Bill Text: CA AB93 | 2013-2014 | Regular Session | Enrolled
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Economic development: taxation: credits, deductions, exemptions, and net operating losses.
Spectrum: Partisan Bill (Democrat 15-0)
Status: (Passed) 2013-07-11 - Chaptered by Secretary of State - Chapter 69, Statutes of 2013. [AB93 Detail]
Download: California-2013-AB93-Enrolled.html
Bill Title: Economic development: taxation: credits, deductions, exemptions, and net operating losses.
Spectrum: Partisan Bill (Democrat 15-0)
Status: (Passed) 2013-07-11 - Chaptered by Secretary of State - Chapter 69, Statutes of 2013. [AB93 Detail]
Download: California-2013-AB93-Enrolled.html
BILL NUMBER: AB 93 ENROLLED
BILL TEXT
PASSED THE SENATE JUNE 25, 2013
PASSED THE ASSEMBLY JUNE 27, 2013
AMENDED IN SENATE JUNE 25, 2013
AMENDED IN SENATE JUNE 24, 2013
AMENDED IN SENATE JUNE 24, 2013
INTRODUCED BY Committee on Budget (Blumenfield (Chair), Bloom,
Bonilla, Campos, Chesbro, Daly, Dickinson, Gordon, Jones-Sawyer,
Mitchell, Mullin, Muratsuchi, Nazarian, Skinner, Stone, and Ting)
JANUARY 10, 2013
An act to amend Section 13073.5 of, to add Sections 7090, 7099.5,
and 7119 to, and to repeal Chapter 12.8 (commencing with Section
7070), Chapter 12.93 (commencing with Section 7097), and Chapter
12.97 (commencing with Section 7105) of Division 7 of Title 1 of, the
Government Code, to amend and repeal Sections 17053.33, 17053.34,
17053.45, 17053.46, 17053.47, 17053.70, 17053.74, 17053.75, 17235,
17267.2, 17267.6, 17268, 17276.2, 17276.5, 17276.6, 19136.8, 23612.2,
23622.7, 23622.8, 23633, 23634, 23645, 23646, 24356.6, 24356.7,
24356.8, 24384.5, 24416.2, 24416.5, and 24416.6 of, to add Section
18410.2 to, to add and repeal Sections 6377.1, 17053.73, 17059.2,
23626, and 23689 of, and to repeal, amend, and repeal Sections
17053.80 and 23623 of, the Revenue and Taxation Code, relating to
economic development, making an appropriation therefor, and declaring
the urgency thereof, to take effect immediately.
LEGISLATIVE COUNSEL'S DIGEST
AB 93, Committee on Budget. Economic development: taxation:
credits, deductions, exemptions, and net operating losses.
(1) Existing law provides for the designation and oversight by the
Department of Housing and Community Development of various economic
development areas in the state, including enterprise zones,
manufacturing enhancement areas, targeted tax areas, and local agency
military base recovery areas, or LAMBRAs. Existing law allows
various incentives to businesses operating in these areas.
This bill would repeal the provisions authorizing those
designations on January 1, 2014.
(2) The Personal Income Tax Law and the Corporation Tax Law allow
various credits against the taxes imposed by those laws, including
hiring credits and sales and use tax credits for taxpayers within the
specified economic development areas, and a hiring credit for
taxpayers, other than those allowed a credit with respect to
operating in the specified economic development areas. Those laws,
for taxpayers engaged in business within specified economic
development areas, authorize specified net operating loss carryovers
and expense deductions in computing income subject to taxes. Those
laws also authorize an interest deduction for interest received in
payment of indebtedness of a person engaged in business in an
enterprise zone.
This bill generally would make these provisions inoperative for
taxable years beginning on or after January 1, 2014, and repeal these
provisions on either December 1, 2014, or December 1, 2019, as
provided. This bill would limit the application of sales and use tax
credits to sales and use tax paid for purchases before January 1,
2014, and limit the carryover of those credits to the 10 succeeding
years, limit the application of the hiring credits to employees hired
within a specified period before January 1, 2014, and limit the
carryovers for those credits to the 10 succeeding years. The bill
would limit the interest deduction to interest received before
January 1, 2014.
This bill would also allow a credit against tax under both laws
for each taxable year beginning on or after January 1, 2014, and
before January 1, 2025, in an amount as provided in a written
agreement between the Governor's Office of Business and Economic
Development and the taxpayer, agreed upon by the California Competes
Tax Credit Committee as established by this bill, and based on
specified factors, including the number of jobs the taxpayer will
create or retain in the state and the amount of investment in the
state by the taxpayer. The bill would limit the aggregate amount of
credits allowed to taxpayers to a specified sum per fiscal year.
This bill would, under both laws for taxable years beginning on or
after January 1, 2014, and before January 1, 2021, allow a credit
against tax for portions of the wages paid by a taxpayer engaged in a
trade or business within a designated census tract, as defined, or a
former enterprise zone to certain full-time employees who provide
services for that taxpayer in connection with that trade or business.
The bill would require the Population Research Unit in the
Department of Finance to identify designated census tracts in
accordance with certain criteria.
(3) Existing sales and use tax laws impose taxes 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 those taxes.
The bill would exempt from those taxes, on and after July 1, 2014,
and before January 1, 2019, or before July 1, 2021, the gross
receipts from the sale of, and the storage, use, or other consumption
of, qualified tangible personal property purchased by a qualified
person for use primarily in manufacturing, processing, refining,
fabricating, or recycling of property, as specified; qualified
tangible personal property purchased for use by a contractor for
specified purposes, as provided; and qualified tangible personal
property purchased for use by a qualified person to be used primarily
in research and development, as provided. The bill would require the
purchaser to furnish the retailer with an exemption certificate, as
specified.
The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes
counties and cities to impose local sales and use taxes in conformity
with the Sales and Use Tax Law, and existing law authorizes
districts, as specified, to impose transactions and use taxes in
conformity with the Transactions and Use Tax Law, which conforms to
the Sales and Use Tax Law. Exemptions from state sales and use taxes
are incorporated into these laws.
This bill would specify that this exemption does not apply to
local sales and use taxes, transactions and use taxes, and specified
state taxes from which revenues are deposited into the Local Public
Safety Fund, the Education Protection Account, the Local Revenue
Fund, the Fiscal Recovery Fund, or the Local Revenue Fund 2011.
(4) This bill would appropriate up to $600,000 for allocation to a
committee and departments, as specified, by the Director of Finance
in furtherance of the objectives of this bill, as provided.
(5) This bill would declare that it is to take effect immediately
as an urgency statute.
Appropriation: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) California's economic development policy should be to create
good jobs with middle-class wages and benefits.
(b) State assistance regarding employment should be focused upon
those individuals facing barriers to employment, and state tax policy
should encourage businesses to invest in California.
(c) The state's largest economic development program, the
enterprise zone program, is in need of comprehensive reform. The
Public Policy Institute of California released a study in 2009
finding that enterprise zones have "no statistically significant
effect on either employment levels or employment growth rates."
Furthermore, the Legislative Analyst's Office has issued several
reports concluding that enterprise zones do not create jobs, finding
that the enterprise zone program is "expensive and not strongly
effective."
(d) It is the intent of the Legislature to reform state tax
incentives for the hiring of individuals in enterprise zones to
refocus those tax incentives on creating new, good jobs within those
zones and within other areas of the state suffering from high rates
of unemployment and poverty.
(e) It is the intent of the Legislature to exempt manufacturing
equipment from state sales and use taxes in order to make California
more competitive in attracting new businesses to the state, and to
bring California in line with the 48 other states that exempt
manufacturing equipment from sales and use tax.
(f) It is the intent of the Legislature in appropriating funds
pursuant to this act to provide the California Competes Tax Credit
Committee, and the departments that are required to administer this
act, with an important tool to attract and retain high-value
employers. The program created by this act will allow businesses to
publicly apply for tax credits allowed on the basis of job creation
and retention standards. This program is intended to be a model of
transparency and accountability for the state's job creation efforts
in that performance measurements will ensure that the effective use
of taxpayer dollars is maximized.
SEC. 2. Section 7090 is added to the Government Code, to read:
7090. Chapter 12.8 (commencing with Section 7070) is repealed on
January 1, 2014.
SEC. 3. Section 7099.5 is added to the Government Code, to read:
7099.5. Chapter 12.93 (commencing with Section 7097) is repealed
on January 1, 2014.
SEC. 4. Section 7119 is added to the Government Code, to read:
7119. Chapter 12.97 (commencing with Section 7105) is repealed on
January 1, 2014.
SEC. 5. Section 13073.5 of the Government Code is amended to read:
13073.5. The Legislature finds and declares that: (1) population
size and distribution patterns in California exert a major influence
on the physical, social, and economic structure of the state and on
the quality of the environment generally; (2) sound and current data
and methods to estimate population trends are necessary to enable
state, regional, and local agencies to plan and function properly;
and (3) there is a critical need for a proper study of the
implications of present and future population trends in order that
state, regional, and local agencies might develop or reexamine
policies and actions based thereon.
The Population Research Unit shall:
(a) Develop basic demographic data and statistical compilations,
which may include a current population survey and a mid-decade
census.
(b) Design and test methods of research and data collection.
(c) Conduct local population estimates as required by law.
(d) Validate all official census data and population statistics.
(e) Analyze and prepare projections of enrollments in public
schools, colleges, and universities.
(f) Analyze governmental records to establish characteristics of
migration and distribution.
(g) Publish annual estimates of the population of the state and
its composition.
(h) Prepare short- and long-range projections of population and
its composition.
(i) Provide advisory services to state agencies and other levels
of government.
(j) Evaluate and recommend data requirements for determining
population and population growth.
(k) Analyze the demographic features of the causes and
consequences of patterns of natural increase or decrease, migration,
and population concentration within the state.
( l ) Assess the need for population data required for
determining the allocation of federal, state, and other subvention
revenues.
(m) Request and obtain from any department, division, commission,
or other agency of the state all assistance and information to enable
the unit to effectively carry out the provisions of this section.
(n) Cooperate with the Office of Planning and Research with
respect to functions involving mutual areas of concern relating to
demography and state planning.
(o) Enter into agreements to carry out the purposes of this
section, including the application for and acceptance of federal
funds or private foundation grants for demographic studies.
(p) Act as primary state government liaison with the Census
Bureau, United States Department of Commerce, in the acquisition and
distribution of census data and related documentation to state
agencies.
(q) Administer, with other agencies, a State Census Data Center
which will be responsible for acquiring decennial and other census
data from the Bureau of the Census, and for providing necessary
information to the Legislature and to the executive branch and for
seeking to ensure the availability of census information to local
governments. The unit and the Office of Planning and Research shall
be responsible for designating subcenters of the State Census Data
Center as needed. The unit will provide materials to subcenters of
the State Census Data Center, will coordinate the efforts of the
subcenters to avoid duplication and may consult in the design of
standard reports to be offered by the center and its subcenters.
(r ® ) Coordinate with the Office of
Planning and Research Environmental Data Center for the purposes of
ensuring consistency and compatibility of data products, improving
public access to data, ensuring the consistent interpretation of
data, and avoiding duplication of functions.
(s) (1) Determine those census tracts that are to be designated
census tracts based on data from the five-year American Community
Survey (ACS). The census tracts that are within the highest quartile
for both civilian unemployment and poverty statistics, as determined
in paragraphs (2) and (3), shall be determined to be designated
census tracts as described in paragraph (7) of subdivision (b) of
Section 17053.73, and paragraph (7) of subdivision (b) of Section
23626 of the Revenue and Taxation Code.
(2) To determine the census tracts that are within the highest
quartile of census tracts with the highest civilian unemployment, the
census tracts shall be sorted by the respective civilian
unemployment rate of each in ascending order, or from the lowest (0
percent) to the highest (100 percent) according to the following:
(A) Census tracts without a civilian labor force shall be
excluded.
(B) After ordering the census tracts by the civilian unemployment
rate of each, the census tracts shall be divided into four equal
groups or quartiles as follows:
(i) The first quartile shall represent the lowest fourth of the
census tracts (1 percent to less than 26 percent).
(ii) The second quartile shall represent the second fourth (26
percent to less than 51 percent).
(iii) The third quartile shall represent the third fourth (51
percent to less than 76 percent).
(iv) The fourth quartile shall represent the fourth fourth (76
percent to 100 percent, inclusive).
(C) The last or highest quartile shall represent the top 25
percent of the census tracts with the highest civilian unemployment
rates.
(3) To determine the census tracts that are within the quartile of
census tracts with the highest poverty, the census tracts shall be
sorted by the respective percentage of population below poverty of
each in ascending order, or from the lowest (0 percent) to the
highest (100 percent) according to the following:
(A) Consistent with poverty statistics in the ACS, which adhere to
the standards specified by the federal Office of Management and
Budget in Statistical Policy Directive 14, the poverty thresholds as
specified by the United States Census Bureau shall be used to
determine those individuals below poverty.
(B) To determine those individuals below poverty, different
thresholds, as specified by the United States Census Bureau, shall be
applied to families, people living alone, or people living with
nonrelatives (unrelated individuals).
(C) If a family's total income is less than the dollar value of
the appropriate threshold, then that family and every individual in
it shall be considered to be below poverty.
(D) If an unrelated individual's total income is less than the
appropriate threshold, then that individual shall be considered to be
below poverty.
(E) Poverty status shall be determined for all people except
institutionalized people, people in military group quarters, people
in college dormitories, and unrelated individuals under 15 years of
age.
(F) Census tracts that do not have a population for whom poverty
status is determined shall be excluded.
(G) After ordering the census tracts by the respective percent
below poverty of each, the census tracts shall be divided into four
equal quartiles as follows:
(i) The first quartile shall represent the lowest fourth of the
census tracts (1 percent to less than 26 percent).
(ii) The second quartile shall represent the second fourth (26
percent to less than 51 percent).
(iii) The third quartile shall represent the third fourth (51
percent to less than 76 percent).
(iv) The fourth quartile shall represent the fourth fourth (76
percent to 100 percent, inclusive).
(H) The last or highest quartile shall represent the top 25
percent of the census tracts with the highest percentage of
population below poverty.
(4) To determine the census tracts that are within the lowest
quartile of census tracts with the lowest civilian unemployment and
poverty, the census tracts shall be sorted by the respective civilian
unemployment and poverty rates of each in ascending order, or from
the lowest (0 percent) to the highest (100 percent) according to the
following:
(A) Census tracts without a civilian labor force are to be
excluded.
(B) After ordering the census tracts by the civilian unemployment
and poverty rates of each, the census tracts shall be divided into
four equal groups or quartiles as follows:
(i) The first quartile shall represent the lowest fourth of the
census tracts (1 percent to less than 26 percent).
(ii) The second quartile shall represent the second fourth (26
percent to less than 51 percent).
(iii) The third quartile shall represent the third fourth (51
percent to less than 76 percent).
(iv) The fourth quartile shall represent the fourth fourth (76
percent to 100 percent, inclusive).
(C) The first or lowest quartile shall represent the bottom 25
percent of the census tracts with the lowest civilian unemployment
and poverty rates.
SEC. 6. Section 6377.1 is added to the Revenue and Taxation Code,
to read:
6377.1. (a) (1) Except as provided in subdivision (e), on or
after July 1, 2014, and before January 1, 2019, 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, any
of the following:
(A) Qualified tangible personal property purchased for use by a
qualified person to be used primarily in any stage of the
manufacturing, processing, refining, fabricating, or recycling of
tangible personal 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 tangible personal
property to its completed form, including packaging, if required.
(B) Qualified tangible personal property purchased for use by a
qualified person to be used primarily in research and development.
(C) Qualified tangible personal property purchased for use by a
qualified person to be used primarily to maintain, repair, measure,
or test any qualified tangible personal property described in
subparagraph (A) or (B).
(D) Qualified 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, that will use that
property as an integral part of the manufacturing, processing,
refining, fabricating, or recycling process, or as a research or
storage facility for use in connection with those processes.
(2) Except as provided in subdivision (e), on or after July 1,
2014, and before July 1, 2021, 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 qualified
tangible personal property purchased for use within a designated
census tract, as defined in paragraph (7) of subdivision (b) of
Section 17053.73 and paragraph (7) of subdivision (b) of Section
23626, or a former enterprise zone, as defined in paragraph (8) of
subdivision (b) of Section 17053.73 and paragraph (8) of subdivision
(b) of Section 23626, by any of the following:
(A) A qualified person to be used primarily in any stage of the
manufacturing, processing, refining, fabricating, or recycling of
tangible personal 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 tangible personal
property to its completed form, including packaging, if required.
(B) A qualified person to be used primarily in research and
development.
(C) A qualified person to be used primarily to maintain, repair,
measure, or test any qualified tangible personal property described
in subparagraph (A) or (B).
(D) A contractor purchasing that property for use in the
performance of a construction contract for the qualified person, that
will use that property as an integral part of the manufacturing,
processing, refining, fabricating, or recycling process, or as a
research or storage facility for use in connection with those
processes.
(b) For purposes of this section:
(1) "Fabricating" means to make, build, create, produce, or
assemble components or tangible personal property to work in a new or
different manner.
(2) "Manufacturing" means the activity of converting or
conditioning tangible personal 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 50 percent or more of the time.
(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, fabricating, 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
tangible personal property.
(6) (A) "Qualified person" means a person that is primarily
engaged in those lines of business described in Codes 3111 to 3399,
inclusive, 541711, or 541712 of the North American Industry
Classification System (NAICS) published by the United States Office
of Management and Budget (OMB), 2012 edition.
(B) Notwithstanding subparagraph (A), "qualified person" shall not
include either of the following:
(i) An apportioning trade or business that is required to
apportion its business income pursuant to subdivision (b) of Section
25128.
(ii) A trade or business conducted wholly within this state that
would be required to apportion its business income pursuant to
subdivision (b) of Section 25128 if it were subject to apportionment
pursuant to Section 25101.
(7) (A) "Qualified tangible personal property" includes, but is
not limited to, all of the following:
(i) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.
(ii) Equipment or devices used or required to operate, control,
regulate, or maintain the machinery, including, but not limited to,
computers, data-processing equipment, and computer software, together
with all repair and replacement parts with a useful life of one or
more years therefor, 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.
(iii) Tangible personal property used in pollution control that
meets standards established by this state or any local or regional
governmental agency within this state.
(iv) Special purpose buildings and foundations used as an integral
part of the manufacturing, processing, refining, fabricating, or
recycling process, or that constitute a research or storage facility
used during those processes. Buildings used solely for warehousing
purposes after completion of those processes are not included.
(B) "Qualified tangible personal property" shall not include any
of the following:
(i) Consumables with a useful life of less than one year.
(ii) Furniture, inventory, and equipment used in the extraction
process, or equipment used to store finished products that have
completed the manufacturing, processing, refining, fabricating, or
recycling process.
(iii) Tangible personal property used primarily in administration,
general management, or marketing.
(8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
(9) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
(10) "Useful life" for tangible personal property that is treated
as having a useful life of one or more years for state income or
franchise tax purposes shall be deemed to have a useful life of one
or more years for purposes of this section. "Useful life" for
tangible personal property that is treated as having a useful life of
less than one year for state income or franchise tax purposes shall
be deemed to have a useful life of less than one year for purposes of
this section.
(c) An exemption shall not 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, and the retailer retains the exemption
certificate in its records and furnishes it to the board upon
request.
(d) (1) Notwithstanding the Bradley-Burns Uniform Local Sales and
Use Tax Law (Part 1.5 (commencing with Section 7200)) and 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.
(2) Notwithstanding subdivision (a), the exemption established by
this section shall not apply with respect to any tax levied pursuant
to Section 6051.2, 6051.5, 6201.2, or 6201.5, pursuant to Section 35
of Article XIII of the California Constitution, or any tax levied
pursuant to Section 6051 or 6201 that is deposited in the State
Treasury to the credit of the Local Revenue Fund 2011 pursuant to
Section 6051.15 or 6201.15.
(e) (1) The exemption provided by this section shall not apply to
either of the following:
(A) Any tangible personal property purchased during any calendar
year that exceeds two hundred million dollars ($200,000,000) of
purchases of qualified tangible personal property for which an
exemption is claimed by a qualified person under this section. For
purposes of this subparagraph, in the case of a qualified person that
is required to be included in a combined report under Section 25101
or authorized to be included in a combined report under Section
25101.15, the aggregate of all purchases of qualified personal
property for which an exemption is claimed pursuant to this section
by all persons that are required or authorized to be included in a
combined report shall not exceed two hundred million dollars
($200,000,000) in any calendar year.
(B) The sale or storage, use, or other consumption of property
that, within one year from the date of purchase, is removed from
California, converted from an exempt use under subdivision (a) to
some other use not qualifying for exemption, or used in a manner not
qualifying for exemption.
(2) If a purchaser certifies in writing to the seller that the
tangible personal 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 the purchase exceeds
the two-hundred-million-dollar ($200,000,000) limitation described
in subparagraph (A) of paragraph (1), or within one year from the
date of purchase, the purchaser removes that property from
California, converts that property for use in a manner not qualifying
for the exemption, or 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 tangible personal property at the time
the tangible personal property is so purchased, removed, converted,
or used, and the cost of the tangible personal property to the
purchaser shall be deemed the gross receipts from that retail sale.
(f) This section shall apply to leases of qualified tangible
personal property classified as "continuing sales" and "continuing
purchases" in accordance with Sections 6006.1 and 6010.1. The
exemption established by this section shall apply to the rentals
payable pursuant to the lease, provided the lessee is a qualified
person and the tangible personal property is used in an activity
described in subdivision (a).
(g) (1) Upon the effective date of this section, the Department of
Finance shall estimate the total dollar amount of exemptions that
will be taken for each calendar year, or any portion thereof, for
which this section provides an exemption.
(2) No later than each March 1 next following a calendar year for
which this section provides an exemption, the board shall provide to
the Joint Legislative Budget Committee a report of the total dollar
amount of exemptions taken under this section for the immediately
preceding calendar year. The report shall compare the total dollar
amount of exemptions taken under this section for that calendar year
with the department's estimate for that same calendar year. If that
total dollar amount taken is less than the estimate for that calendar
year, the report shall identify options for increasing exemptions
taken so as to meet estimated amounts.
(h) This section is repealed on January 1, 2019.
SEC. 7. Section 17053.33 of the Revenue and Taxation Code is
amended to read:
17053.33. (a) For each taxable year beginning on or after January
1, 1998, and before January 1, 2014, there shall be allowed as a
credit against the "net tax" (as defined in Section 17039) for the
taxable year an amount equal to the sales or use tax paid or incurred
during the taxable year by the qualified taxpayer in connection with
the qualified taxpayer's purchase of qualified property before
January 1, 2014.
(b) For purposes of this section:
(1) "Qualified property" means property that meets all of the
following requirements:
(A) Is any of the following:
(i) Machinery and machinery parts used for fabricating,
processing, assembling, and manufacturing.
(ii) Machinery and machinery parts used for the production of
renewable energy resources.
(iii) Machinery and machinery parts used for either of the
following:
(I) Air pollution control mechanisms.
(II) Water pollution control mechanisms.
(iv) Data-processing and communications equipment, such as
computers, computer-automated drafting systems, copy machines,
telephone systems, and faxes.
(v) Motion picture manufacturing equipment central to production
and postproduction, such as cameras, audio recorders, and digital
image and sound processing equipment.
(B) The total cost of qualified property purchased and placed in
service in any taxable year that may be taken into account by any
qualified taxpayer for purposes of claiming this credit shall not
exceed one million dollars ($1,000,000).
(C) The qualified property is used by the qualified taxpayer
exclusively in a targeted tax area.
(D) The qualified property is purchased and placed in service
before the date the targeted tax area designation expires, is
revoked, is no longer binding, or becomes inoperative.
(2) (A) "Qualified taxpayer" means a person or entity that meets
both of the following:
(i) Is engaged in a trade or business within a targeted tax area
designated pursuant to Chapter 12.93 (commencing with Section 7097)
of Division 7 of Title 1 of the Government Code.
(ii) Is engaged in those lines of business described in Codes 2000
to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive, of
the Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition.
(B) In the case of any
pass-through entity, the determination of whether a taxpayer is a
qualified taxpayer under this section shall be made at the entity
level and any credit under this section or Section 23633 shall be
allowed to the pass-through entity and passed through to the partners
or shareholders in accordance with applicable provisions of this
part or Part 11 (commencing with Section 23001). For purposes of this
subparagraph, the term "pass-through entity" means any partnership
or S corporation.
(3) "Targeted tax area" means the area designated pursuant to
Chapter 12.93 (commencing with Section 7097) of Division 7 of Title 1
of the Government Code.
(c) If the qualified taxpayer is allowed a credit for qualified
property pursuant to this section, only one credit shall be allowed
to the taxpayer under this part with respect to that qualified
property.
(d) If the qualified taxpayer has purchased property upon which a
use tax has been paid or incurred, the credit provided by this
section shall be allowed only if qualified property of a comparable
quality and price is not timely available for purchase in this state.
(e) 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 and added
to the credit, if any, in the succeeding 10 taxable years, if
necessary, until the credit is exhausted. The credit shall be applied
first to the earliest taxable years possible.
(f) Any qualified taxpayer who elects to be subject to this
section shall not be entitled to increase the basis of the qualified
property as otherwise required by Section 164(a) of the Internal
Revenue Code with respect to sales or use tax paid or incurred in
connection with the qualified taxpayer's purchase of qualified
property.
(g) (1) The amount of the credit otherwise allowed under this
section and Section 17053.34, including any credit carryover from
prior years, that may reduce the "net tax" for the taxable year shall
not exceed the amount of tax that would be imposed on the qualified
taxpayer's business income attributable to the targeted tax area
determined as if that attributable income represented all of the
income of the qualified taxpayer subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the targeted
tax area. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101) of Part
11. That business income shall be further apportioned to the targeted
tax area in accordance with Article 2 (commencing with Section
25120) of Chapter 17 of Part 11, modified for purposes of this
section in accordance with paragraph (3).
(3) Business income shall be apportioned to the targeted tax area
by multiplying the total California business income of the taxpayer
by a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the targeted tax area during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the targeted tax area during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, if necessary, until the credit is exhausted, as if it were an
amount exceeding the "net tax" for the taxable year, as provided in
subdivision (e). However, the portion of any credit remaining for
carryover to taxable years beginning on or after January 1, 2014, if
any, after application of this subdivision, shall be carried over
only to the succeeding 10 taxable years if necessary, until the
credit is exhausted, as if it were an amount exceeding the "net tax"
for the taxable year, as provided in subdivision (e).
(5) In the event that a credit carryover is allowable under
subdivision (e) for any taxable year after the targeted tax area
designation has expired, has been revoked, is no longer binding, or
has become inoperative, the targeted tax area shall be deemed to
remain in existence for purposes of computing the limitation
specified in this subdivision.
(h) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 1998.
(i) This section is repealed on December 1, 2014.
SEC. 8. Section 17053.34 of the Revenue and Taxation Code is
amended to read:
17053.34. (a) For each taxable year beginning on or after January
1, 1998, there shall be allowed a credit against the "net tax" (as
defined in Section 17039) to a qualified taxpayer who employs a
qualified employee in a targeted tax area during the taxable year.
The credit shall be equal to the sum of each of the following:
(1) Fifty percent of qualified wages in the first year of
employment.
(2) Forty percent of qualified wages in the second year of
employment.
(3) Thirty percent of qualified wages in the third year of
employment.
(4) Twenty percent of qualified wages in the fourth year of
employment.
(5) Ten percent of qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) That portion of wages paid or incurred by the qualified
taxpayer during the taxable year to qualified employees that does not
exceed 150 percent of the minimum wage.
(B) Wages received during the 60-month period beginning with the
first day the employee commences employment with the qualified
taxpayer. Reemployment in connection with any increase, including a
regularly occurring seasonal increase, in the trade or business
operations of the qualified taxpayer does not constitute commencement
of employment for purposes of this section.
(C) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the targeted tax area expiration
date. However, wages paid or incurred with respect to qualified
employees who are employed by the qualified taxpayer within the
targeted tax area within the 60-month period prior to the targeted
tax area expiration date shall continue to qualify for the credit
under this section after the targeted tax area expiration date, in
accordance with all provisions of this section applied as if the
targeted tax area designation were still in existence and binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "Targeted tax area expiration date" means the date the
targeted tax area designation expires, is revoked, is no longer
binding, becomes inoperative, or is repealed.
(4) (A) "Qualified employee" means an individual who meets all of
the following requirements:
(i) At least 90 percent of his or her services for the qualified
taxpayer during the taxable year are directly related to the conduct
of the qualified taxpayer's trade or business located in a targeted
tax area.
(ii) Performs at least 50 percent of his or her services for the
qualified taxpayer during the taxable year in a targeted tax area.
(iii) Is hired by the qualified taxpayer after the date of
original designation of the area in which services were performed as
a targeted tax area.
(iv) Is any of the following:
(I) Immediately preceding the qualified employee's commencement of
employment with the qualified taxpayer, was a person eligible for
services under the federal Job Training Partnership Act (29 U.S.C.
Sec. 1501 et seq.), or its successor, who is receiving, or is
eligible to receive, subsidized employment, training, or services
funded by the federal Job Training Partnership Act, or its successor.
(II) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a person eligible to
be a voluntary or mandatory registrant under the Greater Avenues for
Independence Act of 1985 (GAIN) provided for pursuant to Article 3.2
(commencing with Section 11320) of Chapter 2 of Part 3 of Division 9
of the Welfare and Institutions Code, or its successor.
(III) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was an economically
disadvantaged individual 14 years of age or older.
(IV) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a dislocated worker
who meets any of the following:
(aa) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(bb) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(cc) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(dd) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(ee) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(ff) Was an active member of the Armed Forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(gg) Is a seasonal or migrant worker who experiences chronic
seasonal unemployment and underemployment in the agriculture
industry, aggravated by continual advancements in technology and
mechanization.
(hh) Has been terminated or laid off, or has received a notice of
termination or layoff, as a consequence of compliance with the Clean
Air Act.
(V) Immediately preceding the qualified employee's commencement of
employment with the qualified taxpayer, was a disabled individual
who is eligible for or enrolled in, or has completed a state
rehabilitation plan or is a service-connected disabled veteran,
veteran of the Vietnam era, or veteran who is recently separated from
military service.
(VI) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was an ex-offender. An
individual shall be treated as convicted if he or she was placed on
probation by a state court without a finding of guilty.
(VII) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a person eligible for
or a recipient of any of the following:
(aa) Federal Supplemental Security Income benefits.
(bb) Aid to Families with Dependent Children.
(cc) CalFresh benefits.
(dd) State and local general assistance.
(VIII) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a member of a
federally recognized Indian tribe, band, or other group of Native
American descent.
(IX) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a resident of a
targeted tax area.
