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Senate Bill 38
Chaptered |
sb-0001-0050/
BILL TEXT
CHAPTER 954
FILED WITH SECRETARY OF STATE SEPTEMBER 26, 1996
APPROVED BY GOVERNOR SEPTEMBER 26, 1996
PASSED THE SENATE AUGUST 31, 1996
PASSED THE ASSEMBLY AUGUST 31, 1996
CONFERENCE REPORT NO. 1
PROPOSED IN CONFERENCE AUGUST 28, 1996
AMENDED IN ASSEMBLY AUGUST 29, 1995
AMENDED IN ASSEMBLY JULY 18, 1995
AMENDED IN ASSEMBLY JUNE 30, 1995
AMENDED IN SENATE JUNE 14, 1995
AMENDED IN SENATE APRIL 6, 1995
AMENDED IN SENATE MARCH 29, 1995
INTRODUCED BY Senator Lockyer and Assembly Member Pringle
(Principal coauthors: Senator Hurtt, Assembly Member Katz, Senator Boatwright, and Assembly Member Takasugi) DECEMBER 15, 1994
An act to add Section 17008.7 to, and to add Chapter 3.7 (commencing with Section 50199.50) to Part 1 of Division 31 of, the Health and Safety Code, to amend Sections 6358, 6366, 6377, 17052.12, 17053.8, 17053.49, 17062, 17072, 17076, 17144, 17250, 17271, 17276, 17507, 19144, 19147, 19148, 19191, 19192, 23221, 23609, 23622, 23649, 24307, 24344, 24358, 24411, 24416, 24424, and 24443 of, to amend, repeal, and add Sections 17151, 18042, and 24611 of, to add Sections 6244.5, 17052.8, 17053.12, 17053.14, 17053.42, 17053.73, 17077.5, 17084, 17134.5, 17138.5, 17141.5, 17150, 17201.5, 17210, 17213, 17218, 17255, 17267, 17279.5, 17330, 17570, 17859, 17860, 18044, 23604, 23608, 23608.2, 23608.3, 23622.5, 23642, 23701z, 24343.3, 24344.7, 24472, 24710, 24903, and 24905.5 to, and to add and repeal Sections 17052.10 and 23610 of, the Revenue and Taxation Code, and to amend Section 1088.5 of the Unemployment Insurance Code, relating to taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 38, Lockyer. Taxation.
(1) Existing law authorizes the California Tax Credit Allocation Committee to administer the low-income housing tax credit program.
This hill would enact the Farmworker Housing Assistance Program and would express findings and declarations of the Legislature with respect to the supply of affordable housing for transient and resident farmworkers.
Under the bill, the recipient of a tax credit pursuant to the program or the owner of the assisted fa=worker housing would be required to enter into an agreement required by the committee to further the purposes of the program, wherein the owner would agree, among other things, that the farmworker housing units assisted with the fa=worker housing tax credits would be utilized, maintained, and operated pursuant to these provisions for the compliance term specified by the applicable farmworker housing tax credit statute. The bill also would restrict the availability, occupancy, and use the assisted farmworker housing, as specified. By requiring that agreement be recorded in the official records of the county, this bill would impose a state-mandated local program.
The bill also would require the committee to allocate farmworker housing credits on a regular basis in each calendar year during which applications may be filed and considered. The committee would be required to establish application procedures, as specified. The bill also would authorize the committee to charge a fee of tax credit applicants as a condition of submitting an application, or receiving an allocation or reservation of tax credits, to defray the committee' s costs in administering the program.
(2) The Sales and Use Tax Law imposes a tax on the gross receipts from the sale in this state of, or the storage, use, or other consumption in this state of, tangible personal property and provides of the various exemptions from the taxes imposed by that law. That law provides an exemption from those taxes for the gross receipts from the sale of, and the storage, use, or other consumption 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 property, and introduced into the process, as specified. That law also provides that if a purchaser who gives a resale certificate or purchases property for the purpose of reselling it makes any storage or use of the property, except as provided, the storage and use is taxable, and, with respect to specified property for which the use is limited to leasing, the purchaser is allowed to pay the use tax measured by the fair rental value, as defined. This bill would provide under that law that a lessor of property that is the subject of that exemption, who is a manufacturer of that property, and who leases that property in a specified form, may, in lieu of reporting use tax measured by the rentals payable, elect to pay tax measured by his or her cost price, as defined, of that property if the election is made, as provided. (3) The Sales and Use Tax Law also provides an exemption for drugs or medicines administered to animal life as an additive to feed or drinking water, the primary purpose of which is the prevention and control of disease of food animals, or of nonfood animals which are to be sold in the regular course of business. This bill would additionally provide an exemption from those taxes for drugs or medicines, the primary purpose of which is the prevention or control of disease, that are administered to animal life of a kind the products of which ordinarily constitute food human consumption. (4) The Sales and Use Tax Law also provides an exemption for aircraft used as a common carrier, as specified, or sold to any person who is not a resident of this state and who will not use aircraft in this state. This bill would additionally exempt tangible personal property purchased on or after October 1, 1996, that becomes a component part of those aircraft as a result of the maintenance, repair, overhaul, or improvement of an aircraft, in compliance with federal requirements, and any charges made for labor and services rendered with respect thereto, as provided. (5) The Sales and Use Tax Law also provides an exemption for 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 property, and introduced into the process, as specified. The Personal Income Tax Law and the Bank and Corporation Tax Law allow to qualified taxpayers, as defined, a credit against taxes imposed by those laws in an amount equal to 6% of the amount paid or incurred during the taxable or income year for qualified property, as defined, that is placed in service in this state. Existing law provides that qualified property includes tangible personal property for use by a qualified taxpayer, as defined, primarily for the manufacturing, processing, refining, fabricating, or recycling of property, and introduced into the process, as specified. This bill would define the term "process" for purposes of those provisions of sales and use taxes, personal income taxes, and bank and corporation taxes relating to the introduction of property into the process, and would apply the above sales and use tax exemption to leases of tangible personal property, as specified. This bill would also expand the definition of qualified property under the Personal Income Tax Law and the Bank and Corporation Tax Law to include specified property related to certain activities in connection with space vehicles, parts, and satellites or semiconductor manufacturing equipment, as specified. The bill would require that, in the case of any partnership or S corporation, the qualification for the credit shall be determined at the entity level, and the credit passed through to the partner or shareholder. The bill would also authorize the Franchise Tax Board to issue specified regulations in connection with the credit. The Personal Income Tax Law and the Bank and Corporation Tax Law permit any qualified taxpayer to carry over any unused portion of the above credit for the following 8 taxable or income years and permits any small business, as defined, to carry over any unused portion of that credit for the following 10 taxable or income years.
This bill would include any qualified taxpayer engaged in biopharmaceutical activities, as defined, or engaged in biotechnology activities, as defined, that has not received federal regulatory approval for any product, as specified, within the definition of "small business," thereby allowing those qualified taxpayers a longer carryover period for the credit.
(6) The Personal Income Tax Law and the Bank and Corporation Tax Law authorize a specified net operating loss deduction against the taxes imposed by those laws, including provisions that permit those losses to be carried forward 5 taxable or income years, as specified, or in the case of a new business, as defined, for an additional one to 3 taxable or income years, as specified.
This bill would include any qualified taxpayer engaged in biopharmaceutical activities, as defined, or engaged in other biotechnology activity, as defined, that has not received federal regulatory approval for any product, as specified, within the definition of "new business," thereby allowing those qualified taxpayers those additional carryover periods for losses, as specified.
(7) The Personal Income Tax Law and the Bank and Corporation Tax Law authorize various credits against the taxes imposed by those laws.
This bill would provide, under both laws, a credit equal to 1/3 of the enhanced oil recovery credit allowed under a certain federal statute, as specified.
This bill would authorize a credit under both laws for each taxable or income year beginning on or after January 1, 1997, and before January 1, 2008, in an amount equal to $15 for each ton of rice straw, as defined, grown within California and purchased during the taxable or income year by the taxpayer. This bill would provide that the aggregate amount of credits granted to all taxpayers under both laws shall not exceed a specified amount. This bill would require the Department of Food and Agriculture to certify that the taxpayer has purchased the rice straw and to perform other specified duties in connection with the credit.
(8) The Personal Income Tax Law and the Bank and Corporation Tax Law provide, by reference to a specified federal statute, a credit for increasing research expenses, as defined. In general, the amount of the credit under both laws is equal to 8% of the excess of the qualified research expenses, as defined, for the taxable or income year over the base amount and, in addition, for purposes of the Bank and Corporation Tax Law, 12% of the basic research payments, as defined.
This bill would, for each taxable or income year beginning on or after January 1, 1997, increase the credit to 11% for the excess of the qualified research expenses, and to 24% with respect to basic research payments. This bill would also expand the scope of activities with respect to which the credit is allowed, as provided, to expressly include certain biopharmaceutical research activities or any other biotechnology research and development activities, as specified.
(9) The Personal Income Tax Law and the Bank and Corporation Tax Law authorize a credit in an amount equal to a specified percentage of qualified wages paid to a qualified disadvantaged individual, as defined, employed in an enterprise zone.
This bill would modify certain limitations in the definition of qualified wages with respect to wages paid to a qualified employee employed in the Long Beach Enterprise Zone in aircraft manufacturing activities, as provided.
This bill would provide that specified provisions relating to this hiring credit would become operative only if both this bill and SB 2023 are both enacted and become operative, as specified.
(10) This bill would authorize under the Personal Income Tax Law and the Bank and Corporation Tax Law, for taxable or income years beginning on or after January 1, 1997, specified credits relating to qualified amounts paid or incurred by a taxpayer to construct or rehabilitate farmworker housing to meet the requirements of the Employee Housing Act, and specified credits relating to interest income received on loans made to finance qualified expenditures to construct, rehabilitate, or reconstruct seasonal or year-round farmworker housing, as defined.
(11) The bill would require the Franchise Tax Board and the California Tax Credit Allocation Committee, on or before July 1, 1997, to enter into an agreement to work cooperatively with one another to administer the farmworker housing credits. The bill would require the board and the committee to report jointly, on or before January 1, 1999, to the Legislature regarding the operation of the program, as specified.
