partisan Bill (Democrat 8-3)
Status: (Introduced - Dead) 2010-02-02 - From committee: Filed with the Chief Clerk pursuant to Joint Rule 56. [AB829 Detail]
Download: California-2009-AB829-Amended.html
Bill Title: Sales and use tax: exemption: manufacturing equipment.
Spectrum: Slight Partisan Bill (Democrat 8-3)
Status: (Introduced - Dead) 2010-02-02 - From committee: Filed with the Chief Clerk pursuant to Joint Rule 56. [AB829 Detail]
Download: California-2009-AB829-Amended.html
BILL NUMBER: AB 829 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MAY 26, 2009
AMENDED IN ASSEMBLY APRIL 14, 2009
INTRODUCED BY Assembly Member Caballero
( Coauthors: Assembly Members
Coto, Fletcher, Galgiani,
Jeffries, Lieu, and Portantino )
( Coauthors: Senators
Ashburn, Calderon, and Correa )
FEBRUARY 26, 2009
An act to amend Sections 17276, 17276.9, 17276.10, 24416,
24416.9, 24416.10, and 25128.5 of, and to add Section 6377 to,
and to add and repeal Sections 17053.91 and 23649.1 of,
the Revenue and Taxation Code, relating to taxation, to
take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 829, as amended, Caballero. Sales and use tax: personal and
corporate income tax: manufacturers' credit and exemption.
tax.
(1) The
The Sales and Use Tax Law imposes a tax on retailers
measured by the gross receipts from the sale of tangible personal
property sold at retail in this state, or on the storage, use, or
other consumption in this state of tangible personal property
purchased from a retailer for storage, use, or other consumption in
this state, and provides various exemptions from the taxes imposed by
that law.
This bill would exempt from a specified portion of those taxes,
for calendar years beginning on or after January 1, 2013, and
before January 1, 2020, the gross receipts from the
sale of, and the storage, use, or other consumption of, sustainable
development equipment investments of tangible personal property
purchased for use by a qualified person to be used in manufacturing
or other processes , as specified, and tangible personal property
purchased by a qualified person and used primarily during the
research and development process for qualified research, as defined.
This bill would specify that this exemption does not apply to
local sales and use taxes or transactions and use taxes.
(2) The Personal Income Tax Law and the Corporation Tax Law
authorizes various credits against the taxes imposed by those laws.
This bill would allow a credit in amount equal to a specified
portion of the amount of sales tax reimbursement paid to a retailer
or use tax paid on a purchase of tangible personal property with
respect to taxes paid on transactions occurring between January 1,
2010, and January 1, 2013, that are imposed under the Sales and Use
Tax Law for the sale of, or the storage, use, or other consumption in
this state of, tangible personal property purchased for use by a
qualified person in manufacturing, processing, refining, fabricating,
or recycling of property, tangible personal property purchased for
use by a contractor for a specified purpose, sustainable development
equipment investments of tangible personal property purchased for
specified use, and tangible personal property used, but not consumed,
primarily during the research and development process for qualified
research, as defined. The credit would be applied in equal amounts
over three successive taxable years beginning with the first taxable
year beginning on or after January 1, 2013.
Existing law allows individual and corporate taxpayers to utilize
net operating losses and carryovers of those losses for purposes of
offsetting their individual and corporate tax liabilities. Existing
law allows net operating losses attributable to taxable years
beginning on or after January 1, 2011, to be carrybacks to each of
the preceding 2 taxable years.
This bill would delete those net operating loss carryback
provisions.
The Corporation Tax Law imposes taxes measured by income and, in
the case of a business with income derived from or attributable to
sources both within and without this state, apportions the income
between this state and other states and foreign countries in
accordance with a specified 4-factor formula based on the property,
payroll, and sales within and without this state, except that in the
case of an apportioning trade or business that derives more than 50%
of its gross business receipts from conducting one or more qualified
business activities, as defined, business income is apportioned in
accordance with a specified 3-factor formula. That law, for taxable
years beginning on or after January 1, 2011, allows a taxpayer to
make an irrevocable annual election to have that income apportioned
in accordance with a single sales factor formula, except as provided.
This bill would require the election to be for 84 months.
(3) This
This bill would take effect immediately as a tax levy.
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. It is the intent of the Legislature to enact a
competitive tax policy for manufacturers by providing for partial
exemptions from state sales and use taxes for the sale of and the
storage, use, or other consumption of specified manufacturing
equipment and for sustainable manufacturing and research and
development equipment investments used in the manufacturing process.