(X) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a member of a targeted group as
defined in Section 51(d) of the Internal Revenue Code, or its
successor.
(B) Priority for employment shall be provided to an individual who
is enrolled in a qualified program under the federal Job Training
Partnership Act or the Greater Avenues for Independence Act of 1985
or who is eligible as a member of a targeted group under the Work
Opportunity Tax Credit (Section 51 of the Internal Revenue Code), or
its successor.
(5) (A) "Qualified taxpayer" means a person or entity that meets
both of the following:
(i) Is engaged in a trade or business within a targeted tax area
designated pursuant to Chapter 12.93 (commencing with Section 7097)
of Division 7 of Title 1 of the Government Code.
(ii) Is engaged in those lines of business described in Codes 2000
to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive, of
the Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition.
(B) In the case of any passthrough entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section or
Section 23634 shall be allowed to the passthrough entity and passed
through to the partners or shareholders in accordance with applicable
provisions of this part or Part 11 (commencing with Section 23001).
For purposes of this subdivision, the term "passthrough entity" means
any partnership or S corporation.
(6) "Seasonal employment" means employment by a qualified taxpayer
that has regular and predictable substantial reductions in trade or
business operations.
(c) If the qualified taxpayer is allowed a credit for qualified
wages pursuant to this section, only one credit shall be allowed to
the taxpayer under this part with respect to those qualified wages.
(d) The qualified taxpayer shall do both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
targeted tax area, a certification that provides that a qualified
employee meets the eligibility requirements specified in clause (iv)
of subparagraph (A) of paragraph (4) of subdivision (b). The
Employment Development Department may provide preliminary screening
and referral to a certifying agency. The Department of Housing and
Community Development shall develop regulations governing the
issuance of certificates pursuant to subdivision (g) of Section 7097
of the Government Code, and shall develop forms for this purpose.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(e) (1) For purposes of this section:
(A) All employees of trades or businesses, which are not
incorporated, that are under common control shall be treated as
employed by a single taxpayer.
(B) The credit, if any, allowable by this section with respect to
each trade or business shall be determined by reference to its
proportionate share of the expense of the qualified wages giving rise
to the credit, and shall be allocated in that manner.
(C) Principles that apply in the case of controlled groups of
corporations, as specified in subdivision (d) of Section 23634, shall
apply with respect to determining employment.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section (other than subdivision (f)) for any calendar year
ending after that acquisition, the employment relationship between a
qualified employee and an employer shall not be treated as terminated
if the employee continues to be employed in that trade or business.
(f) (1) (A) If the employment, other than seasonal employment, of
any qualified employee, with respect to whom qualified wages are
taken into account under subdivision (a) is terminated by the
qualified taxpayer at any time during the first 270 days of that
employment (whether or not consecutive) or before the close of the
270th calendar day after the day in which that employee completes 90
days of employment with the qualified taxpayer, the tax imposed by
this part for the taxable year in which that employment is terminated
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
employee.
(B) If the seasonal employment of any qualified employee, with
respect to whom qualified wages are taken into account under
subdivision (a) is not continued by the qualified taxpayer for a
period of 270 days of employment during the 60-month period beginning
with the day the qualified employee commences seasonal employment
with the qualified taxpayer, the tax imposed by this part, for the
taxable year that includes the 60th month following the month in
which the qualified employee commences seasonal employment with the
qualified taxpayer, shall be increased by an amount equal to the
credit allowed under subdivision (a) for that taxable year and all
prior taxable years attributable to qualified wages paid or incurred
with respect to that qualified employee.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of a qualified employee who
voluntarily leaves the employment of the qualified taxpayer.
(ii) A termination of employment of a qualified employee who,
before the close of the period referred to in subparagraph (A) of
paragraph (1), becomes disabled and unable to perform the services of
that employment, unless that disability is removed before the close
of that period and the qualified taxpayer fails to offer reemployment
to that employee.
(iii) A termination of employment of a qualified employee, if it
is determined that the termination was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that employee.
(iv) A termination of employment of a qualified employee due to a
substantial reduction in the trade or business operations of the
qualified taxpayer.
(v) A termination of employment of a qualified employee, if that
employee is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
employee who voluntarily fails to return to the seasonal employment
of the qualified taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
employee who, before the close of the period referred to in
subparagraph (B) of paragraph (1), becomes disabled and unable to
perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
qualified taxpayer fails to offer seasonal employment to that
qualified employee.
(iii) A failure to continue the seasonal employment of a qualified
employee, if it is determined that the failure to continue the
seasonal employment was due to the misconduct (as defined in Sections
1256-30 to 1256-43, inclusive, of Title 22 of the California Code of
Regulations) of that qualified employee.
(iv) A failure to continue seasonal employment of a qualified
employee due to a substantial reduction in the regular seasonal trade
or business operations of the qualified taxpayer.
(v) A failure to continue the seasonal employment of a qualified
employee, if that qualified employee is replaced by other qualified
employees so as to create a net increase in both the number of
seasonal employees and the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the qualified taxpayer and a qualified employee shall not be
treated as terminated by reason of a mere change in the form of
conducting the trade or business of the qualified taxpayer, if the
qualified employee continues to be employed in that trade or business
and the qualified taxpayer retains a substantial interest in that
trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(g) In the case of an estate or trust, both of the following
apply:
(1) The qualified wages for any taxable year shall be apportioned
between the estate or trust and the beneficiaries on the basis of the
income of the estate or trust allocable to each.
(2) Any beneficiary to whom any qualified wages have been
apportioned under paragraph (1) shall be treated, for purposes of
this part, as the employer with respect to those wages.
(h) For purposes of this section, "targeted tax area" means an
area designated pursuant to Chapter 12.93 (commencing with Section
7097) of Division 7 of Title 1 of the Government Code.
(i) 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 and added
to the credit, if any, in the succeeding 10 taxable years, if
necessary, until the credit is exhausted. The credit shall be applied
first to the earliest taxable years possible.
(j) (1) The amount of the credit otherwise allowed under this
section and Section 17053.33, including any credit carryover from
prior years, that may reduce the "net tax" for the taxable year shall
not exceed the amount of tax that would be imposed on the qualified
taxpayer's business income attributable to the targeted tax area
determined as if that attributable income represented all of the
income of the qualified taxpayer subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the targeted
tax area. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101) of Part
11. That business income shall be further apportioned to the targeted
tax area in accordance with Article 2 (commencing with Section
25120) of Chapter 17 of Part 11, modified for purposes of this
section in accordance with paragraph (3).
(3) Business income shall be apportioned to the targeted tax area
by multiplying the total California business income of the taxpayer
by a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the targeted tax area during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the targeted tax area during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, if necessary, until the credit is exhausted, as if it were an
amount exceeding the "net tax" for the taxable year, as provided in
subdivision (i). However, the portion of any credit remaining for
carryover to taxable years beginning on or after January 1, 2014, if
any, after application of this subdivision, shall be carried over
only to the succeeding 10 taxable years, if necessary, until the
credit is exhausted, as if it were an amount exceeding the "net tax"
for the taxable year, as provided in subdivision (i).
(5) In the event that a credit carryover is allowable under
subdivision (i) for any taxable year after the targeted tax area
expiration date, the targeted tax area shall be deemed to remain in
existence for purposes of computing the limitation specified in this
subdivision.
(k) (1) Except as provided in paragraph (2), this section shall
cease to be operative for taxable years beginning on or after January
1, 2014, and shall be repealed on December 1, 2019.
(2) The section shall continue to apply with respect to qualified
employees who are employed by the qualified taxpayer within the
targeted tax area within the 60-month period immediately preceding
January 1, 2014, and qualified wages paid or incurred with respect to
those qualified employees shall continue to qualify for the credit
under this section for taxable years beginning on or after January 1,
2014, in accordance with this section, as amended by the act adding
this subdivision.
SEC. 9. Section 17053.45 of the Revenue and Taxation Code is
amended to read:
17053.45. (a) For each taxable year beginning on or after January
1, 1995, and before January 1, 2014, there shall be allowed as a
credit against the "net tax" (as defined by Section 17039) an amount
equal to the sales or use tax paid or incurred by the taxpayer in
connection with the purchase of qualified property before January 1,
2014, to the extent that the qualified property does not exceed a
value of one million dollars ($1,000,000).
(b) For purposes of this section:
(1) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
(2) "Taxpayer" means a taxpayer that conducts a trade or business
within a LAMBRA and, for the first two taxable years, has a net
increase in jobs (defined as 2,000 paid hours per employee per year)
of one or more employees in the LAMBRA.
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as
2,000 paid hours per employee
per year) the taxpayer employed in this state in the taxable year
prior to commencing business operations in the LAMBRA from the total
number of full-time employees the taxpayer employed in this state
during the second taxable year after commencing business operations
in the LAMBRA. For taxpayers who commence doing business in this
state with their LAMBRA business operation, the number of employees
for the taxable year prior to commencing business operations in the
LAMBRA shall be zero. If the taxpayer has a net increase in jobs in
the state, the credit shall be allowed only if one or more full-time
employees is employed within the LAMBRA.
(B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
(i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
(ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
(C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B), the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is
the number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
(3) "Qualified property" means property that is each of the
following:
(A) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA.
(B) Purchased before the date the LAMBRA designation expires, is
no longer binding, or becomes inoperative.
(C) Any of the following:
(i) High technology equipment, including, but not limited to,
computers and electronic processing equipment.
(ii) Aircraft maintenance equipment, including, but not limited
to, engine stands, hydraulic mules, power carts, test equipment,
handtools, aircraft start carts, and tugs.
(iii) Aircraft components, including, but not limited to, engines,
fuel control units, hydraulic pumps, avionics, starts, wheels, and
tires.
(iv) Section 1245 property, as defined in Section 1245(a)(3) of
the Internal Revenue Code.
(c) The credit provided under subdivision (a) shall be allowed
only for qualified property manufactured in California unless
qualified property of a comparable quality and price is not available
for timely purchase and delivery from a California manufacturer.
(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 which exceeds the "net tax" may be carried over and added
to the credit, if any, in the succeeding 10 taxable years, if
necessary, until the credit is exhausted. The credit shall be applied
first to the earliest taxable years possible.
(e) Any taxpayer who elects to be subject to this section shall
not be entitled to increase the basis of the property as otherwise
required by Section 164(a) of the Internal Revenue Code with respect
to sales or use tax paid or incurred in connection with the purchase
of qualified property.
(f) (1) The amount of credit otherwise allowed under this section
and Section 17053.46, including any credit carryover from prior
years, that may reduce the "net tax" for the taxable year shall not
exceed the amount of tax that would be imposed on the taxpayer's
business income attributed to a LAMBRA determined as if that
attributable income represented all the income of the taxpayer
subject to tax under this part.
(2) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income that is attributable
to sources in this state shall first be determined in accordance
with Chapter 17 (commencing with Section 25101) of Part 11. That
business income shall be further apportioned to the LAMBRA in
accordance with Article 2 (commencing with Section 25120) of Chapter
17 of Part 11, as modified for purposes of this section in accordance
with paragraph (3).
(3) Income shall be apportioned to a LAMBRA by multiplying the
total California business income of the taxpayer by a fraction, the
numerator of which is the property factor, plus the payroll factor,
and the denominator of which is two. For purposes of this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the LAMBRA during the taxable
year, and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA during the
taxable year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, if necessary, until the credit is exhausted, as if it were an
amount exceeding the "net tax" for the taxable year, as provided in
subdivision (d). However, the portion of any credit remaining for
carryover to taxable years beginning on or after January 1, 2014, if
any, after application of this subdivision, shall be carried over
only to the succeeding 10 taxable years, if necessary, until the
credit is exhausted, as if it were an amount exceeding the "net tax"
for the taxable year, as provided in subdivision (d).
(g) (1) If the qualified property is disposed of or no longer used
by the taxpayer in the LAMBRA, at any time before the close of the
second taxable year after the property is placed in service, the
amount of the credit previously claimed, with respect to that
property, shall be added to the taxpayer's tax liability in the
taxable year of that disposition or nonuse.
(2) At the close of the second taxable year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(2) of subdivision (b), then the amount of the credit previously
claimed shall be added to the taxpayer's net tax for the taxpayer's
second taxable year.
(h) If the taxpayer is allowed a credit for qualified property
pursuant to this section, only one credit shall be allowed to the
taxpayer under this part with respect to that qualified property.
(i) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 1998.
(j) This section is repealed on December 1, 2014.
SEC. 10. Section 17053.46 of the Revenue and Taxation Code is
amended to read:
17053.46. (a) For each taxable year beginning on or after January
1, 1995, there shall be allowed as a credit against the "net tax"
(as defined in Section 17039) to a qualified taxpayer for hiring a
qualified disadvantaged individual or a qualified displaced employee
during the taxable year for employment in the LAMBRA. The credit
shall be equal to the sum of each of the following:
(1) Fifty percent of the qualified wages in the first year of
employment.
(2) Forty percent of the qualified wages in the second year of
employment.
(3) Thirty percent of the qualified wages in the third year of
employment.
(4) Twenty percent of the qualified wages in the fourth year of
employment.
(5) Ten percent of the qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) That portion of wages paid or incurred by the employer during
the taxable year to qualified disadvantaged individuals or qualified
displaced employees that does not exceed 150 percent of the minimum
wage.
(B) The total amount of qualified wages which may be taken into
account for purposes of claiming the credit allowed under this
section shall not exceed two million dollars ($2,000,000) per taxable
year.
(C) Wages received during the 60-month period beginning with the
first day the individual commences employment with the taxpayer.
Reemployment in connection with any increase, including a regularly
occurring seasonal increase, in the trade or business operations of
the qualified taxpayer does not constitute commencement of employment
for purposes of this section.
(D) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the LAMBRA expiration date.
However, wages paid or incurred with respect to qualified
disadvantaged individuals or qualified displaced employees who are
employed by the qualified taxpayer within the LAMBRA within the
60-month period prior to the LAMBRA expiration date shall continue to
qualify for the credit under this section after the LAMBRA
expiration date, in accordance with all provisions of this section
applied as if the LAMBRA designation were still in existence and
binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
(4) "Qualified disadvantaged individual" means an individual who
satisfies all of the following requirements:
(A) (i) At least 90 percent of whose services for the taxpayer
during the taxable year are directly related to the conduct of the
taxpayer's trade or business located in a LAMBRA.
(ii) Who performs at least 50 percent of his or her services for
the taxpayer during the taxable year in the LAMBRA.
(B) Who is hired by the employer after the designation of the area
as a LAMBRA in which the individual's services were primarily
performed.
(C) Who is any of the following immediately preceding the
individual's commencement of employment with the taxpayer:
(i) An individual who has been determined eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.).
(ii) Any voluntary or mandatory registrant under the Greater
Avenues for Independence Act of 1985 as provided pursuant to Article
3.2 (commencing with Section 11320) of Chapter 2 of Part 3 of
Division 9 of the Welfare and Institutions Code.
(iii) An economically disadvantaged individual age 16 years or
older.
(iv) A dislocated worker who meets any of the following
conditions:
(I) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(II) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(III) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(IV) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(V) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(VI) Was an active member of the Armed Forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(VII) Experiences chronic seasonal unemployment and
underemployment in the agriculture industry, aggravated by continual
advancements in technology and mechanization.
(VIII) Has been terminated or laid off or has received a notice of
termination or layoff as a consequence of compliance with the Clean
Air Act.
(v) An individual who is enrolled in or has completed a state
rehabilitation plan or is a service-connected disabled veteran,
veteran of the Vietnam era, or veteran who is recently separated from
military service.
(vi) An ex-offender. An individual shall be treated as convicted
if he or she was placed on probation by a state court without a
finding of guilty.
(vii) A recipient of:
(I) Federal Supplemental Security Income benefits.
(II) Aid to Families with Dependent Children.
(III) CalFresh benefits.
(IV) State and local general assistance.
(viii) Is a member of a federally recognized Indian tribe, band,
or other group of Native American descent.
(5) "Qualified taxpayer" means a taxpayer or partnership that
conducts a trade or business within a LAMBRA and, for the first two
taxable years, has a net increase in jobs (defined as 2,000 paid
hours per employee per year) of one or more employees in the LAMBRA.
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA. For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero. If the
taxpayer has a net increase in jobs in the state, the credit shall be
allowed only if one or more full-time employees is employed within
the LAMBRA.
(B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
(i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
(ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
(C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B), the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is
the number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
(6) "Qualified displaced employee" means an individual who
satisfies all of the following requirements:
(A) Any civilian or military employee of a base or former base who
has been displaced as a result of a federal base closure act.
(B) (i) At least 90 percent of whose services for the taxpayer
during the taxable year are directly related to the conduct of the
taxpayer's trade or business located in a LAMBRA.
(ii) Who performs at least 50 percent of his or her services for
the taxpayer during the taxable year in a LAMBRA.
(C) Who is hired by the employer after the designation of the area
in which services were performed as a LAMBRA.
(7) "Seasonal employment" means employment by a qualified taxpayer
that has regular and predictable substantial reductions in trade or
business operations.
(8) "LAMBRA expiration date" means the date the LAMBRA designation
expires, is no longer binding, becomes inoperative, or is repealed.
(c) For qualified disadvantaged individuals or qualified displaced
employees hired on or after January 1, 2001, the taxpayer shall do
both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
LAMBRA, a certification that provides that a qualified disadvantaged
individual or qualified displaced employee meets the eligibility
requirements specified in subparagraph (C) of paragraph (4) of
subdivision (b) or subparagraph (A) of paragraph (6) of subdivision
(b). The Employment Development Department may provide preliminary
screening and referral to a certifying agency. The Department of
Housing and Community Development shall develop regulations governing
the issuance of certificates pursuant to Section 7114.2 of the
Government Code and shall develop forms for this purpose.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(d) (1) For purposes of this section, both of the following apply:
(A) All employees of trades or businesses that are under common
control shall be treated as employed by a single employer.
(B) The credit (if any) allowable by this section with respect to
each trade or business shall be determined by reference to its
proportionate share of the qualified wages giving rise to the credit.
The regulations prescribed under this paragraph shall be based on
principles similar to the principles that apply in the case of
controlled groups of corporations as specified in subdivision (e) of
Section 23622.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section (other than subdivision (d)) for any calendar year
ending after that acquisition, the employment relationship between an
employee and an employer shall not be treated as terminated if the
employee continues to be employed in that trade or business.
(e) (1) (A) If the employment, other than seasonal employment, of
any employee, with respect to whom qualified wages are taken into
account under subdivision (a), is terminated by the taxpayer at any
time during the first 270 days of that employment (whether or not
consecutive) or before the close of the 270th calendar day after the
day in which that employee completes 90 days of employment with the
taxpayer, the tax imposed by this part for the taxable year in which
that employment is terminated shall be increased by an amount
(determined under those regulations) equal to the credit allowed
under subdivision (a) for that taxable year and all prior taxable
years attributable to qualified wages paid or incurred with respect
to that employee.
(B) If the seasonal employment of any qualified disadvantaged
individual, with respect to whom qualified wages are taken into
account under subdivision (a), is not continued by the qualified
taxpayer for a period of 270 days of employment during the 60-month
period beginning with the day the qualified disadvantaged individual
commences seasonal employment with the qualified taxpayer, the tax
imposed by this part, for the taxable year that includes the 60th
month following the month in which the qualified disadvantaged
individual commences seasonal employment with the qualified taxpayer,
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
qualified disadvantaged individual.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of an employee who voluntarily
leaves the employment of the taxpayer.
(ii) A termination of employment of an individual who, before the
close of the period referred to in subparagraph (A) of paragraph (1),
becomes disabled to perform the services of that employment, unless
that disability is removed before the close of that period and the
taxpayer fails to offer reemployment to that individual.
(iii) A termination of employment of an individual, if it is
determined that the termination was due to the misconduct (as defined
in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that individual.
(iv) A termination of employment of an individual due to a
substantial reduction in the trade or business operations of the
taxpayer.
(v) A termination of employment of an individual, if that
individual is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
disadvantaged individual who voluntarily fails to return to the
seasonal employment of the qualified taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
disadvantaged individual who, before the close of the period referred
to in subparagraph (B) of paragraph (1), becomes disabled and unable
to perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
qualified taxpayer fails to offer seasonal employment to that
individual.
(iii) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if it is determined that the failure to
continue the seasonal employment was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that qualified disadvantaged
individual.
(iv) A failure to continue seasonal employment of a qualified
disadvantaged individual due to a substantial reduction in the
regular seasonal trade or business operations of the qualified
taxpayer.
(v) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if that individual is replaced by other
qualified displaced employees so as to create a net increase in both
the number of seasonal employees and the hours of seasonal
employment.
(C) For purposes of paragraph (1), the employment relationship
between the taxpayer and an employee shall not be treated as
terminated by reason of a mere change in the form of conducting the
trade or business of the taxpayer, if the employee continues to be
employed in that trade or business and the taxpayer retains a
substantial interest in that trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(4) At the close of the second taxable year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(5) of subdivision (b), then the amount of the credit previously
claimed shall be added to the taxpayer's net tax for the taxpayer's
second taxable year.
(f) In the case of an estate or trust, both of the following
apply:
(1) The qualified wages for any taxable year shall be apportioned
between the estate or trust and the beneficiaries on the basis of the
income of the estate or trust allocable to each.
(2) Any beneficiary to whom any qualified wages have been
apportioned under paragraph (1) shall be treated (for purposes of
this part) as the employer with respect to those wages.
(g) The credit shall be reduced by the credit allowed under
Section 17053.7. The credit shall also be reduced by the federal
credit allowed under Section 51 of the Internal Revenue Code.
In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the taxpayer upon which the
credit is based shall be reduced by the amount of the credit, prior
to any reduction required by subdivision (h) or (i).
(h) 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 and added
to the credit, if any, in the succeeding 10 taxable years, if
necessary, until the credit is exhausted. The credit shall be applied
first to the earliest taxable years possible.
(i) (1) The amount of credit otherwise allowed under this section
and Section 17053.45, including prior year credit carryovers, that
may reduce the "net tax" for the taxable year shall not exceed the
amount of tax that would be imposed on the taxpayer's business income
attributed to a LAMBRA determined as if that attributed income
represented all of the net income of the taxpayer subject to tax
under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income that is attributable
to sources in this state first shall be determined in accordance
with Chapter 17 (commencing with Section 25101) of Part 11. That
business income shall be further apportioned to the LAMBRA in
accordance with Article 2 (commencing with Section 25120) of Chapter
17 of Part 11, modified for purposes of this section in accordance
with paragraph (3).
(3) Income shall be apportioned to a LAMBRA by multiplying the
total California business income of the taxpayer by a fraction, the
numerator of which is the property factor plus the payroll factor,
and the denominator of which is two. For purposes of this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the LAMBRA during the taxable
year, and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA during the
taxable year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, if necessary, until the credit is exhausted, as if it were an
amount exceeding the "net tax" for the taxable year, as provided in
subdivision (h). However, the portion of any credit remaining for
carryover to taxable years beginning on or after January 1, 2014, if
any, after application of this
subdivision, shall be carried over only to the
succeeding 10 taxable years if necessary, until the credit is
exhausted, as if it were an amount exceeding the "net tax" for the
taxable year, as provided in subdivision (h).
(j) If the taxpayer is allowed a credit pursuant to this section
for qualified wages paid or incurred, only one credit shall be
allowed to the taxpayer under this part with respect to any wage
consisting in whole or in part of those qualified wages.
(k) (1) Except as provided in paragraph (2), this section shall
cease to be operative for taxable years beginning on or after January
1, 2014, and shall be repealed on December 1, 2019.
(2) The section shall continue to apply with respect to qualified
employees who are employed by the qualified taxpayer within the
LAMBRA within the 60-month period immediately preceding January 1,
2014, and qualified wages paid or incurred with respect to those
qualified employees shall continue to qualify for the credit under
this section for taxable years beginning on or after January 1, 2014,
in accordance with this section, as amended by the act adding this
subdivision.
SEC. 11. Section 17053.47 of the Revenue and Taxation Code is
amended to read:
17053.47. (a) For each taxable year beginning on or after January
1, 1998, there shall be allowed a credit against the "net tax" (as
defined in Section 17039) to a qualified taxpayer for hiring a
qualified disadvantaged individual during the taxable year for
employment in the manufacturing enhancement area. The credit shall be
equal to the sum of each of the following:
(1) Fifty percent of the qualified wages in the first year of
employment.
(2) Forty percent of the qualified wages in the second year of
employment.
(3) Thirty percent of the qualified wages in the third year of
employment.
(4) Twenty percent of the qualified wages in the fourth year of
employment.
(5) Ten percent of the qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) That portion of wages paid or incurred by the qualified
taxpayer during the taxable year to qualified disadvantaged
individuals that does not exceed 150 percent of the minimum wage.
(B) The total amount of qualified wages which may be taken into
account for purposes of claiming the credit allowed under this
section shall not exceed two million dollars ($2,000,000) per taxable
year.
(C) Wages received during the 60-month period beginning with the
first day the qualified disadvantaged individual commences employment
with the qualified taxpayer. Reemployment in connection with any
increase, including a regularly occurring seasonal increase, in the
trade or business operations of the taxpayer does not constitute
commencement of employment for purposes of this section.
(D) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the manufacturing enhancement area
expiration date. However, wages paid or incurred with respect to
qualified employees who are employed by the qualified taxpayer within
the manufacturing enhancement area within the 60-month period prior
to the manufacturing enhancement area expiration date shall continue
to qualify for the credit under this section after the manufacturing
enhancement area expiration date, in accordance with all provisions
of this section applied as if the manufacturing enhancement area
designation were still in existence and binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "Manufacturing enhancement area" means an area designated
pursuant to Section 7073.8 of the Government Code according to the
procedures of Chapter 12.8 (commencing with Section 7070) of Division
7 of Title 1 of the Government Code.
(4) "Manufacturing enhancement area expiration date" means the
date the manufacturing enhancement area designation expires, is no
longer binding, becomes inoperative, or is repealed.
(5) "Qualified disadvantaged individual" means an individual who
satisfies all of the following requirements:
(A) (i) At least 90 percent of whose services for the qualified
taxpayer during the taxable year are directly related to the conduct
of the qualified taxpayer's trade or business located in a
manufacturing enhancement area.
(ii) Who performs at least 50 percent of his or her services for
the qualified taxpayer during the taxable year in the manufacturing
enhancement area.
(B) Who is hired by the qualified taxpayer after the designation
of the area as a manufacturing enhancement area in which the
individual's services were primarily performed.
(C) Who is any of the following immediately preceding the
individual's commencement of employment with the qualified taxpayer:
(i) An individual who has been determined eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.), or its successor.
(ii) Any voluntary or mandatory registrant under the Greater
Avenues for Independence Act of 1985, or its successor, as provided
pursuant to Article 3.2 (commencing with Section 11320) of Chapter 2
of Part 3 of Division 9 of the Welfare and Institutions Code.
(iii) Any individual who has been certified eligible by the
Employment Development Department under the federal Targeted Jobs Tax
Credit Program, or its successor, whether or not this program is in
effect.
(6) "Qualified taxpayer" means any taxpayer engaged in a trade or
business within a manufacturing enhancement area designated pursuant
to Section 7073.8 of the Government Code and who meets all of the
following requirements:
(A) Is engaged in those lines of business described in Codes 0211
to 0291, inclusive, Code 0723, or in Codes 2011 to 3999, inclusive,
of the Standard Industrial Classification (SIC) Manual published by
the United States Office of Management and Budget, 1987 edition.
(B) At least 50 percent of the qualified taxpayer's workforce
hired after the designation of the manufacturing enhancement area is
composed of individuals who, at the time of hire, are residents of
the county in which the manufacturing enhancement area is located.
(C) Of this percentage of local hires, at least 30 percent shall
be qualified disadvantaged individuals.
(7) "Seasonal employment" means employment by a qualified taxpayer
that has regular and predictable substantial reductions in trade or
business operations.
(c) (1) For purposes of this section, all of the following apply:
(A) All employees of trades or businesses that are under common
control shall be treated as employed by a single qualified taxpayer.
(B) The credit (if any) allowable by this section with respect to
each trade or business shall be determined by reference to its
proportionate share of the expense of the qualified wages giving rise
to the credit and shall be allocated in that manner.
(C) Principles that apply in the case of controlled groups of
corporations, as specified in subdivision (d) of Section 23622.7,
shall apply with respect to determining employment.
(2) If a qualified taxpayer acquires the major portion of a trade
or business of another employer (hereinafter in this paragraph
referred to as the "predecessor") or the major portion of a separate
unit of a trade or business of a predecessor, then, for purposes of
applying this section (other than subdivision (d)) for any calendar
year ending after that acquisition, the employment relationship
between a qualified disadvantaged individual and a qualified taxpayer
shall not be treated as terminated if the qualified disadvantaged
individual continues to be employed in that trade or business.
(d) (1) (A) If the employment, other than seasonal employment, of
any qualified disadvantaged individual, with respect to whom
qualified wages are taken into account under subdivision (b) is
terminated by the qualified taxpayer at any time during the first 270
days of that employment (whether or not consecutive) or before the
close of the 270th calendar day after the day in which that qualified
disadvantaged individual completes 90 days of employment with the
qualified taxpayer, the tax imposed by this part for the taxable year
in which that employment is terminated shall be increased by an
amount equal to the credit allowed under subdivision (a) for that
taxable year and all prior taxable years attributable to qualified
wages paid or incurred with respect to that qualified disadvantaged
individual.
(B) If the seasonal employment of any qualified disadvantaged
individual, with respect to whom qualified wages are taken into
account under subdivision (a) is not continued by the qualified
taxpayer for a period of 270 days of employment during the 60-month
period beginning with the day the qualified disadvantaged individual
commences seasonal employment with the qualified taxpayer, the tax
imposed by this part, for the taxable year that includes the 60th
month following the month in which the qualified disadvantaged
individual commences seasonal employment with the qualified taxpayer,
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
qualified disadvantaged individual.
(2) (A) Subparagraph (A) of paragraph (1) does not apply to any of
the following:
(i) A termination of employment of a qualified disadvantaged
individual who voluntarily leaves the employment of the qualified
taxpayer.
(ii) A termination of employment of a qualified disadvantaged
individual who, before the close of the period referred to in
subparagraph (A) of paragraph (1), becomes disabled to perform the
services of that employment, unless that disability is removed before
the close of that period and the taxpayer fails to offer
reemployment to that individual.
(iii) A termination of employment of a qualified disadvantaged
individual, if it is determined that the termination was due to the
misconduct (as defined in Sections 1256-30 to 1256-43, inclusive, of
Title 22 of the California Code of Regulations) of that individual.
(iv) A termination of employment of a qualified disadvantaged
individual due to a substantial reduction in the trade or business
operations of the qualified taxpayer.
