Bill Text: CA SB116 | 2011-2012 | Regular Session | Amended
Bill Title: Income taxes: exclusions: deductions: sales: single
Spectrum: Partisan Bill (Democrat 5-0)
Status: (Introduced - Dead) 2011-09-10 - Read third time. Refused passage. (Ayes 22. Noes 15. Page 2487.) [SB116 Detail]
Download: California-2011-SB116-Amended.html
BILL NUMBER: SB 116 AMENDED
BILL TEXT
AMENDED IN SENATE SEPTEMBER 9, 2011
AMENDED IN SENATE SEPTEMBER 2, 2011
AMENDED IN SENATE AUGUST 29, 2011
AMENDED IN SENATE AUGUST 18, 2011
AMENDED IN SENATE JULY 7, 2011
AMENDED IN SENATE FEBRUARY 23, 2011
INTRODUCED BY Senators De León and Steinberg
( Principal coauthor: Senator
Alquist )
( Coauthors: Senators
Hernandez and Price )
JANUARY 19, 2011
An act to amend Sections 23101 and 25128 of, to amend and
repeal Sections 25128.5 and 25136 of, to add Sections 6377, 25128.7,
25136.1, and 25136.2 to, and to repeal and amend Sections 17053.80
and 23623 of, the Revenue and Taxation Code, relating to taxation,
and declaring the urgency thereof, to take effect immediately.
An act to amend Sections 17062, 23101, 23151, 23153,
and 25128 of, to amend and repeal Section 25128.5 of, to amend,
repeal, and add Sections 17073.5 and 25136 of, and to add Sections
6377, 17137, 25128.7, and 25136.1 to, the Revenue and Taxation Code,
relating to taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 116, as amended, De León. Income taxes: hiring credit:
single sales factor: sales and use taxes: manufacturing exemption.
exclusions: deductions: sales: single sales factor:
sales and use taxes: manufacturing exemption.
(1) The Sales and Use Tax Law imposes a tax on retailers measured
by the gross receipts from the sale of tangible personal property
sold at retail in this state, or on the storage, use, or other
consumption in this state of tangible personal property purchased
from a retailer for storage, use, or other consumption in this state.
That law provides various exemptions from those taxes.
On and after March 1, 2012, this bill would provide partial
exemptions equal to specified percentages of state sales and use
taxes imposed at a combined rate of 5% for the sale of, and the
storage, use, or other consumption in this state of, tangible
personal property, as defined, purchased for use by a qualified
person, as defined, primarily in any stage of manufacturing,
processing, refining, fabricating, or recycling of tangible personal
property; in research and development; to maintain, repair, measure,
or test specified tangible personal property; and by a contractor for
use in a construction contract with a qualified person, as
specified. The bill would require the Franchise Tax Board and the
State Board of Equalization to provide specified information to the
Director of Finance and would require the director to make certain
determinations regarding whether this act has caused or will cause a
net increase or decrease in the amount of revenues and to
correspondingly increase or decrease the exemption to certain
taxpayers that received only a limited exemption, 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
accordance 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 in these laws.
This bill would specify that this exemption does not apply to
local sales and use taxes and transactions and use taxes.
(2) The Personal Income Tax Law imposes taxes based upon taxable
income. That law also allows specified credits, exemptions, and
exclusions, and imposes an alternative minimum tax with respect to
certain items of tax preferences.
This bill would, for taxable years beginning on or after January
1, 2012, exclude from taxable income under this law an amount equal
to 10% of the business income of a taxpayer, not to exceed $5,000, as
specified, but would require the amount excluded to be included as
an item of tax preferences for purposes of the alternative minimum
tax.
(3) The Personal Income Tax Law allows a standard deduction, as
defined, in computing the income subject to tax.
This bill would, for taxable years beginning on or after January
1, 2012, increase the standard deduction by 27%, as specified.
(4) The Corporation Tax Law imposes taxes measured by income at a
rate of 8.84%, as specified. The Corporation Tax Law imposes a
minimum franchise tax of $800, except as provided, on every
corporation incorporated in this state, qualified to transact
intrastate business in this state, or doing business in this state,
and a tax in an amount equal to the minimum franchise tax on every
limited liability company registered, qualified to transact business,
or doing business in this state, as specified.
This bill would, for taxable years beginning on and after January
1, 2012, reduce that rate to 8.34% on the amount of net income that
is less than or equal to $50,000 for the taxable year, except as
specified. The bill would reduce the annual minimum franchise tax to
$750 for taxable years beginning on or after January 1, 2012.
(5) The Corporation Tax Law imposes taxes measured by income and,
in the case of a business with income derived from or attributable to
sources both within and without this state, apportions the income
between this state and other states and foreign countries in
accordance with a specified 4-factor formula based on the property,
payroll, and sales within and without this state, except that in the
case of an apportioning trade or business that derives more than 50%
of its gross business receipts from conducting one or more qualified
business activities, as defined, business income is apportioned in
accordance with a specified 3-factor formula. That law, for taxable
years beginning on or after January 1, 2011, allows a taxpayer to
have that income apportioned in accordance with a single sales factor
formula, except as provided, pursuant to an irrevocable annual
election, as specified. That law also provides that sales of tangible
and intangible personal property are in this state in accordance
with specified criteria.
This bill would, for taxable years beginning on or after January
1, 2012, revise the rules which determine whether a taxpayer is doing
business within this state, revise the provisions which determine
whether specific sales occur in this state, and require a taxpayer,
except as provided, to apportion its income in accordance with a
single sales factor.
(6) This bill would include a change in state statute that would
result in a taxpayer paying a higher tax the meaning of Section 3 of
Article XIII A of the California Constitution, and thus would require
for passage the approval of 2/3 of the membership of each house of
the Legislature.
(7) The California Constitution authorizes the Governor to declare
a fiscal emergency and to call the Legislature into special session
for that purpose. Governor Schwarzenegger issued a proclamation
declaring a fiscal emergency, and calling a special session for this
purpose, on December 6, 2010. Governor Brown issued a proclamation on
January 20, 2011, declaring and reaffirming that a fiscal emergency
exists and stating that his proclamation supersedes the earlier
proclamation for purposes of that constitutional provision.
This bill would state that it addresses the fiscal emergency
declared and reaffirmed by the Governor by proclamation issued on
January 20, 2011, pursuant to the California Constitution.
(8) This bill would take effect immediately as a tax levy.
(1) The Corporation Tax Law imposes taxes measured by income and,
in the case of a business with income derived from or attributable to
sources both within and without this state, apportions the business
income between this state and other states and foreign countries in
accordance with a specified 4-factor formula based on the property,
payroll, and sales within and without this state, except that in the
case of an apportioning trade or business that derives more than 50%
of its gross business receipts from conducting one or more qualified
business activities, as defined, business income is apportioned in
accordance with a specified 3-factor formula. Existing law, for
taxable years beginning on or after January 1, 2011, authorizes a
taxpayer required to apportion its business income in accordance with
the 4-factor formula to make an annual election to have that
business income apportioned in accordance with a single sales factor
formula. That law also provides that sales of tangible and intangible
personal property are in the state in accordance with specified
criteria.
This bill would, for taxable years beginning on or after January
1, 2012, revise the rules that determine whether a taxpayer is doing
business within this state, revise the provisions that determine
whether specified sales occur in this state, and require a taxpayer,
except as provided, to apportion its income in accordance with a
single sales factor.