SEC. 2. Section 6377 is added to the Revenue and Taxation Code, to
read:
6377. On and after January 1, 2013, and before January 1,
2020, there are exempted from the taxes imposed by this part
the gross receipts from the sale of, and the storage, use, or other
consumption in this state of, all of the following:
(1) Tangible personal property purchased by a qualified person for
use primarily in any stage of the manufacturing, processing,
refining, fabricating, or recycling of property, beginning at the
point any raw materials are received by the qualified person and
introduced into the process and ending at the point at which the
manufacturing, processing, refining, fabricating, or recycling has
altered property to its completed form, including packaging, if
required.
(2) Tangible personal property purchased for use by a contractor
purchasing that property for use in the performance of a construction
contract for the qualified person who will use the property as an
integral part of the manufacturing, processing, refining,
fabricating, or recycling process, or as a storage facility for use
in connection with the manufacturing process.
(3) Sustainable development equipment investments of tangible
personal property purchased by a qualified person for use primarily
in any stage of the manufacturing, processing, refining, fabricating,
or recycling of property beginning at the point any raw materials
are received by the qualified person and introduced into the process
and ending at the point at which the manufacturing, processing,
refining, fabricating, or recycling has altered property to its
completed form, including packaging, if required.
(4) Tangible personal property used
purchased by a qualified person for use primarily during the
research and development process on qualified research.
(b) For purposes of this section:
(1) "Fabricating" means to make, build, create, produce, or
assemble components or property to work in a new or different manner.
(2) "Manufacturing" means the activity of converting or
conditioning property by changing the form, composition, quality, or
character of the property for ultimate sale at retail or use in the
manufacturing of a product to be ultimately sold at retail.
Manufacturing includes any improvements to tangible personal property
that result in a greater service life or greater functionality than
that of the original property.
(3) "Primarily" means tangible personal property used 50 percent
or more of the time in an activity described in subdivision (a).
(4) "Process" means the period beginning at the point at which any
raw materials are received by the qualified taxpayer and introduced
into the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer and ending at the point
at which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified person has altered tangible
personal property to its completed form, including packaging, if
required. Raw materials shall be considered to have been introduced
into the process when the raw materials are stored on the same
premises where the qualified person's manufacturing, processing,
refining, or recycling activity is conducted. Raw materials that are
stored on premises other than where the qualified person's
manufacturing, processing, refining, fabricating, or recycling
activity is conducted, shall not be considered to have been
introduced into the manufacturing, processing, refining, fabricating,
or recycling process.
(5) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.
(6) "Qualified person" means either of the following:
(A) A person who is primarily engaged in those lines of
business described in Codes 3111 to 3399, inclusive, or 5112 of the
North American Industrial Classification System (NAICS) published by
the United States Office of Management and Budget (OMB), 2002
edition.
(B) An affiliate of a person described in subparagraph (A)
provided that the affiliate is a member of the qualified person's
unitary group for which a combined report is required to be filed
under Article 1 (commencing with Section 25101) of Chapter 17 of Part
11.
(7) "Qualified research" means research that meets the
requirements of Section 174 of the Internal Revenue Code.
(8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
(9) "Sustainable development equipment" means qualified
manufacturing or research and development equipment that meets any of
the following:
(A) Is consistent with meeting the goals and objectives of
compliance with greenhouse gas emissions standards as set forth in
Division 25.5 (commencing with Section 38500) of the Health and
Safety Code.
(B) Promotes the reduction of wasteful, inefficient, unnecessary,
or uneconomic uses of energy.
(C) Encourages the utilization of cost-effective water use
efficiency practices to curtail the waste of water and to ensure that
water use does not exceed reasonable needs.
(D) Promotes the utilization of recycled or reusable materials in
the manufacturing process.
(10) "Tangible personal property" includes, but is not limited to,
all of the following:
(A) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.
(B) Equipment or devices used or required to operate, control,
regulate, or maintain the machinery and equipment, including, without
limitation, computers, data processing equipment, and computer
software, together with all repair and replacement parts with a
useful life of one or more years, whether purchased separately or in
conjunction with a complete machine and regardless of whether the
machine or component parts are assembled by the qualified person or
another party.
(C) Property used in pollution control that meets standards
established by this state or any local or regional governmental
agency within this state.