(v) A termination of employment of a qualified disadvantaged
individual, if that individual is replaced by other qualified
disadvantaged individuals so as to create a net increase in both the
number of employees and the hours of employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
disadvantaged individual who voluntarily fails to return to the
seasonal employment of the qualified taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
disadvantaged individual who, before the close of the period referred
to in subparagraph (B) of paragraph (1), becomes disabled and unable
to perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
qualified taxpayer fails to offer seasonal employment to that
qualified disadvantaged individual.
(iii) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if it is determined that the failure to
continue the seasonal employment was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that qualified disadvantaged
individual.
(iv) A failure to continue seasonal employment of a qualified
disadvantaged individual due to a substantial reduction in the
regular seasonal trade or business operations of the qualified
taxpayer.
(v) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if that qualified disadvantaged individual
is replaced by other qualified disadvantaged individuals so as to
create a net increase in both the number of seasonal employees and
the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the qualified taxpayer and a qualified disadvantaged
individual shall not be treated as terminated by reason of a mere
change in the form of conducting the trade or business of the
qualified taxpayer, if the qualified disadvantaged individual
continues to be employed in that trade or business and the qualified
taxpayer retains a substantial interest in that trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(e) In the case of an estate or trust, both of the following
apply:
(1) The qualified wages for any taxable year shall be apportioned
between the estate or trust and the beneficiaries on the basis of the
income of the estate or trust allocable to each.
(2) Any beneficiary to whom any qualified wages have been
apportioned under paragraph (1) shall be treated (for purposes of
this part) as the employer with respect to those wages.
(f) The credit shall be reduced by the credit allowed under
Section 17053.7. The credit shall also be reduced by the federal
credit allowed under Section 51 of the Internal Revenue Code.
In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the qualified taxpayer upon
which the credit is based shall be reduced by the amount of the
credit, prior to any reduction required by subdivision (g) or (h).
(g) 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 and added
to the credit, if any, in the succeeding 10 taxable years, if
necessary, until the credit is exhausted. The credit shall be applied
first to the earliest taxable years possible.
(h) (1) The amount of credit otherwise allowed under this section,
including prior year credit carryovers, that may reduce the "net tax"
for the taxable year shall not exceed the amount of tax that would
be imposed on the qualified taxpayer's business income attributed to
a manufacturing enhancement area determined as if that attributed
income represented all of the net income of the qualified taxpayer
subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the
manufacturing enhancement area. For that purpose, the taxpayer's
business income that is attributable to sources in this state first
shall be determined in accordance with Chapter 17 (commencing with
Section 25101) of Part 11. That business income shall be further
apportioned to the manufacturing enhancement area in accordance with
Article 2 (commencing with Section 25120) of Chapter 17 of Part 11,
modified for purposes of this section in accordance with paragraph
(3).
(3) Income shall be apportioned to a manufacturing enhancement
area by multiplying the total California business income of the
taxpayer by a fraction, the numerator of which is the property factor
plus the payroll factor, and the denominator of which is two. For
purposes of this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the manufacturing enhancement
area during the taxable year, and the denominator of which is the
average value of all the taxpayer's real and tangible personal
property owned or rented and used in this state during the taxable
year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the manufacturing
enhancement area during the taxable year for compensation, and the
denominator of which is the total compensation paid by the taxpayer
in this state during the taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, if necessary, until the credit is exhausted, as if it were an
amount exceeding the "net tax" for the taxable year, as provided in
subdivision (g). However, the portion of any credit remaining for
carryover to taxable years beginning on or after January 1, 2014, if
any, after application of this subdivision, shall be carried over
only to the succeeding 10 taxable years if necessary, until the
credit is exhausted, as if it were an amount exceeding the "net tax"
for the taxable year, as provided in subdivision (g).
(i) If the taxpayer is allowed a credit pursuant to this section
for qualified wages paid or incurred, only one credit shall be
allowed to the taxpayer under this part with respect to any wage
consisting in whole or in part of those qualified wages.
(j) The qualified taxpayer shall do both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
manufacturing enhancement area, a certification that provides that a
qualified disadvantaged individual meets the eligibility requirements
specified in paragraph (5) of subdivision (b). The Employment
Development Department may provide preliminary screening and referral
to a certifying agency. The Department of Housing and Community
Development shall develop regulations governing the issuance of
certificates pursuant to subdivision (d) of Section 7086 of the
Government Code and shall develop forms for this purpose.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(k) (1) Except as provided in paragraph (2), this section shall
cease to be operative for taxable years beginning on or after January
1, 2014, and shall be repealed on December 1, 2019.
(2) The section shall continue to apply with respect to qualified
employees who are employed by the qualified taxpayer within the
manufacturing enhancement area within the 60-month period immediately
preceding January 1, 2014, and qualified wages paid or incurred with
respect to those qualified employees shall continue to qualify for
the credit under this section for taxable years beginning on or after
January 1, 2014, in accordance with the provisions of this section,
as amended by the act adding this subdivision.
SEC. 12. Section 17053.70 of the Revenue and Taxation Code is
amended to read:
17053.70. (a) There shall be allowed as a credit against the "net
tax" (as defined in Section 17039) for the taxable year an amount
equal to the sales or use tax paid or incurred during the taxable
year by the taxpayer in connection with the taxpayer's purchase of
qualified property before January 1, 2014.
(b) For purposes of this section:
(1) "Taxpayer" means a person or entity engaged in a trade or
business within an enterprise zone.
(2) "Qualified property" means:
(A) Any of the following:
(i) Machinery and machinery parts used for fabricating,
processing, assembling, and manufacturing.
(ii) Machinery and machinery parts used for the production of
renewable energy resources.
(iii) Machinery and machinery parts used for either of the
following:
(I) Air pollution control mechanisms.
(II) Water pollution control mechanisms.
(iv) Data processing and communications equipment, including, but
not limited, to computers, computer-automated drafting systems, copy
machines, telephone systems, and faxes.
(v) Motion picture manufacturing equipment central to production
and postproduction, including, but not limited to, cameras, audio
recorders, and digital image and sound processing equipment.
(B) The total cost of qualified property purchased and placed in
service in any taxable year that may be taken into account by any
taxpayer for purposes of claiming this credit shall not exceed one
million dollars ($1,000,000).
(C) The qualified property is used by the taxpayer exclusively in
an enterprise zone.
(D) The qualified property is purchased and placed in service
before the date the enterprise zone designation expires, is no longer
binding, or becomes inoperative.
(3) "Enterprise zone" means the area designated as an enterprise
zone pursuant to Chapter 12.8 (commencing with Section 7070) of
Division 7 of Title 1 of the Government Code as it read on the
effective date of the act amending this section.
(c) If the taxpayer has purchased property upon which a use tax
has been paid or incurred, the credit provided by this section shall
be allowed only if qualified property of a comparable quality and
price is not timely available for purchase in this state.
(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 and added
to the credit, if any, in the succeeding 10 taxable years, if
necessary, until the credit is exhausted. The credit shall be applied
first to the earliest taxable years possible.
(e) Any taxpayer that elects to be subject to this section shall
not be entitled to increase the basis of the qualified property as
otherwise required by Section 164(a) of the Internal Revenue Code
with respect to sales or use tax paid or incurred in connection with
the taxpayer's purchase of qualified property.
(f) (1) The amount of the credit otherwise allowed under this
section and Section 17053.74, including any credit carryover from
prior years, that may reduce the "net tax" for the taxable year shall
not exceed the amount of tax that would be imposed on the taxpayer's
business income attributable to the enterprise zone determined as if
that attributable income represented all of the income of the
taxpayer subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101) of Part
11. That business income shall be further apportioned to the
enterprise zone in accordance with Article 2 (commencing with Section
25120) of Chapter 17 of Part 11, modified for purposes of this
section in accordance with paragraph (3).
(3) Business income shall be apportioned to the enterprise zone by
multiplying the total California business income of the taxpayer by
a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the enterprise zone during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the enterprise zone during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, if necessary, until the credit is exhausted, as if it were an
amount exceeding the "net tax" for the taxable year, as provided in
subdivision (d). However, the portion of any credit remaining for
carryover to taxable years beginning on or after January 1, 2014, if
any, after application of this subdivision, shall be carried over
only to the succeeding 10 taxable years, if necessary, until the
credit is exhausted, as if it were an amount exceeding the "net tax"
for the taxable year, as provided in subdivision (d).
(g) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 1998.
(h) This section is repealed on December 1, 2014.
SEC. 13. Section 17053.73 is added to the Revenue and Taxation
Code, to read:
17053.73. (a) (1) For each taxable year beginning on or after
January 1, 2014, and before January 1, 2021, there shall be allowed
to a qualified taxpayer that hires a qualified full-time employee and
pays or incurs qualified wages attributable to work performed by the
qualified full-time employee in a designated census tract or former
enterprise zone, and that receives a tentative credit reservation for
that qualified full-time employee, a credit against the "net tax,"
as defined in Section 17039, in an amount calculated under this
section.
(2) The amount of the credit allowable under this section for a
taxable year shall be equal to the product of the tentative credit
amount for the taxable year and the applicable percentage for that
taxable year.
(3) (A) If a qualified taxpayer relocates to a designated census
tract or former enterprise zone, the qualified taxpayer shall be
allowed a credit with respect to qualified wages for each qualified
full-time employee employed within the new location only if the
qualified taxpayer provides each employee at the previous location or
locations a written offer of employment at the new location in the
designated census tract or former enterprise zone with comparable
compensation.
(B) For purposes of this paragraph, "relocates to a designated
census tract or former enterprise zone" means an increase in the
number of qualified full-time employees, employed by a qualified
taxpayer, within a designated census tract or tracts or former
enterprise zones within a 12-month period in which there is a
decrease in the number of full-time employees, employed by the
qualified taxpayer in this state, but outside of designated census
tracts or former enterprise zone.
(C) This paragraph shall not apply to a small business.
(4) The credit allowed by this section may be claimed only on a
timely filed original return of the qualified taxpayer and only with
respect to a qualified full-time employee for whom the qualified
taxpayer has received a tentative credit reservation.
(b) For purposes of this section:
(1) The "tentative credit amount" for a taxable year shall be
equal to the product of the applicable credit percentage for each
qualified full-time employee and the qualified wages paid by the
qualified taxpayer during the taxable year to that qualified
full-time employee.
(2) The "applicable percentage" for a taxable year shall be equal
to a fraction, the numerator of which is the net increase in the
total number of full-time employees employed in this state during the
taxable year, determined on an annual full-time equivalent basis, as
compared with the total number of full-time employees employed in
this state during the base year, determined on the same basis, and
the denominator of which shall be the total number of qualified
full-time employees employed in this state during the taxable year.
The applicable percentage shall not exceed 100 percent.
(3) The "applicable credit percentage" means the credit percentage
for the calendar year during which a qualified full-time employee
was first employed by the qualified taxpayer. The applicable credit
percentage for all calendar years shall be 35 percent.
(4) "Base year" means the 2013 taxable year, except in the case of
a qualified taxpayer who first hires a qualified full-time employee
in a taxable year beginning on or after January 1, 2015, the base
year means the taxable year immediately preceding the taxable year in
which a qualified full-time employee was first hired by the
qualified taxpayer.
(5) "Acquired" includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.
(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 qualified 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
qualified taxpayer by the employee divided by 52.
(7) "Designated census tract" means a census tract within the
state that is determined by the Department of Finance to have a
civilian unemployment rate that is within the top 25 percent of all
census tracts within the state and has a poverty rate within the top
25 percent of all census tracts within the state, as prescribed in
Section 13073.5 of the Government Code.
(8) "Former enterprise zone" means an enterprise zone designated
as of December 31, 2011, and any expansion of an enterprise zone
prior to December 31, 2012, under former Chapter 12.8 (commencing
with former Section 7070) of Division 7 of Title 1 of the Government
Code, as in effect on December 31, 2012, excluding any census tract
within an enterprise zone that is identified by the Department of
Finance pursuant to Section 13073.5 of the Government Code as a
census tract within the lowest quartile of census tracts with the
lowest civilian unemployment and poverty.
(9) "Minimum wage" means the wage established pursuant to Chapter
1 (commencing with Section 1171) of Part 4 of Division 2 of the Labor
Code.
(10) (A) "Qualified full-time employee" means an individual who
meets all of the following requirements:
(i) Performs at least 50 percent of his or her services for the
qualified taxpayer during the taxable year in a designated census
tract or former enterprise zone.
(ii) Receives starting wages that are at least 150 percent of the
minimum wage.
(iii) Is hired by the qualified taxpayer on or after January 1,
2014.
(iv) Is hired by the qualified taxpayer after the date the
Department of Finance determines that the census tract referred to in
clause (i) is a designated census tract or that the census tracts
within a former enterprise zone are not census tracts with the lowest
civilian unemployment and poverty.
(v) Satisfies either of the following conditions:
(I) Is paid qualified wages by the qualified taxpayer for services
not less than an average of 35 hours per week.
(II) Is 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 taxpayer.
(vi) Upon commencement of employment with the qualified taxpayer,
satisfies any of the following conditions:
(I) Was unemployed for the six months immediately preceding
employment with the qualified taxpayer. In the case of an individual
that completed a program of study at a college, university, or other
postsecondary educational institution, received a baccalaureate,
postgraduate, or professional degree, and was unemployed for the six
months immediately preceding employment with the qualified taxpayer,
that individual must have completed that program of study at least 12
months prior to the individual's commencement of employment with the
qualified taxpayer.
(II) Is a veteran that had not been employed since separation from
service in the Armed Forces of the United States.
(III) Was a recipient of the credit allowed under Section 32 of
the Internal Revenue Code, relating to earned income, as applicable
for federal purposes, for the previous taxable year.
(IV) Was an ex-offender, within the meaning of Section 17053.74.
(B) An individual may be considered a qualified full-time employee
only for the period of time commencing with the date the individual
is first employed by the qualified taxpayer and ending 60 months
thereafter.
(11) (A) "Qualified taxpayer" means a person or entity engaged in
a trade or business within a designated census tract or former
enterprise zone that, during the taxable year, pays or incurs
qualified wages.
(B) In the case of any pass-thru entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section or
Section 23626 shall be allowed to the pass-thru entity and passed
through to the partners and shareholders in accordance with
applicable provisions of this part or Part 11 (commencing with
Section 23001). For purposes of this subdivision, the term "pass-thru
entity" means any partnership or "S" corporation.
(C) "Qualified taxpayers" shall not include any of the following:
(i) Employers that provide temporary help services, as described
in Code 561320 of the North American Industry Classification System
(NAICS) published by the United States Office of Management and
Budget, 2012 Edition.
(ii) Employers that provide retail trade services, as described in
Sector 44-45 of the North American Industry Classification System
(NAICS) published by the United States Office of Management and
Budget, 2012 Edition.
(iii) Employers that are primarily engaged in providing food
services, as described in Code 711110, 722511, 722513, 722514, or
722515 of the North American Industry Classification System (NAICS)
published by the United States Office of Management and Budget, 2012
edition.
(iv) Employers that are primarily engaged in services as described
in Code 713210, 721120, or 722410 of the North American Industry
Classification System (NAICS) published by the United States Office
of Management and Budget, 2012 edition.
(D) Subparagraph (C) shall not apply to a taxpayer that is a
"small business."
(12) "Qualified wages" means those wages that meet all of the
following requirements:
(A) That portion of wages paid or incurred by the qualified
taxpayer during the taxable year to each qualified full-time employee
that exceeds 150 percent of minimum wage, but does not exceed 350
percent of minimum wage.
(B) Wages paid or incurred during the 60-month period beginning
with the first day the qualified full-time employee commences
employment with the qualified taxpayer. In the case of any employee
who is reemployed, including a regularly occurring seasonal increase,
in the trade or business operations of the qualified taxpayer, this
reemployment shall not be treated as constituting commencement of
employment for purposes of this section.
(C) Except as provided in paragraph (3) of subdivision (n),
qualified wages shall not include any wages paid or incurred by the
qualified taxpayer on or after the date that the Department of
Finance's redesignation of designated census tracts is effective, as
provided in paragraph (2) of subdivision (g), so that a census tract
is no longer a designated census tract.
(13) "Seasonal employment" means employment by a qualified
taxpayer that has regular and predictable substantial reductions in
trade or business operations.
(14) (A) "Small business" means a trade or business that has
aggregate gross receipts, less returns and allowances reportable to
this state, of less than two million dollars ($2,000,000) during the
previous taxable year.
(B) (i) For purposes of this paragraph, "gross receipts, less
returns and allowances reportable to this state," means the sum of
the gross receipts from the production of business income, as defined
in subdivision (a) of Section 25120, and the gross receipts from the
production of nonbusiness income, as defined in subdivision (d) of
Section 25120.
(ii) In the case of any trade or business activity conducted by a
partnership or an "S" corporation, the limitations set forth in
subparagraph (A) shall be applied to the partnership or "S"
corporation and to each partner or shareholder.
(15) An individual is "unemployed" for any period for which the
individual is all of the following:
(A) Not in receipt of wages subject to withholding under Section
13020 of the Unemployment Insurance Code for that period.
(B) Not a self-employed individual (within the meaning of Section
401(c)(1)(B) of the Internal Revenue Code, relating to self-employed
individual) for that period.
(C) Not a registered full-time student at a high school, college,
university, or other postsecondary educational institution for that
period.
(c) The net increase in full-time employees of a qualified
taxpayer shall be determined as provided by this subdivision:
(1) (A) The net increase in 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 full-time employees employed in the base
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
base year shall be zero.
(d) For purposes of this section:
(1) All employees of the trades or businesses that are treated as
related under 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.
(e) (1) To be eligible for the credit allowed by this section, a
qualified taxpayer shall, upon hiring a qualified full-time employee,
request a tentative credit reservation from the Franchise Tax Board
within 30 days of complying with the Employment Development
Department's new hire reporting requirements as provided in Section
1088.5 of the Unemployment Insurance Code, in the form and manner
prescribed by the Franchise Tax Board.
(2) To obtain a tentative credit reservation with respect to a
qualified full-time employee, the qualified taxpayer shall provide
necessary information, as determined by the Franchise Tax Board,
including the name, social security number, the start date of
employment, the rate of pay of the qualified full-time employee, the
qualified taxpayer's gross receipts, less returns and allowances, for
the previous taxable year, and whether the qualified full-time
employee is a resident of a targeted employment area, as defined in
former Section 7072 of the Government Code, as in effect on December
31, 2013.
(3) The qualified taxpayer shall provide the Franchise Tax Board
an annual certification of employment with respect to each qualified
full-time employee hired in a previous taxable year, on or before,
the 15th day of the third month of the taxable year. The
certification shall include necessary information, as determined by
the Franchise Tax Board, including the name, social security number,
start date of employment, and rate of pay for each qualified
full-time employee employed by the qualified taxpayer.
(4) A tentative credit reservation provided to a taxpayer with
respect to an employee of that taxpayer shall not constitute a
determination by the Franchise Tax Board with respect to any of the
requirements of this section regarding a taxpayer's eligibility for
the credit authorized by this section.
(f) The Franchise Tax Board shall do all of the following:
(1) Approve a tentative credit reservation with respect to a
qualified full-time employee hired during a calendar year.
(2) Determine the aggregate tentative reservation amount and the
aggregate small business tentative reservation amount for a calendar
year.
(3) A tentative credit reservation request from a qualified
taxpayer with respect to a qualified full-time employee who is a
resident of a targeted employment area, as defined in former Section
7072 of the Government Code, as in effect on December 31, 2013, shall
be expeditiously processed by the Franchise Tax Board. The residence
of a qualified full-time employee in a targeted employment area
shall have no other effect on the eligibility of an individual as a
qualified full-time employee or the eligibility of a qualified
taxpayer for the credit authorized by this section.
(4) Notwithstanding Section 19542, provide as a searchable
database on its Internet Web site, for each taxable year beginning on
or after January 1, 2014, and before January 1, 2021, the employer
names, amounts of tax credit claimed, and number of new jobs created
for each taxable year pursuant to this section and Section 23626.
(g) (1) The Department of Finance shall, by January 1, 2014, and
by January 1 of every fifth year thereafter, provide the Franchise
Tax Board with a list of the designated census tracts and a list of
census tracts with the lowest civilian unemployment rate.
(2) The redesignation of designated census tracts and lowest
civilian unemployment census tracts by the Department of Finance as
provided in Section 13073.5 of the Government Code shall be
effective, for purposes of this credit, one year after the date the
Department of Finance redesignates the designated census tracts.
(h) For purposes of this section:
(1) All employees of the trades or businesses that are treated as
related under Section 267, 318, or 707 of the Internal Revenue Code
shall be treated as employed by a single taxpayer.
(2) All employees of trades or businesses that are not
incorporated, and that are under common control, shall be treated as
employed by a single taxpayer.
(3) The credit, if any, allowable by this section with respect to
each trade or business shall be determined by reference to its
proportionate share of the expense of the qualified wages giving rise
to the credit, and shall be allocated to that trade or business in
that manner.
(4) Principles that apply in the case of controlled groups of
corporations, as specified in subdivision (h) of Section 23626, shall
apply with respect to determining employment.
(5) If an employer acquires the major portion of a trade or
business of another employer, hereinafter in this paragraph referred
to as the predecessor, or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section, other than subdivision (i), for any taxable year ending
after that acquisition, the employment relationship between a
qualified full-time employee and an employer shall not be treated as
terminated if the employee continues to be employed in that trade or
business.
(i) (1) If the employment of any qualified full-time employee,
with respect to whom qualified wages are taken into account under
subdivision (a), is terminated by the qualified taxpayer at any time
during the first 36 months after commencing employment with the
qualified taxpayer, whether or not consecutive, the tax imposed by
this part for the taxable year in which that employment is terminated
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
employee.
(2) Paragraph (1) shall not apply to any of the following:
(A) A termination of employment of a qualified full-time employee
who voluntarily leaves the employment of the qualified taxpayer.
(B) A termination of employment of a qualified full-time employee
who, before the close of the period referred to in paragraph (1),
becomes disabled and unable to perform the services of that
employment, unless that disability is removed before the close of
that period and the qualified taxpayer fails to offer reemployment to
that employee.
(C) A termination of employment of a qualified full-time employee,
if it is determined that the termination was due to the misconduct,
as defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
the California Code of Regulations, of that employee.
(D) A termination of employment of a qualified full-time employee
due to a substantial reduction in the trade or business operations of
the qualified taxpayer, including reductions due to seasonal
employment.
(E) A termination of employment of a qualified full-time employee,
if that employee is replaced by other qualified full-time employees
so as to create a net increase in both the number of employees and
the hours of employment.
(F) A termination of employment of a qualified full-time employee,
when that employment is considered seasonal employment and the
qualified employee is rehired on a seasonal basis.
(3) For purposes of paragraph (1), the employment relationship
between the qualified taxpayer and a qualified full-time employee
shall not be treated as terminated by reason of a mere change in the
form of conducting the trade or business of the qualified taxpayer,
if the qualified full-time employee continues to be employed in that
trade or business and the qualified taxpayer retains a substantial
interest in that trade or business.
(4) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(j) In the case of an estate or trust, both of the following
apply:
(1) The qualified wages for any taxable year shall be apportioned
between the estate or trust and the beneficiaries on the basis of the
income of the estate or trust allocable to each.
(2) Any beneficiary to whom any qualified wages have been
apportioned under paragraph (1) shall be treated, for purposes of
this part, as the employer with respect to those wages.
(k) 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 the succeeding four years if necessary,
until the credit is exhausted.
(l) 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 allocation of the
credit allowed under this section. Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code shall not apply to any rule, guideline, or procedure prescribed
by the Franchise Tax Board pursuant to this section.
(m) (1) Upon the effective date of this section, the Department of
Finance shall estimate the total dollar amount of credits that will
be claimed under this section with respect to each fiscal year from
the 2013-14 fiscal year to the 2020-21 fiscal year, inclusive.
(2) The Franchise Tax Board shall annually provide to the Joint
Legislative Budget Committee, by no later than March 1, a report of
the total dollar amount of the credits claimed under this section
with respect to the relevant fiscal year. The report shall compare
the total dollar amount of credits claimed under this section with
respect to that fiscal year with the department's estimate with
respect to that same fiscal year. If the total dollar amount of
credits claimed for the fiscal year is less than the estimate for
that fiscal year, the report shall identify options for increasing
annual claims of the credit so as to meet estimated amounts.
(n) (1) This section shall remain in effect only until December 1,
2024, and as of that date is repealed.
(2) Notwithstanding paragraph (1) of subdivision (a), this section
shall continue to be operative for taxable years beginning on or
after January 1, 2021, but only with respect to qualified full-time
employees who commenced employment with a qualified taxpayer in a
designated census tract or former enterprise zone in a taxable year
beginning before January 1, 2021.
(3) This section shall remain operative for any qualified taxpayer
with respect to any qualified full-time employee after the
designated census tract is no longer designated or a former
enterprise zone ceases to be a former enterprise zone, as defined in
this section, for the remaining period, if any, of the 60-month
period after the original date of hiring of an otherwise qualified
full-time employee and any wages paid or incurred with respect to
those qualified full-time employees after the designated census tract
is no longer designated or a former enterprise zone ceases to be a
former enterprise zone, as defined in this section, shall be treated
as qualified wages under this section, provided the employee
satisfies any other requirements of paragraphs (10) and (12) of
subdivision (b), as if the designated census tract was still
designated and binding.
SEC. 14. Section 17053.74 of the Revenue and Taxation Code is
amended to read:
17053.74. (a) There shall be allowed a credit against the "net
tax" (as defined in Section 17039) to a taxpayer who employs a
qualified employee in an enterprise zone during the taxable year. The
credit shall be equal to the sum of each of the following:
(1) Fifty percent of qualified wages in the first year of
employment.
(2) Forty percent of qualified wages in the second year of
employment.
(3) Thirty percent of qualified wages in the third year of
employment.
(4) Twenty percent of qualified wages in the fourth year of
employment.
(5) Ten percent of qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) (i) Except as provided in clause (ii), that portion of wages
paid or incurred by the taxpayer during the taxable year to qualified
employees that does not exceed 150 percent of the minimum wage.
(ii) For up to 1,350 qualified employees who are employed by the
taxpayer in the Long Beach Enterprise Zone in aircraft manufacturing
activities described in Codes 3721 to 3728, inclusive, and Code 3812
of the Standard Industrial Classification (SIC) Manual published by
the United States Office of Management and Budget, 1987 edition,
"qualified wages" means that portion of hourly wages that does not
exceed 202 percent of the minimum wage.
(B) Wages received during the 60-month period beginning with the
first day the employee commences employment with the taxpayer.
Reemployment in connection with any increase, including a regularly
occurring seasonal increase, in the trade or business operations of
the taxpayer does not constitute commencement of employment for
purposes of this section.
(C) Qualified wages do not include any wages paid or incurred by
the taxpayer on or after the zone expiration date. However, wages
paid or incurred with respect to qualified employees who are employed
by the taxpayer within the enterprise zone within the 60-month
period prior to the zone expiration date shall continue to qualify
for the credit under this section after the zone expiration date, in
accordance with all provisions of this section applied as if the
enterprise zone designation were still in existence and binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "Zone expiration date" means the date the enterprise zone
designation expires, is no longer binding, becomes inoperative, or is
repealed.
(4) (A) "Qualified employee" means an individual who meets all of
the following requirements:
(i) At least 90 percent of whose services for the taxpayer during
the taxable year are directly related to the conduct of the taxpayer'
s trade or business located in an enterprise zone.
(ii) Performs at least 50 percent of his or her services for the
taxpayer during the taxable year in an enterprise zone.
(iii) Is hired by the taxpayer after the date of original
designation of the area in which services were performed as an
enterprise zone.
(iv) Is any of the following:
(I) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a person eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.), or its successor, who is receiving, or is eligible to
receive, subsidized employment, training, or services funded by the
federal Job Training Partnership Act, or its successor.
(II) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a person eligible to be a
voluntary or mandatory registrant under the Greater Avenues for
Independence Act of 1985 (GAIN) provided for pursuant to Article 3.2
(commencing with Section 11320) of Chapter 2 of Part 3 of Division 9
of the Welfare and Institutions Code, or its successor.
(III) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was an economically disadvantaged
individual 14 years of age or older.
(IV) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a dislocated worker who meets
any of the following:
(aa) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(bb) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(cc) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(dd) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(ee) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(ff) Was an active member of the armed forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(gg) Is a seasonal or migrant worker who experiences chronic
seasonal unemployment and underemployment in the agriculture
industry, aggravated by continual advancements in technology and
mechanization.
(hh) Has been terminated or laid off, or has received a notice of
termination or layoff, as a consequence of compliance with the Clean
Air Act.
(V) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a disabled individual who is
eligible for or enrolled in, or has completed a state rehabilitation
plan or is a service-connected disabled veteran, veteran of the
Vietnam era, or veteran who is recently separated from military
service.
(VI) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was an ex-offender. An individual
shall be treated as convicted if he or she was placed on probation by
a state court without a finding of guilt.
(VII) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a person eligible for or a
recipient of any of the following:
(aa) Federal Supplemental Security Income benefits.
(bb) Aid to Families with Dependent Children.
(cc) CalFresh benefits.
(dd) State and local general assistance.
(VIII) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a member of a federally
recognized Indian tribe, band, or other group of Native American
descent.
(IX) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a resident of a targeted
employment area, as defined in Section 7072 of the Government Code.
(X) An employee who qualified the taxpayer for the enterprise zone
hiring credit under former Section 17053.8 or the program area
hiring credit under former Section 17053.11.
(XI) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a member of a targeted group, as
defined in Section 51(d) of the Internal Revenue Code, or its
successor.
(B) Priority for employment shall be provided to an individual who
is enrolled in a qualified program under the federal Job Training
Partnership Act or the Greater Avenues for Independence Act of 1985
or who is eligible as a member of a targeted group under the Work
Opportunity Tax Credit (Section 51 of the Internal Revenue Code), or
its successor.
(5) "Taxpayer" means a person or entity engaged in a trade or
business within an enterprise zone designated pursuant to Chapter
12.8 (commencing with Section 7070) of the Government Code.
(6) "Seasonal employment" means employment by a taxpayer that has
regular and predictable substantial reductions in trade or business
operations.
(c) The taxpayer shall do both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
enterprise zone, a certification which provides that a qualified
employee meets the eligibility requirements specified in clause (iv)
of subparagraph (A) of paragraph (4) of subdivision (b). The
Employment Development Department may provide preliminary screening
and referral to a certifying agency. The Employment Development
Department shall develop a form for this purpose. The Department of
Housing and Community Development shall develop regulations governing
the issuance of certificates by local governments pursuant to
subdivision (a) of Section 7086 of the Government Code.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(d) (1) For purposes of this section:
(A) All employees of trades or businesses, which are not
incorporated, that are under common control shall be treated as
employed by a single taxpayer.
