Bill Text: CA SB998 | 2013-2014 | Regular Session | Amended
Bill Title: Taxes: exemption and credits: new aerospace projects.
Spectrum: Partisan Bill (Republican 3-0)
Status: (Introduced - Dead) 2014-08-14 - Held in committee and under submission. [SB998 Detail]
Download: California-2013-SB998-Amended.html
BILL NUMBER: SB 998 AMENDED
BILL TEXT
AMENDED IN SENATE MAY 19, 2014
AMENDED IN SENATE MAY 6, 2014
AMENDED IN SENATE APRIL 22, 2014
AMENDED IN SENATE APRIL 9, 2014
INTRODUCED BY Senator Knight
( Coauthor: Senator Fuller
)
( Coauthor: Assembly Member
Gorell )
FEBRUARY 13, 2014
An act to amend Section 6377.1 of , and to add Sections
17053.35 and 23635 to, the Revenue and Taxation Code,
relating to taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 998, as amended, Knight. Taxes: exemption and credits: new
aerospace projects.
The Personal Income Tax Law and the Corporation Tax Law allow
various credits against the taxes imposed by those laws.
This bill would, for taxable years beginning on or after January
1, 2015, allow a credit against those taxes to a qualified taxpayer
equal to the amount of capital investment in a new aerospace project,
as defined. This bill would require the Franchise Tax Board, and
authorize the State Board of Equalization, to prescribe specified
rules, guidelines, or procedures regarding the determination of
generated tax revenues.
Existing sales and use tax laws impose taxes on retailers measured
by the gross receipts from the sale of tangible personal property
sold at retail in this state, or on the storage, use, or other
consumption in this state of tangible personal property purchased
from a retailer for storage, use, or other consumption in this state,
and provides various exemptions from those taxes.
Existing law exempts from those taxes, on and after July 1, 2014,
and before January 1, 2022, the gross receipts from the sale of, and
the storage, use, or other consumption of, qualified tangible
personal property purchased by a qualified person for use primarily
in manufacturing, processing, refining, fabricating, or recycling of
property; qualified tangible personal property purchased for use by a
contractor for specified purposes; and qualified tangible personal
property purchased for use by a qualified person to be used primarily
in research and development, as provided, and until January 1, 2021,
the gross receipts from the sale of, and the storage, use, or other
consumption of, qualified tangible personal property purchased by a
qualified person for those purposes. This exemption does not apply to
tangible personal property purchased during any calendar year that
exceeds two hundred million dollars
$200,000,000 of purchases of qualified tangible personal
property for which an exemption is claimed by a qualified person.
This bill would exempt the ,
from January 1, 2015, until January 1, 2018, impose a $300,000,000
limit, rather than a $200,000,000 limit, on exempt purchases of
manufacturing and research and development equipment for use in a
new aerospace project, as defined in this bill , from the
two hundred million dollar annual limit on exempt purchases by a
qualified person . The bill would, on January 1, 2017,
require the Board of Equalization report to the Legislature on the
amount of manufacturing and research and development equipment
purchased for use in a new aerospace project since January 1, 2015.
The bill would, on January 1, 2017, require the Employment
Development Department to report to the Legislature on any increase
in aerospace manufacturing employment since January 1, 2015.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 6377.1 of the Revenue and Taxation Code is
amended to read:
6377.1. (a) Except as provided in subdivision (e), on or after
July 1, 2014, and before July 1, 2022, there are exempted from the
taxes imposed by this part the gross receipts from the sale of, and
the storage, use, or other consumption in this state of, any of the
following:
(1) Qualified tangible personal property purchased for use by a
qualified person to be used primarily in any stage of the
manufacturing, processing, refining, fabricating, or recycling of
tangible personal property, beginning at the point any raw materials
are received by the qualified person and introduced into the process
and ending at the point at which the manufacturing, processing,
refining, fabricating, or recycling has altered tangible personal
property to its completed form, including packaging, if required.
(2) Qualified tangible personal property purchased for use by a
qualified person to be used primarily in research and development.
(3) Qualified tangible personal property purchased for use by a
qualified person to be used primarily to maintain, repair, measure,
or test any qualified tangible personal property described in
paragraph (1) or (2).
(4) Qualified tangible personal property purchased for use by a
contractor purchasing that property for use in the performance of a
construction contract for the qualified person, that will use that
property as an integral part of the manufacturing, processing,
refining, fabricating, or recycling process, or as a research or
storage facility for use in connection with those processes.
(b) For purposes of this section:
(1) "Fabricating" means to make, build, create, produce, or
assemble components or tangible personal property to work in a new or
different manner.