(D) Special purpose buildings and foundations used as an integral
part of the manufacturing, processing, refining, or fabricating
process, or that constitute a research or storage facility used
during the manufacturing process.
(E) Fuels used or consumed in the manufacturing process.
(11) "Tangible personal property" does not include any of the
following:
(A) Consumables with a normal useful life of less than one year,
except as provided in subparagraph (E) of paragraph (10).
(B) Furniture, inventory, and equipment used in the extraction
process, or equipment used to store finished products that have
completed the manufacturing process.
(C) Buildings or components of buildings used solely for
warehousing purposes after completion of the manufacturing process.
(D) Tangible personal property used primarily in administration,
general management, or marketing.
(c) No exemption shall be allowed under this section unless the
purchaser furnishes the retailer with an exemption certificate,
completed in accordance with any instructions or regulations as the
board may prescribe.
(d) Notwithstanding any provision of the Bradley-Burns Uniform
Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200))
or the Transactions and Use Tax Law (Part 1.6 (commencing with
Section 7251)), the exemption established by this section shall not
apply with respect to any tax levied by a county, city, or district
pursuant to, or in accordance with, either of those laws.
(e) (1) Notwithstanding subdivision (a), the exemption provided by
this section shall not apply to any sale or use of property that,
within one year from the date of purchase, is either removed from
California, converted from an exempt use under subdivision (a) to
some other use not qualifying for the exemption, or used in a manner
not qualifying for the exemption.
(2) Notwithstanding subdivision (a), the exemption established by
paragraphs (1) and (2) of subdivision (a) shall not apply with
respect to any tax levied pursuant to Sections 6051.2, 6051.5,
6051.7, 6201.2, 6201.5, or 6201.7 or pursuant to Section 35 of
Article XIII of the California Constitution.
(3) Notwithstanding subdivision (a), the exemption established by
paragraphs (3) and (4) of subdivision (a) shall not apply with
respect to any tax levied pursuant to Section 6051.2, 6051.5, 6201.2,
or 6201.5 or pursuant to Section 35 of Article XIII of the
California Constitution.
(f) If a purchaser certifies in writing to the seller that the
property purchased without payment of the tax will be used in a
manner entitling the seller to regard the gross receipts from the
sale as exempt from the sales tax, and within one year from the date
of purchase, the purchaser (1) removes that property outside
California, (2) converts that property for use in a manner not
qualifying for the exemption, or (3) uses that property in a manner
not qualifying for the exemption, the purchaser shall be liable for
payment of sales tax, with applicable interest, as if the purchaser
were a retailer making a retail sale of the property at the time the
property is so removed, converted, or used, and the sales price of
the property to the purchaser shall be deemed the gross receipts from
that retail sale.
SEC. 3. Section 17276 of the Revenue
and Taxation Code is amended to read:
17276. 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 a 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 the amount of 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
net operating loss carrybacks and carryovers and the years to which
the loss may be carried, is modified as follows:
(1)
(c) Net operating loss carrybacks shall not be allowed
for any net operating losses attributable to taxable years
beginning before January 1, 2011 .
(2) A net operating loss attributable to taxable years beginning
on or after January 1, 2011, 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, 2011, and before January 1, 2012,
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, 2012, and before January 1, 2013,
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, 2013, 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
Sections 172(b)(1)(E) and 172(h) of the Internal Revenue Code,
relating to corporate equity reduction interest loss, shall apply as
provided.
(4) A net operating loss carryback shall not be carried back to
any taxable year beginning before January 1, 2009.
(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, relating to
years to which net operating losses may be carried, 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, relating to years to which net
operating losses may be carried, 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.
(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) of this subdivision.
(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 United States 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. 4. Section 1727 6.9 of the
Revenue and Taxation Code is amended to read:
17276.9. (a) Notwithstanding Sections 17276, 17276.1, 17276.2,
17276.4, 17276.5, 17276.6, and 17276.7 of this code and Section 172
of the Internal Revenue Code, no net operating loss deduction shall
be allowed for any taxable year beginning on or after January 1,
2008, and before January 1, 2010.
(b) For any net operating loss or carryover of a net operating
loss for which a deduction is denied by subdivision (a), the
carryover period under Section 172 of the Internal Revenue Code shall
be extended as follows:
(1) By one year, for losses incurred in taxable years beginning on
or after January 1, 2008, and before January 1, 2009.
(2) By two years, for losses incurred in taxable years beginning
before January 1, 2008.