(B) The credit, if any, allowable by this section with respect to
each trade or business shall be determined by reference to its
proportionate share of the expense of the qualified wages giving rise
to the credit, and shall be allocated in that manner.
(C) Principles that apply in the case of controlled groups of
corporations, as specified in subdivision (d) of Section 23622.7,
shall apply with respect to determining employment.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section (other than subdivision (e)) for any calendar year
ending after that acquisition, the employment relationship between a
qualified employee and an employer shall not be treated as terminated
if the employee continues to be employed in that trade or business.
(e) (1) (A) If the employment, other than seasonal employment, of
any qualified employee, with respect to whom qualified wages are
taken into account under subdivision (a), is terminated by the
taxpayer at any time during the first 270 days of that employment
(whether or not consecutive) or before the close of the 270th
calendar day after the day in which that employee completes 90 days
of employment with the taxpayer, the tax imposed by this part for the
taxable year in which that employment is terminated shall be
increased by an amount equal to the credit allowed under subdivision
(a) for that taxable year and all prior taxable years attributable to
qualified wages paid or incurred with respect to that employee.
(B) If the seasonal employment of any qualified employee, with
respect to whom qualified wages are taken into account under
subdivision (a), is not continued by the taxpayer for a period of 270
days of employment during the 60-month period beginning with the day
the qualified employee commences seasonal employment with the
taxpayer, the tax imposed by this part, for the taxable year that
includes the 60th month following the month in which the qualified
employee commences seasonal employment with the taxpayer, shall be
increased by an amount equal to the credit allowed under subdivision
(a) for that taxable year and all prior taxable years attributable to
qualified wages paid or incurred with respect to that qualified
employee.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of a qualified employee who
voluntarily leaves the employment of the taxpayer.
(ii) A termination of employment of a qualified employee who,
before the close of the period referred to in paragraph (1), becomes
disabled and unable to perform the services of that employment,
unless that disability is removed before the close of that period and
the taxpayer fails to offer reemployment to that employee.
(iii) A termination of employment of a qualified employee, if it
is determined that the termination was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that employee.
(iv) A termination of employment of a qualified employee due to a
substantial reduction in the trade or business operations of the
taxpayer.
(v) A termination of employment of a qualified employee, if that
employee is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
employee who voluntarily fails to return to the seasonal employment
of the taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
employee who, before the close of the period referred to in
subparagraph (B) of paragraph (1), becomes disabled and unable to
perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
taxpayer fails to offer seasonal employment to that qualified
employee.
(iii) A failure to continue the seasonal employment of a qualified
employee, if it is determined that the failure to continue the
seasonal employment was due to the misconduct (as defined in Sections
1256-30 to 1256-43, inclusive, of Title 22 of the California Code of
Regulations) of that qualified employee.
(iv) A failure to continue seasonal employment of a qualified
employee due to a substantial reduction in the regular seasonal trade
or business operations of the taxpayer.
(v) A failure to continue the seasonal employment of a qualified
employee, if that qualified employee is replaced by other qualified
employees so as to create a net increase in both the number of
seasonal employees and the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the taxpayer and a qualified employee shall not be treated as
terminated by reason of a mere change in the form of conducting the
trade or business of the taxpayer, if the qualified employee
continues to be employed in that trade or business and the taxpayer
retains a substantial interest in that trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(f) In the case of an estate or trust, both of the following
apply:
(1) The qualified wages for any taxable year shall be apportioned
between the estate or trust and the beneficiaries on the basis of the
income of the estate or trust allocable to each.
(2) Any beneficiary to whom any qualified wages have been
apportioned under paragraph (1) shall be treated, for purposes of
this part, as the employer with respect to those wages.
(g) For purposes of this section, "enterprise zone" means an area
designated as an enterprise zone pursuant to Chapter 12.8 (commencing
with Section 7070) of Division 7 of Title 1 of the Government Code.
(h) The credit allowable under this section shall be reduced by
the credit allowed under Sections 17053.10, 17053.17, and 17053.46
claimed for the same employee. The credit shall also be reduced by
the federal credit allowed under Section 51 of the Internal Revenue
Code.
In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the taxpayer upon which the
credit is based shall be reduced by the amount of the credit, prior
to any reduction required by subdivision (i) or (j).
(i) 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 and added
to the credit, if any, in the succeeding 10 taxable years, if
necessary, until the credit is exhausted. The credit shall be applied
first to the earliest taxable years possible.
(j) (1) The amount of the credit otherwise allowed under this
section and Section 17053.70, including any credit carryover from
prior years, that may reduce the "net tax" for the taxable year shall
not exceed the amount of tax which would be imposed on the taxpayer'
s business income attributable to the enterprise zone determined as
if that attributable income represented all of the income of the
taxpayer subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101) of Part
11. That business income shall be further apportioned to the
enterprise zone in accordance with Article 2 (commencing with Section
25120) of Chapter 17 of Part 11, modified for purposes of this
section in accordance with paragraph (3).
(3) Business income shall be apportioned to the enterprise zone by
multiplying the total California business income of the taxpayer by
a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the enterprise zone during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the enterprise zone during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, if necessary, until the credit is exhausted, as if it were an
amount exceeding the "net tax" for the taxable year, as provided in
subdivision (i). However, the portion of any credit remaining for
carryover to taxable years beginning on or after January 1, 2014, if
any, after application of this subdivision, shall be carried over
only to the succeeding 10 taxable years if necessary, until the
credit is exhausted, as if it were an amount exceeding the "net tax"
for the taxable year, as provided in subdivision (i).
(k) The changes made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 1997.
( l ) (1) Except as provided in paragraph (2), this
section shall cease to be operative for taxable years beginning on or
after January 1, 2014, and shall be repealed on December 1, 2019.
(2) The section shall continue to apply with respect to qualified
employees who are employed by the qualified taxpayer within the
enterprise zone within the 60-month period immediately preceding
January 1, 2014, and qualified wages paid or incurred with respect to
those qualified employees shall continue to qualify for the credit
under this section for taxable years beginning on or after January 1,
2014, in accordance with this section, as amended by the act adding
this subdivision.
SEC. 15. Section 17053.75 of the Revenue and Taxation Code is
amended to read:
17053.75. (a) There shall be allowed as a credit against the "net
tax" (as defined by Section 17039) for the taxable year an amount
equal to five percent of the qualified wages received by the taxpayer
during the taxable year.
(b) For purposes of this section:
(1) "Qualified employee" means a taxpayer who meets both of the
following:
(A) Is described in clauses (i) and (ii) of subparagraph (A) of
paragraph (4) of subdivision (b) of Section 17053.74.
(B) Is not an employee of the federal government or of this state
or of any political subdivision of this state.
(2) (A) "Qualified wages" means "wages," as defined in subsection
(b) of Section 3306 of the Internal Revenue Code, attributable to
services performed for an employer with respect to whom the taxpayer
is a qualified employee in an amount that does not exceed one and
one-half times the dollar limitation specified in that subsection.
(B) "Qualified wages" does not include any compensation received
from the federal government or this state or any political
subdivision of this state.
(C) "Qualified wages" does not include any wages received on or
after the date the enterprise zone designation expires, is no longer
binding, or becomes inoperative.
(3) "Enterprise zone" means any area designated as an enterprise
zone pursuant to Chapter 12.8 (commencing with Section 7070) of
Division 7 of Title 1 of the Government Code.
(c) For each dollar of income received by the taxpayer in excess
of qualified wages, as defined in this section, the credit shall be
reduced by nine cents ($0.09).
(d) The amount of the credit allowed by this section in any
taxable year shall not exceed the amount of tax that would be imposed
on the taxpayer's income attributable to employment within the
enterprise zone as if that income represented all of the income of
the taxpayer subject to tax under this part.
(e) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 16. 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. 17. 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 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, 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 four hundred million dollars ($400,000,000) 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 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 cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 18. Section 17059.2 is added to the Revenue and Taxation
Code, to read:
17059.2. (a) (1) For each taxable year beginning on and after
January 1, 2014, and before January 1, 2025, there shall be allowed
as a credit against the "net tax," as defined in Section 17039, an
amount as determined by the committee pursuant to paragraph (2) and
approved pursuant to Section 18410.2.
(2) The amount of credit allocated to a taxpayer for a taxable
year pursuant to this section shall be as set forth in a written
agreement between GO-Biz and the taxpayer and shall be based on the
following factors:
(A) The number of jobs the taxpayer will create or retain in this
state.
(B) The compensation paid or proposed to be paid by the taxpayer
to its employees, including wages and fringe benefits.
(C) The amount of investment in this state by the taxpayer.
(D) The extent of unemployment or poverty in the area according to
the United States Census in which the taxpayer's project or business
is proposed or located.
(E) The incentives available to the taxpayer in this state,
including incentives from the state, local government, and other
entities.
(F) The incentives available to the taxpayer in other states.
(G) The duration of the proposed project and the duration the
taxpayer commits to remain in this state.
(H) The overall economic impact in this state of the taxpayer's
project or business.
(I) The strategic importance of the taxpayer's project or business
to the state, region, or locality.
(J) The
opportunity for future growth and expansion in this state by the
taxpayer's business.
(K) The extent to which the anticipated benefit to the state
exceeds the projected benefit to the taxpayer from the tax credit.
(3) The written agreement entered into pursuant to paragraph (2)
shall include:
(A) Terms and conditions that include a minimum compensation level
and a minimum job retention period.
(B) Provisions indicating whether the credit is to be allocated in
full upon approval or in increments based on mutually agreed upon
milestones when satisfactorily met by the taxpayer.
(C) Provisions that allow the committee to recapture the credit,
in whole or in part, if the taxpayer fails to fulfill the terms and
conditions of the written agreement.
(b) For purposes of this section:
(1) "Committee" means the California Competes Tax Credit Committee
established pursuant to Section 18410.2.
(2) "GO-Biz" means the Governor's Office of Business and Economic
Development.
(c) For purposes of this section, GO-Biz shall do the following:
(1) Give priority to a taxpayer whose project or business is
located or proposed to be located in an area of high unemployment or
poverty.
(2) Negotiate with a taxpayer the terms and conditions of proposed
written agreements that provide the credit allowed pursuant to this
section to a taxpayer.
(3) Provide the negotiated written agreement to the committee for
its approval pursuant to Section 18410.2.
(4) Inform the Franchise Tax Board of the terms and conditions of
the written agreement upon approval of the written agreement by the
committee.
(5) Inform the Franchise Tax Board of any recapture, in whole or
in part, of a previously allocated credit upon approval of the
recapture by the committee.
(6) Post on its Internet Web site all of the following:
(A) The name of each taxpayer allocated a credit pursuant to this
section.
(B) The estimated amount of the investment by each taxpayer.
(C) The estimated number of jobs created or retained.
(D) The amount of the credit allocated to the taxpayer.
(E) The amount of the credit recaptured from the taxpayer, if
applicable.
(d) For purposes of this section, the Franchise Tax Board shall do
all of the following:
(1) (A) Except as provided in subparagraph (B), review the books
and records of all taxpayers allocated a credit pursuant to this
section to ensure compliance with the terms and conditions of the
written agreement between the taxpayer and GO-Biz.
(B) In the case of a taxpayer that is a "small business," as
defined in Section 17053.73, review the books and records of the
taxpayer allocated a credit pursuant to this section to ensure
compliance with the terms and conditions of the written agreement
between the taxpayer and GO-Biz when, in the sole discretion of the
Franchise Tax Board, a review of those books and records is
appropriate or necessary in the best interests of the state.
(2) Notwithstanding Section 19542:
(A) Notify GO-Biz of a possible breach of the written agreement by
a taxpayer and provide detailed information regarding the basis for
that determination.
(B) Provide information to GO-Biz with respect to whether a
taxpayer is a "small business," as defined in Section 17053.73.
(e) In the case where the credit allowed under this section
exceeds the "net tax," as defined in Section 17039, for a taxable
year, the excess credit may be carried over to reduce the "net tax"
in the following taxable year, and succeeding five taxable years, if
necessary, until the credit has been exhausted.
(f) Any recapture, in whole or in part, of a credit approved by
the committee pursuant to Section 18410.2 shall be treated as a
mathematical error appearing on the return. Any amount of tax
resulting from that recapture shall be assessed by the Franchise Tax
Board in the same manner as provided by Section 19051. The amount of
tax resulting from the recapture shall be added to the tax otherwise
due by the taxpayer for the taxable year in which the committee's
recapture determination occurred.
(g) (1) The aggregate amount of credit that may be allocated in
any fiscal year pursuant to this section and Section 23689 shall be
an amount equal to the sum of subparagraphs (A), (B), and (C), less
the amount specified in subparagraph (D):
(A) Thirty million dollars ($30,000,000) for the 2013-14 fiscal
year, one hundred fifty million dollars ($150,000,000) for the
2014-15 fiscal year, and two hundred million dollars ($200,000,000)
for each fiscal year from 2015-16 to 2018-19, inclusive.
(B) The unallocated credit amount, if any, from the preceding
fiscal year.
(C) The amount of any previously allocated credits that have been
recaptured.
(D) The amount estimated by the Director of Finance, in
consultation with the Franchise Tax Board and the State Board of
Equalization, to be necessary to limit the aggregation of the
estimated amount of exemptions claimed pursuant to Section 6377.1 and
of the amounts estimated to be claimed pursuant to this section and
Sections 17053.73, 23626, and 23689 to no more than seven hundred
fifty million dollars ($750,000,000) for either the current fiscal
year or for any of the three succeeding fiscal years.
(i) The Director of Finance shall notify the Chairperson of the
Joint Legislative Budget Committee of the estimated annual allocation
authorized by this paragraph. Any allocation pursuant to these
provisions shall be made no sooner than 30 days after written
notification has been provided to the Chairperson of the Joint
Legislative Budget Committee and the chairpersons of the committees
of each house of the Legislature that consider appropriation, or not
sooner than whatever lesser time the Chairperson of the Joint
Legislative Budget Committee, or his or her designee, may determine.
(ii) In no event shall the amount estimated in this subparagraph
be less than zero dollars ($0).
(2) Each fiscal year, 25 percent of the aggregate amount of the
credit that may be allocated pursuant to this section and Section
23689 shall be reserved for small business, as defined in Section
17053.73 or 23626.
(3) Each fiscal year, no more than 20 percent of the aggregate
amount of the credit that may be allocated pursuant to this section
shall be allocated to any one taxpayer.
(h) GO-Biz may prescribe rules and regulations as necessary to
carry out the purposes of this section. Any rule or regulation
prescribed pursuant to this section may be by adoption of an
emergency regulation in accordance with Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code.
(i) A written agreement between GO-Biz and a taxpayer with
respect to the credit authorized by this section shall comply with
existing law on the date the agreement is executed.
(j) (1) Upon the effective date of this section, the Department of
Finance shall estimate the total dollar amount of credits that will
be claimed under this section with respect to each fiscal year from
the 2013-14 fiscal year to the 2024-25 fiscal year, inclusive.
(2) The Franchise Tax Board shall annually provide to the Joint
Legislative Budget Committee, by no later than March 1, a report of
the total dollar amount of the credits claimed under this section
with respect to the relevant fiscal year. The report shall compare
the total dollar amount of credits claimed under this section with
respect to that fiscal year with the department's estimate with
respect to that same fiscal year. If the total dollar amount of
credits claimed for the fiscal year is less than the estimate for
that fiscal year, the report shall identify options for increasing
annual claims of the credit so as to meet estimated amounts.
(k) This section is repealed on December 1, 2025.
SEC. 19. Section 17235 of the Revenue and Taxation Code is amended
to read:
17235. (a) There shall be allowed as a deduction the amount of
net interest received by the taxpayer before January 1, 2014, in
payment on indebtedness of a person or entity engaged in the conduct
of a trade or business located in an enterprise zone.
(b) A deduction shall not be allowed under this section unless at
the time the indebtedness is incurred each of the following
requirements are met:
(1) The trade or business is located solely within an enterprise
zone.
(2) The indebtedness is incurred solely in connection with
activity within the enterprise zone.
(3) The taxpayer has no equity or other ownership interest in the
debtor.
(c) "Enterprise zone" means an area designated as an enterprise
zone pursuant to Chapter 12.8 (commencing with Section 7070) of
Division 7 of Title 1 of the Government Code.
(d) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 20. Section 17267.2 of the Revenue and Taxation Code is
amended to read:
17267.2. (a) A taxpayer may elect to treat 40 percent of the cost
of any Section 17267.2 property as an expense which is not
chargeable to a capital account. Any cost so treated shall be allowed
as a deduction for the taxable year in which the taxpayer places the
Section 17267.2 property in service.
(b) In the case of a husband and wife filing separate returns for
a taxable year, the applicable amount under subdivision (a) shall be
equal to 50 percent of the percentage specified in subdivision (a).
(c) (1) An election under this section for any taxable year shall
do both of the following:
(A) Specify the items of Section 17267.2 property to which the
election applies and the percentage of the cost of each of those
items that are to be taken into account under subdivision (a).
(B) Be made on the taxpayer's original return of the tax imposed
by this part for the taxable year.
(2) Any election made under this section, and any specification
contained in that election, may not be revoked except with the
consent of the Franchise Tax Board.
(d) (1) For purposes of this section, "Section 17267.2 property"
means any recovery property that is:
(A) Section 1245 property (as defined in Section 1245(a)(3) of the
Internal Revenue Code).
(B) Purchased and placed in service by the taxpayer for exclusive
use in a trade or business conducted within an enterprise zone
designated pursuant to Chapter 12.8 (commencing with Section 7070) of
Division 7 of Title 1 of the Government Code.
(C) Purchased and placed in service before the date the enterprise
zone designation expires, is no longer binding, or becomes
inoperative.
(2) For purposes of paragraph (1), "purchase" means any
acquisition of property, but only if both of the following apply:
(A) The property is not acquired from a person whose relationship
to the person acquiring it would result in the disallowance of losses
under Section 267 or Section 707(b) of the Internal Revenue Code.
However, in applying Section 267(b) and 267(c) for purposes of this
section, Section 267(c)(4) shall be treated as providing that the
family of an individual shall include only the individual's spouse,
ancestors, and lineal descendants.
(B) The basis of the property in the hands of the person acquiring
it is not determined in whole or in part by reference to the
adjusted basis of that property in the hands of the person from whom
it is acquired.
(3) For purposes of this section, the cost of property does not
include that portion of the basis of the property that is determined
by reference to the basis of other property held at any time by the
person acquiring the property.
(4) This section shall not apply to estates and trusts.
(5) This section shall not apply to any property for which the
taxpayer may not make an election for the taxable year under Section
179 of the Internal Revenue Code because of the application of the
provisions of Section 179(d) of the Internal Revenue Code.
(6) In the case of a partnership, the percentage limitation
specified in subdivision (a) shall apply at the partnership level and
at the partner level.
(e) For purposes of this section, "taxpayer" means a person or
entity who conducts a trade or business within an enterprise zone
designated pursuant to Chapter 12.8 (commencing with Section 7070) of
Division 7 of Title 1 of the Government Code.
(f) Any taxpayer who elects to be subject to this section shall
not be entitled to claim for the same property, the deduction under
Section 179 of the Internal Revenue Code, relating to an election to
expense certain depreciable business assets. However, the taxpayer
may claim depreciation by any method permitted by Section 168 of the
Internal Revenue Code, commencing with the taxable year following the
taxable year in which the Section 17267.2 property is placed in
service.
(g) The aggregate cost of all Section 17267.2 property that may be
taken into account under subdivision (a) for any taxable year shall
not exceed the following applicable amount for the taxable year of
the designation of the relevant enterprise zone and taxable years
thereafter:
The applicable
amount is:
Taxable year of designation .... $100,000
1st taxable year thereafter .... 100,000
2nd taxable year thereafter .... 75,000
3rd taxable year thereafter .... 75,000
Each taxable year thereafter ... 50,000
(h) Any amounts deducted under subdivision (a) with respect to
property subject to this section that ceases to be used in the
taxpayer's trade or business within an enterprise zone at any time
before the close of the second taxable year after the property is
placed in service shall be included in income in the taxable year in
which the property ceases to be so used.
(i) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 21. Section 17267.6 of the Revenue and Taxation Code is
amended to read:
17267.6. (a) For each taxable year beginning on or after January
1, 1998, a qualified taxpayer may elect to treat 40 percent of the
cost of any Section 17267.6 property as an expense that is not
chargeable to a capital account. Any cost so treated shall be allowed
as a deduction for the taxable year in which the qualified taxpayer
places the Section 17267.6 property in service.
(b) In the case of a husband and wife filing separate returns for
a taxable year, the applicable amount under subdivision (a) shall be
equal to 50 percent of the percentage specified in subdivision (a).
(c) (1) An election under this section for any taxable year shall
do both of the following:
(A) Specify the items of Section 17267.6 property to which the
election applies and the percentage of the cost of each of those
items that are to be taken into account under subdivision (a).
(B) Be made on the qualified taxpayer's original return of the tax
imposed by this part for the taxable year.
(2) Any election made under this section, and any specification
contained in that election, may not be revoked except with the
consent of the Franchise Tax Board.
(d) (1) For purposes of this section, "Section 17267.6 property"
means any recovery property that is:
(A) Section 1245 property (as defined in Section 1245(a)(3) of the
Internal Revenue Code).
(B) Purchased and placed in service by the qualified taxpayer for
exclusive use in a trade or business conducted within a targeted tax
area designated pursuant to Chapter 12.93 (commencing with Section
7097) of Division 7 of Title 1 of the Government Code.
(C) Purchased and placed in service before the date the targeted
tax area designation expires, is revoked, is no longer binding, or
becomes inoperative.
(2) For purposes of paragraph (1), "purchase" means any
acquisition of property, but only if both of the following apply:
(A) The property is not acquired from a person whose relationship
to the person acquiring it would result in the disallowance of losses
under Section 267 or Section 707(b) of the Internal Revenue Code.
However, in applying Sections 267(b) and 267(c) for purposes of this
section, Section 267(c)(4) shall be treated as providing that the
family of an individual shall include only the individual's spouse,
ancestors, and lineal descendants.
(B) The basis of the property in the hands of the person acquiring
it is not determined in whole or in part by reference to the
adjusted basis of that property in the hands of the person from whom
it is acquired.
(3) For purposes of this section, the cost of property does not
include that portion of the basis of the property that is determined
by reference to the basis of other property held at any time by the
person acquiring the property.
(4) This section shall not apply to estates and trusts.
(5) This section shall not apply to any property for which the
qualified taxpayer may not make an election for the taxable year
under Section 179 of the Internal Revenue Code because of the
application of the provisions of Section 179(d) of the Internal
Revenue Code.
(6) In the case of a partnership, the percentage limitation
specified in subdivision (a) shall apply at the partnership level and
at the partner level.
(e) (1) For purposes of this section, "qualified taxpayer" means a
person or entity that meets both of the following:
(A) Is engaged in a trade or business within a targeted tax area
designated pursuant to Chapter 12.93 (commencing with Section 7097)
of Division 7 of Title 1 of the Government Code.
(B) Is engaged in those lines of business described in Codes 2000
to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299, inclusive;
4500 to 4599, inclusive, and 4700 to 5199, inclusive, of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition.
(2) In the case of any pass-through entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any deduction under this section or
Section 24356.6 shall be allowed to the pass-through entity and
passed through to the partners or shareholders in accordance with
applicable provisions of this part of Part 11 (commencing with
Section 23001). For purposes of this subparagraph, the term
"pass-through entity" means any partnership or S corporation.
(f) Any qualified taxpayer who elects to be subject to this
section shall not be entitled to claim for the same property, the
deduction under Section 179 of the Internal Revenue Code, relating to
an election to expense certain depreciable business assets. However,
the qualified taxpayer may claim depreciation by any method
permitted by Section 168 of the Internal Revenue Code, commencing
with the taxable year following the taxable year in which the Section
17267.6 property is placed in service.
(g) The aggregate cost of all Section 17267.6 property that may be
taken into account under subdivision (a) for any taxable year shall
not exceed the following applicable amount for the taxable year of
the designation of the relevant targeted tax area and taxable years
thereafter:
The applicable
amount is:
Taxable year of designation .... $100,000
1st taxable year thereafter .... 100,000
2nd taxable year thereafter .... 75,000
3rd taxable year thereafter .... 75,000
Each taxable year thereafter ... 50,000
(h) Any amounts deducted under subdivision (a) with respect to
Section 17267.6 property that ceases to be used in the qualified
taxpayer's trade or business within a targeted tax area at any time
before the close of the second taxable year after the property is
placed in service shall be included in income in the taxable year in
which the property ceases to be so used.
(i) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 22. Section 17268 of the Revenue and Taxation Code is amended
to read:
17268. (a) For each taxable year beginning on or after January 1,
1995, a taxpayer may elect to treat 40 percent of the cost of any
Section 17268 property as an expense that is not chargeable to the
capital account. Any cost so treated shall be allowed as a deduction
for the taxable year in which the taxpayer places the Section 17268
property in service.
(b) In the case of a husband or wife filing separate returns for a
taxable year in which a spouse is entitled to the deduction under
subdivision (a), the applicable amount shall be equal to 50 percent
of the amount otherwise determined under subdivision (a).
(c) (1) An election under this section for any taxable year shall
meet both of the following requirements:
(A) Specify the items of Section 17268 property to which the
election applies and the portion of the cost of each of those items
that is to be taken into account under subdivision (a).
(B) Be made on the taxpayer's return of the tax imposed by this
part for the taxable year.
(2) Any election made under this section, and any specification
contained in that election, may not be revoked except with the
consent of the Franchise Tax Board.
(d) (1) For purposes of this section, "Section 17268 property"
means any recovery property that is each of the following:
(A) Section 1245 property (as defined in Section 1245(a)(3) of the
Internal Revenue Code).
(B) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA.
(C) Purchased before the date the LAMBRA designation expires, is
no longer binding, or becomes inoperative.
(2) For purposes of paragraph (1), "purchase" means any
acquisition of property, but only if both of the following apply:
(A) The property is not acquired from a person whose relationship
to the person acquiring it would result in the disallowance of losses
under Section 267 or 707(b) of the Internal Revenue Code (but, in
applying Section 267(b) and Section 267(c) of the Internal Revenue
Code for purposes of this section, Section 267(c)(4) of the Internal
Revenue Code shall be treated as providing that the family of an
individual shall include only his or her spouse, ancestors, and
lineal descendants).
(B) The basis of the property in the hands of the person acquiring
it is not determined by either of the following:
(i) In whole or in part by reference to the adjusted basis of the
property in the hands of the person from whom acquired.
(ii) Under Section 1014 of the Internal Revenue Code, relating to
basis of property acquired from a decedent.
(3) For purposes of this section, the cost of property does not
include that portion of the basis of the property that is determined
by reference to the basis of other property held at any time by the
person acquiring the property.
(4) This section shall not apply to estates and trusts.
(5) This section shall not apply to any property for which the
taxpayer may not make an election for the taxable year under Section
179 of the Internal Revenue Code because of the provisions of Section
179(d) of the Internal Revenue Code.
(6) In the case of a partnership, the dollar limitation in
subdivision (f) shall apply at the partnership level and at the
partner level.
(7) This section shall not apply to any property described in
Section 168(f) of the Internal Revenue Code, relating to property to
which Section 168 of the Internal Revenue Code does not apply.
(e) For purposes of this section:
(1) "LAMBRA" means a local agency military base recovery area
designated in accordance with the provisions of Section 7114 of the
Government Code.
(2) "Taxpayer" means a taxpayer that conducts a trade or business
within a LAMBRA and, for the first two taxable years, has a net
increase in jobs (defined as 2,000 paid hours per employee per year)
of one or more employees in the LAMBRA.
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA. For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero. If the
taxpayer has a net increase in jobs in the state, the credit shall be
allowed only if one or more full-time employees is employed within
the LAMBRA.
(B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
(i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
(ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
(C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B) the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is the
number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
(f) The aggregate cost of all Section 17268 property that may be
taken into account under subdivision (a) for any taxable year shall
not exceed the following applicable amounts for the taxable year of
the designation of the relevant LAMBRA and taxable years thereafter:
The applicable
amount is:
Taxable year of designation .... $100,000
1st taxable year thereafter .... 100,000
2nd taxable year 75,000
thereafter .....................
3rd taxable year thereafter .... 75,000
Each taxable year thereafter ... 50,000
(g) This section shall apply only to property that is used
exclusively in a trade or business conducted within a LAMBRA.
(h) (1) Any amounts deducted under subdivision (a) with respect to
property that ceases to be used in the trade or business within a
LAMBRA at any time before the close of the second taxable year after
the property was placed in service shall be included in income for
that year.
(2) At the close of the second taxable year, if the
taxpayer has not increased the number of its employees as determined
by paragraph (2) of subdivision (e), then the amount of the deduction
previously claimed shall be added to the taxpayer's taxable income
for the taxpayer's second taxable year.
(i) Any taxpayer who elects to be subject to this section shall
not be entitled to claim for the same property the deduction under
Section 179 of the Internal Revenue Code, relating to an election to
expense certain depreciable business assets.
(j) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 23. Section 17276.2 of the Revenue and Taxation Code is
amended to read:
17276.2. (a) The term "qualified taxpayer" as used in Section
17276.1 includes a person or entity engaged in the conduct of a trade
or business within an enterprise zone designated pursuant to Chapter
12.8 (commencing with Section 7070) of Division 7 of Title 1 of the
Government Code. For purposes of this subdivision, all of the
following shall apply:
(1) A net operating loss shall not be a net operating loss
carryback to any taxable year and a net operating loss for any
taxable year beginning on or after the date that the area in which
the taxpayer conducts a trade or business is designated as an
enterprise zone shall be a net operating loss carryover to each of
the 15 taxable years following the taxable year of loss.
(2) For purposes of this subdivision:
(A) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 17276.1,
attributable to the taxpayer's business activities within the
enterprise zone (as defined in Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code) prior to the
enterprise zone expiration date. That attributable loss shall be
determined in accordance with Chapter 17 (commencing with Section
25101) of Part 11, modified for purposes of this subdivision, as
follows:
(i) Loss shall be apportioned to the enterprise zone by
multiplying total loss from the business by a fraction, the numerator
of which is the property factor plus the payroll factor, and the
denominator of which is two.
(ii) "The enterprise zone" shall be substituted for "this state."
(B) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to the
enterprise zone as defined in Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code.
(C) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101) of Part
11. That business income shall be further apportioned to the
enterprise zone in accordance with Article 2 (commencing with Section
25120) of Chapter 17 of Part 11, modified for purposes of this
subdivision as follows:
(i) Business income shall be apportioned to the enterprise zone by
multiplying the total California business income of the taxpayer by
a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this clause:
(I) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the enterprise zone during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(II) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the enterprise zone during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(ii) If a loss carryover is allowable pursuant to this section for
any taxable year after the enterprise zone designation has expired,
the enterprise zone shall be deemed to remain in existence for
purposes of computing the limitation set forth in subparagraph (B)
and allowing a net operating loss deduction.