(12) This bill would allow under the Personal Income Tax Law and the Bank and Corporation Tax Law, for taxable or income years beginning on or after January 1, 1996, a credit for specified expenditures to provide access to disabled individuals in accordance with federal law, modified as provided. (13) This bill would authorize a credit under the Personal Income Tax Law and the Bank and Corporation Tax Law for each taxable and income year beginning on or after January 1, 1996, in an amount equal to 50% of the transportation costs paid or incurred in connection with donated agricultural products, as specified, by the taxpayer. (14) The Personal Income Tax Law and the Bank and Corporation Tax Law provide for the levy of an alternative minimum tax in partial conformity with federal law, subject to certain modifications that include a tentative minimum tax. The tentative minimum tax is imposed on specified items of income and items of tax preference. This bill would provide that alternative minimum taxable income shall not include income, adjustments, and items of tax preference attributable to the trade or business of a qualified taxpayer, as defined. (15) The Personal Income Tax Law and the Bank and Corporation Tax Law allow various deductions in computing taxable income under those laws.This bill would allow, subject to certain deduction limitations contained in specified proposed provisions of federal income tax law, a deduction of the amount deposited in any taxable year by an individual in a medical savings account, as defined, taxable years commencing on or after January 1, 1997, Exclude from gross income any interest or dividends earned on the moneys deposted in a medical savings account. The bill would require the trustee or custodian of a medical savings account to make annual reports, as specified, to the individual for whom the account is established. The bill would make related changes.
(16) The Personal Income Tax Law, by reference to specified federal statutes, allows a deduction for contributions to an individual retirement account, as specified, and allows an individual married to a nonworking spouse to make deductible contributions of up to $250 annually to a spousal account.
This bill would, for each taxable year beginning on or after January 1, 1997, allow a deduction for a contribution by or on behalf of a nonworking spouse in an amount not to exceed $2,000 annually, as specified.
(17) The Personal Income Tax Law, by reference to specified federal statutes, conforms to various provisions of federal income tax law. Those provisions allow a deduction for the cost of certain tangible property that would otherwise be required to be capitalized and depreciated. Those provisions provide that the aggregate amount that may be deducted at various aggregate amounts, while the state provisions set the aggregate amount at $10,000.
This bill would, for purposes of incorporation into the Personal Income Tax Law, modify those provisions for taxable years beginning on or after January 1, 1997, by increasing the aggregate amount that may be deducted under the state provisions to $12,500 with respect to property placed in service on or after January 1, 1997, and before January 1, 1998, and $15,000 with respect to property placed in service on or after January 1, 1998.
(18) The Personal Income Tax Law, by reference to specified federal statutes, allows a deduction for expenses paid during the taxable year for medical care not compensated for by insurance or otherwise, which includes amounts paid for medical insurance.
This bill would modify those provisions to include amounts paid for qualified long-term medical care services, as specified, and any qualified long-term care insurance contract.
(19) This bill would, under the Personal Income Tax Law and the Bank and Corporation Tax Law, provide specified additional conformity to federal income tax laws relating to moving expenses, modifications of income from the discharge of indebtedness, the modification of the limitation on the deduction for certain interest,
the limitation on travel expenses for spouses, dependents, and other individuals, the deductibility of interest in connection with a life insurance policy of an employer, employee stock option plans, and the mark to market accounting method for securities dealers.
This bill would also, under the Personal Income Tax Law, provide specified additional conformity to federal income tax laws relating to increases in the recovery period for nonresidential real property under the accelerated cost recovery system and the treatment of certain payments to retired or deceased partners.
(20) The Personal Income Tax Law, by reference to a specified federal statute, provides for an exclusion from the gross income of an employee with respect to the taxes imposed by that law for amounts paid or expenses incurred by an employer for educational assistance to the employee, as specified, up to $5,250 during a calendar year. However, the exclusion is not available for state income tax purposes in any taxable year in which the federal exclusion is not available for federal income tax purposes. By its own terms, the federal statute is not applicable to taxable years beginning after December 31, 1994.
This bill would continue the exclusion for state income tax purposes by incorporating the substantive provisions of the expired federal exclusion, thereby making the exclusion applicable to taxable years beginning on or after January 1, 1995. This bill would provide, however, that educational assistance does not include any course or education taken at the graduate level beginning after June 30, 1996, of a kind normally taken by an individual pursuing a medical, or other advanced program leading to a law, business academic or professional degree.
(21) Existing laws relating to the administration of income and bank and corporation tax laws provide, among other things, for the payment of additional amounts in the case of specified underpayments of tax, as provided. This bill would, for purposes of bank and corporation taxes, modify a calculation used in determining the amount of the underpayment, as specified.
(22) Existing law authorizes the Franchise Tax Board to enter into a voluntary disclosure agreement with a qualified business entity, as defined, that is binding upon both the board and the business entity. This bill would similarly authorize the Franchise Tax Board to enter into a voluntary disclosure agreement with a qualified shareholder, as defined. |
(23) The Bank and Corporation Tax Law provides that a corporation that incorporates under the laws of this state or qualifies to transact interstate business in this state shall prepay a specified minimum franchise tax of $800, except as provided. This bill would provide that, for income years commencing on or after January 1, 1997, the amount of the prepaid minimum franchise tax for a qualified new corporation, as defined, shall be $600, unless its gross receipts, as specified, or its tax liability exceeds specified amounts.
(24) The Bank and Corporation Tax Law provides that specified organizations are exempt from the taxes imposed by that law. This bill would, in addition, exempt from taxes imposed by that law an organization established pursuant to the Nonprofit Corporation Law by 3 or more corporations as an arrangement for the pooling of self-insurance claims or losses of those corporations.
(25) Existing law requires each employer to file certain information with respect to new employees with the Employment Development Department, and authorizes the department to use this information for specified purposes. This bill would additionally authorize the Employment Development Department (1) to provide this information to the Franchise Tax Board for purposes of tax enforcement, (2) to use this information for identification and collection of delinquent liabilities, and (3) to assist the department in determining the effectiveness of its job placement services. The bill would also provide that certain information may be released to the Franchise Tax Board for tax collection purposes.
(26) Existing law requires the department to provide written notice to an employer for the employer's first failure to report the hiring of employees. A subsequent failure to report subjects an employer to a $250 penalty.This bill would provide that an employer is subject to the penalty unless the failure to report is due to good cause.
(27) The Bank and 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, the income is generally apportioned between this state and the other states and foreign countries for tax purposes in accordance with a specified formula based on the property, payroll, and sales within and without this state. Existing law permits a qualified taxpayer, as defined, to elect to determine its income under a water's-edge election and permits those taxpayers to exclude, as specified, from income 100% or 75% of qualifying foreign dividends, or 75% of partially excluded qualifying dividends. This bill would permit those taxpayers to exclude only 75% of qualifying foreign dividends from income, except that taxpayers would be allowed to exclude 100% of dividends derived from construction projects, as provided. This bill would eliminate the calculations relating to the determination of the amount of that exclusion.
(28) The Bank and Corporation Tax Law provides that specified interest expense that is incurred for purposes of foreign investments may be offset against deductible qualifying dividends. This bill would, for income years beginning on or after January 1, 1997, modify those provisions to require the offset amount otherwise computed to be multiplied by a specified percentage.
(29) Counties and cities are authorized to impose local sales and use taxes in conformity with state sales and use taxes. Exemptions from state sales and use taxes enacted by the Legislature are incorporated into the local taxes. Section 2230 of the Revenue and Taxation Code provides that the state will reimburse counties and cities for revenue losses caused by the enactment of sales and use tax exemptions. This bill would provide that, notwithstanding Section 2230 of the Revenue and Taxation Code, no appropriation is made and the state shall not reimburse local agencies for sales and use tax revenues lost by them pursuant to this bill.
(30) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason.
(31) This bill would take effect immediately as a tax levy, however its provisions would become operative as specified. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 17008.7 is added to the Health and Safety Code, to read:
17008.7. All housing assisted pursuant to Chapter 3.7 (commencing with Section 50199.50) of Part I of Division 31 shall he deemed employee housing, without regard to the number of dwelling accommodations or spaces or whether the owner is an entity exempted pursuant to Section 17024, and shall be subject to all requirements of this chapter.
SEC. 2. Chapter 3.7 (commencing with Section 50199.50) is added to Part 1 of Division 31 of the Health and Safety Code, to read:
CHAPTER 3.7. FARMWORKER HOUSING ASSISTANCE PROGRAM
50199.50. For the purposes of this chapter:
(a) "Agricultural worker" or "farmworker" shall have the same meaning as specified in subdivision (b) of Section 1140.4 of the Labor Code.
(b) "Compliance period" means, with respect to any farmworker housing, the period of 30 consecutive taxable or income years, beginning with the taxable or income year in which the credit is allowable.
(c) "Employee Housing Act" means Part I (commencing with Section 17000) of Division 13.
(d) "Farmworker housing" means housing subject to the Employee Housing Act, and, for the purposes of this chapter, it shall also include projects with less than five dwelling spaces or units in nonrural areas.
(e) "Farmworker housing tax credits" means the tax credits authorized by Sections 17053.14, 23608.2, and 23608.3 of the Revenue and Taxation Code.
(f) "Household" has the same meaning as defined in Section 7602 of Title 25 of the California Code of Regulations.
(g) "Committee" means the California Tax Credit Allocation Committee as defined in Section 50199.7.
50199.51. The committee shall perform those duties delegated to it pursuant to this chapter and the responsibilities related to receipt by taxpayers of farmworker housing tax credits.
50199.52. All housing assisted pursuant to this chapter shall comply with the following requirements:
(a) Before claiming any farmworker housing tax credits, the taxpayer shall provide the committee with a copy of a current Employee Housing Act permit to operate.
(b) (1) The recipient of a tax credit pursuant to Section 17053.14, 23608.2, or 23608.3 of the Revenue and Taxation Code, or the owner of the farmworker housing assisted pursuant to Section 17053.14 or 23608.2 of the Revenue and Taxation Code, shall enter into those agreements required by the committee to further the purposes of this chapter and the applicable farmworker housing tax credit sections.
(2) The owner shall agree that the farmworker housing units assisted with the farmworker housing tax credits shall be utilized, maintained, and operated pursuant to this chapter for the compliance term specified by the applicable farmworker housing tax credit statute.
(c) (1) The farmworker housing assisted pursuant to this chapter shall be available to, and occupied by, only farmworkers and their households. However, in the event of a natural disaster or other critical occurrence, as determined by the committee, the housing may be utilized at the discretion of the owner for households needing shelter for up to 60 days if there are no farmworkers who have submitted an application to reside, or to continue to reside, in the housing. The occupants of the housing need not be limited to farmworkers employed by the property owner.
(2) In addition, where the housing is designed and operated as a dormitory, the owner and operator may restrict occupancy by sex. However, in awarding credits pursuant to this chapter, the committee shall give preference to proposed farmworker housing that is designed and operated for families rather than for single sex dormitories.
(d) The expenditures upon which the amount of the farmworker housing tax credit is based shall be costs paid or incurred only for construction or repairs necessary to bring the housing into compliance with the Employee Housing Act and general improvement costs necessary and directly related thereto, including, but not limited to, improvements to ensure compliance with laws governing access for persons with handicaps, building and permit fees, and costs related to reducing utility expenses, including additional insulation, solar water heating, or similar improvements.