(c) Notwithstanding subdivision (a), a net operating loss
deduction shall be allowed for carryback of a net operating loss
attributable to a taxable year beginning on or after January 1, 2011.
(d)
(c) The provisions of this section shall not apply to a
taxpayer with net business income of less than five hundred thousand
dollars ($500,000) for the taxable year. For purposes of this
subdivision, business income means:
(1) Income from a trade or business, whether conducted by the
taxpayer or by a passthrough entity owned directly or indirectly by
the taxpayer. For purposes of this paragraph, the term "passthrough
entity" means a partnership or an "S" corporation.
(2) Income from rental activity.
(3) Income attributable to a farming business.
SEC. 5. Section 17276.10 of the Revenue
and Taxation Code is amended to read:
17276.10. Notwithstanding Section 17276.1, 17276.2, 17276.4,
17276.5, 17276.6, or 17276.7 to the contrary, a net operating loss
attributable to a taxable year beginning on or after January 1, 2008,
shall be a net operating carryover to each of the 20 taxable years
following the year of the loss , and a net operating loss
attributable to a taxable year beginning on or after January 1, 2011,
shall also be a net operating loss carryback to each of the two
taxable years preceding the taxable year of loss .
SEC. 6. Section 24416 of the Revenue
and Taxation Code is amended to read:
24416. 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 the amount of 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
net operating loss carrybacks and carryovers and the years to which
the loss may be carried, is modified as follows:
(1)
(d) Net operating loss carrybacks shall not be allowed
for any net operating losses attributable to taxable years
beginning before January 1, 2011 .
(2) A net operating loss attributable to taxable years beginning
on or after January 1, 2011, 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, 2011, and before January 1, 2012,
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, 2012, and before January 1, 2013,
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, 2013, 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
Sections 172(b)(1)(E) and 172(h) of the Internal Revenue Code,
relating to corporate equity reduction interest loss, shall apply as
provided.
(4) A net operating loss carryback shall not be carried back to
any taxable year beginning before January 1, 2009.
(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, relating to
years to which net operating losses may be carried, 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, relating to years to which net
operating losses may be carried, 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.
(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) of this subdivision.
(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 United States 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.
() 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. 7. Section 24416.9 of the Revenue
and Taxation Code is amended to read:
24416.9. (a) Notwithstanding Sections 24416, 24416.1, 24416.2,
24416.4, 24416.5, 24416.6, and 24416.7 of this code and Section 172
of the Internal Revenue Code, no net operating loss deduction shall
be allowed for any taxable year beginning on or after January 1,
2008, and before January 1, 2010.
(b) For any net operating loss or carryover of a net operating
loss for which a deduction is denied by subdivision (a), the
carryover period under Section 172 of the Internal Revenue Code shall
be extended as follows:
(1) By one year, for losses incurred in taxable years beginning on
or after January 1, 2008, and before January 1, 2009.
(2) By two years, for losses incurred in taxable years beginning
before January 1, 2008.
(c) Notwithstanding subdivision (a), a net operating loss
deduction shall be allowed for carryback of a net operating loss
attributable to a taxable year beginning on or after January 1, 2011.
(d)
(c) The provisions of this section shall not apply to a
taxpayer with income subject to tax under this part of less than
five hundred thousand dollars ($500,000) for the taxable year.
SEC. 8. Section 24416.10 of the Revenue
and Taxation Code is amended to read:
24416.10. Notwithstanding Section 24416.1, 24416.2, 24416.4,
24416.5, 24416.6, or 24416.7 to the contrary, a net operating loss
attributable to a taxable year beginning on or after January 1, 2008,
shall be a net operating carryover to each of the 20 taxable years
following the year of the loss , and a net operating loss
attributable to a taxable year beginning on or after January 1, 2011,
shall also be a net operating loss carryback to each of the two
taxable years preceding the taxable year of loss .
SEC. 9. Section 25128.5 of the Revenue
and Taxation Code , as added by Section 11 of Chapter 10 of
the 3rd Extraordinary Session of the Statutes of 2009, is
amended to read:
25128.5. (a) Notwithstanding Section 38006, any apportioning
trade or business, other than an apportioning trade or business
described in subdivision (b) of Section 25128, may make an
irrevocable annual election on an original timely
filed return, in the manner and form prescribed by the Franchise Tax
Board to apportion its income in accordance with this section, and
not in accordance with Section 25128. Each contract making an
election shall be binding for a period of 84 months.
