BILL NUMBER: AB 1115 CHAPTERED
BILL TEXT
CHAPTER 920
FILED WITH SECRETARY OF STATE OCTOBER 14, 2001
APPROVED BY GOVERNOR OCTOBER 14, 2001
PASSED THE ASSEMBLY SEPTEMBER 14, 2001
PASSED THE SENATE SEPTEMBER 12, 2001
AMENDED IN SENATE SEPTEMBER 7, 2001
AMENDED IN SENATE JUNE 19, 2001
AMENDED IN ASSEMBLY APRIL 23, 2001
AMENDED IN ASSEMBLY MARCH 28, 2001
INTRODUCED BY Committee on Revenue and Taxation (Corbett (Chair),
Harman (Vice Chair), Alquist, Aroner, Cedillo, Koretz, Matthews, and
Wyland)
FEBRUARY 23, 2001
An act to amend Sections 17039, 17041, 17055, 17062, 17063, 17301,
17734, 17854, 17935, 17951, 17952, 17952.5, 17953, 17954, 17955,
23036, and 23453 of, to add Sections 17015.5, 17301.3, 17301.4,
17301.5, 17304, 17306, 17307, 19322.1, and 19556 to, and to repeal
Sections 17303, 17310, and 17554 of, the Revenue and Taxation Code,
relating to taxation.
LEGISLATIVE COUNSEL'S DIGEST
AB 1115, Committee on Revenue and Taxation. Taxation: residency
requirements: part-year resident: AMT.
The Franchise Tax Board collects and administers the income taxes
of California residents. Existing law provides formulas for
determining the income tax owed by individuals that are part-year or
non-California residents. Existing law is silent on the tax
treatment of loss carryovers, deferred deductions, and deferred
income that vested prior to the time individuals became part-year or
non-California residents.
This bill would revise and recast the computation of personal
income tax with respect to part-year or non-California residence, and
would, for that purpose specify the manner in which loss carryovers,
deferred deductions, and deferred income are to be calculated in
computing a part-year or non-California resident's California income
tax liability.
The Personal Income Tax Law and the Bank and Corporation Tax Law
impose an alternative minimum tax that may be reduced by specified
credits.
This bill would make technical and clarifying changes with respect
to the ordering and allowance of those credits, as provided.
Existing law with respect to the administration of income and
corporate taxes requires taxes to be paid, and claims for refunds to
be made, prior to maintaining an action for illegally collected
taxes.
This bill would provide that an otherwise valid claim for a refund
shall be a claim only for purposes of tolling the statute of
limitations under specified conditions, if the tax has not been paid
in full.
Existing law authorizes the Franchise Tax Board to disclose tax
returns and return information under specified conditions.
This bill would additionally authorize that disclosure to
designated persons for use in actions or proceedings affecting the
personnel rights of employees or former employees, as specified. An
unauthorized disclosure by a person of the information received under
this authority would subject that person to criminal penalties. By
creating a new crime, this bill would impose a state-mandated local
program.
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.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 17015.5 is added to the Revenue and Taxation
Code, to read:
17015.5. For purposes of Part 10.2 (commencing with Section
18401) and this part, the term "part-year resident" means a taxpayer
who meets both of the following conditions during the same taxable
year.
(a) Is a resident of this state during a portion of the taxable
year.
(b) Is a nonresident of this state during a portion of the taxable
year.
SEC. 2. Section 17039 of the Revenue and Taxation Code is amended
to read:
17039. (a) Notwithstanding any provision in this part to the
contrary, for the purposes of computing tax credits, the term "net
tax" means the tax imposed under either Section 17041 or 17048 plus
the tax imposed under Section 17504 (relating to lump-sum
distributions) less the credits allowed by Section 17054 (relating to
personal exemption credits) and any amount imposed under paragraph
(1) of subdivision (d) and paragraph (1) of subdivision (e) of
Section 17560. Notwithstanding the preceding sentence, the "net tax"
shall not be less than the tax imposed under Section 17504 (relating
to the separate tax on lump-sum distributions), if any. Credits
shall be allowed against "net tax" in the following order:
(1) Credits that do not contain carryover or refundable
provisions, except those described in paragraphs (4) and (5).
(2) Credits that contain carryover provisions but do not contain
refundable provisions, except for those that are allowed to reduce
"net tax" below the tentative minimum tax, as defined by Section
17062.
(3) Credits that contain both carryover and refundable provisions.
(4) The minimum tax credit allowed by Section 17063 (relating to
the alternative minimum tax).
(5) Credits that are allowed to reduce "net tax" below the
tentative minimum tax, as defined by Section 17062.
(6) Credits for taxes paid to other states allowed by Chapter 12
(commencing with Section 18001).
(7) Credits that contain refundable provisions but do not contain
carryover provisions.
The order within each paragraph shall be determined by the
Franchise Tax Board.