(D) "Enterprise zone expiration date" means the date the
enterprise zone designation expires, is no longer binding, or becomes
inoperative.
(3) The changes made to this subdivision by the act adding this
paragraph shall apply to taxable years beginning on or after January
1, 1998.
(b) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the taxable year of the net operating
loss and any taxable year to which that net operating loss may be
carried, designate on the original return filed for each year the
section which applies to that taxpayer with respect to that net
operating loss. If the taxpayer is eligible to qualify under more
than one section, the designation is to be made after taking into
account subdivision (c).
(c) If a taxpayer is eligible to qualify under this section and
either Section 17276.4, 17276.5, or 17276.6 as a "qualified taxpayer,"
with respect to a net operating loss in a taxable year, the taxpayer
shall designate which section is to apply to the taxpayer.
(d) Notwithstanding Section 17276, the amount of the loss
determined under this section or Section 17276.4, 17276.5, or 17276.6
shall be the only net operating loss allowed to be carried over from
that taxable year and the designation under subdivision (b) shall be
included in the election under Section 17276.1.
(e) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 24. Section 17276.5 of the Revenue and Taxation Code is
amended to read:
17276.5. (a) For each taxable year beginning on or after January
1, 1995, the term "qualified taxpayer" as used in Section 17276.1
includes a taxpayer engaged in the conduct of a trade or business
within a LAMBRA. For purposes of this subdivision, all of the
following shall apply:
(1) A net operating loss shall not be a net operating loss
carryback for any taxable year, and a net operating loss for any
taxable year beginning on or after the date the area in which the
taxpayer conducts a trade or business is designated a LAMBRA shall be
a net operating loss carryover to each following taxable year that
ends before the LAMBRA expiration date or to each of the 15 taxable
years following the taxable year of loss, if longer.
(2) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
(3) "Taxpayer" means a person or entity that conducts a trade or
business within a LAMBRA and, for the first two taxable years, has a
net increase in jobs (defined as 2,000 paid hours per employee per
year) of one or more employees in the LAMBRA and this state. For
purposes of this paragraph:
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA. For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero. The
deduction shall be allowed only if the taxpayer has a net increase in
jobs in the state, and if one or more full-time employees is
employed within the LAMBRA.
(B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
(i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
(ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
(C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B), the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is
the number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
(4) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 17276.1,
attributable to the taxpayer's business activities within a LAMBRA
prior to the LAMBRA expiration date. The attributable loss shall be
determined in accordance with Chapter 17 (commencing with Section
25101) of Part 11, modified for purposes of this section as follows:
(A) Loss shall be apportioned to a LAMBRA by multiplying total
loss from the business by a fraction, the numerator of which is the
property factor plus the payroll factor, and the denominator of which
is 2.
(B) "The LAMBRA" shall be substituted for "this state."
(5) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to a LAMBRA.
(6) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income attributable to
sources in this state first shall be determined in accordance with
Chapter 17 (commencing with Section 25101) of Part 11. That business
income shall be further apportioned to the LAMBRA in accordance with
Article 2 (commencing with Section 25120) of Chapter 17 of Part 11,
modified for purposes of this subdivision as follows:
(A) Business income shall be apportioned to a LAMBRA by
multiplying total California business income of the taxpayer by a
fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this clause:
(i) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the LAMBRA during the taxable
year, and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the taxable year.
(ii) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA during the
taxable year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
taxable year.
(B) If a loss carryover is allowable pursuant to this section for
any taxable year after the LAMBRA designation has expired, the LAMBRA
shall be deemed to remain in existence for purposes of computing the
limitation specified in paragraph (5) and allowing a net operating
loss deduction.
(7) "LAMBRA expiration date" means the date the LAMBRA designation
expires, is no longer binding, or becomes inoperative pursuant to
Section 7110 of the Government Code.
(b) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the taxable year of the net operating
loss and any taxable year to which that net operating loss may be
carried, designate on the original return filed for each year the
section that applies to that taxpayer with respect to that net
operating loss. If the taxpayer is eligible to qualify under more
than one section, the designation is to be made after taking into
account subdivision (c).
(c) If a taxpayer is eligible to qualify under this section and
either Section 17276.2, 17276.4, or 17276.6 as a "qualified taxpayer,"
with respect to a net operating loss in a taxable year, the taxpayer
shall designate which section is to apply to the taxpayer.
(d) Notwithstanding Section 17276, the amount of the loss
determined under this section or Section 17276.2, 17276.4, or 17276.6
shall be the only net operating loss allowed to be carried over from
that taxable year and the designation under subdivision (b) shall be
included in the election under Section 17276.1.
(e) This section shall apply to taxable years beginning on or
after January 1, 1998.
(f) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 25. Section 17276.6 of the Revenue and Taxation Code is
amended to read:
17276.6. (a) For each taxable year beginning on or after January
1, 1998, the term "qualified taxpayer" as used in Section 17276.1
includes a person or entity that meets both of the following:
(1) Is engaged in a trade or business within a targeted tax area
designated pursuant to Chapter 12.93 (commencing with Section 7097)
of Division 7 of Title 1 of the Government Code.
(2) Is engaged in those lines of business described in Codes 2000
to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299, inclusive;
4500 to 4599, inclusive; and 4700 to 5199, inclusive, of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition. In the
case of any pass-through entity, the determination of whether a
taxpayer is a qualified taxpayer under this section shall be made at
the entity level.
(b) For purposes of subdivision (a), all of the following shall
apply:
(1) A net operating loss shall not be a net operating loss
carryback to any taxable year and a net operating loss for any
taxable year beginning on or after the date that the area in which
the qualified taxpayer conducts a trade or business is designated as
a targeted tax area shall be a net operating loss carryover to each
of the 15 taxable years following the taxable year of loss.
(2) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 17276.1,
attributable to the qualified taxpayer's business activities within
the targeted tax area (as defined in Chapter 12.93 (commencing with
Section 7097) of Division 7 of Title 1 of the Government Code) prior
to the targeted tax area expiration date. That attributable loss
shall be determined in accordance with Chapter 17 (commencing with
Section 25101) of Part 11, modified for purposes of this section as
follows:
(A) Loss shall be apportioned to the targeted tax area by
multiplying total loss from the business by a fraction, the numerator
of which is the property factor plus the payroll factor, and the
denominator of which is 2.
(B) "The targeted tax area" shall be substituted for "this state."
(3) A net operating loss carryover shall be a deduction only with
respect to the qualified taxpayer's business income attributable to
the targeted tax area as defined in Chapter 12.93 (commencing with
Section 7097) of Division 7 of Title 1 of the Government Code.
(4) Attributable income shall be that portion of the qualified
taxpayer's California source business income that is apportioned to
the targeted tax area. For that purpose, the qualified taxpayer's
business income attributable to sources in this state first shall be
determined in accordance with Chapter 17 (commencing with Section
25101) of Part 11. That business income shall be further apportioned
to the targeted tax area in accordance with Article 2 (commencing
with Section 25120) of Chapter 17 of Part 11, modified for purposes
of this subdivision as follows:
(A) Business income shall be apportioned to the targeted tax area
by multiplying the total business income of the taxpayer by a
fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this clause:
(i) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the targeted tax area during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(ii) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the targeted tax area during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(B) If a loss carryover is allowable pursuant to this subdivision
for any taxable year after the targeted tax area expiration date, the
targeted tax area designation shall be deemed to remain in existence
for purposes of computing the limitation specified in subparagraph
(B) and allowing a net operating loss deduction.
(5) "Targeted tax area expiration date" means the date the
targeted tax area designation expires, is revoked, is no longer
binding, or becomes inoperative.
(c) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the taxable year of the net operating
loss and any taxable year to which that net operating loss may be
carried, designate on the original return filed for each year the
section that applies to that taxpayer with respect to that net
operating loss. If the taxpayer is eligible to qualify under more
than one section, the designation is to be made after taking into
account subdivision (d).
(d) If a taxpayer is eligible to qualify under this section and
either Section 17276.2, 17276.4, or 17276.5 as a "qualified taxpayer,"
with respect to a net operating loss in a taxable year, the taxpayer
shall designate which section is to apply to the taxpayer.
(e) Notwithstanding Section 17276, the amount of the loss
determined under this section or Section 17276.2, 17276.4, or 17276.5
shall be the only net operating loss allowed to be carried over from
that taxable year and the designation under subdivision (c) shall be
included in the election under Section 17276.1.
(f) This section shall apply to taxable years beginning on or
after January 1, 1998.
(g) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 26. Section 18410.2 is added to the Revenue and Taxation
Code, to read:
18410.2. (a) The California Competes Tax Credit Committee is
hereby established. The committee shall consist of the Treasurer, the
Director of Finance, and the Director of the Governor's Office of
Business and Economic Development, or their designated
representatives, and one appointee each from the Senate and the
Assembly.
(b) For purposes of Sections 17059.2 and 23689, the California
Competes Tax Credit Committee shall do all of the following:
(1) Approve or reject any written agreement for a tax credit
allocation by resolution at a duly noticed public meeting held in
accordance with the Bagley-Keene Open Meeting Act (Article 9
(commencing with Section 11120) of Chapter 1 of Part 1 of Division 3
of Title 2 of the Government Code), but only after receipt of the
fully executed written agreement between the taxpayer and the
Governor's Office of Business and Economic Development.
(2) Approve or reject any recommendation to recapture, in whole or
in part, a tax credit allocation by resolution at a duly noticed
public meeting held in accordance with the Bagley-Keene Open Meeting
Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1
of Division 3 of Title 2 of the Government Code), but only after
receipt of the recommendation from the Governor's Office of Business
and Economic Development pursuant to the terms of the fully executed
written agreement.
SEC. 27. Section 19136.8 of the Revenue and Taxation Code is
amended to read:
19136.8. (a) No addition to tax shall be made under Section 19136
with respect to any underpayment of an installment to the extent
that the underpayment was created or increased by the disallowance of
a credit under subdivision (g) of Section 17053.80.
(b) No addition to tax shall be made under Section 19142 with
respect to any underpayment of an installment to the extent that the
underpayment was created or increased by the disallowance of a credit
under subdivision (g) of Section 23623.
(c) The Franchise Tax Board shall adopt procedures, forms, and
instructions necessary to implement this section in a reasonable
manner.
(d) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 28. Section 23612.2 of the Revenue and Taxation Code is
amended to read:
23612.2. (a) There shall be allowed as a credit against the "tax"
(as defined by Section 23036) for the taxable year an amount equal
to the sales or use tax paid or incurred during the taxable year by
the taxpayer in connection with the taxpayer's purchase of qualified
property before January 1, 2014.
(b) For purposes of this section:
(1) "Taxpayer" means a corporation engaged in a trade or business
within an enterprise zone.
(2) "Qualified property" means:
(A) Any of the following:
(i) Machinery and machinery parts used for fabricating,
processing, assembling, and manufacturing.
(ii) Machinery and machinery parts used for the production of
renewable energy resources.
(iii) Machinery and machinery parts used for either of the
following:
(I) Air pollution control mechanisms.
(II) Water pollution control mechanisms.
(iv) Data-processing and communications equipment, including, but
not limited to, computers, computer-automated drafting systems, copy
machines, telephone systems, and faxes.
(v) Motion picture manufacturing equipment central to production
and postproduction, including, but not limited to, cameras, audio
recorders, and digital image and sound processing equipment.
(B) The total cost of qualified property purchased and placed in
service in any taxable year that may be taken into account by any
taxpayer for purposes of claiming this credit shall not exceed twenty
million dollars ($20,000,000).
(C) The qualified property is used by the taxpayer exclusively in
an enterprise zone.
(D) The qualified property is purchased and placed in service
before the date the enterprise zone designation expires, is no longer
binding, or becomes inoperative.
(3) "Enterprise zone" means the area designated as an enterprise
zone pursuant to Chapter 12.8 (commencing with Section 7070) of
Division 7 of Title 1 of the Government Code as it read on the
effective date of the act amending this section.
(c) If the taxpayer has purchased property upon which a use tax
has been paid or incurred, the credit provided by this section shall
be allowed only if qualified property of a comparable quality and
price is not timely available for purchase in this state.
(d) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the taxable year, that portion of the
credit which exceeds the "tax" may be carried over and added to the
credit, if any, in the succeeding 10 taxable years if necessary,
until the credit is exhausted. The credit shall be applied first to
the earliest taxable years possible.
(e) Any taxpayer that elects to be subject to this section shall
not be entitled to increase the basis of the qualified property as
otherwise required by Section 164(a) of the Internal Revenue Code
with respect to sales or use tax paid or incurred in connection with
the taxpayer's purchase of qualified property.
(f) (1) The amount of credit otherwise allowed under this section
and Section 23622.7, including any credit carryover from prior years,
that may reduce the "tax" for the taxable year shall not exceed the
amount of tax which would be imposed on the taxpayer's business
income attributable to the enterprise zone determined as if that
attributable income represented all of the income of the taxpayer
subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the enterprise zone
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this section in accordance with
paragraph (3).
(3) Business income shall be apportioned to the enterprise zone by
multiplying the total California business income of the taxpayer by
a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the enterprise zone during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the enterprise zone during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years if necessary, until the credit is exhausted, as if it were an
amount exceeding the "tax" for the taxable year, as provided in
subdivision (d). However, the portion of any credit remaining for
carryover to taxable years beginning on January 1, 2014, if any,
after application of this subdivision, shall be carried over only to
the succeeding 10 taxable years if necessary, until the credit is
exhausted, as if it were an amount exceeding the "tax" for the
taxable year, as provided in subdivision (d).
(g) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 1998.
(h) This section is repealed on December 1, 2014.
SEC. 29.
Section 23622.7 of the Revenue and Taxation Code is amended to read:
23622.7. (a) There shall be allowed a credit against the "tax"
(as defined by Section 23036) to a taxpayer who employs a qualified
employee in an enterprise zone during the taxable year. The credit
shall be equal to the sum of each of the following:
(1) Fifty percent of qualified wages in the first year of
employment.
(2) Forty percent of qualified wages in the second year of
employment.
(3) Thirty percent of qualified wages in the third year of
employment.
(4) Twenty percent of qualified wages in the fourth year of
employment.
(5) Ten percent of qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) (i) Except as provided in clause (ii), that portion of wages
paid or incurred by the taxpayer during the taxable year to qualified
employees that does not exceed 150 percent of the minimum wage.
(ii) For up to 1,350 qualified employees who are employed by the
taxpayer in the Long Beach Enterprise Zone in aircraft manufacturing
activities described in Codes 3721 to 3728, inclusive, and Code 3812
of the Standard Industrial Classification (SIC) Manual published by
the United States Office of Management and Budget, 1987 edition,
"qualified wages" means that portion of hourly wages that does not
exceed 202 percent of the minimum wage.
(B) Wages received during the 60-month period beginning with the
first day the employee commences employment with the taxpayer.
Reemployment in connection with any increase, including a regularly
occurring seasonal increase, in the trade or business operations of
the taxpayer does not constitute commencement of employment for
purposes of this section.
(C) Qualified wages do not include any wages paid or incurred by
the taxpayer on or after the zone expiration date. However, wages
paid or incurred with respect to qualified employees who are employed
by the taxpayer within the enterprise zone within the 60-month
period prior to the zone expiration date shall continue to qualify
for the credit under this section after the zone expiration date, in
accordance with all provisions of this section applied as if the
enterprise zone designation were still in existence and binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "Zone expiration date" means the date the enterprise zone
designation expires, is no longer binding, becomes inoperative, or is
repealed.
(4) (A) "Qualified employee" means an individual who meets all of
the following requirements:
(i) At least 90 percent of whose services for the taxpayer during
the taxable year are directly related to the conduct of the taxpayer'
s trade or business located in an enterprise zone.
(ii) Performs at least 50 percent of his or her services for the
taxpayer during the taxable year in an enterprise zone.
(iii) Is hired by the taxpayer after the date of original
designation of the area in which services were performed as an
enterprise zone.
(iv) Is any of the following:
(I) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a person eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.), or its successor, who is receiving, or is eligible to
receive, subsidized employment, training, or services funded by the
federal Job Training Partnership Act, or its successor.
(II) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a person eligible to be a
voluntary or mandatory registrant under the Greater Avenues for
Independence Act of 1985 (GAIN) provided for pursuant to Article 3.2
(commencing with Section 11320) of Chapter 2 of Part 3 of Division 9
of the Welfare and Institutions Code, or its successor.
(III) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was an economically disadvantaged
individual 14 years of age or older.
(IV) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a dislocated worker who meets
any of the following:
(aa) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(bb) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(cc) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(dd) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(ee) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(ff) Was an active member of the armed forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(gg) Is a seasonal or migrant worker who experiences chronic
seasonal unemployment and underemployment in the agriculture
industry, aggravated by continual advancements in technology and
mechanization.
(hh) Has been terminated or laid off, or has received a notice of
termination or layoff, as a consequence of compliance with the Clean
Air Act.
(V) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a disabled individual who is
eligible for or enrolled in, or has completed a state rehabilitation
plan or is a service-connected disabled veteran, veteran of the
Vietnam era, or veteran who is recently separated from military
service.
(VI) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was an ex-offender. An individual
shall be treated as convicted if he or she was placed on probation by
a state court without a finding of guilt.
(VII) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a person eligible for or a
recipient of any of the following:
(aa) Federal Supplemental Security Income benefits.
(bb) Aid to Families with Dependent Children.
(cc) CalFresh benefits.
(dd) State and local general assistance.
(VIII) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a member of a federally
recognized Indian tribe, band, or other group of Native American
descent.
(IX) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a resident of a targeted
employment area (as defined in Section 7072 of the Government Code).
(X) An employee who qualified the taxpayer for the enterprise zone
hiring credit under former Section 23622 or the program area hiring
credit under former Section 23623.
(XI) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a member of a targeted group, as
defined in Section 51(d) of the Internal Revenue Code, or its
successor.
(B) Priority for employment shall be provided to an individual who
is enrolled in a qualified program under the federal Job Training
Partnership Act or the Greater Avenues for Independence Act of 1985
or who is eligible as a member of a targeted group under the Work
Opportunity Tax Credit (Section 51 of the Internal Revenue Code), or
its successor.
(5) "Taxpayer" means a corporation engaged in a trade or business
within an enterprise zone designated pursuant to Chapter 12.8
(commencing with Section 7070) of Division 7 of Title 1 of the
Government Code.
(6) "Seasonal employment" means employment by a taxpayer that has
regular and predictable substantial reductions in trade or business
operations.
(c) The taxpayer shall do both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
enterprise zone, a certification that provides that a qualified
employee meets the eligibility requirements specified in clause (iv)
of subparagraph (A) of paragraph (4) of subdivision (b). The
Employment Development Department may provide preliminary screening
and referral to a certifying agency. The Employment Development
Department shall develop a form for this purpose. The Department of
Housing and Community Development shall develop regulations governing
the issuance of certificates by local governments pursuant to
subdivision (a) of Section 7086 of the Government Code.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(d) (1) For purposes of this section:
(A) All employees of all corporations which are members of the
same controlled group of corporations shall be treated as employed by
a single taxpayer.
(B) The credit, if any, allowable by this section to each member
shall be determined by reference to its proportionate share of the
expense of the qualified wages giving rise to the credit, and shall
be allocated in that manner.
(C) For purposes of this subdivision, "controlled group of
corporations" means "controlled group of corporations" as defined in
Section 1563(a) of the Internal Revenue Code, except that:
(i) "More than 50 percent" shall be substituted for "at least 80
percent" each place it appears in Section 1563(a)(1) of the Internal
Revenue Code.
(ii) The determination shall be made without regard to subsections
(a)(4) and (e)(3)(C) of Section 1563 of the Internal Revenue Code.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section (other than subdivision (e)) for any calendar year
ending after that acquisition, the employment relationship between a
qualified employee and an employer shall not be treated as terminated
if the employee continues to be employed in that trade or business.
(e) (1) (A) If the employment, other than seasonal employment, of
any qualified employee with respect to whom qualified wages are taken
into account under subdivision (a) is terminated by the taxpayer at
any time during the first 270 days of that employment, whether or not
consecutive, or before the close of the 270th calendar day after the
day in which that employee completes 90 days of employment with the
taxpayer, the tax imposed by this part for the taxable year in which
that employment is terminated shall be increased by an amount equal
to the credit allowed under subdivision (a) for that taxable year and
all prior taxable years attributable to qualified wages paid or
incurred with respect to that employee.
(B) If the seasonal employment of any qualified employee, with
respect to whom qualified wages are taken into account under
subdivision (a) is not continued by the taxpayer for a period of 270
days of employment during the 60-month period beginning with the day
the qualified employee commences seasonal employment with the
taxpayer, the tax imposed by this part, for the taxable year that
includes the 60th month following the month in which the qualified
employee commences seasonal employment with the taxpayer, shall be
increased by an amount equal to the credit allowed under subdivision
(a) for that taxable year and all prior taxable years attributable to
qualified wages paid or incurred with respect to that qualified
employee.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of a qualified employee who
voluntarily leaves the employment of the taxpayer.
(ii) A termination of employment of a qualified employee who,
before the close of the period referred to in subparagraph (A) of
paragraph (1), becomes disabled and unable to perform the services of
that employment, unless that disability is removed before the close
of that period and the taxpayer fails to offer reemployment to that
employee.
(iii) A termination of employment of a qualified employee, if it
is determined that the termination was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that employee.
(iv) A termination of employment of a qualified employee due to a
substantial reduction in the trade or business operations of the
taxpayer.
(v) A termination of employment of a qualified employee, if that
employee is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
employee who voluntarily fails to return to the seasonal employment
of the taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
employee who, before the close of the period referred to in
subparagraph (B) of paragraph (1), becomes disabled and unable to
perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
taxpayer fails to offer seasonal employment to that qualified
employee.
(iii) A failure to continue the seasonal employment of a qualified
employee, if it is determined that the failure to continue the
seasonal employment was due to the misconduct (as defined in Sections
1256-30 to 1256-43, inclusive, of Title 22 of the California Code of
Regulations) of that qualified employee.
(iv) A failure to continue seasonal employment of a qualified
employee due to a substantial reduction in the regular seasonal trade
or business operations of the taxpayer.
(v) A failure to continue the seasonal employment of a qualified
employee, if that qualified employee is replaced by other qualified
employees so as to create a net increase in both the number of
seasonal employees and the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the taxpayer and a qualified employee shall not be treated as
terminated by either of the following:
(i) By a transaction to which Section 381(a) of the Internal
Revenue Code applies, if the qualified employee continues to be
employed by the acquiring corporation.
(ii) By reason of a mere change in the form of conducting the
trade or business of the taxpayer, if the qualified employee
continues to be employed in that trade or business and the taxpayer
retains a substantial interest in that trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(f) Rules similar to the rules provided in Section 46(e) and (h)
of the Internal Revenue Code shall apply to both of the following:
(1) An organization to which Section 593 of the Internal Revenue
Code applies.
(2) A regulated investment company or a real estate investment
trust subject to taxation under this part.
(g) For purposes of this section, "enterprise zone" means an area
designated as an enterprise zone pursuant to Chapter 12.8 (commencing
with Section 7070) of Division 7 of Title 1 of the Government Code.
(h) The credit allowable under this section shall be reduced by
the credit allowed under Sections 23623.5, 23625, and 23646 claimed
for the same employee. The credit shall also be reduced by the
federal credit allowed under Section 51 of the Internal Revenue Code.
In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the taxpayer upon which the
credit is based shall be reduced by the amount of the credit, prior
to any reduction required by subdivision (i) or (j).
(i) 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 and added to the
credit, if any, in the succeeding 10 taxable years, if necessary,
until the credit is exhausted. The credit shall be applied first to
the earliest taxable years possible.
(j) (1) The amount of the credit otherwise allowed under this
section and Section 23612.2, including any credit carryover from
prior years, that may reduce the "tax" for the taxable year shall not
exceed the amount of tax which would be imposed on the taxpayer's
business income attributable to the enterprise zone determined as if
that attributable income represented all of the income of the
taxpayer subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone. For that purpose, the taxpayer's business
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the enterprise zone
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this section in accordance with
paragraph (3).
(3) Business income shall be apportioned to the enterprise zone by
multiplying the total California business income of the taxpayer by
a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the enterprise zone during the
income year, and the denominator of which is the average value of all
the taxpayer's real and tangible personal property owned or rented
and used in this state during the income year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the enterprise zone during
the income year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
income year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, if necessary, until the credit is exhausted, as if it were an
amount exceeding the "tax" for the taxable year, as provided in
subdivision (i). However, the portion of any credit remaining for
carryover to taxable years beginning on or after January 1, 2014, if
any, after application of this subdivision, shall be carried over
only to the succeeding 10 taxable years if necessary, until the
credit is exhausted, as if it were an amount exceeding the "tax" for
the taxable year, as provided in subdivision (i).
(k) The changes made to this section by the act adding this
subdivision shall apply to taxable years on or after January 1, 1997.
( l ) (1) Except as provided in paragraph (2), this
section shall cease to be operative for taxable years beginning on or
after January 1, 2014, and shall be repealed on December 1, 2019.
(2) The section shall continue to apply with respect to qualified
employees who are employed by the qualified taxpayer within the
enterprise zone within the 60-month period immediately preceding
January 1, 2014, and qualified wages paid or incurred with respect to
those qualified employees shall continue to qualify for the credit
under this section for taxable years beginning on or after January 1,
2014, in accordance with this section, as amended by the act adding
this subdivision.
SEC. 30. Section 23622.8 of the Revenue and Taxation Code is
amended to read:
23622.8. (a) For each taxable year beginning on or after January
1, 1998, there shall be allowed a credit against the "tax" (as
defined in Section 23036) to a qualified taxpayer for hiring a
qualified disadvantaged individual during the taxable year for
employment in the manufacturing enhancement area. The credit shall be
equal to the sum of each of the following:
(1) Fifty percent of the qualified wages in the first year of
employment.
(2) Forty percent of the qualified wages in the second year of
employment.
(3) Thirty percent of the qualified wages in the third year of
employment.
(4) Twenty percent of the qualified wages in the fourth year of
employment.
(5) Ten percent of the qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) That portion of wages paid or incurred by the qualified
taxpayer during the taxable year to qualified disadvantaged
individuals that does not exceed 150 percent of the minimum wage.
(B) The total amount of qualified wages which may be taken into
account for purposes of claiming the credit allowed under this
section shall not exceed two million dollars ($2,000,000) per taxable
year.
(C) Wages received during the 60-month period beginning with the
first day the qualified disadvantaged individual commences employment
with the qualified taxpayer. Reemployment in connection with any
increase, including a regularly occurring seasonal increase, in the
trade or business operations of the qualified taxpayer does not
constitute commencement of employment for purposes of this section.
(D) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the manufacturing enhancement area
expiration date. However, wages paid or incurred with respect to
qualified employees who are employed by the qualified taxpayer within
the manufacturing enhancement area within the 60-month period prior
to the manufacturing enhancement area expiration date shall continue
to qualify for the credit under this section after the manufacturing
enhancement area expiration date, in accordance with all provisions
of this section applied as if the manufacturing enhancement area
designation were still in existence and binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "Manufacturing enhancement area" means an area designated
pursuant to Section 7073.8 of the Government Code according to the
procedures of Chapter 12.8 (commencing with Section 7070) of Division
7 of Title 1 of the Government Code.
(4) "Manufacturing enhancement area expiration date" means the
date the manufacturing enhancement area designation expires, is no
longer binding, becomes inoperative, or is repealed.
(5) "Qualified disadvantaged individual" means an individual who
satisfies all of the following requirements:
(A) (i) At least 90 percent of whose services for the qualified
taxpayer during the taxable year are directly related to the conduct
of the qualified taxpayer's trade or business located in a
manufacturing enhancement area.
(ii) Who performs at least 50 percent of his or her services for
the qualified taxpayer during the taxable year in the manufacturing
enhancement area.
(B) Who is hired by the qualified taxpayer after the designation
of the area as a manufacturing enhancement area in which the
individual's services were primarily performed.
(C) Who is any of the following immediately preceding the
individual's commencement of employment with the qualified taxpayer:
(i) An individual who has been determined eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.) or its successor.
(ii) Any voluntary or mandatory registrant under the Greater
Avenues for Independence Act of 1985, or its successor, as provided
pursuant to Article 3.2 (commencing with Section 11320) of Chapter 2
of Part 3 of Division 9 of the Welfare and Institutions Code.
(iii) Any individual who has been certified eligible by the
Employment Development Department under the federal Targeted Jobs Tax
Credit Program, or its successor, whether or not this program is in
effect.
(6) "Qualified taxpayer" means any corporation engaged in a trade
or business within a manufacturing enhancement area designated
pursuant to Section 7073.8 of the Government Code and that meets all
of the following requirements:
(A) Is engaged in those lines of business described in Codes 0211
to 0291, inclusive, Code 0723, or in Codes 2011 to 3999, inclusive,
of the Standard Industrial Classification (SIC) Manual published by
the United States Office of Management and Budget, 1987 edition.
(B) At least 50 percent of the qualified taxpayer's workforce
hired after the designation of the manufacturing enhancement area is
composed of individuals who, at the time of hire, are residents of
the county in which the manufacturing enhancement area is located.
(C) Of this percentage of local hires, at least 30 percent shall
be qualified disadvantaged individuals.
(7) "Seasonal employment" means employment by a qualified taxpayer
that has regular and predictable substantial reductions in trade or
business operations.
(c) (1) For purposes of this section, all of the following apply:
(A) All employees of all corporations that are members of the same
controlled group of corporations shall be treated as employed by a
single qualified taxpayer.
(B) The credit (if any) allowable by this section with respect to
each member shall be determined by reference to its proportionate
share of the expenses of the qualified wages giving rise to the
credit and shall be allocated in that manner.
(C) Principles that apply in the case of controlled groups of
corporations, as specified in subdivision (d) of Section 23622.7,
shall apply with respect to determining employment.
(2) If a qualified taxpayer acquires the major portion of a trade
or business of another employer (hereinafter in this paragraph
referred to as the "predecessor") or the
major portion of a separate unit of a trade or business
of a predecessor, then, for purposes of applying this section (other
than subdivision (d)) for any calendar year ending after that
acquisition, the employment relationship between a qualified
disadvantaged individual and a qualified taxpayer shall not be
treated as terminated if the qualified disadvantaged individual
continues to be employed in that trade or business.
