Bill Text: CA SB116 | 2011-2012 | Regular Session | Amended
NOTE: There are more recent revisions of this legislation. Read Latest Draft
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 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 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
JANUARY 19, 2011
An act to amend Sections 23101 , 25113, 25128, 25128.5,
and 25136 and 25128 of, to amend and repeal
Sections 25128.5 and 25136 of, to add Sections 6377
and 25136.1 , 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.
LEGISLATIVE COUNSEL'S DIGEST
SB 116, as amended, De León. Income taxes: hiring credit: single
sales factor: sales and use taxes: manufacturing exemption.
(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 eliminate the authorization for specified
taxpayers to elect to have business income apportioned in accordance
with a single sales factor formula and instead require those
taxpayers to apportion their business income in accordance with a
single sales factor formula for taxable years beginning on or after
January 1, 2011, and would make related changes. This bill would, for
taxable years beginning on or after January 1, 2011, authorize
specified taxpayers to elect to have business income apportioned in
accordance with the 4-factor formula rather than in accordance with a
single sales factor formula, if the tax before the application of
any credits using the 4-factor formula to apportion business income
is not less than the tax before the application of any credits using
the single sales factor formula to apportion that income. This bill
would also revise the method by which source of income is determined
for a qualified taxpayer, as defined. , 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. Those laws
establish a cut-off date when the total amount of credit allocated
under those laws reaches $400,000,000.
This bill, under both laws, for taxable years beginning on or
after January 1, 2011 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 change the cut-off date to either when the
total amount of credit allocated under those laws reaches
$400,000,000, as provided, or on December 31, 2015, whichever occurs
first 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
January 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 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
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 or 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 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. Manufacturing
includes the generation of electricity.
(4) "Primarily," for the purposes of subdivision (a), 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 his or her
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 his or her 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 January 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 three or more years.
(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 taxpayer or another party.
(C) 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) 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 subsequently furnishes
the board with a copy of the exemption certificate
retains the exemption certificate in his or her 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, or district pursuant to, or in accordance with, the
Bradley-Burns Uniform Local Sales and Use Tax Law (Part 1.5
(commencing with Section 4200 7200 ))
or the Transactions and Use Tax Law (Part 1.6 (commencing with
Section 7251)).
(e) Notwithstanding subdivision (a), on and after January 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 60 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 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
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 property outside California, (2) converts that property for use
in a manner not qualifying for the exemption, or (3) uses that
property in a manner not qualifying for the exemption, the purchaser
shall be liable for payment of sales tax, with applicable interest,
as if the purchaser were a retailer making a retail sale of the
property at the time the property is so removed, converted, or used,
and the sales price of the property to the purchaser shall be deemed
the gross receipts from that retail sale.
(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
retailers in complying with this part with respect to the exemption
established by this section.
SEC. 2. Section 17053.80 of the Revenue and Taxation Code, as
added by Section 3 of Chapter 10 of the Third Extraordinary Session
of the Statutes of 2009, is repealed.
SEC. 3. Section 17053.80 of the Revenue and Taxation Code, as
added by Section 3 of Chapter 17 of the Third Extraordinary Session
of the Statutes of 2009, is amended to read:
17053.80. (a) There shall be allowed as a credit
against the "net tax," as defined in Section 17039, the amount
specified in paragraph (1) or (2) for each net increase in
qualified full-time employees, as specified in subdivision (c), hired
during the taxable year by a qualified employer, as
follows: employer.
(1) For each taxable year beginning on or after January 1, 2009,
and before January 1, 2011 2012 , the
credit shall be equal to three thousand dollars ($3,000).
(2) For each taxable year beginning on or after January 1,
2011 2012 , and before January 1,
2015 2014 , the credit shall be equal
to four thousand dollars ($4,000).
(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 either of the following
:
(A) For each taxable year taxable years
beginning on or after January 1, 2009, and before January 1,
2011 2012 , a taxpayer that, as of the
last day of the preceding taxable year, employed a total of 20 or
fewer employees.
(B) For each taxable year beginning on or after January
1, 2011, taxable years beginning on or after January
1, 2012, and before January 1, 2014, a taxpayer that, as of the
last day of the preceding taxable year, employed a total of 50 or
fewer employees.