50199.53. The committee shall enter into an agreement with the owner of the farmworker housing to ensure compliance with the terms and conditions of the program. The agreement shall be subordinated, when required, to a lien or encumbrance of any bank or other institutional lender to the project. The provisions in the agreement shall include, but not be limited to, all of the following:
(a) Provisions establishing the location and number of units or sleeping areas and their rents.
(b) The requirement of an annual report, including occupancy, income, and maintenance information and, if applicable, a copy of a current operating permit issued pursuant to the Employee Housing Act.
(c) Provisions allowing and governing state approval of the assignment, transfer, and assumption of the housing, to ensure that the requirements of this program are binding on successors.
(d) Provisions ensuring a term of use at least equal to the compliance period.
(e) A requirement that the agreement be recorded in the official records of the county in which the qualified farmworker housing project is located.
(f) A provision stating that the agreement is enforceable by the committee, and by the city or county in which the farmworker housing is located, and by the tenants as third-party beneficiaries.
(g) Provisions defining how the affordable rents will be established and maintained.
50199.54. (a) In the event that the owner who receives a credit pursuant to Section 17053.14 or 23608.2 of the Revenue and Taxation Code demonstrates, to the committee's satisfaction, that there is no further need for farmworker housing or that it is no longer economically feasible to operate the farmworker housing, the owner shall pay to the Franchise Tax Board a pro rata portion of the credit previously allowed equal to the amount of any tax credit previously allowed, multiplied by the ratio of the number of years not elapsed in the compliance period divided by 30.
(b) In the event that the farmworker housing is damaged or destroyed by a casualty not caused by the owner, the compliance period has not expired, and the owner commences reasonable action to repair or replace the farmworker housing, the taxpayer may continue to claim the credit as if no destruction had taken place.
50199.55. (a) The committee shall allocate farmworker housing credits on a regular basis in each calendar year during which applications may be filed and considered. The committee shall establish application forms and instructions, application filing deadlines, and the approximate date on which allocations shall be made. As a condition of submitting an application, or as a condition of receiving an allocation or reservation of tax credits, the committee may charge a fee to a tax credit applicant to defray the committee's costs in administering this chapter. In review of applications, the committee shall require the following criteria in order to ensure compliance with all provisions of this chapter:
(1) The project's proposed financing, including tax credit proceeds, shall be sufficient to complete the project.
(2) The proposed operating budget shall be adequate to operate the project for the compliance period.
(3) The recipient or owner shall have sufficient expertise and the financial capacity to ensure project completion and operation for the compliance period.
(4) The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.
(5) Development fees and costs not included in subdivision (d) of Section 50199.54 shall not exceed a percentage of the eligible basis of the project prior to the inclusion of the fees and costs in the basis, as determined by the committee.
(b) Following approval, the committee shall issue a certificate to the taxpayer that states the total amount of the allocated tax credit to which the taxpayer is entitled for each income or taxable year.
50199.56. The committee may adopt regulations in accordance with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code for the administration of this chapter.
50199.57. The committee shall be responsible for enforcement of the agreement described in Section 50199.55, and shall report promptly to the Franchise Tax Board any violations of this chapter or the farmworker housing tax credit statutes.
50199.58. The Legislature finds and declares both of the following:
(a) It is too speculative to determine the income levels of the agricultural workers residing in farrnworker housing at any given time, and many agricultural workers earn sufficient income, when they are fully employed, to qualify as persons and families of moderate income.
(b) The farmworker housing assisted pursuant to this chapter is not a low-rent housing project, as defined by Section 1 of Article XXXIV of the California Constitution.
SEC. 3. Section 6244.5 is added to the Revenue and Taxation Code, to read:
6244.5. (a) Notwithstanding any other provision of law, a lessor of tangible personal property described in Section 17053.49 or 23649, who is the manufacturer of that property and who leases that property to a qualified taxpayer, as defined in Sections 17053.49 and 23649, in a form that is not substantially the same form as acquired, may, in lieu of reporting use tax measured by the rentals payable, elect to pay tax measured by his or her cost price of that property if the election is made on or before the due date of the return for the period in which the property is first leased. The election shall be made by reporting use tax measured by the cost price on the return for that period. The election shall not be revoked with respect to the property as to which it is made. The lease of that property for which an election is made pursuant to this section shall thereafter be excluded from the terms "sale" and "purchase."
(b) "Cost price," as used in subdivision (a), means the price at which similar property has been previously sold or offered for sale. If that property has not been previously sold or offered for sale, then the cost price shall be deemed to be the aggregate of the following:
(1) Cost of materials.
(2) Direct labor.
(3) The pro rata share of all overhead costs attributable to the manufacture of the property.
(4) Reasonable profit from the manufacturing operations which, in the absence of evidence to the contrary, shall be deemed to be 5 percent of the sum of the factors listed in paragraphs (1) to (3), inclusive.
SEC. 3.5.
to read:
6358. There are exempted from the taxes imposed by this part, the gross receipts from the sale in this state of, and the storage, use, or other consumption in this state of:
(a) Any form of animal life of a kind the products of which ordinarily constitute food for human consumption.
(b) Feed for any form of animal life of a kind the products of which ordinarily constitute food for human consumption, or are to be sold in the regular course of business.
(c) Seeds and annual plants the products of which ordinarily constitute food for human consumption or are to be sold in the regular course of business.
(d) Fertilizer to be applied to land the products of which are to be used as food for human consumption or sold in the regular course of business.
(e) On or after January 1, 1997, drugs or medicines, the primary purpose of which is the prevention or control of disease, that are administered to animal life of a kind the products of which ordinarily constitute food for human consumption.
SEC. 4. Section 6366 of the Revenue and Taxation Code is amended to read:
6366. (a) There are exempted from the taxes imposed by this part the gross receipts from the sale in this state of, and the storage, use, or other consumption in this state of, the following:
(1) Aircraft sold to any person using the aircraft as a common carrier of persons or property under authority of the laws of this state, of the United States, or of any foreign government, or sold to any foreign government for use by that government outside of this state, or sold to any person who is not a resident of this state and who will not use that aircraft in this state otherwise than in the removal of the aircraft from this state.
(2) Tangible personal property that is purchased on or after October 1, 1996, and becomes a component part of any aircraft described in paragraph (1), as a result of the maintenance, repair, overhaul, or improvement of that aircraft in compliance with Federal Aviation Administration requirements, and any charges made for labor and services rendered with respect to that maintenance, repair, overhaul, or improvement.
(b) With respect to aircraft sold on or after January 1, 1997, it shall be presumed that a person is not engaged in business as a common carrier if the person's yearly gross receipts from the use of the aircraft as a common carrier do not exceed 20 percent of the purchase cost of the aircraft to him or her, or fifty thousand dollars ($50,000), whichever is less. This presumption may be rebutted by contrary evidence satisfactory to the board showing that the person is engaged in business as a common carrier.
In no event shall "gross receipts" include compensation by the person or related parties for use of the aircraft as a common carrier.
(c) With respect to aircraft leased, or sold for the purpose of Section 6358 of the Revenue and Taxation Code is amended
leasing, on or after January 1, 1997, it shall be presumed that the aircraft is not regularly used in the business of transporting for hire property or persons if the lessor's yearly gross receipts from the lease of that aircraft to persons using the aircraft as common carriers of property or persons do not exceed 20 percent of the cost of the aircraft to the lessor, or fifty thousand dollars ($50,000), whichever is less. This presumption may be rebutted by contrary evidence satisfactory to the board showing that the aircraft is regularly used as a common carrier of property or persons. In no event shall "gross receipts" include compensation by the lessor or related parties for use of the aircraft as a common carrier.
SEC. 6.
to read:
6377. (a) 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) Tangible personal property purchased for use by a qualified Section 6377 of the Revenue and Taxation Code is amended
person to be used primarily in any stage of the manufacturing, processing, refining, fabricating, or recycling of property, beginning at the point any raw materials are received by the qualified person and introduced into the process and ending at the point at which the manufacturing, processing, refining, fabricating or recycling has altered property to its completed form, including packaging, if required.
(2) Tangible personal property purchased for use by a qualified person to be used primarily in research and development.
(3) Tangible personal property purchased for use by a qualified person to be used primarily to maintain, repair, measure, or test any property described in paragraph (1) or (2).
(4) Tangible personal property purchased for use by a contractor purchasing that property either as an agent of a qualified person or for the contractor's own account and subsequent resale to a qualified person for use in the performance of a construction contract for the qualified person who 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.
This exemption shall not apply to any tangible personal property that is used primarily in administration, general management, or marketing.
(b) For purposes of this section:
(1) "Fabricating" means to make, build, create, produce, or assemble components or property to work in a new or different manner.
(2) "Manufacturing" means the activity of converting or conditioning property by changing the form, composition, quality, or character of the property for ultimate sale at retail or use in the manufacturing of a product to be ultimately sold at retail. Manufacturing includes any improvements to tangible personal property that result in a greater service that of the original property.
Life or greater functionality than
(3) "Primarily" means tangible personal property used 50 percent or more of the time in an activity described in subdivision (a).
(4) "Process" means the period beginning at the point at which any raw materials are received by the qualified taxpayer and introduced into the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer 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 taxpayer's manufacturing, processing, refining, or recycling activity is conducted. Raw materials that are stored on premises other than where the qualified taxpayer's manufacturing, processing, refining, fabricating, or recycling activity is conducted, shall not be considered to have been introduced into the manufacturing, processing, refining, fabricating, or recycling process.
(5) "Processing" means the physical application of the materials and labor necessary to modify or change the characteristics of property.
(6) "Qualified person" means any person that is both of the following:
(A) A new trade or business. 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 Section 23101), 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) the conduct of his or her trade or business exceed 20 percent of 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: in the
(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(l) 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(l) 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 division of the Standard Industrial Classification Manual published by the United States Office of Management and Budget, 1987 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, this doing business in this state (within the meaning of Section 23101) after December 31, 1993 (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) "Related person" means any person that is related to that person under either Section 267 or 318 of the Internal Revenue Code.
Is engaged in trade or business activities wholly outside of state and that person first commences
(vi) "Acquire" includes any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.
(B) Engaged in those lines of business described in Codes 2011 to 3999, inclusive, of the Standard Industrial Classification Manual by the United States Office of Management and Budget, 1987 published edition.
(7) Notwithstanding paragraph (6), "qualified person" shall not include any person who has conducted business activities in a new trade or business for three or more years.
(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) "Tangible personal property" does not include any of the following:
(A) Consumables with a normal useful life of less than one year, except as provided in subparagraph (E) of paragraph (10).