(2) "Manufacturing" means the activity of converting or
conditioning tangible personal property by changing the form,
composition, quality, or character of the property for ultimate sale
at retail or use in the manufacturing of a product to be ultimately
sold at retail. Manufacturing includes any improvements to tangible
personal property that result in a greater service life or greater
functionality than that of the original property.
(3) "Primarily" means 50 percent or more of the time.
(4) "Process" means the period beginning at the point at which any
raw materials are received by the qualified person and introduced
into the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified person and ending at the point at
which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified person has altered tangible
personal property to its completed form, including packaging, if
required. Raw materials shall be considered to have been introduced
into the process when the raw materials are stored on the same
premises where the qualified person's manufacturing, processing,
refining, fabricating, or recycling activity is conducted. Raw
materials that are stored on premises other than where the qualified
person's manufacturing, processing, refining, fabricating, or
recycling activity is conducted shall not be considered to have been
introduced into the manufacturing, processing, refining, fabricating,
or recycling process.
(5) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
tangible personal property.
(6) (A) "Qualified person" means a person that is primarily
engaged in those lines of business described in Codes 3111 to 3399,
inclusive, 541711, or 541712 of the North American Industry
Classification System (NAICS) published by the United States Office
of Management and Budget (OMB), 2012 edition.
(B) Notwithstanding subparagraph (A), "qualified person" shall not
include either of the following:
(i) An apportioning trade or business that is required to
apportion its business income pursuant to subdivision (b) of Section
25128.
(ii) A trade or business conducted wholly within this state that
would be required to apportion its business income pursuant to
subdivision (b) of Section 25128 if it were subject to apportionment
pursuant to Section 25101.
(7) (A) "Qualified tangible personal property" includes, but is
not limited to, all of the following:
(i) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.
(ii) Equipment or devices used or required to operate, control,
regulate, or maintain the machinery, including, but not limited to,
computers, data processing equipment, and computer software, together
with all repair and replacement parts with a useful life of one or
more years therefor, whether purchased separately or in conjunction
with a complete machine and regardless of whether the machine or
component parts are assembled by the qualified person or another
party.
(iii) Tangible personal property used in pollution control that
meets standards established by this state or any local or regional
governmental agency within this state.
(iv) Special purpose buildings and foundations used as an integral
part of the manufacturing, processing, refining, fabricating, or
recycling process, or that constitute a research or storage facility
used during those processes. Buildings used solely for warehousing
purposes after completion of those processes are not included.
(B) "Qualified tangible personal property" shall not include any
of the following:
(i) Consumables with a useful life of less than one year.
(ii) Furniture, inventory, and equipment used in the extraction
process, or equipment used to store finished products that have
completed the manufacturing, processing, refining, fabricating, or
recycling process.
(iii) Tangible personal property used primarily in administration,
general management, or marketing.
(8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
(9) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
(10) "Useful life" for tangible personal property that is treated
as having a useful life of one or more years for state income or
franchise tax purposes shall be deemed to have a useful life of one
or more years for purposes of this section. "Useful life" for
tangible personal property that is treated as having a useful life of
less than one year for state income or franchise tax purposes shall
be deemed to have a useful life of less than one year for purposes of
this section.
(c) An exemption shall not be allowed under this section unless
the purchaser furnishes the retailer with an exemption certificate,
completed in accordance with any instructions or regulations as the
board may prescribe, and the retailer retains the exemption
certificate in its records and furnishes it to the board upon
request.
(d) (1) Notwithstanding the Bradley-Burns Uniform Local Sales and
Use Tax Law (Part 1.5 (commencing with Section 7200)) and the
Transactions and Use Tax Law (Part 1.6 (commencing with Section
7251)), the exemption established by this section shall not apply
with respect to any tax levied by a county, city, or district
pursuant to, or in accordance with, either of those laws.
(2) Notwithstanding subdivision (a), the exemption established by
this section shall not apply with respect to any tax levied pursuant
to Section 6051.2, 6051.5, 6201.2, or 6201.5, pursuant to Section 35
of Article XIII of the California Constitution, or any tax levied
pursuant to Section 6051 or 6201 that is deposited in the State
Treasury to the credit of the Local Revenue Fund 2011 pursuant to
Section 6051.15 or 6201.15.
(e) (1) The exemption provided by this section shall not apply to
either of the following:
(A) (i) Except as provided in clause (ii), any tangible personal
property purchased during any calendar year that exceeds two hundred
million dollars ($200,000,000) of purchases of qualified tangible
personal property for which an exemption is claimed by a qualified
person under this section. For purposes of this subparagraph, in the
case of a qualified person that is required to be included in a
combined report under Section 25101 or authorized to be included in a
combined report under Section 25101.15, the aggregate of all
purchases of qualified personal property for which an exemption is
claimed pursuant to this section by all persons that are required or
authorized to be included in a combined report shall not exceed two
hundred million dollars ($200,000,000) in any calendar year.