(d) (1) (A) If the employment, other than seasonal employment, of
any qualified disadvantaged individual, with respect to whom
qualified wages are taken into account under subdivision (b) is
terminated by the qualified taxpayer at any time during the first 270
days of that employment (whether or not consecutive) or before the
close of the 270th calendar day after the day in which that qualified
disadvantaged individual completes 90 days of employment with the
qualified taxpayer, the tax imposed by this part for the taxable year
in which that employment is terminated shall be increased by an
amount equal to the credit allowed under subdivision (a) for that
taxable year and all prior taxable years attributable to qualified
wages paid or incurred with respect to that qualified disadvantaged
individual.
(B) If the seasonal employment of any qualified disadvantaged
individual, with respect to whom qualified wages are taken into
account under subdivision (a) is not continued by the qualified
taxpayer for a period of 270 days of employment during the 60-month
period beginning with the day the qualified disadvantaged individual
commences seasonal employment with the qualified taxpayer, the tax
imposed by this part, for the income year that includes the 60th
month following the month in which the qualified disadvantaged
individual commences seasonal employment with the qualified taxpayer,
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
qualified disadvantaged individual.
(2) (A) Subparagraph (A) of paragraph (1) does not apply to any of
the following:
(i) A termination of employment of a qualified disadvantaged
individual who voluntarily leaves the employment of the qualified
taxpayer.
(ii) A termination of employment of a qualified disadvantaged
individual who, before the close of the period referred to in
subparagraph (A) of paragraph (1), becomes disabled to perform the
services of that employment, unless that disability is removed before
the close of that period and the qualified taxpayer fails to offer
reemployment to that individual.
(iii) A termination of employment of a qualified disadvantaged
individual, if it is determined that the termination was due to the
misconduct (as defined in Sections 1256-30 to 1256-43, inclusive, of
Title 22 of the California Code of Regulations) of that individual.
(iv) A termination of employment of a qualified disadvantaged
individual due to a substantial reduction in the trade or business
operations of the qualified taxpayer.
(v) A termination of employment of a qualified disadvantaged
individual, if that individual is replaced by other qualified
disadvantaged individuals so as to create a net increase in both the
number of employees and the hours of employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
disadvantaged individual who voluntarily fails to return to the
seasonal employment of the qualified taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
disadvantaged individual who, before the close of the period referred
to in subparagraph (B) of paragraph (1), becomes disabled and unable
to perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
qualified taxpayer fails to offer seasonal employment to that
qualified disadvantaged individual.
(iii) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if it is determined that the failure to
continue the seasonal employment was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that qualified disadvantaged
individual.
(iv) A failure to continue seasonal employment of a qualified
disadvantaged individual due to a substantial reduction in the
regular seasonal trade or business operations of the qualified
taxpayer.
(v) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if that qualified disadvantaged individual
is replaced by other qualified disadvantaged individuals so as to
create a net increase in both the number of seasonal employees and
the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the qualified taxpayer and a qualified disadvantaged
individual shall not be treated as terminated by either of the
following:
(i) By a transaction to which Section 381(a) of the Internal
Revenue Code applies, if the qualified disadvantaged individual
continues to be employed by the acquiring corporation.
(ii) By reason of a mere change in the form of conducting the
trade or business of the qualified taxpayer, if the qualified
disadvantaged individual continues to be employed in that trade or
business and the qualified taxpayer retains a substantial interest in
that trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(e) The credit shall be reduced by the credit allowed under
Section 23621. The credit shall also be reduced by the federal credit
allowed under Section 51 of the Internal Revenue Code.
In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the qualified taxpayer upon
which the credit is based shall be reduced by the amount of the
credit, prior to any reduction required by subdivision (f) or (g).
(f) 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 and added to the
credit, if any, in the succeeding 10 taxable years, if necessary,
until the credit is exhausted. The credit shall be applied first to
the earliest taxable years possible.
(g) (1) The amount of credit otherwise allowed under this section,
including prior year credit carryovers, that may reduce the "tax"
for the taxable year shall not exceed the amount of tax that would be
imposed on the qualified taxpayer's business income attributed to a
manufacturing enhancement area determined as if that attributed
income represented all of the net income of the qualified taxpayer
subject to tax under this part.
(2) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the
manufacturing enhancement area. For that purpose, the taxpayer's
business income attributable to sources in this state first shall be
determined in accordance with Chapter 17 (commencing with Section
25101). That business income shall be further apportioned to the
manufacturing enhancement area in accordance with Article 2
(commencing with Section 25120) of Chapter 17, modified for purposes
of this section in accordance with paragraph (3).
(3) Income shall be apportioned to a manufacturing enhancement
area by multiplying the total California business income of the
taxpayer by a fraction, the numerator of which is the property factor
plus the payroll factor, and the denominator of which is two. For
the purposes of this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the manufacturing enhancement
area during the taxable year, and the denominator of which is the
average value of all the taxpayer's real and tangible personal
property owned or rented and used in this state during the taxable
year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the manufacturing
enhancement area during the taxable year for compensation, and the
denominator of which is the total compensation paid by the taxpayer
in this state during the taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, if necessary, until the credit is exhausted, as if it were an
amount exceeding the "tax" for the taxable year, as provided in
subdivision (g). However, the portion of any credit remaining for
carryover to taxable years beginning on or after January 1, 2014, if
any, after application of this subdivision, shall be carried over
only to the succeeding 10 taxable years if necessary, until the
credit is exhausted, as if it were an amount exceeding the "tax" for
the taxable year, as provided in subdivision (g).
(h) If the taxpayer is allowed a credit pursuant to this section
for qualified wages paid or incurred, only one credit shall be
allowed to the taxpayer under this part with respect to any wage
consisting in whole or in part of those qualified wages.
(i) The qualified taxpayer shall do both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
manufacturing enhancement area, a certification that provides that a
qualified disadvantaged individual meets the eligibility requirements
specified in paragraph (5) of subdivision (b). The Employment
Development Department may provide preliminary screening and referral
to a certifying agency. The Department of Housing and Community
Development shall develop regulations governing the issuance of
certificates pursuant to subdivision (d) of Section 7086 of the
Government Code and shall develop forms for this purpose.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(j) (1) Except as provided in paragraph (2), this section shall
cease to be operative for taxable years beginning on or after January
1, 2014, and shall be repealed on December 1, 2019.
(2) The section shall continue to apply with respect to qualified
employees who are employed by the qualified taxpayer within the
manufacturing enhancement area within the 60-month period immediately
preceding January 1, 2014, and qualified wages paid or incurred with
respect to those qualified employees shall continue to qualify for
the credit under this section for taxable years beginning on or after
January 1, 2014, in accordance with this section, as amended by the
act adding this subdivision.
SEC. 31. 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. 32. 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 (f) of Section 17276, 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 four hundred million dollars ($400,000,000) 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 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 cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 33. Section 23626 is added to the Revenue and Taxation Code,
to read:
23626. (a) (1) For each taxable year beginning on or after
January 1, 2014, and before January 1, 2021, there shall be allowed
to a qualified taxpayer that hires a qualified full-time employee and
pays or incurs qualified wages attributable to work performed by the
qualified full-time employee in a designated census tract or former
enterprise zone, and that receives a tentative credit reservation for
that qualified full-time employee, a credit against the "tax," as
defined by Section 23036, in an amount calculated under this section.
(2) The amount of the credit allowable under this section for a
taxable year shall be equal to the product of the tentative credit
amount for the taxable year and the applicable percentage for the
taxable year.
(3) (A) If a qualified taxpayer relocates to a designated census
tract or former enterprise zone, the qualified taxpayer shall be
allowed a credit with respect to qualified wages for each qualified
full-time employee who is employed within the new location only if
the qualified taxpayer provides each employee at the previous
location or locations a written offer of employment at the new
location in the designated census tract or former enterprise zone
with comparable compensation.
(B) For purposes of this paragraph, "relocates to a designated
census tract or former enterprise zone" means an increase in the
number of qualified full-time employees, employed by a qualified
taxpayer, within a designated census tract or tracts or former
enterprise zones within a 12-month period in which there is a
decrease in the number of full-time employees, employed by the
qualified taxpayer in this state, but outside of designated census
tracts or former enterprise zone.
(C) This paragraph shall not apply to a small business.
(4) The credit allowed by this section may only be claimed on a
timely filed original return of the qualified taxpayer and only with
respect to a qualified full-time employee for whom the qualified
taxpayer has received a tentative credit reservation.
(b) For purposes of this section:
(1) The "tentative credit amount" for a taxable year shall be
equal to the product of the applicable credit percentage for each
qualified full-time employee and the qualified wages paid by the
qualified taxpayer during the taxable year to that qualified
full-time employee.
(2) The "applicable percentage" for a taxable year shall be equal
to a fraction, the numerator of which is the net increase in the
total number of full-time employees employed in this state during the
taxable year, determined on an annual full-time equivalent basis, as
compared with the total number of full-time employees employed in
this state during the base year, determined on the same basis, and
the denominator of which shall be the total number of qualified
full-time employees employed in this state during the taxable year.
The applicable percentage shall not exceed 100 percent.
(3) The "applicable credit percentage" means the credit percentage
for the calendar year during which a qualified full-time employee
was first employed by the qualified taxpayer. The applicable credit
percentage for all calendar years shall be 35 percent.
(4) "Base year" means the 2013 taxable year, or in the case of a
qualified taxpayer who first hires a qualified full-time employee in
a taxable year beginning on or after January 2015, the taxable year
immediately preceding the taxable year in which the qualified
full-time employee was hired.
(5) "Acquired" includes any gift, inheritance, transfer incident
to divorce, or any other transfer, whether or not for consideration.
(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 qualified 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
qualified taxpayer by the employee divided by 52.
(7) "Designated census tract" means a census tract within the
state that is determined by the Department of Finance to have a
civilian unemployment rate that is within the top 25 percent of all
census tracts within the state and has a poverty rate within the top
25 percent of all census tracts within the state, as prescribed in
Section 13073.5 of the Government Code.
(8) "Former enterprise zone" means an enterprise zone designated
as of December 31, 2011, and any expansion of an enterprise zone
prior to December 31, 2012, under former Chapter 12.8 (commencing
with former Section 7070) of Division 7 of Title 1 of the Government
Code, as in effect on December 31, 2012, excluding any census tract
within an enterprise zone that is identified by the Department of
Finance pursuant to Section 13073.5 of the Government Code as a
census tract within the lowest quartile of census tracts with the
lowest civilian unemployment and poverty.
(9) "Minimum wage" means the wage established pursuant to Chapter
1 (commencing with Section 1171) of Part 4 of Division 2 of the Labor
Code.
(10) (A) "Qualified full-time employee" means an individual who
meets all of the following requirements:
(i) Performs at least 50 percent of his or her services for the
qualified taxpayer during the taxable year in a designated census
tract or former enterprise zone.
(ii) Receives starting wages that are at least 150 percent of the
minimum wage.
(iii) Is hired by the qualified taxpayer on or after January 1,
2014.
(iv) Is hired by the qualified taxpayer after the date the
Department of Finance determines that the census tract referred to in
clause (i) is a designated census tract or that the census tracts
within a former enterprise zone are not census tracts with the lowest
civilian unemployment and poverty.
(v) Satisfies either of the following conditions:
(I) Is paid qualified wages by the qualified taxpayer for services
not less than an average of 35 hours per week.
(II) Is 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 taxpayer.
(vii) Upon commencement of employment with the qualified taxpayer,
satisfies any of the following conditions:
(I) Was unemployed for the six months immediately preceding
employment with the qualified taxpayer. In the case of an individual
who completed a program of study at a college, university, or other
postsecondary educational institution, received a baccalaureate,
postgraduate, or professional degree, and was unemployed for the six
months immediately preceding employment with the qualified taxpayer,
that individual must have completed that program of study at least 12
months prior to the individual's commencement of employment with the
qualified taxpayer.
(II) Is a veteran that had not been employed since separation from
service in the Armed Forces of the United States.
(III) Was a recipient of the credit allowed under Section 32 of
the Internal Revenue Code, relating to earned income, as applicable
for federal purposes, for the previous taxable year.
(IV) Was an ex-offender, within the meaning of Section 23622.7.
(B) An individual may only be considered a qualified full-time
employee for the period of time commencing with the date the
individual is first employed by the qualified taxpayer and ending 60
months thereafter.
(11) (A) "Qualified taxpayer" means a corporation engaged in a
trade or business within designated census tract or former enterprise
zone that, during the taxable year, pays or incurs qualified wages.
(B) In the case of any pass-thru entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section or
Section 17053.73 shall be allowed to the pass-thru entity and passed
through to the partners and shareholders in accordance with
applicable provisions of this part or Part 10 (commencing with
Section 17001). For purposes of this subdivision, the term "pass-thru
entity" means any partnership or "S" corporation.
(C) "Qualified taxpayer" shall not include any of the following:
(i) Employers that provide temporary help services, as described
in Code 561320 of the North American Industry Classification System
(NAICS) published by
the United States Office of Management and Budget, 2012 edition.
(ii) Employers that provide retail trade services, as described in
Sector 44-45 of the North American Industry Classification System
(NAICS) published by the United States Office of Management and
Budget, 2012 edition.
(iii) Employers that are primarily engaged in providing food
services, as described in Code 711110, 722511, 722513, 722514, or
722515 of the North American Industry Classification System (NAICS)
published by the United States Office of Management and Budget, 2012
edition.
(iv) Employers that are primarily engaged in services as described
in Code 713210, 721120, or 722410 of the North American Industry
Classification System (NAICS) published by the United States Office
of Management and Budget, 2012 edition.
(D) Subparagraph (C) shall not apply to a taxpayer that is a
"small business."
(12) "Qualified wages" means those wages that meet all of the
following requirements:
(A) That portion of wages paid or incurred by the qualified
taxpayer during the taxable year to each qualified full-time employee
that exceeds 150 percent of minimum wage, but does not exceed 350
percent of the minimum wage.
(B) Wages paid or incurred during the 60-month period beginning
with the first day the qualified full-time employee commences
employment with the qualified taxpayer. In the case of any employee
who is reemployed, including regularly occurring seasonal increase,
in the trade or business operations of the qualified taxpayer, this
reemployment shall not be treated as constituting commencement of
employment for purposes of this section.
(C) Except as provided in paragraph (3) of subdivision (m),
qualified wages shall not include any wages paid or incurred by the
qualified taxpayer on or after the date that the Department of
Finance's redesignation of designated census tracts is effective, as
provided in paragraph (2) of subdivision (g), so that a census tract
is no longer determined to be a designated census tract.
(13) "Seasonal employment" means employment by a qualified
taxpayer that has regular and predictable substantial reductions in
trade or business operations.
(14) (A) "Small business" means a trade or business that has
aggregate gross receipts, less returns and allowances reportable to
this state, of less than two million dollars ($2,000,000) during the
previous taxable year.
(B) (i) For purposes of this paragraph, "gross receipts, less
returns and allowances reportable to this state," means the sum of
the gross receipts from the production of business income, as defined
in subdivision (a) of Section 25120, and the gross receipts from the
production of nonbusiness income, as defined in subdivision (d) of
Section 25120.
(ii) In the case of any trade or business activity conducted by a
partnership or an "S" corporation, the limitations set forth in
subparagraph (A) shall be applied to the partnership or "S"
corporation and to each partner or shareholder.
(iii) For taxpayers that are required to be included in a combined
report under Section 25101 or authorized to be included in a
combined report under Section 25101.15, the dollar amount specified
in subparagraph (A) shall apply to the aggregate gross receipts of
all taxpayers that are required to be or authorized to be included in
a combined report.
(15) An individual is "unemployed" for any period for which the
individual is all of the following:
(A) Not in receipt of wages subject to withholding under Section
13020 of the Unemployment Insurance Code for that period.
(B) Not a self-employed individual (within the meaning of Section
401(c)(1)(B) of the Internal Revenue Code, relating to self-employed
individual) for that period.
(C) Not a registered full-time student at a high school, college,
university, or other postsecondary educational institution for that
period.
(c) The net increase in full-time employees of a qualified
taxpayer shall be determined as provided by this subdivision:
(1) (A) The net increase in 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 full-time employees employed in the base
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
base year shall be zero.
(d) For purposes of this section:
(1) All employees of the trades or businesses that are treated as
related under 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.
(e) (1) To be eligible for the credit allowed by this section, a
qualified taxpayer shall, upon hiring a qualified full-time employee,
request a tentative credit reservation from the Franchise Tax Board
within 30 days of complying with the Employment Development
Department's new hire reporting requirement as provided in Section
1088.5 of the Unemployment Insurance Code, in the form and manner
prescribed by the Franchise Tax Board.
(2) To obtain a tentative credit reservation with respect to a
qualified full-time employee, the qualified taxpayer shall provide
necessary information, as determined by the Franchise Tax Board,
including the name, the social security number, the start date of
employment, the rate of pay of the qualified full-time employee, the
qualified taxpayer's gross receipts, less returns and allowances, for
the previous taxable year, and whether the qualified full-time
employee is a resident of a targeted employment area, as defined in
former Section 7072 of the Government Code, as in effect on December
31, 2013.
(3) The qualified taxpayer shall provide the Franchise Tax Board
an annual certification of employment with respect to each qualified
full-time employee hire in a previous taxable year, on or before the
15th day of the third month of the taxable year. The certification
shall include necessary information, as determined by the Franchise
Tax Board, including the name, social security number, start date of
employment, and rate of pay for each qualified full-time employee
employed by the qualified taxpayer.
(4) A tentative credit reservation provided to a taxpayer with
respect to an employee of that taxpayer shall not constitute a
determination by the Franchise Tax Board with respect to any of the
requirements of this section regarding a taxpayer's eligibility for
the credit authorized by this section.
(f) The Franchise Tax Board shall do all of the following:
(1) Approve a tentative credit reservation with respect to a
qualified full-time employee hired during a calendar year.
(2) Determine the aggregate tentative reservation amount and the
aggregate small business tentative reservation amount for a calendar
year.
(3) A tentative credit reservation request from a qualified
taxpayer with respect to a qualified full-time employee who is a
resident of a targeted employment area, as defined in former Section
7072 of the Government Code, as in effect on December 31, 2013, shall
be expeditiously processed by the Franchise Tax Board. The residence
of a qualified full-time employee in a targeted employment area
shall have no other effect on the eligibility of an individual as a
qualified full-time employee or the eligibility of a qualified
taxpayer for the credit authorized by this section.
(4) Notwithstanding Section 19542, provide as a searchable
database on its Internet Web site, for each taxable year beginning on
or after January 1, 2014, and before January 1, 2021, the employer
names, amounts of tax credit claimed, and number of new jobs created
for each taxable year pursuant to this section and Section 17053.73.
(g) (1) The Department of Finance shall, by January 1, 2014, and
by January 1 of every fifth year thereafter, provide the Franchise
Tax Board with a list of the designated census tracts and a list of
census tracts with the lowest civilian unemployment rate.
(2) The redesignation of designated census tracts and lowest
civilian unemployment census tracts by the Department of Finance as
provided in Section 13073.5 of the Government Code shall be
effective, for purposes of this credit, one year after the date that
the Department of Finance redesignates the designated census tracts.
(h) (1) For purposes of this section:
(A) All employees of the trades or businesses that are treated as
related under Section 267, 318, or 707 of the Internal Revenue Code
shall be treated as employed by a single qualified taxpayer.
(B) All employees of all corporations that are members of the same
controlled group of corporations shall be treated as employed by a
single qualified taxpayer.
(C) The credit, if any, allowable by this section to each member
shall be determined by reference to its proportionate share of the
expense of the qualified wages giving rise to the credit, and shall
be allocated in that manner.
(D) If a qualified taxpayer acquires the major portion of a trade
or business of another taxpayer, hereinafter in this paragraph
referred to as the predecessor, or the major portion of a separate
unit of a trade or business of a predecessor, then, for purposes of
applying this section for any taxable year ending after that
acquisition, the employment relationship between a qualified
full-time employee and a qualified taxpayer shall not be treated as
terminated if the employee continues to be employed in that trade or
business.
(2) For purposes of this subdivision, "controlled group of
corporations" means a controlled group of corporations as defined in
Section 1563(a) of the Internal Revenue Code, except that:
(A) "More than 50 percent" shall be substituted for "at least 80
percent" each place it appears in Section 1563(a)(1) of the Internal
Revenue Code.
(B) The determination shall be made without regard to subsections
(a)(4) and (e)(3)(C) of Section 1563 of the Internal Revenue Code.
(3) Rules similar to the rules provided in Sections 46(e) and 46
(h) of the Internal Revenue Code, as in effect on November 4, 1990,
shall apply to both of the following:
(A) An organization to which Section 593 of the Internal Revenue
Code applies.
(B) A regulated investment company or a real estate investment
trust subject to taxation under this part.
(i) (1) If the employment of any qualified full-time employee,
with respect to whom qualified wages are taken into account under
subdivision (a), is terminated by the qualified taxpayer at any time
during the first 36 months after commencing employment with the
qualified taxpayer, whether or not consecutive, the tax imposed by
this part for the taxable year in which that employment is terminated
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
employee.
(2) Paragraph (1) shall not apply to any of the following:
(A) A termination of employment of a qualified full-time employee
who voluntarily leaves the employment of the qualified taxpayer.
(B) A termination of employment of a qualified full-time employee
who, before the close of the period referred to in paragraph (1),
becomes disabled and unable to perform the services of that
employment, unless that disability is removed before the close of
that period and the qualified taxpayer fails to offer reemployment to
that employee.
(C) A termination of employment of a qualified full-time employee,
if it is determined that the termination was due to the misconduct,
as defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
the California Code of Regulations, of that employee.
(D) A termination of employment of a qualified full-time employee
due to a substantial reduction in the trade or business operations of
the qualified taxpayer, including reductions due to seasonal
employment.
(E) A termination of employment of a qualified full-time employee,
if that employee is replaced by other qualified full-time employees
so as to create a net increase in both the number of employees and
the hours of employment.
(F) A termination of employment of a qualified full-time employee,
when that employment is considered seasonal employment and the
qualified employee is rehired on a seasonal basis.
(3) For purposes of paragraph (1), the employment relationship
between the qualified taxpayer and a qualified full-time employee
shall not be treated as terminated by reason of a mere change in the
form of conducting the trade or business of the qualified taxpayer,
if the qualified full-time employee continues to be employed in that
trade or business and the qualified taxpayer retains a substantial
interest in that trade or business.
(4) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(j) 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 the succeeding four years if necessary, until
exhausted.
(k) 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 allocation of the
credit allowed under this section. Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code shall not apply to any rule, guideline, or procedure prescribed
by the Franchise Tax Board pursuant to this section.
(l) (1) Upon the effective date of this section, the Department of
Finance shall estimate the total dollar amount of credits that will
be claimed under this section with respect to each fiscal year from
the 2013-14 fiscal year to the 2020-21 fiscal year, inclusive.
(2) The Franchise Tax Board shall annually provide to the Joint
Legislative Budget Committee, by no later than March 1, a report of
the total dollar amount of the credits claimed under this section
with respect to the relevant fiscal year. The report shall compare
the total dollar amount of credits claimed under this section with
respect to that fiscal year with the department's estimate with
respect to that same fiscal year. If the total dollar amount of
credits claimed for the fiscal year is less than the estimate for
that fiscal year, the report shall identify options for increasing
annual claims of the credit so as to meet estimated amounts.
(m) (1) This section shall remain in effect only until December 1,
2024, and as of that date is repealed.
(2) Notwithstanding paragraph (1) of subdivision (a), this section
shall continue to be operative for taxable years beginning on or
after January 1, 2021, but only with respect to qualified full-time
employees who commenced employment with a qualified taxpayer in a
designated census tract or former enterprise zone in a taxable year
beginning before January 1, 2021.
(3) This section shall remain operative for any qualified taxpayer
with respect to any qualified full-time employee after the
designated census tract is no longer designated or a former
enterprise zone ceases to be a former enterprise zone, as defined in
this section, for the remaining period, if any, of the 60-month
period after the original date of hiring of an otherwise qualified
full-time employee and any wages paid or incurred with respect to
those qualified full-time employees after the designated census tract
is no longer designated or a former enterprise zone ceases to be a
former enterprise zone, ad defined in this section, shall be treated
as qualified wages under this section, provided the employee
satisfies any other requirements of paragraphs (10) and (12) of
subdivision (b), as if the designated census tract was still
designated and binding.
SEC. 34. Section 23633 of the Revenue and Taxation Code is amended
to read:
23633. (a) For each taxable year beginning on or after January 1,
1998, and before January 1, 2014, there shall be allowed as a credit
against the "tax" (as defined by Section 23036) for the taxable year
an amount equal to the sales or use tax paid or incurred during the
taxable year by the qualified taxpayer in connection with the
qualified taxpayer's purchase of qualified property before January 1,
2014.
(b) For purposes of this section:
(1) "Qualified property" means property that meets all of the
following requirements:
(A) Is any of the following:
(i) Machinery and machinery parts used for fabricating,
processing, assembling, and manufacturing.
(ii) Machinery and machinery parts used for the production of
renewable energy resources.
(iii) Machinery and machinery parts used for either of the
following:
(I) Air pollution control mechanisms.
(II) Water pollution control mechanisms.
(iv) Data-processing and communications equipment, such as
computers, computer-automated drafting systems, copy machines,
telephone systems, and faxes.
(v) Motion picture manufacturing equipment central to production
and postproduction, such as cameras, audio recorders, and digital
image and sound processing equipment.
(B) The total cost of qualified property purchased and placed in
service in any taxable year that may be taken into account by any
qualified taxpayer for purposes of claiming this credit shall not
exceed twenty million dollars ($20,000,000).
(C) The qualified property is used by the qualified taxpayer
exclusively in a targeted tax area.
(D) The qualified property is purchased and placed in service
before the date the targeted tax area designation expires, is
revoked, is no longer binding, or becomes inoperative.
(2) (A) "Qualified taxpayer" means a corporation that meets both
of the following:
(i) Is engaged in a trade or business within a targeted tax area
designated pursuant to Chapter 12.93 (commencing with Section 7097)
of Division 7 of Title 1 of the Government Code.
(ii) Is engaged in those lines of business described in Codes 2000
to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive, of
the Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition.
(B) In the case of any pass-through entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section or
Section 17053.33 shall be allowed to the pass-through entity and
passed through to the partners or shareholders in accordance with
applicable provisions of this part or Part 10 (commencing with
Section 17001). For purposes of this subparagraph, the term
"pass-through entity" means any partnership or S corporation.
(3) "Targeted tax area" means the area designated pursuant to
Chapter 12.93 (commencing with Section 7097) of Division 7 of Title 1
of the Government Code.
(c) If the qualified taxpayer is allowed a credit for qualified
property pursuant to this section, only one credit shall be allowed
to the taxpayer under this part with respect to that qualified
property.
(d) If the qualified taxpayer has purchased property upon which a
use tax has been paid or incurred, the credit provided by this
section shall be allowed only if qualified property of a comparable
quality and price is not timely available for purchase in this state.
(e) 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 and added to the
credit, if any, in the succeeding 10 taxable years, if necessary,
until the credit is exhausted. The credit shall be applied first to
the earliest taxable years possible.
(f) Any qualified taxpayer who elects to be subject to this
section shall not be entitled to increase the basis of the qualified
property as otherwise required by Section 164(a) of the Internal
Revenue Code with respect to sales or use tax paid or incurred in
connection with the qualified taxpayer's purchase of qualified
property.
(g) (1) The amount of credit otherwise allowed under this section
and Section 23634, including any credit carryover from prior years,
that may reduce the "tax" for the taxable year shall not exceed the
amount of tax that would be imposed on the qualified taxpayer's
business income attributable to the targeted tax area determined as
if that attributable income represented all of the income of the
qualified taxpayer subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the targeted
tax area. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the targeted tax area
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this section in accordance with
paragraph (3).
(3) Business income shall be apportioned to the targeted tax area
by multiplying the total California business income of the taxpayer
by a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the targeted tax area during the
taxable year and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the targeted tax area during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, if necessary, until the credit is exhausted, as if it were an
amount exceeding the "tax" for the taxable year, as provided in
subdivision (e). However, the portion of any credit remaining for
carryover to taxable years beginning on or after January 1, 2014, if
any, after application of this subdivision, shall be carried over
only to the succeeding 10 taxable years if necessary, until the
credit is exhausted, as if it were an amount exceeding the "tax" for
the taxable year, as provided in subdivision (e).
(5) In the event that a credit carryover is allowable under
subdivision (e) for any taxable year after the targeted tax area
designation has expired, has been revoked, is no longer binding, or
has become inoperative, the targeted tax area shall be deemed to
remain in existence for purposes of computing the limitation
specified in this subdivision.
(h) The changes made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 1998.
(i) This section is repealed on December 1, 2014.
SEC. 35. Section 23634 of the Revenue and Taxation Code is amended
to read:
23634. (a) For each taxable year beginning on or after January 1,
1998, there shall be allowed a credit against the "tax" (as defined
by Section 23036) to a qualified taxpayer who employs a qualified
employee in a targeted tax area during the taxable year. The credit
shall be equal to the sum of each of the following:
(1) Fifty percent of qualified wages in the first year of
employment.
(2) Forty percent of qualified wages in the second year of
employment.
(3) Thirty percent of qualified wages in the third year of
employment.
(4) Twenty percent of qualified wages in the fourth year of
employment.
(5) Ten percent of qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) That portion of wages paid or incurred by the qualified
taxpayer during the taxable year to qualified employees that does not
exceed 150 percent of the minimum wage.
(B) Wages received during the 60-month period beginning with the
first day the employee commences employment with the qualified
taxpayer. Reemployment in connection with any increase, including a
regularly occurring seasonal increase, in the trade or business
operations of the qualified taxpayer does not constitute commencement
of employment for purposes of this section.
(C) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the targeted tax area expiration
date. However, wages paid or incurred with respect to qualified
employees who are employed by the qualified taxpayer within the
targeted tax area within the 60-month period prior to the targeted
tax area expiration date shall continue to qualify for the credit
under this section after the targeted tax area expiration date, in
accordance with all provisions of this section applied as if the
targeted tax area designation were still in existence and binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "Targeted tax area expiration date" means the date the
targeted tax area designation expires, is revoked, is no longer
binding, becomes inoperative, or is repealed.
(4) (A) "Qualified employee" means an individual who meets all of
the following requirements:
(i) At least 90 percent of his or her services for the qualified
taxpayer during the taxable year are directly related to the conduct
of the qualified taxpayer's trade or business located in a targeted
tax area.
(ii) Performs at least 50 percent of his or her services for the
qualified taxpayer during the taxable year in a targeted tax area.
(iii) Is hired by the qualified taxpayer after the date of
original designation of the area in which services were performed as
a targeted tax area.
(iv) Is any of the following:
(I) Immediately preceding the qualified employee's commencement of
employment with the qualified taxpayer, was a person eligible for
services under the federal Job Training Partnership Act (29 U.S.C.