(2) The Personal Income Tax Law and the Corporation Tax Law
authorize various credits against the taxes imposed by those laws,
including a credit for taxable years beginning on or after January 1,
2009, in the amount of $3,000 for each net increase in full-time
employees hired by a qualified employer. Those laws define "qualified
employer" as a taxpayer that employed 20 or fewer employees as of
the last day of the preceding taxable year.
This bill, under both laws, for taxable years beginning on or
after January 1, 2012, would increase the amount of the credit to
$4,000 for each net increase in full-time employees hired by a
qualified employer that employs 50 or fewer employees, as of the last
day of the preceding taxable year. This bill would not apply the
credit to taxable years beginning on or after January 1, 2014.
(3) The Sales and Use Tax Law imposes a tax on retailers measured
by the gross receipts from the sale of tangible personal property
sold at retail in this state, or on the storage, use, or other
consumption in this state of tangible personal property purchased
from a retailer for storage, use, or other consumption in this state.
That law provides various exemptions from those taxes.
On and after January 1, 2012, this bill would provide partial
exemptions equal to specified percentages of state sales and use
taxes imposed at a combined rate of 5% for the sale of, and the
storage, use, or other consumption in this state, of tangible
personal property, as defined, purchased for use by a qualified
person, as defined, primarily in any stage of manufacturing,
processing, refining, fabricating, or recycling of tangible personal
property; in research and development; to maintain, repair, measure,
or test specified tangible personal property; and by a contractor for
use in a construction contract with a qualified person, 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
accordance 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 in these laws.
This bill would specify that this exemption does not apply to
local sales and use taxes and transactions and use taxes.
(4) This bill would declare that it is to take effect immediately
as an urgency statute.
Vote: 2/3. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 6377 is added to the
Revenue and Taxation Code , to read:
6377. (a) (1) Except as provided in subdivision (e), on and after
March 1, 2012, there are exempted from 783/4 percent of the taxes
imposed by Sections 6051, 6051.3, 6201, and 6201.3 the gross receipts
from the sale of, and the storage, use, or other consumption in this
state of, any of the following:
(A) 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 the tangible personal property
to its completed form, including packaging, if required.
(B) Tangible personal property purchased for use by a qualified
person to be used primarily in research and development.
(C) Tangible personal property purchased for use by a qualified
person to be used primarily to maintain, repair, measure, or test any
tangible personal property described in subparagraph (A) or (B).
(D) Tangible personal property purchased by a contractor for use
in the performance of a construction contract for a qualified person
that will use the tangible personal 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 the manufacturing process.
(2) The exemption established by this section shall not apply to
the gross receipts from the sale of, or the storage, use, or other
consumption of, any of the following:
(A) Tangible personal property that is used primarily in
administration, general management, or marketing.
(B) Consumables with a useful life of less than one year.
(C) Furniture, inventory, equipment used in the extraction
process, or equipment used to store finished products that have
completed the manufacturing process.
(b) For purposes of this section:
(1) "Acquire" includes any gift, inheritance, transfer incident to
divorce, or any other transfer, whether or not for consideration.
(2) "Fabricating" means to make, build, create, produce, or
assemble components of tangible personal property to work in a new or
different manner.
(3) "Manufacturing" means the activity of converting or
conditioning tangible personal property by changing the form,
composition, quality, or character of the tangible personal 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
tangible personal property. Manufacturing includes the generation of
electricity.
(4) "Primarily" means 50 percent or more of the time. For purposes
of subdivision (a), "primarily" means tangible personal property
used 50 percent or more of the time in an activity described in
subdivision (a).
(5) "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.
(6) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
tangible personal property.
(7) "Qualified person" means a person that is either of the
following:
(A) A new trade or business that is primarily engaged in those
lines of business classified in Industry Groups 3111 to 3399,
inclusive, Industry Group 5112, NAICS Industry 221119, or NAICS
Industry 541711 of the North American Industry Classification System
(NAICS) published by the United States Office of Management and
Budget (OMB), 2007 edition. In determining whether a trade or
business activity qualifies as a new trade or business, the following
rules shall apply:
(i) In any case where a person purchases or otherwise acquires all
or any portion of the assets of an existing trade or business
(irrespective of the form of entity) that is doing business in this
state (within the meaning of Chapter 2 (commencing with Section
23101) of Part 11), the trade or business thereafter conducted by
that person (or any related person) shall not be treated as a new
business if the aggregate fair market value of the acquired assets
(including, real, personal, tangible, and intangible property) used
by that person (or any related person) in the conduct of its trade or
business exceeds 20 percent of the aggregate fair market value of
the total assets of the trade or business being conducted by the
person (or any related person). For purposes of this subparagraph
only, the following rules shall apply:
(I) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the month following the quarterly period in which the person (or
any related person) first uses any of the acquired trade or business
assets in its business activity.
(II) Any acquired assets that constituted property described in
Section 1221(a) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(a) of the Internal Revenue Code in the
hands of the acquiring person (or related person).
(ii) In any case where a person (or any related person) is engaged
in one or more trade or business activities in this state, or has
been engaged in one or more trade or business activities in this
state within the preceding 36 months (prior trade or business
activity), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different Industry Group
(4-digit) of the NAICS published by the United States OMB, 2007
edition, than are any of the person's (or any related person's)
current or prior trade or business activities in this state.
(iii) In any case where a person, including all related persons,
is engaged in trade or business activities wholly outside of this
state and that person first commences doing business in this state
(within the meaning of Chapter 2 (commencing with Section 23101) of
Part 11) on or after March 1, 2012, (other than by purchase or other
acquisition described in clause (i)), the trade or business activity
shall be treated as a new business.
(iv) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
person as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
clause (i).
(v) A qualified person shall not be regarded as a new trade or
business when the qualified person has conducted business activities
in a new trade or business for 36 months or more.
(B) A trade or business, other than a new trade or business
described in subparagraph (A), that is primarily engaged in those
lines of business classified in Industry Groups 3111 to 3399,
inclusive, Industry Group 5112, NAICS Industry 221119, or NAICS
Industry 541711 of the NAICS published by the United States OMB, 2007
edition.
(8) "Qualified person" shall not include a person that is a member
of a combined reporting group that is required to apportion its
income pursuant to subdivision (b) of Section 25128 as that section
read on January 1, 2011. For purposes of this paragraph, a person is
a member of a combined reporting group if its tax liability or net
income for purposes of Part 11 (commencing with Section 23001) is
determined by a combined report pursuant to Section 25101 or 25110,
or is an entity included in the combined report. For purposes of the
preceding sentence, "member" has the same meaning as that term is
defined in paragraph (10) of subdivision (b) of Section 25106.5 of
Title 18 of the California Code of Regulations as that paragraph read
on January 1, 2011, and "combined reporting group" has the same
meaning as that term is defined in paragraph (3) of subdivision (b)
of Section 25106.5 of Title 18 of the California Code of Regulations
as that paragraph read on January 1, 2011.
(9) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
(10) "Related person" means any person that is related to another
person under either Section 267 or 318 of the Internal Revenue Code.
(11) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
(12) "Tangible personal property" includes, but is not limited to,
all of the following:
(A) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.
(B) All equipment or devices used or required to operate, control,
regulate, or maintain the machinery, including, without limitation,
computers, data processing equipment, and computer software, together
with all repair and replacement parts with a useful life of one or
more years 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
person.
(C) Tangible personal property used in pollution control that
meets or exceeds standards established by this state or any local or
regional governmental agency within this state.
(D) Special purpose buildings and foundations used as an integral
part of the manufacturing, processing, refining, or fabricating
process, or that constitute a research or storage facility used
during the manufacturing process. Buildings used solely for
warehousing purposes after completion of the manufacturing process
are not included.