(ii) Manufacturing (I)
From January 1, 2015, until January 1, 2018, manufacturing
and research and development equipment purchased for use in a new
aerospace project as defined in Sections 17053.35 and 23635
shall not be considered
subject to a three-hundred-million-dollar
($300,000,000) limit, rather than a two-hundred-million-dollar
($200,000,000) limit, for purposes of the
two-hundred-million-dollar ($200,000,000) limit established by
clause (i).
(II) For the purposes of this clause, "new aerospace project"
means the manufacturing, design, or testing of aircraft, aircraft
engine, guided missiles, space vehicles, propulsion units, or related
parts or components by the qualified taxpayer, pursuant to a
contractual agreement between the qualified taxpayer and a purchaser,
that commences in this state on or after January 1, 2015, and has
not commenced outside of this state prior to that date.
(III) On January 1, 2017, the board shall report to the
Legislature on the amount of manufacturing and research and
development equipment purchased for use in a new aerospace project
since January 1, 2015.
(IV) On January 1, 2017, the Employment Development Department
shall report to the Legislature on any increase in aerospace
manufacturing employment since January 1, 2015.
(V) The reports required in subclauses (III) and (IV) shall be
made in accordance with Section 9795 of the Government Code.
(B) The sale or storage, use, or other consumption of property
that, within one year from the date of purchase, is removed from
California, converted from an exempt use under subdivision (a) to
some other use not qualifying for exemption, or used in a manner not
qualifying for exemption.
(2) If a purchaser certifies in writing to the seller that the
tangible personal property purchased without payment of the tax will
be used in a manner entitling the seller to regard the gross receipts
from the sale as exempt from the sales tax, and the purchase exceeds
the two-hundred-million-dollar ($200,000,000) limitation described
in subparagraph (A) of paragraph (1), or within one year from the
date of purchase, the purchaser removes that property from
California, converts that property for use in a manner not qualifying
for the exemption, or uses that property in a manner not qualifying
for the exemption, the purchaser shall be liable for payment of sales
tax, with applicable interest, as if the purchaser were a retailer
making a retail sale of the tangible personal property at the time
the tangible personal property is so purchased, removed, converted,
or used, and the cost of the tangible personal property to the
purchaser shall be deemed the gross receipts from that retail sale.
(f) This section shall apply to leases of qualified tangible
personal property classified as "continuing sales" and "continuing
purchases" in accordance with Sections 6006.1 and 6010.1. The
exemption established by this section shall apply to the rentals
payable pursuant to the lease, provided the lessee is a qualified
person and the tangible personal property is used in an activity
described in subdivision (a).
(g) (1) Upon the effective date of this section, the Department of
Finance shall estimate the total dollar amount of exemptions that
will be taken for each calendar year, or any portion thereof, for
which this section provides an exemption.
(2) No later than each March 1 next following a calendar year for
which this section provides an exemption, the board shall provide to
the Joint Legislative Budget Committee a report of the total dollar
amount of exemptions taken under this section for the immediately
preceding calendar year. The report shall compare the total dollar
amount of exemptions taken under this section for that calendar year
with the department's estimate for that same calendar year. If that
total dollar amount taken is less than the estimate for that calendar
year, the report shall identify options for increasing exemptions
taken so as to meet estimated amounts.
(h) This section is repealed on January 1, 2023.
SEC. 2. Section 17053.35 is added to the
Revenue and Taxation Code, to read:
17053.35. (a) For taxable years beginning on or after January 1,
2015, there shall be allowed to a qualified taxpayer a credit against
the "net tax," as defined in Section 17039, an amount equal to the
amount of capital investment in a new aerospace project.
(b) For purposes of this section, all of the following shall
apply:
(1) "Capital investment" means expenses incurred for site
preparation for, and the construction, repair, renovation,
improvement, equipping, or furnishing of, a building, structure, or
facility or improvement to real property, including associated soft
costs. Capital investment includes obtaining and installing
furnishings and machinery, apparatus, or equipment for the operation
of a business in a building, structure, or facility or improvement to
real property, site- related utility and transportation
infrastructure improvements, and plantings or other environmental
components.
(2) "Manufacturing" means the activity of converting or
conditioning property by changing the form, composition, quality, or
character of the property for ultimate sale at retail or use in the
manufacturing of a product to be ultimately sold at retail or to a
government customer. Manufacturing includes any improvements to
tangible personal property that result in a greater service life or
greater functionality than that of the original property.