(B) Furniture, inventory, equipment used in the extraction process, or equipment used to store finished products that have completed the manufacturing process.
(C) Any property for which a credit is claimed under either Section 17053.49 or 23649.
(11) "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 exceed 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) Fuels used or consumed in the manufacturing process.
(F) Property used in recycling.
(c) No exemption shall be allowed under this section unless the purchaser furnishes the retailer with an exemption certificate, completed in accordance with any instructions or regulations as the board may prescribe, and the retailer subsequently furnishes the board with a copy of the exemption certificate. The exemption certificate shall contain the sales price of the machinery or equipment that is exempt pursuant to subdivision (a).
(d) Notwithstanding any provision of the Bradley-Burns Uniform Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200)) or the Transactions and Use Tax Law (Part 1.6 (commencing with Section 7251)), the exemption established by this section shall not apply with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, either of those laws.
(e) (1) Notwithstanding subdivision (a), the exemption provided by this section shall not apply to any sale or use of property 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.
(2) Notwithstanding subdivision (a), on or after January 1, 1995, the exemption established by this section shall not apply with respect to any tax levied pursuant to Sections 6051.2 and 6201.2, or pursuant to Section 35 of Article XIII of the California Constitution.
(f) If a purchaser certifies in writing to the seller that the property purchased without payment of the tax will be used in a manner entitling the seller to regard the gross receipts from the sale as exempt from the sales tax, and within one year from the date of purchase, the purchaser (1) removes that property outside California, (2) converts that property for use in a manner not qualifying for the exemption, or (3) uses that property in a manner not qualifying for the exemption, the purchaser shall be liable for payment of sales tax, with applicable interest, as if the purchaser were a retailer making a retail sale of the property at the time the property is so removed, converted, or used, and the sales price of the property to the purchaser shall be deemed the gross receipts from that retail sale.
(g) (1) This section shall remain in effect until the date specified in paragraph (2), on which date this section shall cease to be operative, and as of that date is repealed.
(2) (A) This section shall cease to be operative on January 1, 2001, or on January, 1 of the earliest year thereafter, if the total employment in this state, as determined by the Employment Development Department on the preceding January 1, does not exceed by 100,000 jobs the total employment in this state on January 1, 1994. The department shall report annually to the Legislature with respect to the determination required by the preceding sentence.
(B) For purposes of this paragraph, "total employment" means the total employment in the manufacturing sector, excluding employment in the aerospace sector.
(h) This section applies to leases of 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 such a lease, provided the lessee is a qualified person and the property is used in an activity described in subdivision (a).
Rentals which meet the foregoing requirements are eligible for the exemption for a period of six years from the date of commencement of the lease. At the close of the six-year period from the date of commencement of the lease, lease receipts are subject to tax without exemption.
SEC. 6.1. Section 17052.8 is added to the Revenue and Taxation Code, to read:
17052.8. For each taxable year beginning on or after January 1, 1996, there shall be allowed as a credit against the "net tax" (as defined by Section 17039) an amount determined as follows:
(a) (1) (A) The amount of the credit shall be equal to one-third of the federal credit computed in accordance with Section 43 of the Internal Revenue Code.
(B) If a taxpayer elects, under Section 43(e) of the Internal Revenue Code, not to apply Section 43 for federal tax purposes, this election is binding and irrevocable for state purposes, and for purposes of subparagraph (A), the federal credit shall be zero.
(2) "Qualified enhanced oil recovery project" shall include only projects located within California.
(3) The credit allowed under this subdivision shall not be allowed to any taxpayer for whom a depletion allowance is not permitted to be computed under Section 613 of the internal Revenue Code by reason of paragraphs (2), (3), or (4) of subsection (d) of Section 613A of the Internal Revenue Code.
(b) Section 43(d) of the Internal Revenue Code shall apply.
(c) 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" for the succeeding 15 years.
(d) In the case where property which qualifies as part of the taxpayer's "qualified enhanced oil recovery costs" also qualifies for a credit under any other section in this part, the taxpayer shall make an election on its original return as to which section applies to all costs allocable to that item of qualified property. Any election made under this section, and any specification contained in that election, may not be revoked except with the consent of the Franchise Tax Board.
(e) No deduction shall be allowed as otherwise provided in this part for that portion of any costs paid or incurred for the taxable year which is equal to the amount of the credit allowed under this section attributable to those costs.
(f) The basis of any property for which a credit is allowed under this section shall be reduced by the amount of the credit attributable to the property. The basis adjustment shall be made for the taxable year for which the credit is allowed.
(g) No credit may be claimed under this section with respect to any amount for which any other credit has been claimed under this part.
SEC. 6.2. Section 17052.10 is added to the Revenue and Taxation Code, to read:
17052.10. (a) For each taxable year beginning on or after January 1, 1997, and before January 1, 2008, there shall be allowed as a credit against the amount of "net tax," as defined in Section 17039, an amount equal to fifteen dollars ($15) for each ton of rice straw, as defined in Section 18944.33 of the Health and Safety Code, that is grown within California and purchased during the taxable year by the taxpayer.
(b) The aggregate amount of tax credits granted to all taxpayers pursuant to this section and Section 23610 shall not exceed four hundred thousand dollars ($400,000) for each calendar year.
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" for the next 10 taxable years, or until the credit has been exhausted, whichever occurs first.
(d) No deduction shall be claimed for the purchase of rice straw for which a tax credit has been claimed pursuant to this section.
(e) No credit shall be claimed for the purchase of rice straw for which a tax credit has otherwise already been claimed pursuant to this part.
(f) The Department of Food and Agriculture shall do all of the following:
(1) Certify that the taxpayer has purchased the rice straw as specified in subdivision (a).
(2) Issue certificates in an aggregate amount that shall not exceed the limit specified in subdivision (b). The certificates shall be issued on a "first come, first served" basis to reflect the chronological order that the taxpayer submitted a valid request to the Department of Food and Agriculture.
(3) Provide an annual listing to the Franchise Tax Board (preferably on computer readable form, and in a form or manner agreed upon by the Franchise Tax Board and the Department of Food and Agriculture) of the qualified taxpayers who were issued certificates and the amount of rice straw purchased by each taxpayer.
(4) Provide the taxpayer with a copy of the certification to retain for his or her records.
(5) obtain the taxpayer's identification number, or in the case of a partnership, the taxpayer identification numbers of all partners.
(6) On or before each June 1 immediately following each year for which the credit under this section is available, provide to the Legislature an informational report with respect to that year that includes all of the following:
(A) The number of tax credit certificates requested and issued.
(B) The type of businesses receiving the tax credit certificates.
(C) A general list of the methods used to process the rice straw.
(D) Recommendations on how the credits can he issued in a manner which will maximize the long term use of the California grown rice straw.
(g) To be eligible for the credit under this section the taxpayer shall do all of the following:
(1) As part of the taxpayer's allocation request for tax credits, provide the Department of Food and Agriculture with documents, as deemed necessary by the department, verifying the purchase of rice straw and that it meets the requirements specified in this section.
(2) Retain for his or her records a copy of the certificate issued by the Department of Food and Agriculture as specified in subdivision (f).
(3) Provide a copy of the certification specified in subdivision (f) to the Franchise Tax Board upon request. If the taxpayer fails to comply with the requirements of this subdivision, no credit shall be allowed to that taxpayer under this section for any taxable year unless the taxpayer subsequently complies.
(4) Provide the Department of Food and Agriculture with his or her taxpayer identification number, or in the case of a partnership, the taxpayer identification numbers of all partners.
(h) (1) For purposes of this section, a credit shall be allowed only if the taxpayer is the "end user" of the rice straw. For purposes of this section, "end user" shall mean anyone who uses the rice straw for processing, generation of energy, manufacturing, export, prevention of erosion, or for any other purpose, exclusive of open burning, that consumes the rice straw.
(2) The credit shall not be allowed if the taxpayer is related, within the meaning of Section 267 or 318 of the Internal Revenue Code, to any person who grew the rice straw within California.
(i) This section shall remain in effect only until December 1, 2008, and as of that date is repealed.
SEC. 7. Section 17052.12 of the Revenue and Taxation Code is amended to read:
17052.12. For each taxable year beginning on or after January 1, 1987, there shall he allowed as a credit against the "net tax" (as defined by Section 17039) for the taxable year an amount determined in accordance with Section 41 of the Internal Revenue Code, except as follows:
(a) For each taxable year beginning before January 1, 1997, the reference to 1120 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read 118 percent."
(b) For each taxable year beginning on or after January 1, 1997, the reference to 1120 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "11 percent."
(c) Section 41(a)(2) of the Internal Revenue Code, relating to basic research payments, shall not apply.
(d) "Qualified research" shall include only research conducted in California.
(e) In the case where the credit allowed under this section exceeds the "net tax," the excess may be carried over to reduce the "net tax" in the following year, and succeeding years if necessary, until the credit has been exhausted.
(f) Section 41(c)(5) of the Internal Revenue Code, relating to gross receipts, is modified to take into account only those gross receipts from the sale of property held primarily for sale to customers in the ordinary course of the taxpayer's trade or business that is delivered or shipped to a purchaser within this state, regardless of f.o.b. point or other conditions of sale.
(g) Section 41(h) of the Internal Revenue Code, relating to termination, shall not apply. (h) Except as provided in subdivision (i), the amendments to this section by the act adding this subdivision shall apply only to taxable years beginning on or after January 1, 1993.
(i) The amendments made by Section 13112 of the Revenue Reconciliation Act of 1993 (P.L. 103-66) to Section 41 of the Internal Revenue Code, relating to the credit for increased research activities, shall apply to taxable years beginning on or after January 1, 1994.
(j) Section 41(g) of the Internal Revenue Code, relating to special rule for passthrough of credit, is modified by each of the following:
(1) The last sentence shall not apply.
(2) If the amount determined under Section 41(a) of the Internal Revenue Code for any taxable year exceeds the limitation of Section 41(g) of the Internal Revenue Code, that amount may be carried over to other taxable years under the rules of subdivision (e); except that the limitation of Section 41(g) of the Internal Revenue Code shall be taken into account in each subsequent taxable year.
SEC. 8. Section 17053.8 of the Revenue and Taxation Code is amended to read:
17053.8. (a) There shall be allowed as a credit against the "net tax" (as defined in Section 17039) for the taxable year an amount equal to the sum of each of the following:
(1) Fifty percent for qualified wages in the first year of employment.
(2) Forty percent for qualified wages in the second year of employment.
(3) Thirty percent for qualified wages in the third year of employment.
(4) Twenty percent for qualified wages in the fourth year of employment.
(5) Ten percent for qualified wages in the fifth year of employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) (i) Except as provided in clause (ii), that portion of wages paid or incurred by the employer during the taxable year to qualified disadvantaged individuals that does not exceed 150 percent of the minimum wage.