(5) "Qualified wages" means wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance Code.
(6) (A) "Annual full-time equivalent" means either of the
following:
(i) 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.
(ii) 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.
(B) If either of the taxable years used to compute the net
increase in qualified full-time employees in paragraph (1) of
subdivision (c) is a period of less than 12 months, the computation
of "annual full-time equivalents" as prescribed in subparagraph (A)
shall be annualized by adjusting the number of hours or weeks,
respectively, in the formula so that each annual full-time equivalent
equals a 12-month equivalent.
(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 that 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 the succeeding seven years if
necessary, until the credit is exhausted.
(e) Any deduction otherwise allowed under this part for qualified
wages shall not be reduced by the amount of the credit allowed under
this section.
(f) For purposes of this section:
(1) All employees of the trades or businesses that are treated as
related under either Section 267, 318, or 707 of the Internal Revenue
Code shall be treated as employed by a single taxpayer.
(2) In determining whether the taxpayer has first commenced doing
business in this state during the taxable year, the provisions of
subdivision (f) of Section 17276.20, without application of paragraph
(7) of that subdivision, shall apply.
(g) (1) (A) Credit under this section and Section 23623 shall be
allowed only for credits claimed on a timely filed
original returns return received by the
Franchise Tax Board on or before the cut-off date established by the
Franchise Tax Board.
(B) For purposes of this paragraph, the cut-off date shall be the
earlier date of the following:
(i) 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.
(ii) December 31, 2015.
(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 cut-off date, the date a return is received, and whether a
return has been timely filed for purposes of this subdivision
shall may not be reviewed in any
administrative or judicial proceeding.
(B) Any disallowance of a credit claimed due to a determination
under this subdivision, including the application of the limitation
specified in paragraph (1), shall be treated as a mathematical error
appearing on the return. Any amount of tax resulting from such
disallowance may be assessed by the Franchise Tax Board in the same
manner as provided by Section 19051.
(4) The Franchise Tax Board shall periodically provide notice on
its Internet Web site with respect to the amount of credit under this
section and Section 23623 claimed on timely filed original returns
received by the Franchise Tax Board.
(h) (1) The Franchise Tax Board may prescribe rules, guidelines,
or procedures necessary or appropriate to carry out the purposes of
this section, including any guidelines regarding the limitation on
total credits allowable under this section and Section 23623 and
guidelines necessary to avoid the application of paragraph (2) of
subdivision (f) through split-ups, shell corporations, partnerships,
tiered ownership structures, or otherwise.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this section.
(i) This section shall remain in effect only until December
1, 2016 31, 2014 , and as of that date
is repealed.
SEC. 4. 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 (f) of Section 25120, 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 25135 and 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. 5. 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. 6. 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) There shall be allowed as a credit against
the "tax," as defined in Section 23036, the amount specified in
paragraph (1) or (2) for each net increase in qualified
full-time employees, as specified in subdivision (c), hired during
the taxable year by a qualified employer as follows:
employer.
(1) For each taxable year beginning on or after January 1, 2009,
and before January 1, 2011 2012 , the
credit shall be
equal to three thousand dollars ($3,000).
(2) For each taxable year beginning on or after January 1,
2011 2012 , and before January 1,
2015 2014 , the credit shall be equal
to four thousand dollars ($4,000).
(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 either of the following
:
(A) For each taxable year taxable years
beginning on or after January 1, 2009, and before January 1,
2011 2012 , a taxpayer that, as of the
last day of the preceding taxable year, employed a total of 20 or
fewer employees.
(B) For each taxable year beginning on or after January
1, 2011 taxable years beginning on or after January 1,
2012, and before January 1, 2014 , a taxpayer that, as of the
last day of the preceding taxable year, employed a total of 50 or
fewer employees.
(5) "Qualified wages" means wages subject to Division 6
(commencing with Section 13000) of the Unemployment Insurance Code.
(6) (A) "Annual full-time equivalent" means either of the
following:
(i) 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.
(ii) 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.