(3) "New aerospace project" means the manufacturing, design, or
testing of aircraft, aircraft engine, guided missiles, space
vehicles, propulsion units, or related parts or components by the
qualified taxpayer, pursuant to a contractual agreement between the
qualified taxpayer and a purchaser, that commences in this state on
or after January 1, 2015, and has not commenced outside of this state
prior to that date.
(4) "New construction" has the same meaning as that term is
defined in Section 70.
(5) "Primarily" means more than 50 percent.
(6) "Qualified taxpayer" means a person who is primarily engaged
in those lines of business described in Code 3364 of the North
American Industry Classification System (NAICS) published by the
United States Office of Management and Budget (OMB), 2012 edition.
(c) No credit shall be allowed under this section after the
conclusion or completion of the contractual agreement that is the
subject of the new aerospace project.
(d) In the case where the credit allowed by this section exceeds
the "net tax," the excess may be carried over to reduce the "net tax"
in the following year, and succeeding nine years if necessary, until
the credit is exhausted.
(e) (1) The Franchise Tax Board shall prescribe rules, guidelines,
or procedures to be used by the qualified taxpayer to determine its
estimated "net tax" amount described in clause (i) of subparagraph
(A) of paragraph (1) of subdivision (b), and may prescribe other
rules, guidelines, or procedures necessary or appropriate to carry
out the purposes of this section, except as provided in paragraph
(2).
(2) The State Board of Equalization may prescribe rules,
guidelines, or procedure necessary or appropriate for the
determination of the amount of increased ad valorem property tax
described in clause (ii) of subparagraph (A) of paragraph (1) of
subdivision (b).
SEC. 3. Section 23635 is added to the Revenue
and Taxation Code, to read:
23635. (a) For taxable years beginning on or after January 1,
2015, there shall be allowed to a qualified taxpayer a credit against
the "tax," as defined in Section 23036, an amount equal to the
amount of capital investment in a new aerospace project.
(b) For purposes of this section, all of the following shall
apply:
(1) "Capital investment" means expenses incurred for site
preparation for, and the construction, repair, renovation,
improvement, equipping, or furnishing, of a building, structure, or
facility or improvement to real property, including associated soft
costs. Capital investment includes obtaining and installing
furnishings and machinery, apparatus, or equipment for the operation
of a business in a building, structure, or facility or improvement to
real property, site- related utility and transportation
infrastructure improvements, and plantings or other environmental
components.
(2) "Manufacturing" means the activity of converting or
conditioning property by changing the form, composition, quality, or
character of the property for ultimate sale at retail or use in the
manufacturing of a product to be ultimately sold at retail or to a
government customer. Manufacturing includes any improvements to
tangible personal property that result in a greater service life or
greater functionality than that of the original property.
(3) "New aerospace project" means the manufacturing, design, or
testing of aircraft, aircraft engine, guided missiles, space
vehicles, propulsion units, or related parts or components by the
qualified taxpayer, pursuant to a contractual agreement between the
qualified taxpayer and a purchaser, that commences in this state on
or after January 1, 2015, and has not commenced outside of this state
prior to that date.
(4) "New construction" has the same meaning as that term is
defined in Section 70.
(5) "Primarily" means more than 50 percent.
(6) "Qualified taxpayer" means a person who is primarily engaged
in those lines of business described in Code 3364 of the North
American Industry Classification System (NAICS) published by the
United States Office of Management and Budget (OMB), 2012 edition.
(c) No credit shall be allowed under this section after the
conclusion or completion of the contractual agreement that is the
subject of the new aerospace project.
(d) In the case where the credit allowed by this section exceeds
the "net tax," the excess may be carried over to reduce the "net tax"
in the following year, and succeeding nine years if necessary, until
the credit is exhausted.
(e) (1) The Franchise Tax Board shall prescribe rules, guidelines,
or procedures to be used by the qualified taxpayer to determine its
estimated "net tax" amount described in clause (i) of subparagraph
(A) of paragraph (1) of subdivision (b), and may prescribe other
rules, guidelines, or procedures necessary or appropriate to carry
out the purposes of this section, except as provided in paragraph
(2).
(2) The State Board of Equalization may prescribe rules,
guidelines, or procedure necessary or appropriate for the
determination of the amount of increased ad valorem property tax
described in clause (ii) of subparagraph (A) of paragraph (1) of
subdivision (b).
SEC. 4. SEC. 2. This act provides
for a tax levy within the meaning of Article IV of the Constitution
and shall go into immediate effect.