(ii) For up to 1,350 qualified employees who are employed by the taxpayer in the Long Beach Enterprise Zone in aircraft manufacturing activities described in Codes 3721 to 3728, inclusive, and Code 3812 of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, "qualified wages" means that portion of hourly wages that does not exceed 202 percent of the minimum wage.
(B) Wages received during the 60-month period beginning with the day the individual commences employment with the taxpayer.
(2) "Minimum wage" means the wage established by the Industrial Welfare Commission as provided for in Chapter 1 (commencing with
(c) For purposes of this section:
(1) "Qualified disadvantaged individual" means an individual
(A) Who is a qualified employee within the meaning of subdivision (d).
(B) Who is hired by the employer after the designation of the area in which services were performed as an enterprise zone (under Section 7073 of the Government Code).
(C) Who is any of the following immediately preceding the individual's commencement of employment with the taxpayer:
(i) An individual who is eligible for services under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501 et seq.) and who is receiving, or is eligible to receive, subsidized employment, training, or services funded by the federal Job Training Partnership Act.
(Ii) Any individual who is eligible to be a voluntary or mandatory registrant under the Greater Avenues for Independence Act of 1985 (GAIN) provided for pursuant to Article 3.2 (commencing with Section 11320) of Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions Code.
(Iii) Any individual who is eligible as determined by the Employment Development Department under the federal Targeted Jobs Tax Credit Program as long as that program is in effect.
(2) Priority shall be provided to an individual who is enrolled in a qualified program under the federal Job Training Partnership Act or the Greater Avenues for Independence Act of 1985 or who is eligible under the federal Targeted Jobs Tax Credit Program.
(d) For purposes of this section:"qualified employee" means an individual
(1) At least 90 percent of whose services for the taxpayer during the taxable year are directly related to the conduct of the taxpayer's trade or business located in an enterprise zone, and
(2) Who performs at least 50 percent of his or her services for the taxpayer during the taxable year in an enterprise zone.
(e) The taxpayer shall do both of the following:
(1) Obtain from either the Employment Development Department or the local county or city Job Training Partnership Act administrative entity or the local county GAIN office or social services agency, as appropriate, a certification which provides that a qualified individual meets the eligibility requirements specified in subparagraph (C) of paragraph (1) of subdivision (c).
(2) Retain a copy of the certification and provide it upon request to the Franchise Tax Board.
(f) (1) For purposes of this section:
(A) All employees of trades or businesses (which are not incorporated) which are under common control shall be treated as employed by a single employer, and
(B) The credit (if any) allowable by this section with respect to each trade or business shall be determined by reference to its proportionate share of the qualified wages giving rise to the credit. The regulations prescribed under this paragraph shall be based on principles similar to the principles which apply in the case of controlled groups of corporations as specified in subdivision (f) of Section 23622.
(2) If an employer acquires the major portion of a trade or business of another employer (hereinafter in this paragraph referred to as the "predecessor") or the major portion of a separate unit of a trade or business of a predecessor, then, for purposes of applying this section (other than subdivision (g)) for any calendar year ending after that acquisition, the employment relationship between an employee and an employer shall not be treated as terminated if the employee continues to be employed in that trade or business.
(g) (1) If the employment of any employee, with respect to whom qualified wages are taken into account under subdivision (a) is terminated by the taxpayer at any time during the first 270 days of that employment (whether or not consecutive) or before the close of the 270th calendar day after the day in which that employee completes 90 days of employment with the taxpayer, the tax imposed by this part for the taxable year in which that employment is terminated shall be increased by an amount (determined under those regulations) equal to the credit allowed under subdivision (a) for that taxable year and all prior taxable years attributable to qualified wages paid or incurred with respect to that employee.
(2) (A) Paragraph (1) shall not apply to any of the following:
(i) A termination of employment of an employee who voluntarily leaves the employment of the taxpayer.
(Ii) A termination of employment of an individual who, before the close of the period referred to in paragraph (1), becomes disabled and unable to perform the services of that employment, unless that disability is removed before the close of that period and the taxpayer fails to offer reemployment to that individual.
(Iii) A termination of employment of an individual, if it is determined under the applicable employment compensation provisions that the termination was due to the misconduct of that individual.
(Iv) A termination of employment of an individual due to a substantial reduction in the trade or business operations of the taxpayer.
(v) A termination of employment of an individual, if that individual is replaced by other qualified employees so as to create a net increase in both the number of employees and the hours of employment.
(B) For purposes of paragraph (1), the employment relationship between the taxpayer and an employee shall not be treated as terminated by reason of a mere change in the form of conducting the trade or business of the taxpayer, if the employee continues to be employed in that trade or business and the taxpayer retains a substantial interest in that trade or business.
(3) Any increase in tax under paragraph (1) shall as tax imposed by this part for purposes of any credit allowable under this part.
(h) In the case of an estate or trust-
(1) The qualified wages for any taxable year shall be apportioned between the estate or trust and the beneficiaries on the basis of the income of the estate or trust allocable to each, and
(2) Any beneficiary to whom any qualified wages have been apportioned under paragraph (1) shall be treated (for purposes of this part) as the employer with respect to those wages.
(i) For purposes of this section, "enterprise zone" means an area for which designation as an enterprise zone is in effect under Section 7073 of the Government Code.
(j) The credit shall be reduced by the credit allowed under Section 17053.7. The credit shall also be reduced by the federal credit allowed under Section 51 of the Internal Revenue Code. In addition, any deduction otherwise allowed under this part for the wages or salaries paid or incurred by the taxpayer upon which the credit is based shall be reduced by the amount of the credit, prior to any reduction required by subdivision (k) or (1).
(k) In the case where the credit allowed under this section exceeds the net tax for the taxable year, that portion of the credit which exceeds the net tax may be carried over and added to the credit, if any, in succeeding taxable years for the number of taxable years in which the designation of an enterprise zone is binding, or 15 taxable years, if longer, until the credit is exhausted. The credit shall be applied first to the earliest taxable years possible.
(1) The amount of the credit otherwise allowed under this section and Section 17052-13, including any credit carryover from prior years, that may reduce the "net tax" for the taxable year shall not exceed the amount of tax which would be imposed on the taxpayer's business income attributed to the enterprise zone determined as if that attributed income represented all of the income of the taxpayer subject to tax under this part. (2) The amount of attributed income described in paragraph (1) shall be determined in accordance with Chapter 17 (commencing with Section 25101) of Part 11, modified for purposes of this section as follows:
(A) For taxable years beginning on or after January 1, 1991, and ending on or before December 31, 1996, income shall be apportioned to the enterprise zone by multiplying total business income by a factor plus the fraction, the numerator of which is the property payroll factor, and the denominator of which is two.
(B) "The enterprise zone" shall be substituted for "this state
(3) The portion of any credit remaining, if any, after application of this subdivision, shall be carried over to succeeding taxable years, as if it were an amount exceeding the "net tax" for the taxable year, as provided in subdivision (k).
SEC. 9. Section 17053.12 is added to the Revenue and Taxation Code, to read:
17053.12. (a) In the case of a taxpayer who transports any agricultural product donated in accordance with Chapter 5 (commencing with Section 58501) of Part 1 of Division 21 of the Food and Agricultural Code, for taxable years beginning on or after January 1, 1996, there shall be allowed as a credit against the "net tax" (as defined by Section 17039), an amount equal to 50 percent of the transportation costs paid or incurred by the taxpayer in connection with the transportation of that donated agricultural product.
(b) If any credit allowed by this section is claimed by the taxpayer, any deduction otherwise allowed under this part for that amount of the cost paid or incurred by the taxpayer which is eligible for the credit that is claimed shall be reduced by the amount of the credit allowed.
(c) Upon delivery of the donated agricultural product by a taxpayer authorized to claim a credit pursuant to subdivision (a), the nonprofit charitable organization shall provide a certificate to the taxpayer who transported the agricultural product. The certificate shall contain a statement signed and dated by a person authorized by that organization that the product is donated under Chapter 5 (commencing with Section 58501) of Part 1 of Division 21 of the Food and Agricultural Code. The certificate shall also contain the following information: the type and quantity of product donated, the distance transported, the name of the transporter, the name of the taxpayer donor, and the name and address of the donee. Upon the request of the Franchise Tax Board, the taxpayer shall provide a copy of the certification to the Franchise Tax Board.
(d) In the case where any 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 years if necessary, until the credit has been exhausted.
SEC. 10. Section 17053.14 is added to the Revenue and Taxation Code, to read:
17053.14. (a) (1) For taxable years beginning on or after January 1, 1997, there shall be allowed as a credit against the "net tax," as defined in Section 17039, an amount equal to the lesser of 50 percent of the qualified amount, as determined under subdivision (b), or the amount allocated under paragraph (2) of subdivision (e).
(2) Notwithstanding paragraph (1), no credit shall be allowed until the qualified year, as defined in paragraph (3).
(3) For purposes of this section, the "qualified year,, is the first taxable year during which the construction or rehabilitation of the qualified farmworker housing is completed and there is occupancy of the qualified farmworker housing by eligible farmworkers.
(b) (1) For purposes of this section, the "qualified amount" shall be equal to the sum of all costs paid or incurred to construct, in the case of new construction, or rehabilitate, farmworker housing to meet the requirements of the Employee Housing Act (Part 1 (commencing with Section 17000) of Division 13 of the Health and Safety Code), and any general improvement costs directly related thereto, including, but not limited to, improvements to ensure compliance with laws governing access for persons with disabilities and costs reducing utility expenses. Purposes of paragraph (1), construction or rehabilitation farmworker housing shall have commenced on or after January 1 related to
(2) For of the 1997. (3) Notwithstanding any other provision of this part, the qualified amount shall not include any costs paid or incurred prior to January 1, 1997.
(c) Notwithstanding any other provision of this part, no credit shall be allowed under this section unless the taxpayer first obtains a certification from the committee that the amounts described in subdivision (b) qualify for the credit under this section and the total amount of the credit allocated to the taxpayer pursuant to the Farmworker Housing Assistance Program.
(d) The taxpayer shall do all of the following:
(1) Apply to the committee for credit certification prior to the payment or incurrence of costs described in paragraph (1) of subdivision (b).
(2) Retain a copy of the certification.
(3) Make the certification available to the Franchise Tax Board upon request.
(e) The committee shall do all of the following:
(1) Provide forms and instructions for applications for credit certification, as specified pursuant to the Farmworker Housing Assistance Program.
(2) Accept applications and issue a certificate to the taxpayer that includes a certification as to the qualified expenditures described in subdivision (b) that qualify for the credit and the total amount of the credit to which the taxpayer is entitled for the taxable year. Credits shall be allocated through a minimum of one competitive funding round per year.