(b) Notwithstanding Section 38006, for taxable years beginning on
or after January 1, 2011, all business income shall be apportioned to
this state by multiplying the business income by the sales factor.
(c) The Franchise Tax Board is authorized to issue regulations
necessary or appropriate regarding the making of an election under
this section, including regulations that are consistent with rules
prescribed for making an election under Section 25113.
SEC. 3. Section 17053.91 is added to the
Revenue and Taxation Code, to read:
17053.91. (a) (1) There shall be allowed to a qualified person as
a credit against the "net tax" as defined in Section 17039, an
amount equal to that portion of sales tax reimbursement paid to a
retailer or use tax paid on a purchase of tangible personal property
that is placed in service in this state, equal to 5 percent of the
gross receipts or sales price on transactions described in
subparagraphs (A) and (B), occurring between January 1, 2010, and
January 1, 2013, that are subject to tax under Part 1 (commencing
with Section 6351) of Division 2.
(A) Tangible personal property is purchased by a qualified person
for use primarily in any stage of the manufacturing, processing,
refining, fabricating, or recycling of property, beginning at the
point any raw materials are received by the qualified person and
introduced into the process and ending at the point at which the
manufacturing, processing, refining, fabricating, or recycling has
altered property to its completed form, including packaging, if
required.
(B) Tangible personal property is purchased for use by a
contractor purchasing that property for use in the performance of a
construction contract for the qualified person who will use the
property as an integral part of the manufacturing, processing,
refining, fabricating, or recycling process, or as a storage facility
for use in connection with the manufacturing process.
(2) There shall be allowed to a qualified person as a credit
against the "net tax" as defined in Section 17039 an amount equal to
that portion of sales tax reimbursement paid to a retailer or use tax
paid on a purchase of tangible personal property that is placed in
service in this state, equal to 6 percent of the gross receipts or
sales price on transactions described in subparagraphs (A) and (B),
occurring between January 1, 2010, and January 1, 2013, that are
subject to tax under Part 1 (commencing with Section 6351) of
Division 2.
(A) Sustainable development equipment investments of tangible
personal property is purchased by a qualified person for use
primarily in any stage of the manufacturing, processing, refining,
fabricating, or recycling of property beginning at the point any raw
materials are received by the qualified person and introduced into
the process and ending at the point at which the manufacturing,
processing, refining, fabricating, or recycling has altered property
to its completed form, including packaging, if required.
(B) Tangible personal property is purchased by a qualified person
and used primarily during the research and development process on
qualified research.
(b) The amount of any credit allowed under subdivision (a) shall
be applied in equal amounts over three successive taxable years
beginning with the first taxable year beginning on or after January
1, 2013.
(c) For purposes of this section:
(1) "Fabricating" means to make, build, create, produce, or
assemble components or property to work in a new or different manner.
(2) "Manufacturing" means the activity of converting or
conditioning property by changing the form, composition, quality, or
character of the property for ultimate sale at retail or use in the
manufacturing of a product to be ultimately sold at retail.
Manufacturing includes any improvements to tangible personal property
that result in a greater service life or greater functionality than
that of the original property.
(3) "Primarily" means tangible personal property used 50 percent
or more of the time in an activity described in subdivision (a).
(4) "Process" means the period beginning at the point at which any
raw materials are received by the qualified person and introduced
into the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified person and ending at the point at
which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified person has altered tangible
personal property to its completed form, including packaging, if
required. Raw materials shall be considered to have been introduced
into the process when the raw materials are stored on the same
premises where the qualified person's manufacturing, processing,
refining, or recycling activity is conducted. Raw materials that are
stored on premises other than where the qualified person's
manufacturing, processing, refining, fabricating, or recycling
activity is conducted, shall not be considered to have been
introduced into the manufacturing, processing, refining, fabricating,
or recycling process.
(5) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.
(6) "Qualified person" means either of the following:
(A) A person who is engaged in those lines of business described
in Codes 3111 to 3399, inclusive, or 5112 of the North American
Industrial Classification System
(NAICS) published by the United States Office of Management
and Budget (OMB), 2002 edition.
(B) An affiliate of a person described in subparagraph (A)
provided that the affiliate is a member of the qualified person's
unitary group for which a combined report is required to be filed
under Article 1 (commencing with Section 25101) of Chapter 17 of Part
11.
(7) "Qualified research" means research that meets the
requirements of Section 174 of the Internal Revenue Code.