Sec. 1501 et seq.), or its successor, who is receiving, or is
eligible to receive, subsidized employment, training, or services
funded by the federal Job Training Partnership Act, or its successor.
(II) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a person eligible to
be a voluntary or mandatory registrant under the Greater Avenues for
Independence Act of 1985 (GAIN) provided for pursuant to Article 3.2
(commencing with Section 11320) of Chapter 2 of Part 3 of Division 9
of the Welfare and Institutions Code, or its successor.
(III) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was an economically
disadvantaged individual 14 years of age or older.
(IV) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a dislocated worker
who meets any of the following:
(aa) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(bb) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(cc) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(dd) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(ee) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(ff) Was an active member of the Armed Forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(gg) Is a seasonal or migrant worker who experiences chronic
seasonal unemployment and underemployment in the agriculture
industry, aggravated by continual advancements in technology and
mechanization.
(hh) Has been terminated or laid off, or has received a notice of
termination or layoff, as a consequence of compliance with the Clean
Air Act.
(V) Immediately preceding the qualified employee's commencement of
employment with the qualified taxpayer, was a disabled individual
who is eligible for or enrolled in, or has completed a state
rehabilitation plan or is a service-connected disabled veteran,
veteran of the Vietnam era, or veteran who is recently separated from
military service.
(VI) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was an ex-offender. An
individual shall be treated as convicted if he or she was placed on
probation by a state court without a finding of guilt.
(VII) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a person eligible for
or a recipient of any of the following:
(aa) Federal Supplemental Security Income benefits.
(bb) Aid to Families with Dependent Children.
(cc) CalFresh benefits.
(dd) State and local general assistance.
(VIII) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a member of a
federally recognized Indian tribe, band, or other group of Native
American descent.
(IX) Immediately preceding the qualified employee's commencement
of employment with the qualified taxpayer, was a resident of a
targeted tax area.
(X) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a member of a targeted group, as
defined in Section 51(d) of the Internal Revenue Code, or its
successor.
(B) Priority for employment shall be provided to an individual who
is enrolled in a qualified program under the federal Job Training
Partnership Act or the Greater Avenues for Independence Act of 1985
or who is eligible as a member of a targeted group under the Work
Opportunity Tax Credit (Section 51 of the Internal Revenue Code), or
its successor.
(5) (A) "Qualified taxpayer" means a person or entity that meets
both of the following:
(i) Is engaged in a trade or business within a targeted tax area
designated pursuant to Chapter 12.93 (commencing with Section 7097)
of Division 7 of Title 1 of the Government Code.
(ii) Is engaged in those lines of business described in Codes 2000
to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive, of
the Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition.
(B) In the case of any passthrough entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section or
Section 17053.34 shall be allowed to the passthrough entity and
passed through to the partners or shareholders in accordance with
applicable provisions of this part or Part 10 (commencing with
Section 17001). For purposes of this subparagraph, the term
"passthrough entity" means any partnership or S corporation.
(6) "Seasonal employment" means employment by a qualified taxpayer
that has regular and predictable substantial reductions in trade or
business operations.
(c) If the qualified taxpayer is allowed a credit for qualified
wages pursuant to this section, only one credit shall be allowed to
the taxpayer under this part with respect to those qualified wages.
(d) The qualified taxpayer shall do both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the local county or city Job Training
Partnership Act administrative entity, the local county GAIN office
or social services agency, or the local government administering the
targeted tax area, a certification that provides that a qualified
employee meets the eligibility requirements specified in clause (iv)
of subparagraph (A) of paragraph (4) of subdivision (b). The
Employment Development Department may provide preliminary screening
and referral to a certifying agency. The Department of Housing and
Community Development shall develop regulations for the issuance of
certificates pursuant to subdivision (g) of Section 7097 of the
Government Code, and shall develop forms for this purpose.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(e) (1) For purposes of this section:
(A) All employees of all corporations that are members of the same
controlled group of corporations shall be treated as employed by a
single taxpayer.
(B) The credit, if any, allowable by this section to each member
shall be determined by reference to its proportionate share of the
expense of the qualified wages giving rise to the credit, and shall
be allocated in that manner.
(C) For purposes of this subdivision, "controlled group of
corporations" means "controlled group of corporations" as defined in
Section 1563(a) of the Internal Revenue Code, except that:
(i) "More than 50 percent" shall be substituted for "at least 80
percent" each place it appears in Section 1563(a)(1) of the Internal
Revenue Code.
(ii) The determination shall be made without regard to subsections
(a)(4) and (e)(3)(C) of Section 1563 of the Internal Revenue Code.
(2) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section (other than subdivision (f)) for any calendar year
ending after that acquisition, the employment relationship between a
qualified employee and an employer shall not be treated as terminated
if the employee continues to be employed in that trade or business.
(f) (1) (A) If the employment, other than seasonal employment, of
any qualified employee with respect to whom qualified wages are taken
into account under subdivision (a) is terminated by the qualified
taxpayer at any time during the first 270 days of that employment
(whether or not consecutive) or before the close of the 270th
calendar day after the day in which that employee completes 90 days
of employment with the qualified taxpayer, the tax imposed by this
part for the taxable year in which that employment is terminated
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
employee.
(B) If the seasonal employment of any qualified employee, with
respect to whom qualified wages are taken into account under
subdivision (a) is not continued by the qualified taxpayer for a
period of 270 days of employment during the 60-month period beginning
with the day the qualified employee commences seasonal employment
with the qualified taxpayer, the tax imposed by this part, for the
taxable year that includes the 60th month following the month in
which the qualified employee commences seasonal employment with the
qualified taxpayer, shall be increased by an amount equal to the
credit allowed under subdivision (a) for that taxable year and all
prior taxable years attributable to qualified wages paid or incurred
with respect to that qualified employee.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of a qualified employee who
voluntarily leaves the employment of the qualified taxpayer.
(ii) A termination of employment of a qualified employee who,
before the close of the period referred to in subparagraph (A) of
paragraph (1), becomes disabled and unable to perform the services of
that employment, unless that disability is removed before the close
of that period and the qualified taxpayer fails to offer reemployment
to that employee.
(iii) A termination of employment of a qualified employee, if it
is determined that the termination was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that employee.
(iv) A termination of employment of a qualified employee due to a
substantial reduction in the trade or business operations of the
taxpayer.
(v) A termination of employment of a qualified employee, if that
employee is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
employee who voluntarily fails to return to the seasonal employment
of the qualified taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
employee who, before the close of the period referred to in
subparagraph (B) of paragraph (1), becomes disabled and unable to
perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
qualified taxpayer fails to offer seasonal employment to that
qualified employee.
(iii) A failure to continue the seasonal employment of a qualified
employee, if it is determined that the failure to continue the
seasonal employment was due to the misconduct (as defined in Sections
1256-30 to 1256-43, inclusive, of Title 22 of the California Code of
Regulations) of that qualified employee.
(iv) A failure to continue seasonal employment of a qualified
employee due to a substantial reduction in the regular seasonal trade
or business operations of the qualified taxpayer.
(v) A failure to continue the seasonal employment of a qualified
employee, if that qualified employee is replaced by other qualified
employees so as to create a net increase in both the number of
seasonal employees and the hours of seasonal employment.
(C) For purposes of paragraph (1), the employment relationship
between the qualified taxpayer and a qualified employee shall not be
treated as terminated by either of the following:
(i) By a transaction to which Section 381(a) of the Internal
Revenue Code applies, if the qualified employee continues to be
employed by the acquiring corporation.
(ii) By reason of a mere change in the form of conducting the
trade or business of the qualified taxpayer, if the qualified
employee continues to be employed in that trade or business and the
qualified taxpayer retains a substantial interest in that trade or
business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(g) Rules similar to the rules provided in Sections 46(e) and (h)
of the Internal Revenue Code shall apply to both of the following:
(1) An organization to which Section 593 of the Internal Revenue
Code applies.
(2) A regulated investment company or a real estate investment
trust subject to taxation under this part.
(h) For purposes of this section, "targeted tax area" means an
area designated pursuant to Chapter 12.93 (commencing with Section
7097) of Division 7 of Title 1 of the Government Code.
(i) 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 and added to the
credit, if any, in the succeeding 10 taxable years, if necessary,
until the credit is exhausted. The credit shall be applied first to
the earliest taxable years possible.
(j) (1) The amount of the credit otherwise allowed under this
section and Section 23633, including any credit carryover from prior
years, that may reduce the "tax" for the taxable year shall not
exceed the amount of tax that would be imposed on the qualified
taxpayer's business income attributable to the targeted tax area
determined as if that attributable income represented all of the
income of the qualified taxpayer subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the targeted
tax area. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the targeted tax area
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this section in accordance with
paragraph (3).
(3) Business income shall be apportioned to the targeted tax area
by multiplying the total California business income of the taxpayer
by a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the targeted tax area during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the targeted tax area during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, if necessary, until the credit is exhausted, as if it were an
amount exceeding the "tax" for the taxable year, as provided in
subdivision (i). However, the portion of any credit remaining for
carryover to taxable years beginning on or after January 1, 2014, if
any, after application of this subdivision, shall be carried over
only to the succeeding 10 taxable years if necessary, until the
credit is exhausted, as if it were an amount exceeding the "tax" for
the taxable year, as provided in subdivision (i).
(5) In the event that a credit carryover is allowable under
subdivision (h) for any taxable year after the targeted tax area
designation has expired or been revoked, the targeted tax area shall
be deemed to remain in existence for purposes of computing the
limitation specified in this subdivision.
(k) (1) Except as provided in paragraph (2), this section shall
cease to be operative for taxable years beginning on or after January
1, 2014, and shall be repealed on December 1, 2019.
(2) The section shall continue to apply with respect to qualified
employees who are employed by the qualified taxpayer within the
targeted tax area within the 60-month period immediately preceding
January 1, 2014, and qualified wages paid or incurred with respect to
those qualified employees shall continue to qualify for the credit
under this section for taxable years beginning on or after January 1,
2014, in accordance with this section, as amended by the act adding
this subdivision.
SEC. 36. Section 23645 of the Revenue and Taxation Code is amended
to read:
23645. (a) For each taxable year beginning on or after January 1,
1995, and before January 1, 2014, there shall be allowed as a credit
against the "tax" (as defined by Section 23036) for the taxable year
an amount equal to the sales or use tax paid or incurred by the
taxpayer in connection with the purchase of qualified property before
January 1, 2014, to the extent that the qualified property does not
exceed a value of twenty million dollars ($20,000,000).
(b) For purposes of this section:
(1) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
(2) "Taxpayer" means a corporation that conducts a trade or
business within a LAMBRA and, for the first two taxable years, has a
net increase in jobs (defined as 2,000 paid hours per employee per
year) of one or more employees in the LAMBRA.
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA. For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero. If the
taxpayer has a net increase in jobs in the state, the credit shall be
allowed only if one or more full-time employees is employed within
the LAMBRA.
(B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
(i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
(ii) The total number of months worked in the LAMBRA for the
taxpayer by employees that are salaried employees divided by 12.
(C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B) the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is the
number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
(3) "Qualified property" means property that is each of the
following:
(A) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA.
(B) Purchased before the date the LAMBRA designation expires, is
no longer binding, or becomes inoperative.
(C) Any of the following:
(i) High technology equipment, including, but not limited to,
computers and electronic processing equipment.
(ii) Aircraft maintenance equipment, including, but not limited
to, engine stands, hydraulic mules, power carts, test equipment,
handtools, aircraft start carts, and tugs.
(iii) Aircraft components, including, but not limited to, engines,
fuel control units, hydraulic pumps, avionics, starts, wheels, and
tires.
(iv) Section 1245 property, as defined in Section 1245(a)(3) of
the Internal Revenue Code.
(c) The credit provided under subdivision (a) shall only be
allowed for qualified property manufactured in California unless
qualified property of a comparable quality and price is not available
for timely purchase and delivery from a California manufacturer.
(d) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the taxable year, that portion of the
credit which exceeds the "tax" may be carried over and added to the
credit, if any, in the succeeding 10 taxable years, if necessary,
until the credit is exhausted. The credit shall be applied first to
the earliest taxable years possible.
(e) Any taxpayer who elects to be subject to this section shall
not be entitled to increase the basis of the property as otherwise
required by Section 164(a) of the Internal Revenue Code with respect
to sales or use tax paid or incurred in connection with the purchase
of qualified property.
(f) (1) The amount of the credit otherwise allowed under this
section and Section 23646, including any credit carryovers from prior
years, that may reduce the "tax" for the taxable year shall not
exceed the amount of tax that would be imposed on the taxpayer's
business income attributed to a LAMBRA determined as if that
attributable income represented all the income of the taxpayer
subject to tax under this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income that is attributable
to sources in this state shall first be determined in accordance
with Chapter 17 (commencing with Section 25101). That business income
shall be further apportioned to the LAMBRA in accordance with
Article 2 (commencing with Section 25120) of Chapter 17, modified for
purposes of this section in accordance with paragraph (3).
(3) Income shall be apportioned to a LAMBRA by multiplying the
total California business income of the taxpayer by a fraction, the
numerator of which is the property factor, plus the payroll factor,
and the denominator of which is two. For purposes of this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the LAMBRA during the taxable
year, and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA during the
taxable year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, if necessary, until the credit is exhausted, as if it were an
amount exceeding the "tax" for the taxable year, as provided in
subdivision (d). However, the portion of any credit remaining for
carryover to taxable years beginning on or after January 1, 2014, if
any, after application of this subdivision, shall be carried over
only to the succeeding 10 taxable years, if necessary, until the
credit is exhausted, as if it were an amount exceeding the "tax" for
the taxable year, as provided in subdivision (d).
(g) (1) If the qualified property is disposed of or no longer used
by the taxpayer in the LAMBRA, at any time before the close of the
second taxable year after the property is placed in service, the
amount of the credit previously claimed, with respect to that
property, shall be added to the taxpayer's tax liability in the
taxable year of that disposition or nonuse.
(2) At the close of the second taxable year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(2) of subdivision (b), then the amount of the credit previously
claimed shall be added to the taxpayer's tax for the taxpayer's
second taxable year.
(h) If the taxpayer is allowed a credit for qualified property
pursuant to this section, only one credit shall be allowed to the
taxpayer under this part with respect to that qualified property.
(i) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 1998.
(j) This section is repealed on December 1, 2014.
SEC. 37. Section 23646 of the Revenue and Taxation Code is amended
to read:
23646. (a) For each taxable year beginning on or after January 1,
1995, there shall be allowed as a credit against the "tax" (as
defined in Section 23036) to a qualified taxpayer for hiring a
qualified disadvantaged individual or a qualified displaced employee
during the taxable year for employment in the LAMBRA. The credit
shall be equal to the sum of each of the following:
(1) Fifty percent of the qualified wages in the first year of
employment.
(2) Forty percent of the qualified wages in the second year of
employment.
(3) Thirty percent of the
qualified wages in the third year of employment.
(4) Twenty percent of the qualified wages in the fourth year of
employment.
(5) Ten percent of the qualified wages in the fifth year of
employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) That portion of wages paid or incurred by the employer during
the taxable year to qualified disadvantaged individuals or qualified
displaced employees that does not exceed 150 percent of the minimum
wage.
(B) The total amount of qualified wages which may be taken into
account for purposes of claiming the credit allowed under this
section shall not exceed two million dollars ($2,000,000) per taxable
year.
(C) Wages received during the 60-month period beginning with the
first day the individual commences employment with the taxpayer.
Reemployment in connection with any increase, including a regularly
occurring seasonal increase, in the trade or business operation of
the qualified taxpayer does not constitute commencement of employment
for purposes of this section.
(D) Qualified wages do not include any wages paid or incurred by
the qualified taxpayer on or after the LAMBRA expiration date.
However, wages paid or incurred with respect to qualified
disadvantaged individuals or qualified displaced employees who are
employed by the qualified taxpayer within the LAMBRA within the
60-month period prior to the LAMBRA expiration date shall continue to
qualify for the credit under this section after the LAMBRA
expiration date, in accordance with all provisions of this section
applied as if the LAMBRA designation were still in existence and
binding.
(2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "LAMBRA" means a local agency military base recovery area
designated in accordance with the provisions of Section 7114 of the
Government Code.
(4) "Qualified disadvantaged individual" means an individual who
satisfies all of the following requirements:
(A) (i) At least 90 percent of whose services for the taxpayer
during the taxable year are directly related to the conduct of the
taxpayer's trade or business located in a LAMBRA.
(ii) Who performs at least 50 percent of his or her services for
the taxpayer during the taxable year in the LAMBRA.
(B) Who is hired by the employer after the designation of the area
as a LAMBRA in which the individual's services were primarily
performed.
(C) Who is any of the following immediately preceding the
individual's commencement of employment with the taxpayer:
(i) An individual who has been determined eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.), or its successor.
(ii) Any voluntary or mandatory registrant under the Greater
Avenues for Independence Act of 1985 provided for pursuant to Article
3.2 (commencing with Section 11320) of Chapter 2 of Part 3 of
Division 9 of the Welfare and Institutions Code.
(iii) An economically disadvantaged individual 16 years of age or
older.
(iv) A dislocated worker who meets any of the following
conditions:
(I) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
(II) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
(III) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
(IV) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.
(V) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
(VI) Was an active member of the Armed Forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
(VII) Experiences chronic seasonal unemployment and
underemployment in the agriculture industry, aggravated by continual
advancements in technology and mechanization.
(VIII) Has been terminated or laid off or has received a notice of
termination or layoff as a consequence of compliance with the Clean
Air Act.
(v) An individual who is enrolled in or has completed a state
rehabilitation plan or is a service-connected disabled veteran,
veteran of the Vietnam era, or veteran who is recently separated from
military service.
(vi) An ex-offender. An individual shall be treated as convicted
if he or she was placed on probation by a state court without a
finding of guilty.
(vii) A recipient of:
(I) Federal Supplemental Security Income benefits.
(II) Aid to Families with Dependent Children.
(III) CalFresh benefits.
(IV) State and local general assistance.
(viii) Is a member of a federally recognized Indian tribe, band,
or other group of Native American descent.
(5) "Qualified taxpayer" means a corporation that conducts a trade
or business within a LAMBRA and, for the first two taxable years,
has a net increase in jobs (defined as 2,000 paid hours per employee
per year) of one or more employees as determined below in the LAMBRA.
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA. For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero. If the
taxpayer has a net increase in jobs in the state, the credit shall be
allowed only if one or more full-time employees is employed within
the LAMBRA.
(B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
(i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
(ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
(C) In the case of a qualified taxpayer that first commences doing
business in the LAMBRA during the taxable year, for purposes of
clauses (i) and (ii), respectively, of subparagraph (B) the divisors
"2,000" and "12" shall be multiplied by a fraction, the numerator of
which is the number of months of the taxable year that the taxpayer
was doing business in the LAMBRA and the denominator of which is 12.
(6) "Qualified displaced employee" means an individual who
satisfies all of the following requirements:
(A) Any civilian or military employee of a base or former base
that has been displaced as a result of a federal base closure act.
(B) (i) At least 90 percent of whose services for the taxpayer
during the taxable year are directly related to the conduct of the
taxpayer's trade or business located in a LAMBRA.
(ii) Who performs at least 50 percent of his or her services for
the taxpayer during the taxable year in a LAMBRA.
(C) Who is hired by the employer after the designation of the area
in which services were performed as a LAMBRA.
(7) "Seasonal employment" means employment by a qualified taxpayer
that has regular and predictable substantial reductions in trade or
business operations.
(8) "LAMBRA expiration date" means the date the LAMBRA designation
expires, is no longer binding, becomes inoperative, or is repealed.
(c) For qualified disadvantaged individuals or qualified displaced
employees hired on or after January 1, 2001, the taxpayer shall do
both of the following:
(1) Obtain from the Employment Development Department, as
permitted by federal law, the administrative entity of the local
county or city for the federal Job Training Partnership Act, or its
successor, the local county GAIN office or social services agency, or
the local government administering the LAMBRA, a certification that
provides that a qualified disadvantaged individual or qualified
displaced employee meets the eligibility requirements specified in
subparagraph (C) of paragraph (4) of subdivision (b) or subparagraph
(A) of paragraph (6) of subdivision (b). The Employment Development
Department may provide preliminary screening and referral to a
certifying agency. The Department of Housing and Community
Development shall develop regulations governing the issuance of
certificates pursuant to Section 7114.2 of the Government Code and
shall develop forms for this purpose.
(2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
(d) (1) For purposes of this section, both of the following apply:
(A) All employees of all corporations that are members of the same
controlled group of corporations shall be treated as employed by a
single employer.
(B) The credit (if any) allowable by this section to each member
shall be determined by reference to its proportionate share of the
qualified wages giving rise to the credit.
(2) For purposes of this subdivision, "controlled group of
corporations" has the meaning given to that term by Section 1563(a)
of the Internal Revenue Code, except that both of the following
apply:
(A) "More than 50 percent" shall be substituted for "at least 80
percent" each place it appears in Section 1563(a)(1) of the Internal
Revenue Code.
(B) The determination shall be made without regard to Section 1563
(a)(4) and Section 1563(e)(3)(C) of the Internal Revenue Code.
(3) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section (other than subdivision (e)) for any calendar year
ending after that acquisition, the employment relationship between an
employee and an employer shall not be treated as terminated if the
employee continues to be employed in that trade or business.
(e) (1) (A) If the employment of any employee, other than seasonal
employment, with respect to whom qualified wages are taken into
account under subdivision (a) is terminated by the taxpayer at any
time during the first 270 days of that employment (whether or not
consecutive) or before the close of the 270th calendar day after the
day in which that employee completes 90 days of employment with the
taxpayer, the tax imposed by this part for the taxable year in which
that employment is terminated shall be increased by an amount equal
to the credit allowed under subdivision (a) for that taxable year and
all prior income years attributable to qualified wages paid or
incurred with respect to that employee.
(B) If the seasonal employment of any qualified disadvantaged
individual, with respect to whom qualified wages are taken into
account under subdivision (a) is not continued by the qualified
taxpayer for a period of 270 days of employment during the 60-month
period beginning with the day the qualified disadvantaged individual
commences seasonal employment with the qualified taxpayer, the tax
imposed by this part, for the taxable year that includes the 60th
month following the month in which the qualified disadvantaged
individual commences seasonal employment with the qualified taxpayer,
shall be increased by an amount equal to the credit allowed under
subdivision (a) for that taxable year and all prior taxable years
attributable to qualified wages paid or incurred with respect to that
qualified disadvantaged individual.
(2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
(i) A termination of employment of an employee who voluntarily
leaves the employment of the taxpayer.
(ii) A termination of employment of an individual who, before the
close of the period referred to in paragraph (1), becomes disabled to
perform the services of that employment, unless that disability is
removed before the close of that period and the taxpayer fails to
offer reemployment to that individual.
(iii) A termination of employment of an individual, if it is
determined that the termination was due to the misconduct (as defined
in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that individual.
(iv) A termination of employment of an individual due to a
substantial reduction in the trade or business operations of the
taxpayer.
(v) A termination of employment of an individual, if that
individual is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
(B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
(i) A failure to continue the seasonal employment of a qualified
disadvantaged individual who voluntarily fails to return to the
seasonal employment of the qualified taxpayer.
(ii) A failure to continue the seasonal employment of a qualified
disadvantaged individual who, before the close of the period referred
to in subparagraph (B) of paragraph (1), becomes disabled and unable
to perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
qualified taxpayer fails to offer seasonal employment to that
qualified disadvantaged individual.
(iii) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if it is determined that the failure to
continue the seasonal employment was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that individual.
(iv) A failure to continue seasonal employment of a qualified
disadvantaged individual due to a substantial reduction in the
regular seasonal trade or business operations of the qualified
taxpayer.
(v) A failure to continue the seasonal employment of a qualified
disadvantaged individual, if that individual is replaced by other
qualified disadvantaged individuals so as to create a net increase in
both the number of seasonal employees and the hours of seasonal
employment.
(C) For purposes of paragraph (1), the employment relationship
between the taxpayer and an employee shall not be treated as
terminated by either of the following:
(i) A transaction to which Section 381(a) of the Internal Revenue
Code applies, if the employee continues to be employed by the
acquiring corporation.
(ii) A mere change in the form of conducting the trade or business
of the taxpayer, if the employee continues to be employed in that
trade or business and the taxpayer retains a substantial interest in
that trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
(4) At the close of the second taxable year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(5) of subdivision (b), then the amount of the credit previously
claimed shall be added to the taxpayer's tax for the taxpayer's
second taxable year.
(f) In the case of an organization to which Section 593 of the
Internal Revenue Code applies, and a regulated investment company or
a real estate investment trust subject to taxation under this part,
rules similar to the rules provided in Section 46(e) and Section 46
(h) of the Internal Revenue Code shall apply.
(g) The credit shall be reduced by the credit allowed under
Section 23621. The credit shall also be reduced by the federal credit
allowed under Section 51 of the Internal Revenue Code.
In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the taxpayer upon which the
credit is based shall be reduced by the amount of the credit, prior
to any reduction required by subdivision (h) or (i).
(h) 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 and added to the
credit, if any, in the succeeding 10 taxable years, if necessary,
until the credit is exhausted. The credit shall be applied first to
the earliest taxable years possible.
(i) (1) The amount of credit otherwise allowed under this section
and Section 23645, including any prior year carryovers, that may
reduce the "tax" for the taxable year shall not exceed the amount of
tax that would be imposed on the taxpayer's business income
attributed to a LAMBRA determined as if that attributed income
represented all of the income of the taxpayer subject to tax under
this part.
(2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income that is attributable
to sources in this state first shall be determined in accordance
with Chapter 17 (commencing with Section 25101). That business income
shall be further apportioned to the LAMBRA in accordance with
Article 2 (commencing with Section 25120) of Chapter 17, modified for
purposes of this section in accordance with paragraph (3).
(3) Income shall be apportioned to a LAMBRA by multiplying the
total California business income of the taxpayer by a fraction, the
numerator of which is the property factor plus the payroll factor,
and the denominator of which is two. For purposes of this paragraph:
(A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the LAMBRA during the taxable
year, and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the taxable year.
(B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA during the
taxable year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
taxable year.
(4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, if necessary, until the credit is exhausted, as if it were an
amount exceeding the "tax" for the taxable year, as provided in
subdivision (h). However, the portion of any credit remaining for
carryover to taxable years beginning on or after January 1, 2014, if
any, after application of this subdivision, shall be carried over
only to the succeeding 10 taxable years, if necessary, until the
credit is exhausted, as if it were an amount exceeding the "tax" for
the taxable year, as provided in subdivision (h).
(j) If the taxpayer is allowed a credit pursuant to this section
for qualified wages paid or incurred, only one credit shall be
allowed to the taxpayer under this part with respect to any wage
consisting in whole or in part of those qualified wages.
(k) (1) Except as provided in paragraph (2), this section shall
cease to be operative for taxable years beginning on or after January
1, 2014, and shall be repealed on December 1, 2019.
(2) The section shall continue to apply with respect to qualified
employees who are employed by the qualified taxpayer within the
LAMBRA within the 60-month period immediately preceding January 1,
2014, and qualified wages paid or incurred with respect to those
qualified employees shall continue to qualify for the credit under
this section for taxable years beginning on or after January 1, 2014,
in accordance with this section, as amended by the act adding this
subdivision.
SEC. 38. Section 23689 is added to the Revenue and Taxation Code,
to read:
23689. (a) (1) For each taxable year beginning on and after
January 1, 2014, and before January 1, 2025, there shall be allowed
as a credit against the "tax," as defined in Section 23036, an amount
as determined by the committee pursuant to paragraph (2) and
approved pursuant to Section 18410.2.
(2) The amount of credit allocated to a taxpayer for a taxable
year pursuant to this section shall be as set forth in a written
agreement between GO-Biz and the taxpayer and shall be based on the
following factors:
(A) The number of jobs the taxpayer will create or retain in this
state.
(B) The compensation paid or proposed to be paid by the taxpayer
to its employees, including wages and fringe benefits.
(C) The amount of investment in this state by the taxpayer.
(D) The extent of unemployment or poverty in the area according to
the United States Census in which the taxpayer's project or business
is proposed or located.
(E) The incentives available to the taxpayer in the state,
including incentives from the state, local government and other
entities.
(F) The incentives available to the taxpayer in other states.
(G) The duration of the proposed project and the duration the
taxpayer commits to remain in this state.
(H) The overall economic impact in this state of the taxpayer's
project or business.
(I) The strategic importance of the taxpayer's project or business
to the state, region, or locality.
(J) The opportunity for future growth and expansion in this state
by the taxpayer's business.
(K) The extent to which the anticipated benefit to the state
exceeds the projected benefit to the taxpayer from the tax credit.
(3) The written agreement entered into pursuant to paragraph (2)
shall include:
(A) Terms and conditions that include a minimum compensation level
and a minimum job retention period.
(B) Provisions indicating whether the credit is to be allocated in
full upon approval or in increments based on mutually agreed upon
milestones when satisfactorily met by the taxpayer.
(C) Provisions that allow the committee to recapture the credit,
in whole or in part, if the taxpayer fails to fulfill the terms and
conditions of the written agreement.
(b) For purposes of this section:
(1) "Committee" means the California Competes Tax Credit Committee
established pursuant to Section 18410.2.
(2) "GO-Biz" means the Governor's Office of Business and Economic
Development.
(c) For purposes of this section, GO-Biz shall do the following:
(1) Give priority to a taxpayer whose project or business is
located or proposed to be located in an area of high unemployment or
poverty.
(2) Negotiate with a taxpayer the terms and conditions of proposed
written agreements that provide the credit allowed pursuant to this
section to a taxpayer.
(3) Provide the negotiated written agreement to the committee for
its approval pursuant to Section 18410.2.
(4) Inform the Franchise Tax Board of the terms and conditions of
the written agreement upon approval of the written agreement by the
committee.
(5) Inform the Franchise Tax Board of any recapture, in whole or
in part, of a previously allocated credit upon approval of the
recapture by the committee.
(6) Post on its Internet Web site all of the following:
(A) The name of each taxpayer allocated a credit pursuant to this
section.
(B) The estimated amount of the investment by each taxpayer.
(C) The estimated number of jobs created or retained.
(D) The amount of the credit allocated to the taxpayer.
(E) The amount of the credit recaptured from the taxpayer, if
applicable.
(d) For purposes of this section, the Franchise Tax Board shall do
all of the following:
(1) (A) Except as provided in subparagraph (B), review the books
and records of all taxpayers allocated a credit pursuant to this
section to ensure compliance with the terms and conditions of the
written agreement between the taxpayer and GO-Biz.