(3) Obtain the taxpayer's taxpayer identification number, or each partner's taxpayer identification number in the case of a partnership, for tax administration purposes.
(4) Provide an annual listing to the Franchise Tax Board, in the form and manner agreed upon by the Franchise Tax Board and the committee, containing the names, taxpayer identification numbers pursuant to paragraph (3), qualified expenditures, and total amount of credit certified to each taxpayer.
(f) For purposes of this section:
(1) "Compliance period" means, with respect to any farmworker housing, the period of 30 consecutive taxable years, beginning with the taxable year in which the credit is allowable.
(2) "Construct or rehabilitate" includes reconstruction, but does not include any costs related to acquisition or refinancing of property or structures thereon.
(3) "Employee Housing Act" means Part 1 (commencing with Section 17000) of Division 13 of the Health and Safety Code.
(4) "Farmworker Housing Assistance Program" means Chapter 3.7 (commencing with Section 50199.50) of Part 1 of Division 31 of the Health and Safety Code.
(5) "Qualified farmworker housing" means housing located within this state which satisfies the requirements of the Farmworker Housing Assistance Program. The housing may be vacant or occupied, and it need not be licensed pursuant to the Employee Housing Act at the time of the initiation of construction or rehabilitation.
(6) "Committee" means the California Tax Credit Allocation Committee as defined in Section 50199.7 of the Health and Safety Code.
(7) "Qualified accountant" means an accountant licensed or certified in this state who is neither an employee of the taxpayer nor related to the taxpayer, within the meaning of Section 267 of the Internal Revenue Code.
(g) No deduction or other credit shall be allowed under this part or Part 11 (commencing with Section 23001) to the extent of any qualified amounts, as defined in subdivision (b), that are taken into account in computing the credit allowed under this section.
(h) The farmworker housing tax credit shall not be allowed unless the taxpayer:
(1) Constructs or rehabilitates the property subject to the covenants, conditions, and restrictions imposed by this section and pursuant to the Farmworker Housing Assistance Program, which shall include, but not necessarily be limited to, a requirement that the taxpayer obtain, for approval by the committee, a construction cost audit and certification of qualified expenditures from a qualified accountant.
(2) Subsequent to construction or rehabilitation of the farmworker housing, owns or operates the farmworker housing pursuant to the requirements of this section, or ensures the ownership and operation of the farmworker housing pursuant to the requirements of this section.
(i) The requirements of this section shall be set forth in a written agreement between the committee and the taxpayer. The agreement shall include, but not necessarily be limited to, the requirements set forth in the Farmworker Housing Assistance Program.
(j) In the case where the credit allowed by this section the "net tax," the excess may be carried over to reduce the following year, and succeeding years if necessary until the the credit has been exhausted.
(1) In the case of any disqualifying event, as defined in paragraph (2), there shall be added to the "net tax," as defined in
Section 17039, for the taxable year in which the disqualifying event occurs, the recapture amount computed under paragraph (3) and the (4). "disqualifying event" shall interest amount computed under paragraph (2) For purposes of this subdivision, mean: (A) The committee determines that the certification provided under subdivision (e) was obtained by fraud or misrepresentation. (B) The taxpayer fails to comply with the requirements of the Employee Housing Act, if applicable, the Farmworker Housing Assistance Program, or any other requirement imposed under this section. (3) For purposes of this subdivision, "recapture amount" means: (A) In the case of any disqualifying event described in subparagraph (A) of paragraph (2), the previously allowed under this section. Entire amount of any credit (B) In the case of any disqualifying event described in subparagraph (B) of paragraph (2), an amount determined by multiplying the entire amount of the credit previously allowed under this section by a fraction, the numerator of which is the number of years remaining in the compliance period and the denominator of which is 30. (4) For purposes of this subdivision, "interest amount" means: (A) In the case of any disqualifying event described in subparagraph (A) of paragraph (2), the amount of interest computed using the adjusted annual rate established in Section 19521 from the due date of the return for each taxable year in which the credit was claimed to the date of the payment of the additional tax resulting from the application of this subdivision. (B) In the case of any disqualifying event described in subparagraph (B) of paragraph (2), zero. (1) The annual amount of credit granted pursuant to this section and Sections 23608.2 and 23608.3 shall not exceed five hundred thousand dollars ($500,000), provided that the aggregate amount of the credit granted pursuant to this section and Sections 23608.2 and 23608.3 for the 1998 calendar year and thereafter may exceed five hundred thousand dollars ($500,000) per calendar year by an amount equal to any unallocated credits under this section and Sections 23608.2 and 23608.3 for the preceding calendar year or years. SEC. 11. Section 17053.42 is added to the Revenue and Taxation Code, to read: 17053.42. (a) For each taxable year beginning on or after January 1, 1996, there shall be allowed as a credit against the "net tax," as defined in Section 17039, the amount paid or incurred for eligible access expenditures. The credit shall be allowed in accordance with Section 44 of the Internal Revenue Code, relating to expenditures to provide access to disabled individuals, except that the credit amount specified in subdivision (b) shall be substituted for the credit amount specified in Section 44(a) of the Internal Revenue Code. (b) The credit amount allowed under this section shall he 50 percent of so much of the eligible access expenditures for the taxable year as do not exceed two hundred fifty dollars ($250). (c) 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 years if necessary, until the credit is exhausted. SEC. 12. Section 17053.49 of the Revenue and Taxation Code is amended to read: 17053.49. (a) (1) A qualified taxpayer shall be allowed a credit against the "net tax," as defined in Section 17039, equal to 6 percent of the qualified cost of qualified property that is placed i service in this state. (2) In the case of any qualified costs paid or incurred on or after January 1, 1994, and prior to the first taxable year of the qualified taxpayer beginning on or after January 1, 1995, the credit provided under paragraph (1) shall be claimed by the qualified taxpayer on the qualified taxpayer's return for the first taxable year beginning on or after January 1, 1995. No credit shall be claimed under this section on a return filed for any taxable year commencing prior to the qualified taxpayer's first taxable year beginning on or after January 1, 1995. (b) (1) For purposes of this section, "qualified cost" means any cost that satisfies each of the following conditions: Page: 20
(A) Except as otherwise provided in this subparagraph, is a cost paid or incurred by the qualified taxpayer for the construction, reconstruction, or acquisition of qualified property on or after January 1, 1994, and prior to the date this section ceases to be operative under paragraph (2) of subdivision (i). In the case of any qualified property constructed, reconstructed, or acquired by the qualified taxpayer (or any person related to the qualified taxpayer within the meaning of Section 267 or 707 of the Internal Revenue Code) pursuant to a binding contract in existence on or prior to January 1, 1994, costs paid pursuant to that contract shall be subject to allocation as follows: contract costs shall be allocated to qualified property based on a ratio of costs actually paid prior to January 1, 1994, and total contract costs actually paid. "Cost paid" shall include, without limitation, contractual deposits and option payments. To the extent of costs allocated, whether or not currently deductible or depreciable for tax purposes, to a period prior to January 1, 1994, the cost shall be deemed allocated to property acquired before January 1, 1994, and is thus not a "qualified cost."
(B) Except as provided in paragraph (2) of subdivision (d) and subparagraph (B) of paragraph (3) of subdivision (d), is an amount upon which the qualified taxpayer has paid, directly or indirectly as a separately stated contract amount or as determined from the records of the qualified taxpayer, sales or use tax under Part 1 (commencing with Section 6001).
(C) Is an amount properly chargeable to the capital account of the qualified taxpayer.
(2) (A) For purposes of this subdivision, any contract entered into on or after January 1, 1994, that is a successor or replacement contract to a contract that was binding prior to January 1, 1994, shall be treated as a binding contract in existence prior to January 1, 1994.
(B) If a successor or replacement contract is entered into on or after January 1, 1994, and the subject of the successor or replacement contract relates both to amounts for the construction, reconstruction, or acquisition of qualified property described in the original binding contract and to costs for the construction, reconstruction, or acquisition of qualified property not described in the original binding contract, then the portion of those amounts described in the successor or replacement contract that were not described in the original binding contract shall not be treated as costs paid or incurred pursuant to a binding contract in existence on or prior to January 1, 1994, under subparagraph (A) of paragraph (1).
(3) (A) For purposes of this section, an option contract in existence prior to January 1, 1994, under which a qualified taxpayer (or any other person related to the qualified taxpayer within the meaning of Section 267 or 707 of the Internal Revenue Code) had an option to acquire qualified property, shall be treated as a binding contract under the rules in paragraph (2). For purposes of this subparagraph, an option contract shall not include an option under which the option holder will forfeit an amount less than 10 percent of the fixed option price in the event the option is not exercised.
(B) For purposes of this section, a contract shall be treated as binding even if the contract is subject to a condition.
(c) (1) For purposes of this section, "qualified taxpayer" means any taxpayer or partnership engaged in those lines of business described in Codes 2011 to 3999, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United office of Management and Budget, 1987 edition.
(2) In the case of any pass-through entity, the determination of whether a taxpayer is a qualified taxpayer under this section shall be made at the entity level and any credit under this section or Section 23649 shall be allowed to the pass-through entity and passed through to the partners or shareholders in accordance with applicable provisions of Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001). For purposes of this paragraph, the term "pass-through entity" means any partnership or S corporation.
(3) The Franchise Tax Board may prescribe regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the effect of this section through splitups, shell corporations, partnerships, tiered ownership structures, sale-leaseback transactions, or otherwise.
(d) For purposes of this section, "qualified property" means property that is described as either of the following:
(1) Tangible personal property that is defined in Section 1245(a) of the Internal Revenue Code for use by a qualified taxpayer in those lines of business described in Codes 2011 to 3999, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of management and Budget, 1987 edition, that is primarily used for any of the following:
(A) For the manufacturing, processing, refining, fabricating, or recycling of property, beginning at the point at which any raw materials are received by the qualified taxpayer and introduced into the process and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling has altered tangible personal property to its completed form, including packaging, if required.
(B) In research and development.
(C) To maintain, repair, measure, or test any property described in this paragraph.
(D) For pollution control that meets or exceeds standards established by the state or by any local or regional governmental agency within the state.
(E) For recycling.
(2) The value of any capitalized labor costs that are directly allocable to the construction or modification of property described in paragraph (1).