(8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
(9) "Sustainable development equipment" means qualified
manufacturing or research and development equipment that meets any of
the following:
(A) Is consistent with meeting the goals and objectives of
compliance with greenhouse gas emissions standards as set forth in
Division 25.5 (commencing with Section 38500) of the Health and
Safety Code.
(B) Promotes the reduction of wasteful, inefficient, unnecessary,
or uneconomic uses of energy.
(C) Encourages the utilization of cost-effective water use
efficiency practices to curtail the waste of water and to ensure that
water use does not exceed reasonable needs.
(D) Promotes the utilization of recycled or reusable materials in
the manufacturing process.
(10) "Tangible personal property" includes, but is not limited to,
all of the following:
(A) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.
(B) Equipment or devices used or required to operate, control,
regulate, or maintain the machinery and equipment, including, without
limitation, computers, data processing equipment, and computer
software, together with all repair and replacement parts with a
useful life of one or more years, whether purchased separately or in
conjunction with a complete machine and regardless of whether the
machine or component parts are assembled by the qualified person or
another party.
(C) Property used in pollution control that meets standards
established by this state or any local or regional governmental
agency within this state.
(D) Special purpose buildings and foundations used as an integral
part of the manufacturing, processing, refining, or fabricating
process, or that constitute a research or storage facility used
during the manufacturing process.
(E) Fuels used or consumed in the manufacturing process.
(11) "Tangible personal property" does not include any of the
following:
(A) Consumables with a normal useful life of less than one year,
except as provided in subparagraph (E) of paragraph (10).
(B) Furniture, inventory, and equipment used in the extraction
process, or equipment used to store finished products that have
completed the manufacturing process.
(C) Buildings or components of buildings used solely for
warehousing purposes after completion of the manufacturing process.
(D) Property that is used primarily in administration, general
management, or marketing.
(E) Property that, within one year from the date of purchase, is
either removed from California, converted from a use described in
subdivision (a) to some other use not described in subdivision (a),
or used in a manner not described in subdivision (a).
(d) In the case where the credit otherwise allowed under this
section exceeds the "net tax" for the taxable year, that portion of
the credit that exceeds the "net tax" may be carried over to reduce
the net tax in the following taxable year, and the succeeding four
taxable years if necessary, until the credit is exhausted.
(e) This section shall remain in effect only until December 1,
2016, and as of that date is repealed.
SEC. 4. Section 23649.1 is added to the Revenue
and Taxation Code, to read:
23649.1. (a) (1) There shall be allowed to a qualified person as
a credit against the "tax" as defined in Section 23036, an amount
equal to that portion of sales tax reimbursement paid to a retailer
or use tax paid on a purchase of tangible personal property that is
placed in service in this state equal to 6 percent of the gross
receipts or sales price on transactions described in subparagraphs
(A) and (B) occurring between January 1, 2010, and January 1, 2013,
that are subject to tax under Part 1 (commencing with Section 6351)
of Division 2.
(A) Tangible personal property is purchased by a qualified person
for use primarily in any stage of the manufacturing, processing,
refining, fabricating, or recycling of property, beginning at the
point any raw materials are received by the qualified person and
introduced into the process and ending at the point at which the
manufacturing, processing, refining, fabricating, or recycling has
altered property to its completed form, including packaging, if
required.
(B) Tangible personal property is purchased for use by a
contractor purchasing that property for use in the performance of a
construction contract for the qualified person who will use the
property as an integral part of the manufacturing, processing,
refining, fabricating, or recycling process, or as a storage facility
for use in connection with the manufacturing process.
(2) There shall be allowed to a qualified person as a credit
against the "tax" as defined in Section 23036, and amount equal to
that portion of sales tax reimbursement paid to a retailer or use tax
on a purchase of tangible personal property that is placed in
service in this state, equal to 5 percent of the gross receipts or
sales price on transactions occurring between January 1, 2010, and
January 1, 2013, that are subject to tax under Part 1 (commencing
with Section 6351) of Division 2.
(A) Sustainable development equipment investments of tangible
personal property purchased by a qualified person for use primarily
in any stage of the manufacturing, processing, refining, fabricating,
or recycling of property beginning at the point any raw materials
are received by the qualified person and introduced into the process
and ending at the point at which the manufacturing, processing,
refining, fabricating, or recycling has altered property to its
completed form, including packaging, if required.