(E) Tangible personal property used in recycling.
(13) "Useful life" for tangible personal property that a qualified
person treats 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 a qualified person treats 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. The exemption certificate shall contain
the sales price of the tangible personal property, the sale of, or
the storage, use, or other consumption of which is exempt pursuant to
subdivision (a) and shall be furnished to the board upon request.
(d) Notwithstanding subdivision (a), the exemption established by
this section shall not apply with respect to any tax levied by a
county, city, city and county, or district pursuant to, or in
accordance with, the Bradley-Burns Uniform Local Sales and Use Tax
Law (Part 1.5 (commencing with Section 7200)) or the Transactions and
Use Tax Law (Part 1.6 (commencing with Section 7251)).
(e) Notwithstanding subdivision (a), on and after March 1, 2012,
for a qualified person described in subparagraph (B) of paragraph (7)
of subdivision (b), or for a contractor performing a construction
contract as described in subparagraph (D) of paragraph (1) of
subdivision (a), the exemption established by this section shall
apply only with respect to 20 percent of the tax levied by Sections
6051, 6051.3, 6201, and 6201.3.
(f) Notwithstanding subdivision (a), the exemption provided by
this section shall not apply to any sale or use of tangible personal
property which, within one year from the date of purchase, is either
removed from California or converted from an exempt use under
subdivision (a) to some other use not qualifying for the exemption.
(g) 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 pursuant to this section,
and within one year from the date of purchase, the purchaser (1)
removes that tangible personal property outside California, (2)
converts that tangible personal property for use in a manner not
qualifying for the exemption, or (3) uses that tangible personal
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 removed, converted, or used, and the sales price of the
tangible personal property to the purchaser shall be deemed the gross
receipts from that retail sale.
(h) The exemption established by this section shall apply to a
lease of tangible personal property classified as a "continuing sale"
or "continuing purchase" in accordance with Section 6006.1 or
6010.1, and to the rentals payable pursuant to such a lease, provided
the lessee is a qualified person and the tangible personal property
is used in an activity described in subdivision (a).
(i) At the time necessary information technologies and electronic
data warehousing capabilities of the board are sufficiently
established, the board shall determine an efficient means by which
qualified persons may electronically apply for, and receive, an
exemption certificate that contains information that would assist
them in complying with this part with respect to the exemption
established by this section.
(j) Notwithstanding subdivision (e), beginning on July 1, 2015,
the percentage of the tax rate specified in subdivision (e) shall be
adjusted, as follows:
(1) The following reports shall be made to the Director of Finance
pursuant to a time schedule prescribed by the director:
(A) The Franchise Tax Board shall report the estimated increase or
decrease in revenues for the 2012-13 fiscal year as the result of
the amendment, addition, or repeal of Sections 17062, 17073.5, 17137,
23101, 23151, 23153, 25128, 25128.5, 25128.7, 25136, and 25136.1 by
the act adding this section.
(B) The State Board of Equalization shall report the estimated
annualized decrease in revenues for the 2012-13 fiscal year, by the
act adding this section.
(2) The Director of Finance shall, on or before January 1, 2015,
based on the estimates provided pursuant to paragraph (1) and any
other available information, adjust the percentage of the tax rate
specified in subdivision (e) in such a manner so that the act adding
this section and all provisions described in subparagraph (A) of
paragraph (1) do not result in a net gain or loss in state tax
revenues for the 2015-16 fiscal year.
(3) The provisions of this subdivision are severable. If any
provision of this subdivision or its application is held invalid,
that invalidity shall not affect other provisions or applications
that can be given effect without the invalid provision or
application.
(k) Nothing in this section shall be interpreted to allow any
person who is not in an enumerated NAICS code a sales and use tax
exemption pursuant to this section.
SEC. 2. Section 17062 of the Revenue
and Taxation Code is amended to read:
17062. (a) In addition to the other taxes imposed by this part,
there is hereby imposed for each taxable year, a tax equal to the
excess, if any, of--
(1) The tentative minimum tax for the taxable year, over
(2) The regular tax for the taxable year.
(b) For purposes of this chapter, each of the following shall
apply:
(1) The tentative minimum tax shall be computed in accordance with
Sections 55 to 59, inclusive, of the Internal Revenue Code, except
as otherwise provided in this part.
(2) The regular tax shall be the amount of tax imposed by Section
17041 or 17048, before reduction for any credits against the tax,
less any amount imposed under paragraph (1) of subdivision (d) and
paragraph (1) of subdivision (e) of Section 17560.
(3) (A) The provisions of Section 55(b)(1) of the Internal Revenue
Code shall be modified to provide that the tentative minimum tax for
the taxable year shall be equal to the following percent of so much
of the alternative minimum taxable income for the taxable year as
exceeds the exemption amount, before reduction for any credits
against the tax:
(i) For any taxable year beginning on or after January 1, 1991,
and before January 1, 1996, 8.5 percent.
(ii) For any taxable year beginning on or after January 1, 1996,
and before January 1, 2009, 7 percent.
(iii) For taxable years beginning on and after January 1, 2009,
and before January 1, 2011, 7.25 percent.
(iv) For any taxable year beginning on or after January 1, 2011, 7
percent.
(B) In the case of a nonresident or part-year resident, the
tentative minimum tax shall be computed by multiplying the
alternative minimum taxable income of the nonresident or part-year
resident, as defined in subparagraph (C), by a rate (expressed as a
percentage) equal to the tax computed under subdivision (b) on the
alternative minimum taxable income of the nonresident or part-year
resident as if the nonresident or part-year resident were a resident
of this state for the taxable year and as if the nonresident or
part-year resident were a resident of this state for all prior
taxable years for any carryover items, deferred income, suspended
losses, or suspended deductions, divided by the amount of that
income.
(C) For purposes of this section, the term "alternative minimum
taxable income of a nonresident or part-year resident" includes each
of the following:
(i) For any period during which the taxpayer was a resident of
this state (as defined by Section 17014), all items of alternative
minimum taxable income (as modified for purposes of this chapter),
regardless of source.
(ii) For any period during which the taxpayer was not a resident
of this state, alternative minimum taxable income (as modified for
purposes of this chapter) which were derived from sources within this
state, determined in accordance with Article 9 of Chapter 3
(commencing with Section 17301) and Chapter 11 (commencing with
Section 17951).
(iii) For purposes of computing "alternative minimum taxable
income of a nonresident or part-year resident," any carryover items,
deferred income, suspended losses, or suspended deductions shall only
be allowable to the extent that the carryover item, suspended loss,
or suspended deduction was derived from sources within this state.
(4) The provisions of Section 55(b)(2) of the Internal Revenue
Code, relating to alternative minimum taxable income, shall be
modified to provide that alternative minimum taxable income shall not
include the income, adjustments, and items of tax preference
attributable to any trade or business of a qualified taxpayer.
(A) For purposes of this paragraph, "qualified taxpayer" means a
taxpayer who meets both of the following:
(i) Is the owner of, or has an ownership interest in, a trade or
business.
(ii) Has aggregate gross receipts, less returns and allowances, of
less than one million dollars ($1,000,000) during the taxable year
from all trades or businesses of which the taxpayer is the owner or
has an ownership interest, in the amount of that taxpayer's
proportionate interest in each trade or business.