(3) In the case of any qualified taxpayer engaged in manufacturing activities described in SIC Code 357 or 367, those activities related to biotechnology described in SIC Code 8731, those activities related to biopharmaceutical establishments only that are described in SIC Codes 2833 to 2836, inclusive, those activities related to space vehicles and parts described in SIC Codes 3761 to 3769, inclusive, those activities related to space satellites and communications satellites and equipment described in SIC Codes 3663 and 3812 (but only with respect to "qualified property" that is placed in service on or after January 1, 1996), or those activities related to semiconductor equipment manufacturing described in SIC Code 3559 (but only with respect to "qualified property" that is placed in service on or after January 1, 1997), "qualified property" also includes the following:
(A) Special purpose buildings and foundations that are constructed or modified for use by the qualified taxpayer primarily in a manufacturing, processing, refining, or fabricating process, or as a research or storage facility primarily used in connection with a manufacturing process.
(B) The value of any capitalized labor costs that are directly allocable to the construction or modification of special purpose buildings and foundations that are used primarily in the manufacturing, processing, refining, or fabricating process, or as a research or storage facility primarily used in connection with a manufacturing process.
(C) (i) For purposes of this paragraph, "special purpose building and foundation" means only a building and the foundation immediately underlying the building that is specifically designed and constructed or reconstructed for the installation, operation, and use of specific machinery and equipment with a special purpose, which machinery and equipment, after installation, will become affixed to or a fixture of the real property, and the construction or reconstruction of which is specifically designed and used exclusively for the specified purposes as set forth in subparagraph (A) qualified purpose").
(ii) A building is specifically designed and constructed or modified for a qualified purpose if it is not economic to design and construct the building for the intended purpose and then use the structure for a different purpose.
(Iii) For purposes of clause (i) and clause (vi), a building is used exclusively for a qualified purpose only if its use does not include a use for which it was not specifically designed and constructed or modified. Incidental use of a building for nonqualified purposes does not preclude the building from being a special purpose building. "Incidental use" means a use which is both related and subordinate to the qualified purpose. It will be conclusively presumed that a use is not subordinate if more than one-third of the total usable volume of the building is devoted to a use which is not a qualified purpose.
(Iv) In the event an entire building does not qualify as a special purpose building, a taxpayer may establish that a portion of a building, and the foundation immediately underlying the portion, qualifies for treatment as a special purpose building and foundation if the portion satisfies all of the definitional provisions in this subparagraph.
(v) To the extent that a building is not a special purpose building as defined above, but a portion of the building qualifies for treatment as a special purpose building, then all equipment which exclusively supports the qualified purpose occurring within that portion and which would qualify as Internal Revenue Code Section 1245 property if it were not a fixture or affixed to the building shall he treated as a cost of the portion of the building which qualifies for treatment as a special purpose building.
(vi) Buildings and foundations which do not meet the definition of a special purpose building and foundation set forth above include, but are not limited to: buildings designed and constructed or reconstructed principally to function as a general purpose manufacturing, industrial, or commercial building; research facilities that are used primarily prior to or after, or prior to and after, the manufacturing process; or storage facilities that are used primarily prior to or after, or prior to and after, completion of the manufacturing process. A research facility shall not be considered to be used primarily prior to or after, or prior to and after, the manufacturing process if its purpose and use relate exclusively to the development and regulatory approval of the manufacturing process for specific biopharmaceutical products. A research facility which is used primarily in connection with the discovery of an organism from which a biopharmaceutical product or process is developed does not meet the requirements of the preceding sentence.
(4) Subject to the provisions in subparagraph (B) of paragraph (1) of subdivision (b), qualified property also includes computer software that is primarily used for those purposes set forth in paragraph (1) of this subdivision.
(5) Qualified property does not include any of the following:
(A) Furniture.
(B) Facilities used for warehousing purposes after completion of the manufacturing process.
(C) Inventory.
(D) Equipment used in the extraction process.
(E) Equipment used to store finished products that have completed the manufacturing process.
(F) Any tangible personal property that is used in administration, general management, or marketing.
(G) Any vehicle for which a credit is claimed pursuant to Section 17052.11 or 23603.
(e) For purposes of this section:
(1) "Biopharmaceutical activities" means those activities which use organisms or materials derived from organisms, and their cellular, subcellular, or molecular components, in order to provide pharmaceutical products for human or animal therapeutics and diagnostics. Biopharmaceutical activities make use of living organisms to make commercial products, as opposed to pharmaceutical activities which make use of chemical compounds to produce commercial products.
(2) "Fabricating" means to make, build, create, produce, or assemble components or property to work in a new or different manner.
(3) "Manufacturing" means the activity of converting or conditioning property by changing the form, composition, quality, or character of the property for ultimate sale at retail or use in the manufacturing of a product to be ultimately sold at retail. Manufacturing includes any improvements to tangible personal property that result in a greater service life or greater functionality than that of the original property.
(4) "Other biotechnology activities" means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.
(5) "Primarily" means tangible personal property used 50 percent or more of the time in an activity described in subdivision (d).
(6) "Process" means the period beginning at the point at which any raw materials are received by the qualified taxpayer and introduced into the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer 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 taxpayer's manufacturing, processing, refining, or recycling activity is conducted. Raw materials that are stored on premises other than where the qualified taxpayer'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.
(7) "Processing" means the physical application of the materials and labor necessary to modify or change the characteristics of property.
(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) "Small business" means a qualified taxpayer that meets any of the following requirements during the taxable year for which the credit is allowed:
(A) Has gross receipts of less than fifty million dollars ($50,000,000).
(B) Has net assets of less than fifty million dollars ($50,000,000).
(C) Has a total credit of less than one million dollars ($1,000,000).
(D) For taxable years beginning on or after January 1, 1997, is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and has not received regulatory approval for any product from the United States Food and Drug Administration.
(f) The credit allowed under subdivision (a) shall apply to qualified property that is acquired by or subject to lease by a qualified taxpayer, subject to the following special rules:
(1) A lessor of qualified property, irrespective of whether the lessor is a qualified taxpayer, shall not be allowed the credit provided under subdivision (a) with respect to any qualified property leased to another qualified taxpayer.
(2) For purposes of paragraphs (2) and (3) of subdivision (b), "binding contract" shall include any lease agreement with respect to the qualified property.
(3) (A) For purposes of determining the qualified cost paid or incurred by a lessee in any leasing transaction that is not treated as a sale under Part I (commencing with Section 6001), the following rules shall apply:
(i) Except as provided by subparagraph (C) of this paragraph, subparagraphs (A) and (C) of paragraph (1) of subdivision (b) shall not apply.
(Ii) Except as provided in subparagraph (B) and clause (iii), the "qualified cost" upon which the lessee shall compute the credit provided under this section shall be equal to the original cost to the lessor (within the meaning of Section 18031) of the qualified property that is the subject of the lease.
(Iii) Except as provided in clause (iv), the requirement of subparagraph (B) of paragraph (1) of subdivision (b) shall be treated as satisfied only if the lessor has made a timely election under either Section 6094.1 or subdivision (d) of Section 6244 and has paid sales tax reimbursement or use tax measured by the purchase price of the qualified property (within the meaning of paragraph (5) of subdivision (g) of Section 6006). For purposes of this subdivision and clause (iv), the amount of original cost to the lessor which may be taken into account under clause (ii) shall not exceed the purchase price upon which sales tax reimbursement or use tax has been paid under the preceding sentence or under clause (iv).
(iv) With respect to leases entered into between January 1, 1994, and the effective date of this clause, the lessor may elect to pay use tax measured by the purchase price of the property by reporting and paying the tax with the return of the lessor for the fourth calendar quarter of 1994. In computing the use tax under the preceding sentence, a credit shall be allowed under Part 1 (commencing with Section 6001) for all sales or use tax previously paid on the lease.
(B) For purposes of applying subparagraph (A) only, the following special rules shall apply:
(i) The original cost to the lessor of the qualified property shall be reduced by the amount of any original cost of that property that was taken into account by any predecessor lessee in computing the credit allowable under this section.
(Ii) Clause (i) shall not apply in any case where the predecessor lessee was required to recapture the credit provided under this section pursuant to the provisions of subdivision (g).
(iii) For purposes of this section only, in any case where a successor lessor has acquired qualified property from a predecessor lessor in a transaction not treated as a sale under Part I (commencing with Section 6001), the original cost to the successor lessor of the qualified property shall be reduced by the amount of the original cost of the qualified property that was taken into account by any lessee of the predecessor lessor in computing the credit allowable under this section.
(C) In determining the original cost of any qualified property under this paragraph, only amounts paid or incurred by the lessor on or after January 1, 1994, and prior to the date this section ceases to be operative under paragraph (2) of subdivision (i), shall be taken into account. In the case of any qualified property constructed, reconstructed, or acquired by a lessor pursuant to a binding contract in existence on or prior to January 1, 1994, the allocation rule specified in subparagraph (A) of paragraph (1) of subdivision (b) shall apply in determining the original cost to the lessor of qualified property.
(D) Notwithstanding subparagraph (A), in the case of any leasing transaction for which the lessee is allowed the credit under this section and thereafter the lessee (or any party related to the lessee within the meaning of Section 267 or 318 of the Internal Revenue Code) acquires the qualified property from the lessor (or any successor lessor) within one year from the date the qualified property is first used by the lessee under the terms of the lease, the lessee's (or related party' s) acquisition of the qualified property from the lessor (or successor lessor) shall be treated as a disposition by the lessee of the qualified property that was subject to the lease under subdivision (g).
(4) For purposes of determining the qualified cost paid or incurred by a lessee in any leasing transaction that is treated as a sale under Part 1 (commencing with Section 6001), the following rules shall apply:
(A) Subparagraph (A) of paragraph (1) of subdivision (b) shall be applied by substituting the term "purchase" for the term "construction, reconstruction, or acquisition."
(B) Subparagraph (C) of paragraph (1) of subdivision (b) shall apply.
(C) The requirement of subparagraph (B) of paragraph (1) of subdivision (b) shall be treated as satisfied at the time that either the lessor or the qualified taxpayer pays sales or use tax under Part I (commencing with Section 6001).
(5) (A) In the case of any leasing transaction described in paragraph (3), the lessor shall provide a statement to the lessee specifying the amount of the lessor's original cost of the qualified property and the amount of that cost upon which a sales or use tax was paid within 45 days after the close of the lessee's taxable year in which the credit is allowable to the lessee under this section.
(B) The statement required under subparagraph (A) shall be made available to the Franchise Tax Board upon request.
(g) No credit shall be allowed if the qualified property is removed from the state, is disposed of to an unrelated party, or is used for any purpose not qualifying for the credit provided in this section in the same taxable year in which the qualified property is first placed in service in this state. If any qualified property for which a credit is allowed pursuant to this section is thereafter removed from this state, disposed of to an unrelated party, or used for any purpose not qualifying for the credit provided in this section within one year from the date the qualified property is first placed in service in this state, the amount of the credit allowed by this section for that qualified property shall be recaptured by adding that credit amount to the net tax of the qualified taxpayer for the taxable year in which the qualified property is disposed of, removed, or put to an ineligible use.