(B) Tangible personal property is purchased by a qualified person
and used primarily during the research and development process on
qualified research.
(b) The amount of any credit allowed under subdivision (a) shall
be applied in equal amounts over three successive taxable years
beginning with the first taxable year beginning on or after January
1, 2013.
(c) For purposes of this section:
(1) "Fabricating" means to make, build, create, produce, or
assemble components or property to work in a new or different manner.
(2) "Manufacturing" means the activity of converting or
conditioning property by changing the form, composition, quality, or
character of the property for ultimate sale at retail or use in the
manufacturing of a product to be ultimately sold at retail.
Manufacturing includes any improvements to tangible personal property
that result in a greater service life or greater functionality than
that of the original property.
(3) "Primarily" means tangible personal property used 50 percent
or more of the time in an activity described in subdivision (a).
(4) "Process" means the period beginning at the point at which any
raw materials are received by the qualified person and introduced
into the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified person and ending at the point at
which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified person has altered tangible
personal property to its completed form, including packaging, if
required. Raw materials shall be considered to have been introduced
into the process when the raw materials are stored on the same
premises where the qualified person's manufacturing, processing,
refining, or recycling activity is conducted. Raw materials that are
stored on premises other than where the qualified person's
manufacturing, processing, refining, fabricating, or recycling
activity is conducted, shall not be considered to have been
introduced into the manufacturing, processing, refining, fabricating,
or recycling process.
(5) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.
(6) "Qualified person" means either of the following:
(A) A person who is engaged in those lines of business described
in Codes 3111 to 3399, inclusive, or 5112 of the North American
Industrial Classification System (NAICS) published by the United
States Office of Management and Budget (OMB), 2002 edition.
(B) An affiliate of a person described in subparagraph (A)
provided that the affiliate is a member of the qualified person's
unitary group for which a combined report is required to be filed
under Article 1 (commencing with Section 25101) of Chapter 17 of Part
11.
(7) "Qualified research" means research that meets the
requirements of Section 174 of the Internal Revenue Code.
(8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
(9) "Sustainable development equipment" means qualified
manufacturing or research and development equipment that meets any of
the following:
(A) Is consistent with meeting the goals and objectives of
compliance with greenhouse gas emissions standards as set forth in
Division 25.5 (commencing with Section 38500) of the Health and
Safety Code.
(B) Promotes the reduction of wasteful, inefficient, unnecessary,
or uneconomic uses of energy.
(C) Encourages the utilization of cost-effective water use
efficiency practices to curtail the waste of water and to ensure that
water use does not exceed reasonable needs.
(D) Promotes the utilization of recycled or reusable materials in
the manufacturing process.
(10) "Tangible personal property" includes, but is not limited to,
all of the following:
(A) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.
(B) Equipment or devices used or required to operate, control,
regulate, or maintain the machinery and equipment, including, without
limitation, computers, data processing equipment, and computer
software, together with all repair and replacement parts with a
useful life of one or more years, whether purchased separately or in
conjunction with a complete machine and regardless of whether the
machine or component parts are assembled by the qualified person or
another party.
(C) Property used in pollution control that meets standards
established by this state or any local or regional governmental
agency within this state.
(D) Special purpose buildings and foundations used as an integral
part of the manufacturing, processing, refining, or fabricating
process, or that constitute a research or storage facility used
during the manufacturing process.
(E) Fuels used or consumed in the manufacturing process.
(11) "Tangible personal property" does not include any of the
following:
(A) Consumables with a normal useful life of less than one year,
except as provided in subparagraph (E) of paragraph (10).
(B) Furniture, inventory, and equipment used in the extraction
process, or equipment used to store finished products that have
completed the manufacturing process.
(C) Buildings or components of buildings used solely for
warehousing purposes after completion of the manufacturing process.
(D) Personal property that is used primarily in administration,
general management, or marketing.
(E) Property that, within one year from the date of purchase, is
either removed from California, converted from a use described in
subdivision (a), to some other use not described in subdivision (a),
or used in a manner not described in subdivision (a) or (b).
(d) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the taxable year, that portion of the
credit that exceeds the "tax" may be carried over to reduce the tax
in the following taxable year, and the succeeding four taxable years
if necessary, until the credit is exhausted.
(e) This section shall remain in effect only until December 1,
2016, and as of that date is repealed.
SEC. 5. SEC. 10. This act provides
for a tax levy within the meaning of Article IV of the Constitution
and shall go into immediate effect.