(B) For purposes of this paragraph, "aggregate gross receipts,
less returns and allowances" means the sum of the gross receipts of
the trades or businesses that the taxpayer owns and the proportionate
interest of the gross receipts of the trades or businesses that the
taxpayer owns and of pass-through entities in which the taxpayer
holds an interest.
(C) For purposes of this paragraph, "gross receipts, less returns
and allowances" 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.
(D) For purposes of this paragraph, "proportionate interest"
means:
(i) In the case of a pass-through entity that reports a profit for
the taxable year, the taxpayer's profit interest in the entity at
the end of the taxpayer's taxable year.
(ii) In the case of a pass-through entity that reports a loss for
the taxable year, the taxpayer's loss interest in the entity at the
end of the taxpayer's taxable year.
(iii) In the case of a pass-through entity that is sold or
liquidates during the taxable year, the taxpayer's capital account
interest in the entity at the time of the sale or liquidation.
(E) (i) For purposes of this paragraph, "proportionate interest"
includes an interest in a pass-through entity.
(ii) For purposes of this paragraph, "pass-through entity" means
any of the following:
(I) A partnership, as defined by Section 17008.
(II) An "S" corporation, as provided in Chapter 4.5 (commencing
with Section 23800) of Part 11.
(III) A regulated investment company, as provided in Section
24871.
(IV) A real estate investment trust, as provided in Section 24872.
(V) A real estate mortgage investment conduit, as provided in
Section 24874.
(5) For taxable years beginning on or after January 1, 1998,
Section 55(d)(1) of the Internal Revenue Code, relating to exemption
amount for taxpayers other than corporations is modified, for
purposes of this part, to provide the following exemption amounts in
lieu of those contained therein:
(A) Fifty-seven thousand two hundred sixty dollars ($57,260) in
the case of either of the following:
(i) A joint return.
(ii) A surviving spouse.
(B) Forty-two thousand nine hundred forty-five dollars ($42,945)
in the case of an individual who is both of the following:
(i) Not a married individual.
(ii) Not a surviving spouse.
(C) Twenty-eight thousand six hundred thirty dollars ($28,630) in
the case of either of the following:
(i) A married individual who files a separate return.
(ii) An estate or trust.
(6) For taxable years beginning on or after January 1, 1998,
Section 55(d)(3) of the Internal Revenue Code, relating to phaseout
of exemption amount, is modified, for purposes of this part, to
provide the following phaseout of exemption amounts in lieu of those
contained therein:
(A) Two hundred fourteen thousand seven hundred twenty-five
dollars ($214,725) in the case of a taxpayer described in
subparagraph (A) of paragraph (5).
(B) One hundred sixty-one thousand
forty-four dollars ($161,044) in the case of a taxpayer described in
subparagraph (B) of paragraph (5).
(C) One hundred seven thousand three hundred sixty-two dollars
($107,362) in the case of a taxpayer described in subparagraph (C) of
paragraph (5).
(7) For each taxable year beginning on or after January 1, 1999,
the Franchise Tax Board shall recompute the exemption amounts
prescribed in paragraph (5) and the phaseout of exemption amounts
prescribed in paragraph (6). Those computations shall be made as
follows:
(A) The California Department of Industrial
Relations shall transmit annually to the Franchise Tax Board the
percentage change in the California Consumer Price Index for all
items from June of the prior calendar year to June of the current
calendar year, no later than August 1 of the current calendar year.
(B) The Franchise Tax Board shall do both of the following:
(i) Compute an inflation adjustment factor by adding 100 percent
to the percentage change figure that is furnished pursuant to
subparagraph (A) and dividing the result by 100.
(ii) Multiply the preceding taxable year exemption amounts and the
phaseout of exemption amounts by the inflation adjustment factor
determined in clause (i) and round off the resulting products to the
nearest one dollar ($1).
(c) (1) (A) Section 56(a)(6) of the Internal Revenue Code as in
effect on January 1, 1997, relating to installment sales of certain
property, shall not apply to payments received in taxable years
beginning on or after January 1, 1997, with respect to dispositions
occurring in taxable years beginning after December 31, 1987.
(B) This paragraph shall not apply to taxable years beginning on
or after January 1, 1998.
(2) Section 56(b)(1)(E) of the Internal Revenue Code, relating to
standard deduction and deduction for personal exemptions not allowed,
is modified, for purposes of this part, to deny the standard
deduction allowed by Section 17073.5.
(3) Section 56(b)(3) of the Internal Revenue Code, relating to
treatment of incentive stock options, shall be modified to
additionally provide the following:
(A) Section 421 of the Internal Revenue Code shall not apply to
the transfer of stock acquired pursuant to the exercise of a
California qualified stock option under Section 17502.
(B) Section 422(c)(2) of the Internal Revenue Code shall apply in
any case where the disposition and inclusion of a California
qualified stock option for purposes of this chapter are within the
same taxable year and that section shall not apply in any other case.
(C) The adjusted basis of any stock acquired by the exercise of a
California qualified stock option shall be determined on the basis of
the treatment prescribed by this paragraph.
(d) The provisions of Section 57(a)(5) of the Internal Revenue
Code, relating to tax-exempt interest shall not apply.
(e) Section 57(a) of the Internal Revenue Code is modified to
include as an item of tax preference an amount equal to
one-half :
(1) The amount excluded from gross
income for the taxable year under Section 17137.
(2) One-half of the amount
excluded from gross income for the taxable year under Section
18152.5.
(3) The amendments to this subdivision by the act adding this
paragraph shall apply to taxable years beginning on or after January
1, 2012.
(f) The provisions of Section 59(a) of the Internal Revenue Code,
relating to the alternative minimum tax foreign tax credit, shall not
apply.
(g) The provisions of Section 56(d)(3), relating to net operating
loss attributable to federally declared disasters, shall not apply.
SEC. 3. Section 17073.5 of the Revenue
and Taxation Code is amended to read:
17073.5. (a) A taxpayer may elect to take a standard deduction as
follows:
(1) In the case of a taxpayer, other than a head of a household or
a surviving spouse (as defined in Section 17046) or a married couple
filing a joint return, the standard deduction shall be one thousand
eight hundred eighty dollars ($1,880).
(2) In the case of a head of household or a surviving spouse (as
defined in Section 17046) or a married couple filing a joint return,
the standard deduction shall be three thousand seven hundred sixty
dollars ($3,760).
(b) The standard deduction provided for in subdivision (a) shall
be in lieu of all deductions other than those which are to be
subtracted from gross income in computing adjusted gross income under
Section 17072.
(c) (1) The provisions of this section shall be applied in lieu of
the provisions of Sections 63(c) and 63(f) of the Internal Revenue
Code, relating to standard deductions.
(2) Notwithstanding paragraph (1), Section 63(c)(5) of the
Internal Revenue Code, relating to limitations on the standard
deduction of certain dependents, and Section 63(c)(6)of the Internal
Revenue Code, relating to certain individuals not eligible for the
standard deduction, shall apply, except as otherwise provided. For
purposes of this paragraph, the amount specified in Section 63(c)(5)
of the Internal Revenue Code shall be adjusted for inflation in
accordance with the provisions of Section 63(c)(4) of the Internal
Revenue Code.
(d) For each taxable year beginning on or after January 1, 1988,
the Franchise Tax Board shall recompute the standard deduction
amounts prescribed in subdivision (a). That computation shall be made
as follows:
(1) The California Department of Industrial Relations shall
transmit annually to the Franchise Tax Board the percentage change in
the California Consumer Price Index for all items from June of the
prior calendar year to June of the current calendar year, no later
than August 1 of the current calendar year.