(B) If either of the taxable years used to compute the net
increase in qualified full-time employees in paragraph (1) of
subdivision (c) is a period of less than 12 months, the computation
of "annual full-time equivalents" as prescribed in subparagraph (A)
shall be annualized by adjusting the number of hours or weeks,
respectively, in the formula so that each annual full-time equivalent
equals a 12-month equivalent.
(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 that 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 the succeeding seven years if
necessary, until the credit is exhausted.
(e) Any deduction otherwise allowed under this part for qualified
wages shall not be reduced by the amount of the credit allowed under
this section.
(f) For purposes of this section:
(1) All employees of the trades or businesses that are treated as
related under either Section 267, 318, or 707 of the Internal Revenue
Code shall be treated as employed by a single taxpayer.
(2) In determining whether the taxpayer has first commenced doing
business in this state during the taxable year, the provisions of
subdivision (g) of Section 24416.20, without application of paragraph
(7) of that subdivision, shall apply.
(g) (1) (A) Credit under this section and Section 17053.80 shall
be allowed only for credits claimed on timely filed original
returns a timely filed original return received
by the Franchise Tax Board on or before the cut-off date established
by the Franchise Tax Board.
(B) For purposes of this paragraph, the cut-off date shall be the
earlier date of the following:
(i) 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.
(ii) December 31, 2015.
(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 cut-off date, the date a return is received, and whether a
return has been timely filed for purposes of this subdivision
shall may not be reviewed in any
administrative or judicial proceeding.
(B) Any disallowance of a credit claimed due to a determination
under this subdivision, including the application of the limitation
specified in paragraph (1), shall be treated as a mathematical error
appearing on the return. Any amount of tax resulting from such
disallowance may be assessed by the Franchise Tax Board in the same
manner as provided by Section 19051.
(4) The Franchise Tax Board shall periodically provide notice on
its Internet Web site with respect to the amount of credit under this
section and Section 17053.80 claimed on timely filed original
returns received by the Franchise Tax Board.
(h) (1) The Franchise Tax Board may prescribe rules, guidelines,
or procedures necessary or appropriate to carry out the purposes of
this section, including any guidelines regarding the limitation on
total credits allowable under this section and Section 17053.80 and
guidelines necessary to avoid the application of paragraph (2) of
subdivision (f) through split-ups, shell corporations, partnerships,
tiered ownership structures, or otherwise.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this section.
(i) This section shall remain in effect only until December
1, 2016 31, 2014 , and as of that date
is repealed.
SEC. 7. Section 25113 of the Revenue and
Taxation Code, as added by Section 4 of Chapter 657 of the Statutes
of 2003, is amended to read:
25113. (a) Except as provided in subdivision (f), for taxable
years beginning on or after January 1, 2003, the election provided
for in Section 25110 shall be made on an original, timely filed
return for the year of the election. The election will be considered
valid if both of the following conditions are satisfied:
(1) The tax is computed in a manner consistent with a water's-edge
election.
(2) A written notification of election is filed with the return on
a form prescribed by the Franchise Tax Board. Pursuant to
regulations promulgated under this section, the Franchise Tax Board
may accept the filing of other objective evidence that supports the
conclusion that a water's-edge election was intended in lieu of
notification on the designated form.
(b) Except as otherwise provided, a water's-edge election shall be
effective only if made by every member of the self-assessed combined
reporting group that is subject to taxation under this part.
(1) An election made on a group return of a self-assessed combined
reporting group shall constitute an election by each taxpayer member
included in that group return, unless one of those taxpayers files a
separate return in which no election is made and paragraph (2) does
not apply.
(2) A taxpayer that fails to make an election on its own timely
filed original return shall be deemed to have elected if either of
the following applies:
(A) It has a parent corporation that is an electing taxpayer that
included the income and apportionment factors of the nonelecting
taxpayer in the self-assessed combined reporting group reflected in
the electing parent's timely filed original return, including a group
return.
(B) The income and apportionment factors of the nonelecting
taxpayer are reflected in the self-assessed combined reporting group
of a timely filed original return of an electing taxpayer, and the
notification of election filed by the electing taxpayer pursuant to
paragraph (2) of subdivision (a) is signed by an officer or other
authorized agent of either a parent corporation of the nonelecting
taxpayer or another corporation with authority to bind the
nonelecting taxpayer to an election.