(h) 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 years as follows:
(1) Except as provided in paragraph (2), for the seven succeeding years if necessary, until the credit is exhausted.
(2) In the case of a small business, for the nine succeeding years, if necessary, until the credit is exhausted.
(i) (1) This section shall remain in effect until the date specified in paragraph (2), on which date this section shall cease to be operative, and as of that date is repealed. However, any unused credit may continue to be carried forward, as provided in subdivision (h), until the credit is exhausted.
(2) (A) This section shall cease to be operative on January 1, 2001, or on January 1 of the earliest year thereafter, if the total employment in this state, as determined by the Employment Development Department on the preceding January 1, does not exceed by 100,000 jobs the total employment in this state on January 1, 1994. The department shall report to the Legislature annually with respect to the determination required by the preceding sentence.
(B) For purposes of this paragraph, "total employment" means the total employment in the manufacturing sector, excluding employment in the aerospace sector.
(j) The amendments made by the act adding this subdivision shall be operative for taxable years beginning on or after January 1, 1997, except as provided in paragraph (3) of subdivision (d).
SEC. 13. Section 17053.73 is added to the Revenue and Taxation Code, to read:
17053.73. (a) There shall be allowed a credit against the "net tax" (as defined in Section 17039) to a taxpayer who employs a qualified employee in an enterprise zone during the taxable year. The credit shall be equal to the sum of each of the following:
(1) Fifty percent of qualified wages in the first year of employment.
(2) Forty percent of qualified wages in the second year of employment.
(3) Thirty percent of qualified wages in the third year of employment.
(4) Twenty percent of qualified wages in the fourth year of employment.
(5) Ten percent of qualified wages in the fifth year of employment.
(b) For purposes of this section:
(1) "Qualified wages" means:
(A) (i) Except as provided in clause (ii), that portion of wages paid or incurred by the taxpayer during the taxable year to qualified employees that does not exceed 150 percent of the minimum wage.
(Ii) For up to 1,350 qualified employees who are employed by the taxpayer in the Long Beach Enterprise zone in aircraft manufacturing activities described in Codes 3721 to 3728, inclusive, and Code 3812 of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, "qualified wages" means that portion of hourly wages that does not exceed 202 percent of the minimum wage.
(B) Wages received during the 60-month period beginning with the day the employee commences employment with the taxpayer.
(C) Qualified wages do not include any wages paid or incurred by the taxpayer on or after the zone expiration date.
(2) "Minimum wage" means the wage established by the Industrial Welfare Commission as provided for in Chapter 1 (commencing with Section 1171) of Part 4 of Division 2 of the Labor Code.
(3) "Zone expiration date" means the date the enterprise and employment zone designation expires, is no longer binding, or becomes inoperative.
(4) (A) "Qualified employee" means an individual who meets all of the following requirements:
(i) At least 90 percent of whose services for the taxpayer during the taxable year are directly related to the conduct of the taxpayer, s trade or business located in an enterprise and employment zone.
(Ii) Performs at least 50 percent of his or her services for the taxpayer during the taxable year in an enterprise and employment zone.
(Iii) Is hired by the taxpayer after the date of original designation of the area in which services were performed as an enterprise and employment zone.
(Iv) Is any of the following:
(I) Immediately preceding the qualified employee's commencement of employment with the taxpayer, was eligible for services under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501 et seq.) and is receiving, or is eligible to receive, subsidized employment, training, or services funded by the federal Job Training Partnership Act.
(II) Immediately preceding the qualified employee's commencement of employment with the taxpayer, was eligible to be a voluntary or mandatory registrant under the Greater Avenues for Independence Act of 1985 (GAIN) provided for pursuant to Article 3.2 (commencing with Section 11320) of Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions Code.
(III) Immediately preceding the qualified employee's commencement of employment with the taxpayer, was eligible, as determined by the Employment Development Department, under the federal Targeted Jobs Tax Credit Program as long as that program is in effect.
(IV) Immediately preceding the qualified employee's commencement of employment with the taxpayer, was a resident of a targeted employment area, as defined in Section 7072 of the Government Code.
(V) An employee who qualified the taxpayer for the enterprise zone hiring credit under former Section 17053.8 or the program area hiring credit under former Section 17053.11.
(B) Priority for employment shall be provided to an individual who is enrolled in a qualified program under the federal Job Training Partnership Act or the Greater Avenues for Independence Act of 1985 or who is eligible under the federal Targeted Jobs Tax Credit Program.
(5) "Taxpayer" means a person or entity engaged in a trade or business within an enterprise and employment zone designated pursuant to Chapter 12.8 (commencing with Section 7070) of the Government Code.
(c) The taxpayer shall do both of the following:
(1) Obtain from either the Employment Development Department or the local county or city Job Training Partnership Act administrative entity or the local county GAIN office or social services agency, as appropriate, a certification which provides that a qualified employee meets the eligibility requirements specified in clause (iv) of subparagraph (A) of paragraph (4) of subdivision (h).
(2) Retain a copy of the certification and provide it upon request to the Franchise Tax Board.
(d) (1) For purposes of this section:
(A) All employees of trades or businesses, which are not incorporated, that are under common control shall be treated as employed by a single taxpayer.
(B) The credit, if any, allowable by this section with respect to each trade or business shall be determined by reference to its proportionate share of the expense of the qualified wages giving rise to the credit, and shall be allocated in such manner.
(C) Principles that apply in the case of controlled groups of corporations, as specified in subdivision (d) of Section 23622.5, shall apply with respect to determining employment.
(2) If an employer acquires the major portion of a trade or business of another employer (hereinafter in this paragraph referred to as the "predecessor") or the major portion of a separate unit of a trade or business of a predecessor, then, for purposes of applying this section (other than subdivision (e)) for any calendar year ending after that acquisition, the employment relationship between a qualified employee and an employer shall not be treated as terminated if the employee continues to be employed in that trade or business.
(e) (1) If the employment of any qualified employee, with respect to whom qualified wages are taken into account under subdivision (a) is terminated by the taxpayer at any time during the first 270 days of that employment (whether or not consecutive) or before the close of the 270th calendar day after the day in which that employee completes 90 days of employment with the taxpayer, the tax imposed by this part for the taxable year in which that employment is terminated shall be increased by an amount equal to the credit allowed under subdivision (a) for that taxable year and all prior taxable years attributable to qualified wages paid or incurred with respect to that employee.
(2) (A) Paragraph (1) shall not apply to any of the following:
(i) A termination of employment of a qualified employee who voluntarily leaves the employment of the taxpayer.
(Ii) A termination of employment of a qualified employee who, before the close of the period referred to in paragraph (1), becomes disabled and unable to perform the services of that employment, unless that disability is removed before the close of that period and the taxpayer fails to offer reemployment to that employee.
(Iii) A termination of employment of a qualified employee, if it is determined under the applicable employment compensation provisions that the termination was due to the misconduct of that employee.
(Iv) A termination of employment of a qualified employee due to a substantial reduction in the trade or business operations of the taxpayer.
(v) A termination of employment of a qualified employee, if that employee is replaced by other qualified employees so as to create a net increase in both the number of employees and the hours of employment.
(B) For purposes of paragraph (1), the employment relationship between the taxpayer and a qualified employee shall not be treated as terminated by reason of a mere change in the form of conducting the trade or business of the taxpayer, if the qualified employee continues to be employed in that trade or business and the taxpayer retains a substantial interest in that trade or business.
(3) Any increase in tax under paragraph (1) shall not be treated as tax imposed by this part for purposes of determining the amount of any credit allowable under this part.
(f) In the case of an estate or trust, both of the following apply:
(1) The qualified wages for any taxable year shall be apportioned between the estate or trust and the beneficiaries on the basis of the income of the estate or trust allocable to each.
(2) Any beneficiary to whom any qualified wages have been apportioned under paragraph (1) shall be treated, for purposes of this part, as the employer with respect to those wages.
(g) For purposes of this section, "enterprise and employment zone" means an area designated pursuant to Chapter 12.8 (commencing with Section 7070) of Division 7 of Title 1 of the Government Code.
(h) The credit allowable under this section shall be reduced by the credit allowed under Sections 17053.10, 17053.17 and 17053.46 claimed for the same employee. The credit shall also be reduced by the federal credit allowed under Section 51 of the Internal Revenue Code. In addition, any deduction otherwise allowed under this part for the wages or salaries paid or incurred by the taxpayer upon which the credit is based shall be reduced by the amount of the credit, prior to any reduction required by subdivision (i) or (j).
(i) In the case where the credit otherwise allowed under this section exceeds the "net tax" for the taxable year, that portion of the credit that exceeds the "net tax" may be carried over and added to the credit, if any, in succeeding taxable years, until the credit is exhausted. The credit shall be applied first to the earliest taxable years possible.
(j) (1) The amount of the credit otherwise allowed under this section and Section 17053.70, including any credit carryover from prior years, that may reduce the "net tax" for the taxable year shall not exceed the amount of tax which would be imposed on the taxpayer' s business income attributable to the enterprise zone determined as if that attributable income represented all of the income of the taxpayer subject to tax under this part.
(2) The amount of attributable income described in paragraph (1) shall be determined in accordance with Chapter 17 (commencing with Section 25101) of Part 11, modified for purposes of this section by substituting "the enterprise and employment zone" for "this state."
(3) The portion of any credit remaining, if any, after application of this subdivision, shall be carried over to succeeding taxable years, as if it were an amount exceeding the "net tax" for the taxable year, as provided in subdivision (i).
SEC. 14. Section 17062 of the Revenue and Taxation Code is amended to read:
17062. (a) In addition to the other taxes imposed by this part, there is hereby imposed for each taxable year, a tax equal to the excess, if any, of-
(1) The tentative minimum tax for the taxable year, over
(2) The regular tax for the taxable year.
(b) For purposes of this chapter, each of the following shall apply:
(1) The tentative minimum tax shall be computed in accordance with Sections 55 to 59, inclusive, of the Internal Revenue Code, except as otherwise provided in this part.
(2) The regular tax shall be the amount of tax imposed by Section 17041 or 17048, before reduction for any credits against the tax, less any amount imposed under paragraph (1) of subdivision (d) and paragraph (1) of subdivision (e) of Section 17560.
(3) (A) The provisions of Section 55(b)(1) of the Internal Revenue Code shall be modified to provide that the tentative minimum tax for the taxable year shall be equal to the following percent of so much of the alternative minimum taxable income for the taxable year as exceeds the exemption amount, before reduction for any credits against the tax:
(i) For any taxable year beginning on or after January 1, 1991, and before January 1, 1996, 8.5 percent.
(Ii) For any taxabl