(B) In the case of a taxpayer that is a "small business," as
defined in Section 23626, review the books and records of the
taxpayer allocated a credit pursuant to this section to ensure
compliance with the terms and conditions of the written agreement
between the taxpayers and GO-Biz when, in the sole discretion of the
Franchise Tax Board, a review of those books and records is
appropriate or necessary in the best interests of the state.
(2) Notwithstanding Section 19542:
(A) Notify GO-Biz of a possible breach of the written agreement by
a taxpayer and provide detailed information regarding the basis for
that determination.
(B) Provide information to GO-Biz with respect to whether a
taxpayer is a "small business," as defined in Section 23626.
(e) In the case where the credit allowed under this section
exceeds the "tax," as defined in Section 23036, for a taxable year,
the excess credit may be carried over to reduce the "tax" in the
following taxable year, and succeeding five taxable years, if
necessary, until the credit has been exhausted.
(f) Any recapture, in whole or in part, of a credit approved by
the committee pursuant to Section 18410.2 shall be treated as a
mathematical error appearing on the return. Any amount of tax
resulting from that recapture shall be assessed by the Franchise Tax
Board in the same manner as provided by Section 19051. The amount of
tax resulting from the recapture shall be added to the tax otherwise
due by the taxpayer for the taxable year in which the committee's
recapture determination occurred.
(g) (1) The aggregate amount of credit that may be allocated in
any fiscal year pursuant to this section and Section 17059.2 shall be
an amount equal to the sum of subparagraphs (A), (B), and (C), less
the amount specified in subparagraph (D):
(A) Thirty million dollars ($30,000,000) for the 2013-14 fiscal
year, one hundred fifty million dollars ($150,000,000) for the
2014-15 fiscal year, and two hundred
million dollars ($200,000,000) for each fiscal year from
2015-16 to 2018-19, inclusive.
(B) The unallocated credit amount, if any, from the preceding
fiscal year.
(C) The amount of any previously allocated credits that have been
recaptured.
(D) The amount estimated by the Director of Finance, in
consultation with the Franchise Tax Board and the State Board of
Equalization, to be necessary to limit the aggregation of the
estimated amount of exemptions claimed pursuant to Section 6377.1 and
of the amounts estimated to be claimed pursuant to this section and
Sections 17053.73, 17059.2, and 23626 to no more than seven hundred
fifty million dollars ($750,000,000) for either the current fiscal
year or for any of the three succeeding fiscal years.
(i) The Director of Finance shall notify the Chairperson of the
Joint Legislative Budget Committee of the estimated annual allocation
authorized by this paragraph. Any allocation pursuant to these
provisions shall be made no sooner than 30 days after written
notification has been provided to the Chairperson of the Joint
Legislative Budget Committee and the chairpersons of the committees
of each house of the Legislature that consider appropriation, or not
sooner than whatever lesser time the Chairperson of the Joint
Legislative Budget Committee, or his or her designee, may determine.
(ii) In no event shall the amount estimated in this subparagraph
be less than zero dollars ($0).
(2) Each fiscal year, 25 percent of the aggregate amount of the
credit that may be allocated pursuant to this section and Section
17059.2 shall be reserved for "small business," as defined in Section
17053.73 or 23626.
(3) Each fiscal year, no more than 20 percent of the aggregate
amount of the credit that shall be allocated pursuant to this section
may be allocated to any one taxpayer.
(h) GO-Biz may prescribe rules and regulations as necessary to
carry out the purposes of this section. Any rule or regulation
prescribed pursuant to this section may be by adoption of an
emergency regulation in accordance with Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code.
(i) (1) A written agreement between GO-Biz and a taxpayer with
respect to the credit authorized by this section shall not restrict,
broaden, or otherwise alter the ability of the taxpayer to assign
that credit or any portion thereof in accordance with Section 23663.
(2) A written agreement between GO-Biz and a taxpayer with respect
to the credit authorized by this section must comply with existing
law on the date the agreement is executed.
(j) (1) Upon the effective date of this section, the Department of
Finance shall estimate the total dollar amount of credits that will
be claimed under this section with respect to each fiscal year from
the 2013-14 fiscal year to the 2024-25 fiscal year, inclusive.
(2) The Franchise Tax Board shall annually provide to the Joint
Legislative Budget Committee, by no later than March 1, a report of
the total dollar amount of the credits claimed under this section
with respect to the relevant fiscal year. The report shall compare
the total dollar amount of credits claimed under this section with
respect to that fiscal year with the department's estimate with
respect to that same fiscal year. If the total dollar amount of
credits claimed for the fiscal year is less than the estimate for
that fiscal year, the report shall identify options for increasing
annual claims of the credit so as to meet estimated amounts.
(k) This section is repealed on December 1, 2025.
SEC. 39. Section 24356.6 of the Revenue and Taxation Code is
amended to read:
24356.6. (a) For each taxable year beginning on or after January
1, 1998, a qualified taxpayer may elect to treat 40 percent of the
cost of any Section 24356.6 property as an expense that is not
chargeable to a capital account. Any cost so treated shall be allowed
as a deduction for the taxable year in which the qualified taxpayer
places the Section 24356.6 property in service.
(b) (1) An election under this section for any taxable year shall
do both of the following:
(A) Specify the items of Section 24356.6 property to which the
election applies and the percentage of the cost of each of those
items that are to be taken into account under subdivision (a).
(B) Be made on the qualified taxpayer's original return of the tax
imposed by this part for the taxable year.
(2) Any election made under this section, and any specification
contained in that election, may not be revoked except with the
consent of the Franchise Tax Board.
(c) (1) For purposes of this section, "Section 24356.6 property"
means any recovery property that is:
(A) Section 1245 property (as defined in Section 1245(a)(3) of the
Internal Revenue Code).
(B) Purchased and placed in service by the qualified taxpayer for
exclusive use in a trade or business conducted within a targeted tax
area designated pursuant to Chapter 12.93 (commencing with Section
7097) of Division 7 of Title 1 of the Government Code.
(C) Purchased and placed in service before the date the targeted
tax area designation expires, is revoked, is no longer binding, or
becomes inoperative.
(2) For purposes of paragraph (1), "purchase" means any
acquisition of property, but only if all of the following apply:
(A) The property is not acquired from a person whose relationship
to the person acquiring it would result in the disallowance of losses
under Section 267 or 707(b) of the Internal Revenue Code. However,
in applying Sections 267(b) and 267(c) for purposes of this section,
Section 267(c)(4) shall be treated as providing that the family of an
individual shall include only the individual's spouse, ancestors,
and lineal descendants.
(B) The property is not acquired by one member of an affiliated
group from another member of the same affiliated group.
(C) The basis of the property in the hands of the person acquiring
it is not determined in whole or in part by reference to the
adjusted basis of that property in the hands of the person from who
it is acquired.
(3) For purposes of this section, the cost of property does not
include that portion of the basis of that property that is determined
by reference to the basis of other property held at any time by the
person acquiring that property.
(4) This section shall not apply to any property for which the
qualified taxpayer may not make an election under Section 179 of the
Internal Revenue Code because of the application of the provisions of
Section 179(d) of the Internal Revenue Code.
(5) For purposes of subdivision (b), both of the following apply:
(A) All members of an affiliated group shall be treated as one
qualified taxpayer.
(B) The qualified taxpayer shall apportion the dollar limitation
contained in subdivision (f) among the members of the affiliated
group in whatever manner the board shall prescribe.
(6) For purposes of paragraphs (2) and (5), "affiliated group"
means "affiliated group" as defined in Section 1504 of the Internal
Revenue Code, except that, for these purposes, the phrase "more than
50 percent" shall be substituted for the phrase "at least 80 percent"
each place it appears in Section 1504(a) of the Internal Revenue
Code.
(d) (1) For purposes of this section, "qualified taxpayer" means a
corporation that meets both of the following:
(A) Is engaged in conducting a trade or business within a targeted
tax area designated pursuant to Chapter 12.93 (commencing with
Section 7097) of Division 7 of Title 1 of the Government Code.
(B) Is engaged in those lines of business described in Codes 2000
to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299, inclusive;
4500 to 4599, inclusive, and 4700 to 5199, inclusive, of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition.
(2) In the case of any pass-through entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any deduction under this section or
Section 17267.6 shall be allowed to the pass-through entity and
passed through to the partners or shareholders in accordance with
applicable provisions of this part or Part 10 (commencing with
Section 17001). For purposes of this subparagraph, the term
"pass-through entity" means any partnership or S corporation.
(e) Any qualified taxpayer who elects to be subject to this
section shall not be entitled to claim additional depreciation
pursuant to Section 24356 with respect to any property that
constitutes Section 24356.6 property. However, the qualified taxpayer
may claim depreciation by any method permitted by Section 24349
commencing with the taxable year following the taxable year in which
Section 24356.6 property is placed in service.
(f) The aggregate cost of all Section 24356.6 property that may be
taken into account under subdivision (a) for any taxable year shall
not exceed the following applicable amount for the taxable year of
the designation of the relevant targeted tax area and taxable years
thereafter:
The applicable
amount is:
Taxable year of designation .... $100,000
1st taxable year thereafter .... 100,000
2nd taxable year thereafter .... 75,000
3rd taxable year thereafter .... 75,000
Each taxable year thereafter ... 50,000
(g) Any amounts deducted under subdivision (a) with respect to
Section 24356.6 property that ceases to be used in the qualified
taxpayer's trade or business within a targeted tax area at any time
before the close of the second taxable year after the property is
placed in service shall be included in income in the taxable year in
which the property ceases to be so used.
(h) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 40. Section 24356.7 of the Revenue and Taxation Code is
amended to read:
24356.7. (a) A taxpayer may elect to treat 40 percent of the cost
of any Section 24356.7 property as an expense that is not chargeable
to a capital account. Any cost so treated shall be allowed as a
deduction for the taxable year in which the taxpayer places the
Section 24356.7 property in service.
(b) (1) An election under this section for any taxable year shall
do both of the following:
(A) Specify the items of Section 24356.7 property to which the
election applies and the percentage of the cost of each of those
items that are to be taken into account under subdivision (a).
(B) Be made on the taxpayer's original return of the tax imposed
by this part for the taxable year.
(2) Any election made under this section, and any specification
contained in that election, may not be revoked except with the
consent of the Franchise Tax Board.
(c) (1) For purposes of this section, "Section 24356.7 property"
means any recovery property that is:
(A) Section 1245 property (as defined in Section 1245(a)(3) of the
Internal Revenue Code).
(B) Purchased and placed in service by the taxpayer for exclusive
use in a trade or business conducted within an enterprise zone
designated pursuant to Chapter 12.8 (commencing with Section 7070) of
Division 7 of Title 1 of the Government Code.
(C) Purchased and placed in service before the date the enterprise
zone designation expires, is no longer binding, or becomes
inoperative.
(2) For purposes of paragraph (1), "purchase" means any
acquisition of property, but only if all of the following apply:
(A) The property is not acquired from a person whose relationship
to the person acquiring it would result in the disallowance of losses
under Sections 24427 through 24429. However, in applying Sections
24428 and 24429 for purposes of this section, subdivision (d) of
Section 24429 shall be treated as providing that the family of an
individual shall include only his or her spouse, ancestors, and
lineal descendants.
(B) The property is not acquired by one member of an affiliated
group from another member of the same affiliated group.
(C) The basis of the property in the hands of the person acquiring
it is not determined in whole or in part by reference to the
adjusted basis of that property in the hands of the person from whom
it is acquired.
(3) For purposes of this section, the cost of property does not
include that portion of the basis of that property that is determined
by reference to the basis of other property held at any time by the
person acquiring that property.
(4) This section shall not apply to any property for which the
taxpayer could not make a federal election under Section 179 of the
Internal Revenue Code because of the application of the provisions of
Section 179(d) of the Internal Revenue Code.
(5) For purposes of subdivision (b) of this section, both of the
following apply:
(A) All members of an affiliated group shall be treated as one
taxpayer.
(B) The taxpayer shall apportion the dollar limitation contained
in subdivision (f) among the members of the affiliated group in
whatever manner the board shall prescribe.
(6) For purposes of paragraphs (2) and (5), "affiliated group"
means "affiliated group" as defined in Section 1504 of the Internal
Revenue Code, except that, for these purposes, the phrase "more than
50 percent" shall be substituted for the phrase "at least 80 percent"
each place it appears in Section 1504(a) of the Internal Revenue
Code.
(d) For purposes of this section, "taxpayer" means a bank or
corporation that conducts a trade or business within an enterprise
zone designated pursuant to Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code.
(e) Any taxpayer who elects to be subject to this section shall
not be entitled to claim additional depreciation pursuant to Section
24356 with respect to any property that constitutes Section 24356.7
property. However, the taxpayer may claim depreciation by any method
permitted by Section 24349 commencing with the taxable year following
the taxable year in which Section 24356.7 property is placed in
service.
(f) The aggregate cost of all Section 24356.7 property that may be
taken into account under subdivision (a) for any taxable years shall
not exceed the following applicable amount for the taxable year of
the designation of the relevant enterprise zone and taxable years
thereafter:
The applicable
amount is:
Taxable year of designation .... $100,000
1st taxable year thereafter .... 100,000
2nd taxable year thereafter .... 75,000
3rd taxable year thereafter .... 75,000
Each taxable year thereafter ... 50,000
(g) Any amounts deducted under subdivision (a) with respect to
Section 24356.7 property that ceases to be used in the taxpayer's
trade or business within an enterprise zone at any time before the
close of the second taxable year after the property is placed in
service shall be included in income in the taxable year in which the
property ceases to be so used.
(h) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 41. Section 24356.8 of the Revenue and Taxation Code is
amended to read:
24356.8. (a) For each taxable year beginning on or after January
1, 1995, a taxpayer may elect to treat 40 percent of the cost of any
Section 24356.8 property as an expense that is not chargeable to the
capital account. Any cost so treated shall be allowed as a deduction
for the taxable year in which the taxpayer places the Section 24356.8
property in service.
(b) (1) An election under this section for any taxable year shall
meet both of the following requirements:
(A) Specify the items of Section 24356.8 property to which the
election applies and the portion of the cost of each of those items
that is to be taken into account under subdivision (a).
(B) Be made on the taxpayer's return of the tax imposed by this
part for the taxable year.
(2) Any election made under this section, and any specification
contained in that election, may not be revoked except with the
consent of the Franchise Tax Board.
(c) (1) For purposes of this section, "Section 24356.8 property"
means any recovery property that is:
(A) Section 1245 property (as defined in Section 1245(a)(3) of the
Internal Revenue Code).
(B) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA.
(C) Purchased before the date the LAMBRA designation expires, is
no longer binding, or becomes inoperative.
(2) For purposes of paragraph (1), "purchase" means any
acquisition of property, but only if all of the following apply:
(A) The property is not acquired from a person whose relationship
to the person acquiring it would result in the disallowance of losses
under Section 267 or 707(b) of the Internal Revenue Code (but, in
applying Sections 267(b) and 267(c) of the Internal Revenue Code for
purposes of this section, Section 267(c)(4) of the Internal Revenue
Code shall be treated as providing that the family of an individual
shall include only his or her spouse, ancestors, and lineal
descendants).
(B) The property is not acquired by one component member of an
affiliated group from another component member of the same affiliated
group.
(C) The basis of the property in the hands of the person acquiring
it is not determined in whole or in part by reference to the
adjusted basis of that property in the hands of the person from whom
acquired.
(3) For purposes of this section, the cost of property does not
include so much of the basis of that property as is determined by
reference to the basis of other property held at any time by the
person acquiring that property.
(4) This section shall not apply to any property for which the
taxpayer may not make an election for the taxable year under Section
179 of the Internal Revenue Code because of the provisions of Section
179(d) of the Internal Revenue Code.
(5) For purposes of subdivision (b), both of the following apply:
(A) All members of an affiliated group shall be treated as one
taxpayer.
(B) The taxpayer shall apportion the dollar limitation contained
in subdivision (f) among the component members of the affiliated
group in whatever manner the board shall by regulations prescribe.
(6) For purposes of paragraphs (2) and (5), "affiliated group" has
the meaning assigned to it by Section 1504 of the Internal Revenue
Code, except that, for these purposes, the phrase "more than 50
percent" shall be substituted for the phrase "at least 80 percent"
each place it appears in Section 1504(a) of the Internal Revenue
Code.
(7) This section shall not apply to any property described in
Section 168(f) of the Internal Revenue Code.
(8) In the case of an S corporation, the dollar limitation
contained in subdivision (f) shall be applied at the entity level and
at the shareholder level.
(d) For purposes of this section:
(1) "LAMBRA" means a local agency military base recovery area
designated in accordance with the provisions of Section 7114 of the
Government Code.
(2) "Taxpayer" means a corporation that conducts a trade or
business within a LAMBRA and, for the first two taxable years, has a
net increase in jobs (defined as 2,000 paid hours per employee per
year) of one or more employees in the LAMBRA.
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA. For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero. If the
taxpayer has a net increase in jobs in the state, the credit shall be
allowed only if one or more full-time employees is employed within
the LAMBRA.
(B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
(i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
(ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
(C) In the case of a taxpayer that first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B), the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is
the number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
(e) Any taxpayer who elects to be subject to this section shall
not be entitled to claim additional depreciation pursuant to Section
24356 with respect to any property that constitutes Section 24356.8
property.
(f) The aggregate cost of all Section 24356.8 property that may be
taken into account under subdivision (a) for any taxable year shall
not exceed the following applicable amounts for the taxable year of
the designation of the relevant LAMBRA and taxable years thereafter:
The
applicable
amount is:
Taxable year of $100,000
designation ....................
1st taxable year thereafter .... 100,000
2nd taxable year thereafter .... 75,000
3rd taxable year thereafter .... 75,000
Each taxable year thereafter ... 50,000
(g) This section shall apply only to property that is used
exclusively in a trade or business conducted within a LAMBRA.
(h) (1) Any amounts deducted under subdivision (a) with respect to
property that ceases to be used in the trade or business within a
LAMBRA at any time before the close of the second taxable year after
the property was placed in service shall be included in income for
that year.
(2) At the close of the second taxable year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(2) of subdivision (d), then the amount of the deduction previously
claimed shall be added to the taxpayer's net income for the taxpayer'
s second taxable year.
(i) Any taxpayer who elects to be subject to this section shall
not be entitled to claim for the same property the deduction under
Section 179 of the Internal Revenue Code, relating to an election to
expense certain depreciable business assets.
(j) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 42. Section 24384.5 of the Revenue and Taxation Code is
amended to read:
24384.5. (a) There shall be allowed as a deduction the amount of
net interest received by the taxpayer before January 1, 2014, in
payment of indebtedness of a person or entity engaged in a trade or
business located in an enterprise zone.
(b) A deduction shall not be allowed under this section unless at
the time the indebtedness is incurred each of the following
requirements are met:
(1) The trade or business is located solely within an enterprise
zone.
(2) The indebtedness is incurred solely in connection with
activity within the enterprise zone.
(3) The taxpayer has no equity or other ownership interest in the
debtor.
(c) "Enterprise zone" means an area designated as an enterprise
zone pursuant to Chapter 12.8 (commencing with Section 7070) of
Division 7 of Title 1 of the Government Code.
(d) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 43. Section 24416.2 of the Revenue and Taxation Code is
amended to read:
24416.2. (a) The term "qualified taxpayer" as used in Section
24416.1 includes a corporation engaged in the conduct of a trade or
business within an enterprise zone designated pursuant to Chapter
12.8 (commencing with Section 7070) of Division 7 of Title 1 of the
Government Code. For purposes of this subdivision, all of the
following shall apply:
(1) A net operating loss shall not be a net operating loss
carryback for any taxable year and a net operating loss for any
taxable year beginning on or after the date that the area in which
the taxpayer conducts a trade or business is designated as an
enterprise zone shall be a net operating loss carryover to each of
the 15 taxable years following the taxable year of loss.
(2) For purposes of this subdivision:
(A) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's business activities within the
enterprise zone (as defined in Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code) prior to the
enterprise zone expiration date. That attributable loss shall be
determined in accordance with Chapter 17 (commencing with Section
25101), modified for purposes of this subdivision as follows:
(i) Loss shall be apportioned to the enterprise zone by
multiplying total loss from the business by a fraction, the numerator
of which is the property factor plus the payroll factor, and the
denominator of which is two.
(ii) "The enterprise zone" shall be substituted for "this state."
(B) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to the
enterprise zone as defined in Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code.
(C) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the enterprise zone
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this subdivision as follows:
(i) Business income
shall be apportioned to the enterprise zone by multiplying the total
California business income of the taxpayer by a fraction, the
numerator of which is the property factor plus the payroll factor,
and the denominator of which is two. For purposes of this clause:
(I) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the enterprise zone during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(II) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the enterprise zone during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(ii) If a loss carryover is allowable pursuant to this section for
any taxable year after the enterprise zone designation has expired,
the enterprise zone shall be deemed to remain in existence for
purposes of computing the limitation set forth in subparagraph (B)
and allowing a net operating loss deduction.
(D) "Enterprise zone expiration date" means the date the
enterprise zone designation expires, is no longer binding, or becomes
inoperative.
(3) The changes made to this subdivision by the act adding this
paragraph shall apply to taxable years beginning on or after January
1, 1998.
(b) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the taxable year of the net operating
loss and any taxable year to which that net operating loss may be
carried, designate on the original return filed for each year the
section which applies to that taxpayer with respect to that net
operating loss. If the taxpayer is eligible to qualify under more
than one section, the designation is to be made after taking into
account subdivision (c).
(c) If a taxpayer is eligible to qualify under this section and
either Section 24416.4, 24416.5, or 24416.6 as a "qualified taxpayer,"
with respect to a net operating loss in a taxable year, the taxpayer
shall designate which section is to apply to the taxpayer.
(d) Notwithstanding Section 24416, the amount of the loss
determined under this section, or Section 24416.4, 24416.5, or
24416.6 shall be the only net operating loss allowed to be carried
over from that taxable year and the designation under subdivision (b)
shall be included in the election under Section 24416.1.
(e) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 44. Section 24416.5 of the Revenue and Taxation Code is
amended to read:
24416.5. (a) For each taxable year beginning on or after January
1, 1995, the term "qualified taxpayer" as used in Section 24416.1
includes a taxpayer engaged in the conduct of a trade or business
within a LAMBRA. For purposes of this subdivision, all of the
following shall apply:
(1) A net operating loss shall not be a net operating loss
carryback for any taxable year and, except as provided in
subparagraph (B), a net operating loss for any taxable year beginning
on or after the date the area in which the taxpayer conducts a trade
or business is designated a LAMBRA shall be a net operating loss
carryover to each following taxable year that ends before the LAMBRA
expiration date or to each of the 15 taxable years following the
taxable year of loss, if longer.
(2) In the case of a financial institution to which Section 585,
586, or 593 of the Internal Revenue Code applies, a net operating
loss for any taxable year beginning on or after January 1, 1984,
shall be a net operating loss carryover to each of the five years
following the taxable year of the loss. Subdivision (b) of Section
24416.1 shall not apply.
(3) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
(4) "Taxpayer" means a bank or corporation that conducts a trade
or business within a LAMBRA and, for the first two taxable years, has
a net increase in jobs (defined as 2,000 paid hours per employee per
year) of one or more employees in the LAMBRA and this state. For
purposes of this paragraph, all of the following shall apply:
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA. For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero. The
deduction shall be allowed only if the taxpayer has a net increase in
jobs in the state, and if one or more full-time employees are
employed within the LAMBRA.
(B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
(i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
(ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
(C) In the case of a taxpayer that first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B) the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is the
number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
(5) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's business activities within a LAMBRA
prior to the LAMBRA expiration date. The attributable loss shall be
determined in accordance with Chapter 17 (commencing with Section
25101), modified for purposes of this section as follows:
(A) Loss shall be apportioned to a LAMBRA by multiplying total
loss from the business by a fraction, the numerator of which is the
property factor plus the payroll factor, and the denominator of which
is 2.
(B) "The LAMBRA" shall be substituted for "this state."
(6) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to a LAMBRA.
(7) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income attributable to
sources in this state first shall be determined in accordance with
Chapter 17 (commencing with Section 25101). That business income
shall be further apportioned to the LAMBRA in accordance with Article
2 (commencing with Section 25120) of Chapter 17, modified as
follows:
(A) Business income shall be apportioned to a LAMBRA by
multiplying total California business income of the taxpayer by a
fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this clause:
(i) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the LAMBRA during the taxable
year, and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the taxable year.
(ii) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA during the
taxable year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
taxable year.
(B) If a loss carryover is allowable pursuant to this section for
any taxable year after the LAMBRA designation has expired, the LAMBRA
shall be deemed to remain in existence for purposes of computing the
limitation specified in subparagraph (D) and allowing a net
operating loss deduction.
(8) "LAMBRA expiration date" means the date the LAMBRA designation
expires, is no longer binding, or becomes inoperative pursuant to
Section 7110 of the Government Code.
(b) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the taxable year of the net operating
loss and any taxable year to which that net operating loss may be
carried, designate on the original return filed for each year the
section that applies to that taxpayer with respect to that net
operating loss. If the taxpayer is eligible to qualify under more
than one section, the designation is to be made after taking into
account subdivision (c).
(c) If a taxpayer is eligible to qualify under this section and
either Section 24416.2, 24416.4, or 24416.6 as a "qualified taxpayer,"
with respect to a net operating loss in a taxable year, the taxpayer
shall designate which section is to apply to the taxpayer.
(d) Notwithstanding Section 24416, the amount of the loss
determined under this section or Section 24416.2, 24416.4, or 24416.6
shall be the only net operating loss allowed to be carried over from
that taxable year and the designation under subdivision (b) shall be
included in the election under Section 24416.1.
(e) This section shall apply to taxable years beginning on and
after January 1, 1998.
(f) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 45. Section 24416.6 of the Revenue and Taxation Code is
amended to read:
24416.6. (a) For each taxable year beginning on or after January
1, 1998, the term "qualified taxpayer" as used in Section 24416.1
includes a corporation that meets both of the following:
(1) Is engaged in the conduct of a trade or business within a
targeted tax area designated pursuant to Chapter 12.93 (commencing
with Section 7097) of Division 7 of Title 1 of the Government Code.
(2) Is engaged in those lines of business described in Codes 2000
to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299, inclusive;
4500 to 4599, inclusive; and 4700 to 5199, inclusive, of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition. In the
case of any pass-through entity, the determination of whether a
taxpayer is a qualified taxpayer shall be made at the entity level.
(b) For purposes of subdivision (a), all of the following shall
apply:
(1) A net operating loss shall not be a net operating loss
carryback for any taxable year and a net operating loss for any
taxable year beginning on or after the date that the area in which
the qualified taxpayer conducts a trade or business is designated as
a targeted tax area shall be a net operating loss carryover to each
of the 15 taxable years following the taxable year of loss.
(2) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the qualified taxpayer's business activities within
the targeted tax area (as defined in Chapter 12.93 (commencing with
Section 7097) of Division 7 of Title 1 of the Government Code) prior
to the targeted tax area expiration date. That attributable loss
shall be determined in accordance with Chapter 17 (commencing with
Section 25101), modified for purposes of this section as follows:
(A) Loss shall be apportioned to the targeted tax area by
multiplying total loss from the business by a fraction, the numerator
of which is the property factor plus the payroll factor, and the
denominator of which is 2.
(B) "The targeted tax area" shall be substituted for "this state."
(3) A net operating loss carryover shall be a deduction only with
respect to the qualified taxpayer's business income attributable to
the targeted tax area as defined in Chapter 12.93 (commencing with
Section 7097) of Division 7 of Title 1 of the Government Code.
(4) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the targeted
tax area. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the targeted tax area
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this subdivision as follows:
(A) Business income shall be apportioned to the targeted tax area
by multiplying the total California business income of the taxpayer
by a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this clause:
(i) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the targeted tax area during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(ii) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the targeted tax area during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(B) If a loss carryover is allowable pursuant to this subdivision
for any taxable year after the targeted tax area expiration date, the
targeted tax area designation shall be deemed to remain in existence
for purposes of computing the limitation specified in subparagraph
(B) and allowing a net operating loss deduction.
(5) "Targeted tax area expiration date" means the date the
targeted tax area designation expires, is revoked, is no longer
binding, or becomes inoperative.
(c) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the taxable year of the net operating
loss and any taxable year to which that net operating loss may be
carried, designate on the original return filed for each year the
section that applies to that taxpayer with respect to that net
operating loss. If the taxpayer is eligible to qualify under more
than one section, the designation is to be made after taking into
account subdivision (e).
(d) If a taxpayer is eligible to qualify under this section and
either Section 24416.2, 24416.4, or 24416.5 as a "qualified taxpayer,"
with respect to a net operating loss in a taxable year, the taxpayer
shall designate which section is to apply to the taxpayer.
(e) Notwithstanding Section 24416, the amount of the loss
determined under this section or Section 24416.2, 24416.4, or 24416.5
shall be the only net operating loss allowed to be carried over from
that taxable year and the designation under subdivision (c) shall be
included in the election under Section 24416.1.
(f) This section shall apply to taxable years beginning on or
after January 1, 1998.
(g) This section shall cease to be operative for taxable years
beginning on or after January 1, 2014, and shall be repealed on
December 1, 2014.
SEC. 46. There is hereby appropriated up to six hundred thousand
dollars ($600,000) from the General Fund for allocation to the
committee and departments that are required to administer this act by
the Director of Finance in furtherance of the objectives of this
act. An allocation of funds approved by the Director of Finance under
this item shall become effective no sooner than 30 days after the
director files written notification thereof with the Chairperson of
the Joint Legislative Budget Committee and the chairpersons of the
fiscal committees in each house of the Legislature, or no sooner than
any lesser time the chairperson of the joint committee, or his or
her designee, may in each instance determine.
SEC. 47. (a) Sections 6377.1, 17053.73, 17059.2, 18410.2, 23636,
and 23689 of the Revenue and Taxation Code, added by this act, should
not remain effective and operative if the repeal of Sections
17053.33, 17053.34, 17053.45, 17053.46, 17053.47, 17053.70, 17053.74,
17053.75, 17053.80, 17235, 17267.2, 17267.6, 17268, 17276.2,
17276.5, 17276.6, 19136.8, 23612.2, 23622.7, 23622.8, 23623, 23633,
23634, 23645, 23646, 24356.6, 24356.7, 24356.8, 24384.5, 24416.2,
24416.5, and 24416.6, as provided for in this act, is determined by a
court to be invalid and, as a result, those sections remain
effective and operative.
(b) The provisions of Sections 17059.2 and 23689 are severable. If
any provision of Section 17059.2 or Section 23689, or the
application of either section, is held invalid, that invalidity shall
not affect other provisions or applications that can be given effect
without the invalid provision or application.
SEC. 48. This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:
In order to ensure the public good by providing certainty
regarding the incentives available for attracting and retaining jobs
in economically distressed areas of the state, it is necessary that
this act take effect immediately.