(3) For purposes of this subdivision, a "parent corporation" of
the taxpayer is a corporation that owns or constructively owns stock
possessing more than 50 percent of the voting power of the taxpayer
as determined under subdivisions (e) and (f) of Section 25105.
(4) If a corporation that is a member of a combined reporting
group is not itself subject to taxation under this part in the year
for which the water's-edge election is made, but subsequently becomes
subject to taxation under this part, that corporation shall be
deemed to have elected with the other taxpayer members of the
combined reporting group.
(5) A taxpayer that is engaged in more than one apportioning trade
or business, as defined in paragraph (2) of subdivision (c) of
Section 25128, may make a separate election for each apportioning
trade or business.
(c) A water's-edge election shall remain in effect or be
terminated in accordance with this subdivision.
(1) Except as otherwise provided in this subdivision, if one or
more electing taxpayer members of a combined reporting group later
become disaffiliated or otherwise cease to be included in the
combined reporting group, the water's-edge election shall remain in
effect as to both the departing taxpayer members and any remaining
taxpayer members.
(2) If an electing taxpayer and a nonelecting taxpayer become
members of a new unitary affiliate group, the nonelecting taxpayer
shall be deemed to have elected if the value of the total business
assets of the electing taxpayer, and its component unitary group, if
any, is larger than the value of the total business assets of the
nonelecting taxpayer, and its component unitary group, if any.
Otherwise, the water's-edge election shall be automatically
terminated at the time the electing members become part of the
combined report. For purposes of applying paragraphs (9) and (10),
the commencement date of the deemed election shall be the same as the
commencement date of the electing taxpayers.
(3) If taxpayers filing under water's-edge elections with
different commencement dates become members of a new unitary
affiliate group, the earliest election date shall be deemed to apply
to all electing taxpayers if the total business assets of the earlier
electing taxpayer, and its component unitary group, if any, is
larger than the value of the total business assets of the later
electing taxpayer, and its component unitary group, if any.
Otherwise, the later election commencement date shall apply to all
electing taxpayers.
(4) (A) If a taxpayer with an election that has been terminated
under paragraph (9) or (10) becomes a member of a new unitary
affiliate group that includes another electing or nonelecting
taxpayer not affected by those paragraphs, any water's-edge election
of the other taxpayer member, if applicable, shall terminate, and any
restrictions on making a new water's-edge election, relating to an
election terminated under those paragraphs, shall apply to all
taxpayer members of the new unitary affiliate group if the total
business assets of the taxpayer with the terminated election, and its
component unitary group, if any, is larger than the other taxpayer,
and its component unitary group, if any. Otherwise, paragraph (2)
shall apply, if applicable. If paragraph (2) does not apply, all
taxpayer members of the new unitary affiliate group will be treated
as nonelecting taxpayers that are not subject to any restrictions on
making a new water's-edge election.
(B) If two nonelecting taxpayers with different termination dates
under paragraph (9) or (10) become members of a new unitary affiliate
group, the earliest termination date shall be deemed to apply to all
nonelecting taxpayers, as well as any restrictions on making a new
water's-edge election relating to that termination, if the total
business assets of the earlier terminating taxpayer, and its
component unitary group, if any, is larger than the value of the
total business assets of the later terminating taxpayer, and its
component unitary group, if any. Otherwise, the later termination
date, and the related restrictions on making a new water's-edge
election, shall apply to all taxpayer members of the new unitary
affiliate group.
(5) (A) Except as provided in subparagraph (B), if one or more
electing taxpayers did not report their income and apportionment
factors as members of a combined reporting group with one or more
nonelecting taxpayers, and, pursuant to a Franchise Tax Board audit
determination, the nonelecting taxpayers, are properly in the same
combined reporting group as the electing taxpayers, the water's-edge
election of the electing taxpayers shall remain in effect and the
nonelecting taxpayers shall be deemed to have made a water's-edge
election. The commencement date of the deemed water's-edge election
shall be the same as the commencement date of the electing taxpayers.