(2) The Franchise Tax Board shall compute an inflation adjustment
factor by adding 100 percent to that portion of the percentage change
figure which is furnished pursuant to paragraph (1) and dividing the
result by 100.
(3) The Franchise Tax Board shall multiply the standard deduction
amounts in the preceding taxable year by the inflation adjustment
factor determined in paragraph (2), and round off the resulting
products to the nearest one dollar ($1).
(4) In computing the standard deduction amounts pursuant to this
subdivision, the amount provided in paragraph (2) of subdivision (a)
shall be twice the amount provided in paragraph (1) of subdivision
(a).
(e) This section shall remain in effect only until January 1,
2012, and as of that date is repealed.
SEC. 4. Section 17073.5 is added to the
Revenue and Taxation Code , to read:
17073.5. (a) For taxable years beginning on or after January 1,
2012, a taxpayer may elect to take a standard deduction as follows:
(1) In the case of a taxpayer, other than a head of a household or
a surviving spouse (as defined in Section 17046) or a married couple
filing a joint return, the standard deduction shall be one thousand
eight hundred eighty dollars ($1,880).
(2) In the case of a head of household or a surviving spouse (as
defined in Section 17046) or a married couple filing a joint return,
the standard deduction shall be three thousand seven hundred sixty
dollars ($3,760).
(b) The standard deduction provided for in subdivision (a) shall
be in lieu of all deductions other than those which are to be
subtracted from gross income in computing adjusted gross income under
Section 17072.
(c) (1) The provisions of this section shall be applied in lieu of
the provisions of Sections 63(c) and 63(f) of the Internal Revenue
Code, relating to standard deductions.
(2) Notwithstanding paragraph (1), Section 63(c)(5) of the
Internal Revenue Code, relating to limitations on the standard
deduction of certain dependents, and Section 63(c)(6)of the Internal
Revenue Code, relating to certain individuals not eligible for the
standard deduction, shall apply, except as otherwise provided. For
purposes of this paragraph, the amount specified in Section 63(c)(5)
of the Internal Revenue Code shall be adjusted for inflation in
accordance with the provisions of Section 63(c)(4) of the Internal
Revenue Code.
(d) For each taxable year beginning on or after January 1, 1988,
the Franchise Tax Board shall recompute the standard deduction
amounts prescribed in subdivision (a). That computation shall be made
as follows:
(1) The Department of Industrial Relations shall transmit annually
to the Franchise Tax Board the percentage change in the California
Consumer Price Index for all items from June of the prior calendar
year to June of the current calendar year, no later than August 1 of
the current calendar year.
(2) The Franchise Tax Board shall compute an inflation adjustment
factor by adding 100 percent to that portion of the percentage change
figure which is furnished pursuant to paragraph (1) and dividing the
result by 100.
(3) The Franchise Tax Board shall multiply the standard deduction
amounts in the preceding taxable year by the inflation adjustment
factor determined in paragraph (2), and round off the resulting
products to the nearest one dollar ($1).
(4) In computing the standard deduction amounts pursuant to this
subdivision, the amount provided in paragraph (2) of subdivision (a)
shall be twice the amount provided in paragraph (1) of subdivision
(a).
(e) For each taxable year beginning on or after January 1, 2012,
the standard deduction allowed by this section shall be increased by
27 percent of the amount that would otherwise have been allowed prior
to the addition of this section by the act adding this subdivision.
SEC. 5. Section 17137 is added to the
Revenue and Taxation Code , to read:
17137. (a) For taxable years beginning on or after January 1,
2012, gross income shall not include an amount equal to 10 percent of
the business income of a taxpayer.
(b) For purposes of this section:
(1) "Business income of a taxpayer" means income from a trade or
business, whether conducted by the taxpayer or by a passthrough
entity in which the taxpayer is a partner or shareholder.
(2) "Passthrough entity" means a partnership or an "S"
corporation.
(c) In the case of a passthrough entity, the amount of business
income under this section attributable to a partner or shareholder
shall be treated as a "separately stated item" within the meaning of
Sections 702 and 1366 of the Internal Revenue Code, respectively.
(d) The maximum amount that may be excluded from the gross income
of any taxpayer pursuant to this section for any taxable year is five
thousand dollars ($5,000).
(e) In the case of a husband and wife who file separate returns
(including spouses and registered domestic partners), the exclusion
under this section may be taken by either or equally divided between
them, and the limitation under subdivision (d) shall be an aggregate
five thousand dollars $(5,000) for both returns.
SEC. 6. Section 23101 of the Revenue
and Taxation Code is amended to read:
23101. (a) "Doing business" means actively engaging in any
transaction for the purpose of financial or pecuniary gain or profit.
(b) For taxable years beginning on or after January 1, 2011, a
taxpayer is doing business in this state for a taxable year if any of
the following conditions has been satisfied:
(1) The taxpayer is organized or commercially domiciled in this
state.
(2) Sales, as defined in subdivision (e) or (f) of Section 25120
as applicable for the taxable year, of the taxpayer in this state
exceed the lesser of five hundred thousand dollars ($500,000) or 25
percent of the taxpayer's total sales. For purposes of this
paragraph, sales of the taxpayer include sales by an agent or
independent contractor of the taxpayer. For purposes of this
paragraph, sales in this state shall be determined using the rules
for assigning sales under Section Sections
25135 and subdivision (b) of Section 25136
, and the regulations thereunder, as modified by
regulations under Section 25137.
(3) The real property and tangible personal property of the
taxpayer in this state exceed the lesser of fifty thousand dollars
($50,000) or 25 percent of the taxpayer's total real property and
tangible personal property. The value of real and tangible personal
property and the determination of whether property is in this state
shall be determined using the rules contained in Sections 25129 to
25131, inclusive, and the regulations thereunder, as modified by
regulation under Section 25137.
(4) The amount paid in this state by the taxpayer for
compensation, as defined in subdivision (c) of Section 25120, exceeds
the lesser of fifty thousand dollars ($50,000) or 25 percent of the
total compensation paid by the taxpayer. Compensation in this state
shall be determined using the rules for assigning payroll contained
in Section 25133 and the regulations thereunder, as modified by
regulations under Section 25137.
(c) (1) The Franchise Tax Board shall annually revise the amounts
in paragraphs (2), (3), and (4) of subdivision (b) in accordance with
subdivision (h) of Section 17041.
(2) For purposes of the adjustment required by paragraph (1),
subdivision (h) of Section 17041 shall be applied by substituting
"2012" in lieu of "1988."
(d) The sales, property, and payroll of the taxpayer include the
taxpayer's pro rata or distributive share of pass-through entities.
For purposes of this subdivision, "pass-through entities" means a
partnership or an "S" corporation.
SEC. 7. Section 23151 of the Revenue
and Taxation Code is amended to read:
23151. (a) With the exception of banks and financial
corporations, every corporation doing business within the limits of
this state and not expressly exempted from taxation by the provisions
of the Constitution of this state or by this part, shall annually
pay to the state, for the privilege of exercising its corporate
franchises within this state, a tax according to or measured by its
net income, to be computed at the rate of 7.6 percent upon the basis
of its net income for the next preceding income year, or if greater,
the minimum tax specified in Section 23153.
(b) For calendar or fiscal years ending after June 30, 1973, the
rate of tax shall be 9 percent instead of 7.6 percent as provided by
subdivision (a).
(c) For calendar or fiscal years ending in 1980 to 1986,
inclusive, the rate of tax shall be 9.6 percent.
(d) For calendar or fiscal years ending in 1987 to 1996,
inclusive, and for any income year beginning before January 1, 1997,
the tax rate shall be 9.3 percent.
(e) For any income year beginning on or after January 1, 1997,
and before the income year referred to in subparagraph (A) of
paragraph (1) of subdivision (f), the tax rate shall be 8.84
percent. The change in rate provided in this subdivision shall be
made without proration otherwise required by Section 24251.
(f) (1) For the first taxable year beginning on or after January
1, 2000, the tax imposed under this section shall be the sum of both
of the following:
(A) A tax according to or measured by net income, to be computed
at the rate of 8.84 percent upon the basis of the net income for the
next preceding income year, but not less than the minimum tax
specified in Section 23153.
(B) A tax according to or measured by net income, to be computed
at the rate of 8.84 percent upon the basis of the net income for the
first taxable year beginning on or after January 1, 2000, but not
less than the minimum tax specified in Section 23153.
(2) Except as provided in paragraph (1), for taxable years
beginning on or after January 1, 2000, the tax imposed under this
section shall be a tax according to or measured by net income, to be
computed at the rate of 8.84 percent or, for taxable years
beginning on or after January 1, 2012, the rates specified in
subdivision (g), upon the basis of the net income for that
taxable year, but not less than the minimum tax specified in Section
23153.
(g) (1) For any taxable year beginning on or after January 1,
2012, the rate of tax shall be:
(A) Eight and thirty-four hundredths percent on the amount of net
income that is less than or equal to fifty thousand dollars ($50,000)
for the taxable year.
(B) Eight and eighty-four hundredths percent on the amount of net
income that is in excess of fifty thousand dollars ($50,000) for the
taxable year.
(2) The change in rate provided in this subdivision shall be made
without any proration otherwise required by Section 24251.
(3) This subdivision shall not apply to any taxpayer whose income
and apportionment factor data are permitted or required to be
included in a combined report under Chapter 17 (commencing with
Section 25101).
(4) If this subdivision, or any portion of this subdivision, is
held invalid, or the application of this subdivision to any person or
circumstance is held invalid, the tax rate specified in paragraph
(2) of subdivision (f), without regard to the amendments to that
paragraph by the act adding this subdivision, shall apply.
SEC. 8. Section 23153 of the Revenue
and Taxation Code is amended to read:
23153. (a) Every corporation described in subdivision (b) shall
be subject to the minimum franchise tax specified in subdivision (d)
from the earlier of the date of incorporation, qualification, or
commencing to do business within this state, until the effective date
of dissolution or withdrawal as provided in Section 23331 or, if
later, the date the corporation ceases to do business within the
limits of this state.
(b) Unless expressly exempted by this part or the California
Constitution, subdivision (a) shall apply to each of the following:
(1) Every corporation that is incorporated under the laws of this
state.
(2) Every corporation that is qualified to transact intrastate
business in this state pursuant to Chapter 21 (commencing with
Section 2100) of Division 1 of Title 1 of the Corporations Code.
(3) Every corporation that is doing business in this state.
(c) The following entities are not subject to the minimum
franchise tax specified in this section:
(1) Credit unions.
(2) Nonprofit cooperative associations organized pursuant to
Chapter 1 (commencing with Section 54001) of Division 20 of the Food
and Agricultural Code that have been issued the certificate of the
board of supervisors prepared pursuant to Section 54042 of the Food
and Agricultural Code. The association shall be exempt from the
minimum franchise tax for five consecutive taxable years, commencing
with the first taxable year for which the certificate is issued
pursuant to subdivision (b) of Section 54042 of the Food and
Agricultural Code. This paragraph only applies to nonprofit
cooperative associations organized on or after January 1, 1994.
(d) (1) Except as provided in paragraph (2), paragraph (1) of
subdivision (f) of Section 23151, paragraph (1) of subdivision (f) of
Section 23181, and paragraph (1) of subdivision (c) of Section
23183, corporations subject to the minimum franchise tax shall pay
annually to the state a minimum franchise tax of eight
hundred dollars ($800). :
(A) Eight hundred dollars ($800) for taxable years beginning
before January 1, 2012.
(B) Seven hundred fifty dollars ($750) for taxable years beginning
on or after January 1, 2012.
(2) The minimum franchise tax shall be twenty-five dollars ($25)
for each of the following:
(A) A corporation formed under the laws of this state whose
principal business when formed was gold mining, which is inactive and
has not done business within the limits of the state since 1950.
(B) A corporation formed under the laws of this state whose
principal business when formed was quicksilver mining, which is
inactive and has not done business within the limits of the state
since 1971, or has been inactive for a period of 24 consecutive
months or more.
(3) For purposes of paragraph (2), a corporation shall not be
considered to have done business if it engages in other than mining.
(e) Notwithstanding subdivision (a), for taxable years beginning
on or after January 1, 1999, and before January 1, 2000, every
"qualified new corporation" shall pay annually to the state a minimum
franchise tax of five hundred dollars ($500) for the second taxable
year. This subdivision shall apply to any corporation that is a
qualified new corporation and is incorporated on or after January 1,
1999, and before January 1, 2000.
(1) The determination of the gross receipts of a corporation, for
purposes of this subdivision, shall be made by including the gross
receipts of each member of the commonly controlled group, as defined
in Section 25105, of which the corporation is a member.
(2) "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.
(3) "Qualified new corporation" means a corporation that is
incorporated under the laws of this state or has qualified to
transact intrastate business in this state, that begins business
operations at or after the time of its incorporation and that
reasonably estimates that it will have gross receipts, less returns
and allowances, reportable to this state for the taxable year of one
million dollars ($1,000,000) or less. "Qualified new corporation"
does not include any corporation that began business operations as a
sole proprietorship, a partnership, or any other form of business
entity prior to its incorporation. This subdivision shall not apply
to any corporation that reorganizes solely for the purpose of
reducing its minimum franchise tax.
(4) This subdivision shall not apply to limited partnerships, as
defined in Section 17935, limited liability companies, as defined in
Section 17941, limited liability partnerships, as defined in Section
17948, charitable organizations, as described in Section 23703,
regulated investment companies, as defined in Section 851 of the
Internal Revenue Code, real estate investment trusts, as defined in
Section 856 of the Internal Revenue Code, real estate mortgage
investment conduits, as defined in Section 860D of the Internal
Revenue Code, qualified Subchapter S subsidiaries, as defined in
Section 1361(b)(3) of the Internal Revenue Code, or to the formation
of any subsidiary corporation, to the extent applicable.
(5) For any taxable year beginning on or after January 1, 1999,
and before January 1, 2000, if a corporation has qualified to pay
five hundred dollars ($500) for the second taxable year under this
subdivision, but in its second taxable year, the corporation's gross
receipts, as determined under paragraphs (1) and (2), exceed one
million dollars ($1,000,000), an additional tax in the amount equal
to three hundred dollars ($300) for the second taxable year shall be
due and payable by the corporation on the due date of its return,
without regard to extension, for that year.
(f) (1) Notwithstanding subdivision (a), every corporation that
incorporates or qualifies to do business in this state on or after
January 1, 2000, shall not be subject to the minimum franchise tax
for its first taxable year.
(2) This subdivision shall not apply to limited partnerships, as
defined in Section 17935, limited liability companies, as defined in
Section 17941, limited liability partnerships, as defined in Section
17948, charitable organizations, as described in Section 23703,
regulated investment companies, as defined in Section 851 of the
Internal Revenue Code, real estate investment trusts, as defined in
Section 856 of the Internal Revenue Code, real estate mortgage
investment conduits, as defined in Section 860D of the Internal
Revenue Code, and qualified Subchapter S subsidiaries, as defined in
Section 1361(b)(3) of the Internal Revenue Code, to the extent
applicable.