(B) Subparagraph (A) may not apply if the value of total business
assets of the electing taxpayers does not exceed the value of total
business assets of the nonelecting taxpayers. In that event, the
water's-edge election of each electing taxpayer is terminated as of
the date the nonelecting taxpayers are, pursuant to the audit
determination described in subparagraph (A), properly included in the
same combined reporting group as the electing taxpayers.
(C) For purposes of applying the business asset test of this
paragraph, the term "business assets" shall have the same meaning as
subparagraph (A) of paragraph (6), except that the business assets of
other members of the unitary affiliate group that are not taxpayers
shall not be taken into account.
(D) Notwithstanding subparagraph (A), nonelecting taxpayers may
not be deemed to have made a water's-edge election if the Franchise
Tax Board audit determination described in subparagraph (A) is
withdrawn or otherwise overturned.
(6) For purposes of paragraphs (2) to (5), inclusive, the
following shall apply:
(A) "Business assets" are assets, including intangible assets,
other than stock of a member of the unitary affiliate group, which
are used in the conduct of the business of the unitary affiliate
group or would produce business income to the unitary affiliate
group, if an election were not in place, if the assets were sold.
Business assets shall be valued at net book value.
(B) The phrase "unitary affiliate group" refers to all of those
corporations that would constitute a unitary group if a water's-edge
election were not made.
(C) The phrase "new unitary affiliate group" refers to a unitary
affiliate group that is created by a new affiliation of two or more
corporations, or by the addition of one or more new members to an
existing unitary affiliate group.
(D) The phrase "component unitary group" means that portion of a
group of corporations that have become members of a new unitary
affiliate group that were members of their own respective unitary
affiliate group prior to entering the new unitary affiliate group,
disregarding any corporations that did not become part of the new
unitary group.
(7) In the application of paragraphs (2) to (4), inclusive, a
series of acquisitions as steps of a single transaction shall be
aggregated as a single change of membership.
(8) In the event of a merger or consolidation, the water's-edge
status and election commencement date or termination date of the
surviving corporation shall be consistent with the result that would
have been obtained under paragraphs (2) to (4), inclusive, if the
surviving corporation had acquired the stock of the transferor
corporation.
(9) A water's-edge election may be terminated without the consent
of the Franchise Tax Board after it has been in effect for at least
84 months. The termination shall be made on an original, timely filed
return for the first year in which the water's-edge election is to
be terminated. To be effective, the termination shall be made by
every taxpayer that is a member of the water's-edge group in the same
manner as the election provided under subdivisions (a) and (b).
(10) A water's-edge election may be terminated before the 84-month
period described in paragraph (9) has elapsed, but only with the
consent of the Franchise Tax Board. A request for termination shall
be made at the time and in the manner specified by the Franchise Tax
Board.
(A) The request may be granted for good cause. For purposes of
this section, good cause shall have the same meaning as specified in
Treasury Regulations Section 1.1502-75(c).
(B) The Franchise Tax Board shall consent to a termination
requested by all members of a water's-edge group, if the purpose of
the request is to permit the state to contract with an expatriate
corporation, or its subsidiary, pursuant to paragraph (2) of
subdivision (b) of Section 10286 of the Public Contract Code. A water'
s-edge election terminated pursuant to this subparagraph shall,
however, be effective for the year in which the expatriate
corporation, or its subsidiary, enters into the contract with the
state.
(11) Except for deemed elections as provided in paragraphs (2),
(4), and (5), if a water's-edge election is terminated under
paragraph (9) or (10), another election may not be made under this
section for any taxable year that begins within the 84-month period
following the last day of the election period that was terminated.
The Franchise Tax Board may waive the application of this prohibition
period for good cause.
(12) A water's-edge election shall remain in effect until
terminated.
(d) For purposes of this section, the following shall apply:
(1) A "combined reporting group" means those corporations whose
income and apportionment factors are properly considered pursuant to
this chapter in computing the income of the individual taxpayer that
is derived from or attributable to sources within this state, taking
into account a valid water's-edge election.
(2) A "group return" refers to the single return which taxpayer
members of a combined reporting group may elect by contract to file,
in the form and manner prescribed by the Franchise Tax Board, in lieu
of filing their own respective returns.