(3) This subdivision shall not apply to any corporation that
reorganizes solely for the purpose of avoiding payment of its minimum
franchise tax.
(g) Notwithstanding subdivision (a), a domestic corporation, as
defined in Section 167 of the Corporations Code, that files a
certificate of dissolution in the office of the Secretary of State
pursuant to subdivision (b) of Section 1905 of the Corporations Code,
prior to its amendment by the act amending this subdivision, and
that does not thereafter do business shall not be subject to the
minimum franchise tax for taxable years beginning on or after the
date of that filing.
(h) The minimum franchise tax imposed by paragraph (1) of
subdivision (d) shall not be increased by the Legislature by more
than 10 percent during any calendar year.
(i) (1) Notwithstanding subdivision (a), a corporation that is a
small business solely owned by a deployed member of the United States
Armed Forces shall not be subject to the minimum franchise tax for
any taxable year the owner is deployed and the corporation operates
at a loss or ceases operation.
(2) The Franchise Tax Board may promulgate regulations as
necessary or appropriate to carry out the purposes of this
subdivision, including a definition for "ceases operation."
(3) For the purposes of this subdivision, all of the following
definitions apply:
(A) "Deployed" means being called to active duty or active service
during a period when a Presidential Executive order specifies that
the United States is engaged in combat or homeland defense. "Deployed"
does not include either of the following:
(i) Temporary duty for the sole purpose of training or
processing.
(ii) A permanent change of station.
(B) "Operates at a loss" means negative net income as defined in
Section 24341.
(C) "Small business" means a corporation with total income from
all sources derived from, or attributable, to the state of two
hundred fifty thousand dollars ($250,000) or less.
(4) This subdivision shall become inoperative for taxable years
beginning on or after January 1, 2018.
SEC. 9. Section 25128 of the Revenue
and Taxation Code is amended to read:
25128. (a) (1) Notwithstanding Section
38006, for taxable years beginning before J anuary 1,
2012, all business income shall be apportioned to this state
by multiplying the business income by a fraction, the numerator of
which is the property factor plus the payroll factor plus twice the
sales factor, and the denominator of which is four, except as
provided in subdivision (b) or (c).
(2) Notwithstanding Section 38006, for taxable years beginning on
or after January 1, 2012, all business income of an apportioning
trade or business described in paragraph (1) shall be apportioned to
this state by multiplying the business income by the sales factor,
unless the trade or business meets the criteria of subdivision (b) or
makes an election to apportion its income in accordance with Section
25128.7.
(b) If an apportioning trade or business derives more than 50
percent of its "gross business receipts" from conducting one or more
qualified business activities, all business income of the
apportioning trade or business shall be apportioned to this state by
multiplying business income by a fraction, the numerator of which is
the property factor plus the payroll factor plus the sales factor,
and the denominator of which is three.
(c) For purposes of this section, a "qualified business activity"
means the following:
(1) An agricultural business activity.
(2) An extractive business activity.
(3) A savings and loan activity.
(4) A banking or financial business activity.
(d) For purposes of this section:
(1) "Gross business receipts" means gross receipts described in
subdivision (e) or (f) of Section 25120 (other than gross receipts
from sales or other transactions within an apportioning trade or
business between members of a group of corporations whose income and
apportionment factors are required to be included in a combined
report under Section 25101, limited, if applicable, by Section
25110), whether or not the receipts are excluded from the sales
factor by operation of Section 25137.
(2) "Agricultural business activity" means activities relating to
any stock, dairy, poultry, fruit, furbearing animal, or truck farm,
plantation, ranch, nursery, or range. "Agricultural business activity"
also includes activities relating to cultivating the soil or raising
or harvesting any agricultural or horticultural commodity,
including, but not limited to, the raising, shearing, feeding, caring
for, training, or management of animals on a farm as well as the
handling, drying, packing, grading, or storing on a farm any
agricultural or horticultural commodity in its unmanufactured state,
but only if the owner, tenant, or operator of the farm regularly
produces more than one-half of the commodity so treated.
(3) "Extractive business activity" means activities relating to
the production, refining, or processing of oil, natural gas, or
mineral ore.
(4) "Savings and loan activity" means any activities performed by
savings and loan associations or savings banks which have been
chartered by federal or state law.
(5) "Banking or financial business activity" means activities
attributable to dealings in money or moneyed capital in substantial
competition with the business of national banks.
(6) "Apportioning trade or business" means a distinct trade or
business whose business income is required to be apportioned under
Sections 25101 and 25120, limited, if applicable, by Section 25110,
using the same denominator for each of the applicable payroll,
property, and sales factors.
(7) Paragraph (4) of subdivision (c) shall apply only if the
Franchise Tax Board adopts the Proposed Multistate Tax Commission
Formula for the Uniform Apportionment of Net Income from Financial
Institutions, or its substantial equivalent, and shall become
operative upon the same operative date as the adopted formula.
(8) In any case where the income and apportionment factors of two
or more savings associations or corporations are required to be
included in a combined report under Section 25101, limited, if
applicable, by Section 25110, both of the following shall apply:
(A) The application of the more than 50 percent test of
subdivision (b) shall be made with respect to the "gross business
receipts" of the entire apportioning trade or business of the group.
(B) The entire business income of the group shall be apportioned
in accordance with either subdivision (a) or (b), or
subdivision (b) of Section 25128.5 or 25128.7 ,
as applicable.
SEC. 10. Section 25128.5 of the Revenue
and Taxation Code is amended to read:
25128.5. (a) Notwithstanding Section 38006, for taxable years
beginning on or after January 1, 2011, and before January 1,
2012, any apportioning trade or business, other than an
apportioning trade or business described in subdivision (b) of
Section 25128, may make an irrevocable annual election on an original
timely filed return, in the manner and form prescribed by the
Franchise Tax Board to apportion its income in accordance with this
section, and not in accordance with Section 25128.
(b) Notwithstanding Section 38006, for taxable years beginning on
or after January 1, 2011, and before January 1, 2012, all
business income of an apportioning trade or business making an
election described in subdivision (a) shall be apportioned to this
state by multiplying the business income by the sales factor.
(c) The Franchise Tax Board is authorized to issue regulations
necessary or appropriate regarding the making of an election under
this section, including regulations that are consistent with rules
prescribed for making an election under Section 25113.
(d) This section shall not apply to taxable years beginning on or
after January 1, 2012, and as of December 1, 2012, is repealed.
SEC. 11. Section 25128.7 is added to the
Revenue and Taxation Code , to read:
25128.7. (a) Notwithstanding Section 38006, for taxable years
beginning on or after January 1, 2012, any apportioning trade or
business, other than an apportioning trade or business described in
subdivision (b) of Section 25128, may make an irrevocable annual
election on an original timely filed return, in the manner and form
prescribed by the Franchise Tax Board, to apportion its income in
accordance with this section, and not in accordance with Section
25128, if the "tax," as defined in Section 23036 before the
application of any credits, using this section to apportion its
business income, is not less than the "tax," as defined in Section
23036 before the application of any credits, using paragraph (2) of
subdivision (a) of Section 25128 to apportion its business income.
(b) Notwithstanding Section 38006, for taxable years beginning on
or after January 1, 2012, all business income of an apportioning
trade or business making an election under subdivision (a) shall be
apportioned to this state by multiplying the business income by a
fraction, the numerator of which is the property factor plus the
payroll factor plus twice the sales factor, and the denominator of
which is four.