(3) A "self-assessed combined reporting group" means that group of
corporations whose income and apportionment factors are reflected in
a combined report prepared pursuant to this chapter in a timely
filed return, taking into account the effects of a purported water'
s-edge election, whether or not the membership of the corporations in
that combined report was correctly determined.
(e) The Franchise Tax Board may prescribe any regulations as may
be necessary or appropriate to carry out the purposes of this
section.
(f) To the extent that a taxpayer would have been required to file
on a water's-edge basis in its first taxable year beginning on or
after January 1, 2003, pursuant to a water's-edge election made in a
prior year under Section 25111, the terms of Section 25111 may not
apply and the election shall be deemed to have been made under the
terms of this section. However, the commencement date of the election
made in a prior year under Section 25111 shall continue to be
treated as the commencement date of the water's-edge election period
for purposes of applying this section.
(g) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 2011.
SEC. 8. Section 25128 of the Revenue and
Taxation Code is amended to read:
25128. (a) (1) Notwithstanding Section 38006, for taxable years
beginning on or after January 1, 2011, any apportioning trade or
business, other than an apportioning trade or business that is
described in subdivision (b) or that makes an election to apportion
its income in accordance with Section 25128.5, shall apportion its
business income in accordance with this subdivision.
(2) Notwithstanding Section 38006, for taxable years beginning on
or after January 1, 2011, 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.
(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, as defined in subdivision (c), 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:
(1) "Agricultural business activity" means any activity relating
to any stock, dairy, poultry, fruit, furbearing animal, or truck
farm, plantation, ranch, nursery, or range. "Agricultural business
activity" also includes any activity 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
of 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.
(2) "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.
(3) "Banking or financial business activity" means any activity
attributable to dealings in money or moneyed capital in substantial
competition with the business of national banks.
(4) "Extractive business activity" means any activity relating to
the production, refining, or processing of oil, natural gas, or
mineral ore.
(5) "Gross business receipts" means gross receipts described in
subdivision (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.
(6) "Qualified business activity" means any of the following:
(A) An agricultural business activity.
(B) An extractive business activity.
(C) A savings and loan activity.
(D) A banking or financial business activity.
(7) "Savings and loan activity" means any activity performed by
savings and loan associations or savings banks which have been
chartered by federal or state law.
(d) 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:
(1) 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.
(2) The entire business income of the group shall be apportioned
in accordance with either this section or Section 25128.5, as
applicable.
(e) The amendments made to this section by the act adding this
subdivision, shall apply to taxable years beginning on or after
January 1, 2011.
SEC. 9. 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, 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 subdivision (a) of
Section 25128 to apportion its business income.
(b) Notwithstanding Section 38006, for taxable years beginning on
or after January 1, 2011, 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. 10. Section 25136 of the Revenue and
Taxation Code is amended to read:
25136. (a) For taxable years beginning on or after January 1,
2011:
(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.
(b) The Franchise Tax Board may prescribe those regulations as
necessary or appropriate to carry out the purposes of subdivision
(a).
SEC. 7. Section 25128 of the Revenue
and Taxation Code is amended to read:
25128. (a) (1) Notwithstanding Section
38006, for taxable years beginning before January 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, as defined in subdivision (c),
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
activity relating to any stock, dairy, poultry,
fruit, furbearing animal, or truck farm, plantation, ranch, nursery,
or range. "Agricultural business activity" also includes
activities activity 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
activity relating to the production, refining,
or processing of oil, natural gas, or mineral ore.
(4) "Savings and loan activity" means any activities
activity 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 activity 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)
(7) 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.
(e) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 2012.
SEC. 8. 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. 9. 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. 10. 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. 11. Section 251 36.1 is added to
the Revenue and Taxation Code , to read:
25136.1. (a) Notwithstanding Section 38006, for taxable years
beginning on or after January 1, 2012, sales 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. 11. SEC. 12. Section
25136.1 25136.2 is added to the Revenue and
Taxation Code, to read:
25136.1. 25136.2. (a) For taxable
years beginning on or after January 1, 2011
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 25136.1 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 25136.1 .
(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 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. 12. SEC. 13. 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 mitigate acute fiscal difficulties facing the state,
it is necessary that this act take effect immediately.