(c) The Franchise Tax Board is authorized to issue regulations
necessary or appropriate regarding the making of an election under
this section, including regulations that are consistent with rules
prescribed for making an election under Section 25113.
SEC. 12. Section 25136 of the Revenue
and Taxation Code is amended to read:
25136. (a) For taxable years beginning before January 1, 2011,
and for taxable years beginning on or after January 1, 2011, and
before January 1, 2012, for which Section 25128.5 is operative
and an election under subdivision (a) of Section 25128.5 has not
been made, sales, other than sales of tangible personal property, are
in this state if:
(1) The income-producing activity is performed in this state; or
(2) The income-producing activity is performed both in and outside
this state and a greater proportion of the income-producing activity
is performed in this state than in any other state, based on costs
of performance.
(3) This subdivision shall apply, and subdivision (b) shall not
apply, for any taxable year beginning on or after January 1, 2011,
for which Section 25128.5 is not operative for any taxpayer subject
to the tax imposed under this part.
(b) For taxable years beginning on or after January 1, 2011 ,
and before January 1, 2012 :
(1) Sales from services are in this state to the extent the
purchaser of the service received the benefit of the service in this
state.
(2) Sales from intangible property are in this state to the extent
the property is used in this state. In the case of marketable
securities, sales are in this state if the customer is in this state.
(3) Sales from the sale, lease, rental, or licensing of real
property are in this state if the real property is located in this
state.
(4) Sales from the rental, lease, or licensing of tangible
personal property are in this state if the property is located in
this state.
(5) (A) If Section 25128.5 is operative, then this subdivision
shall apply in lieu of subdivision (a) for any taxable year for which
an election has been made under subdivision (a) of Section 25128.5.
(B) If Section 25128.5 is not operative, then this subdivision
shall not apply and subdivision (a) shall apply for any taxpayer
subject to the tax imposed under this part.
(C) Notwithstanding subparagraphs (A) or (B), this subdivision
shall apply for purposes of paragraph (2) of subdivision (b) of
Section 23101.
(c) The Franchise Tax Board may prescribe those regulations as
necessary or appropriate to carry out the purposes of subdivision
(b).
(d) This section shall not apply to taxable years beginning on or
after January 1, 2012, and as of December 1, 2012, is repealed.
SEC. 13. Section 25136 is added to the
Revenue and Taxation Code , to read:
25136. (a) Notwithstanding Section 38006, for taxable years
beginning on or after January 1, 2012, sales, other than sales of
tangible personal property, are in this state if:
(1) Sales from services are in this state to the extent the
purchaser of the service received the benefit of the services in this
state.
(2) Sales from intangible property are in this state to the extent
the property is used in this state. In the case of marketable
securities, sales are in this state if the customer is in this state.
(3) Sales from the sale, lease, rental, or licensing of real
property are in this state if the real property is located in this
state.
(4) Sales from the rental, lease, or licensing of tangible
personal property are in this state if the property is located in
this state.
(b) The Franchise Tax Board may prescribe regulations as necessary
or appropriate to carry out the purposes of this section.
SEC. 14. Section 25136.1 is added to the
Revenue and Taxation Code , to read:
25136.1. (a) For taxable years beginning on or after January 1,
2012, a qualified taxpayer that apportions its business income under
Section 25128 shall apply the following provisions:
(1) Notwithstanding Section 25137, qualified sales assigned to
this state shall be equal to 50 percent of the amount of qualified
sales that would be assigned to this state pursuant to Section 25136
but for the application of this section. The remaining 50 percent
shall not be assigned to this state.
(2) All other sales shall be assigned pursuant to Section 25136.
(b) For purposes of this section:
(1) "Qualified taxpayer" means a member, as defined in paragraph
(10) of subdivision (b) of Section 25106.5 of Title 18 of the
California Code of Regulations, as in effect on the effective date of
the act adding this section, of a combined reporting group that is
also a qualified group.
(2) "Qualified group" means a combined reporting group, as defined
in paragraph (3) of subdivision (b) of Section 25106.5 of Title 18
of the California Code of Regulations, as in effect on the effective
date of the act adding this section, that satisfies the following
conditions:
(A) Has satisfied the minimum investment requirement for the
taxable year.
(B) For the combined reporting group's taxable year beginning in
calendar year 2006, the combined reporting group derived more than 50
percent of its United States network gross business receipts from
the operation of one or more cable systems.
(C) For purposes of satisfying the requirements of subparagraph
(B), the following rules shall apply:
(i) If a member of the combined reporting group for the taxable
year was not a member of the same combined reporting group for the
taxable year beginning in calendar year 2006, the gross business
receipts of that nonincluded member shall be included in determining
the combined reporting group's gross business receipts for its
taxable year beginning in calendar year 2006 as if the nonincluded
member were a member of the combined reporting group for the taxable
year beginning in calendar year 2006.
(ii) The gross business receipts shall include the gross business
receipts of a qualified partnership, but only to the extent of a
member's interest in the partnership.
(3) "Cable system" and "network" shall have the same meaning as
defined in Section 5830 of the Public Utilities Code, as in effect on
the effective date of the act adding this section. "Network services"
means video, cable, voice, or data services.
(4) "Gross business receipts" means gross receipts as defined in
paragraph (2) of subdivision (f) of Section 25120 (other than gross
receipts from sales or other transactions between or among members of
a combined reporting group, limited, if applicable, by Section
25110).
(5) "Minimum investment requirement" means qualified expenditures
of not less than two hundred fifty million dollars ($250,000,000) by
a combined reporting group during the calendar year that includes the
beginning of the taxable year.
(6) "Qualified expenditures" means any combination of expenditures
attributable to this state for tangible property, payroll, services,
franchise fees, or any intangible property distribution or other
rights, paid or incurred by or on behalf of a member of a combined
reporting group.
(A) An expenditure for other than tangible property shall be
attributable to this state if the member of the combined reporting
group received the benefit of the purchase or expenditure in this
state.
(B) A purchase of or expenditure for tangible property shall be
attributable to this state if the property is placed in service in
this state.
(C) Qualified expenditures shall include expenditures by a
combined reporting group for property or services purchased, used, or
rendered by independent contractors in this state.
(D) Qualified expenditures shall also include expenditures by a
qualified partnership, but only to the extent of the member's
interest in the partnership.
(7) "Qualified partnership" means a partnership if the partnership'
s income and apportionment factors are included in the income and
apportionment factors of a member of the combined reporting group,
but only to the extent of the member's interest in the partnership.
(8) "Qualified sales" means gross business receipts from the
provision of any network services, other than gross business receipts
from the sale or rental of customer premises equipment. "Qualified
sales" shall include qualified sales by a qualified partnership, but
only to the extent of a member's interest in the partnership.
(c) The rules in this section with respect to qualified sales by a
qualified partnership are intended to be consistent with the rules
for partnerships under paragraph (3) of subdivision (f) of Section
25137-1 of Title 18 of the California Code of Regulations.
SEC. 15. This act addresses the fiscal emergency
declared and reaffirmed by the Governor by proclamation on January
20, 2011, pursuant to subdivision (f) of Section 10 of Article IV of
the California Constitution.
SEC. 16. This act provides for a tax levy within
the meaning of Article IV of the Constitution and shall go into
immediate effect. All matter omitted in this version of the
bill appears in the bill as amended in the Senate, September 2, 2011.
(JR11)