(b) Notwithstanding the provisions of Sections 17061 (relating to
refunds pursuant to the Unemployment Insurance Code) and 19002
(relating to tax withholding), the credits provided in those sections
shall be allowed in the order provided in paragraph (6) of
subdivision (a).
(c) (1) Notwithstanding any other provision of this part, no tax
credit shall reduce the tax imposed under Section 17041 or 17048 plus
the tax imposed under Section 17504 (relating to the separate tax on
lump-sum distributions) below the tentative minimum tax, as defined
by Section 17062, except the following credits:
(A) The credit allowed by Section 17052.2 (relating to teacher
retention tax credit).
(B) The credit allowed by former Section 17052.4 (relating to
solar energy).
(C) The credit allowed by former Section 17052.5 (relating to
solar energy).
(D) The credit allowed by Section 17052.5 (relating to solar
energy).
(E) The credit allowed by Section 17052.12 (relating to research
expenses).
(F) The credit allowed by former Section 17052.13 (relating to
sales and use tax credit).
(G) The credit allowed by Section 17052.15 (relating to Los
Angeles Revitalization Zone sales tax credit).
(H) The credit allowed by Section 17053.5 (relating to the renter'
s credit).
(I) The credit allowed by former Section 17053.8 (relating to
enterprise zone hiring credit).
(J) The credit allowed by former Section 17053.10 (relating to Los
Angeles Revitalization Zone hiring credit).
(K) The credit allowed by former Section 17053.11 (relating to
program area hiring credit).
(L) For each taxable year beginning on or after January 1, 1994,
the credit allowed by former Section 17053.17 (relating to Los
Angeles Revitalization Zone hiring credit).
(M) The credit allowed by Section 17053.33 (relating to targeted
tax area sales or use tax credit).
(N) The credit allowed by Section 17053.34 (relating to targeted
tax area hiring credit).
(O) The credit allowed by Section 17053.49 (relating to qualified
property).
(P) The credit allowed by Section 17053.70 (relating to enterprise
zone sales or use tax credit).
(Q) The credit allowed by Section 17053.74 (relating to enterprise
zone hiring credit).
(R) The credit allowed by Section 17054 (relating to credits for
personal exemption).
(S) The credit allowed by Section 17057 (relating to clinical
testing expenses).
(T) The credit allowed by Section 17058 (relating to low-income
housing).
(U) The credit allowed by Section 17061 (relating to refunds
pursuant to the Unemployment Insurance Code).
(V) Credits for taxes paid to other states allowed by Chapter 12
(commencing with Section 18001).
(W) The credit allowed by Section 19002 (relating to tax
withholding).
(2) Any credit that is partially or totally denied under paragraph
(1) shall be allowed to be carried over and applied to the net tax
in succeeding taxable years, if the provisions relating to that
credit include a provision to allow a carryover when that credit
exceeds the net tax.
(d) Unless otherwise provided, any remaining carryover of a credit
allowed by a section that has been repealed or made inoperative
shall continue to be allowed to be carried over under the provisions
of that section as it read immediately prior to being repealed or
becoming inoperative.
(e) (1) Unless otherwise provided, if two or more taxpayers (other
than husband and wife) share in costs that would be eligible for a
tax credit allowed under this part, each taxpayer shall be eligible
to receive the tax credit in proportion to his or her respective
share of the costs paid or incurred.
(2) In the case of a partnership, the credit shall be allocated
among the partners pursuant to a written partnership agreement in
accordance with Section 704 of the Internal Revenue Code, relating to
partner's distributive share.
(3) In the case of a husband and wife who file separate returns,
the credit may be taken by either or equally divided between them.
(f) Unless otherwise provided, in the case of a partnership, any
credit allowed by this part shall be computed at the partnership
level, and any limitation on the expenses qualifying for the credit
or limitation upon the amount of the credit shall be applied to the
partnership and to each partner.
(g) (1) With respect to any taxpayer that directly or indirectly
owns an interest in a business entity that is disregarded for tax
purposes pursuant to Section 23038 and any regulations thereunder,
the amount of any credit or credit carryforward allowable for any
taxable year attributable to the disregarded business entity shall be
limited in accordance with paragraphs (2) and (3).
(2) The amount of any credit otherwise allowed under this part,
including any credit carryover from prior years, that may be applied
to reduce the taxpayer's "net tax," as defined in subdivision (a),
for the taxable year shall be limited to an amount equal to the
excess of the taxpayer's regular tax (as defined in Section 17062),
determined by including income attributable to the disregarded
business entity that generated the credit or credit carryover, over
the taxpayer's regular tax (as defined in Section 17062), determined
by excluding the income attributable to that disregarded business
entity. No credit shall be allowed if the taxpayer's regular tax (as
defined in Section 17062), determined by including the income
attributable to the disregarded business entity, is less than the
taxpayer's regular tax (as defined in Section 17062), determined by
excluding the income attributable to the disregarded business entity.
(3) If the amount of a credit allowed pursuant to the section
establishing the credit exceeds the amount allowable under this
subdivision in any taxable year, the excess amount may be carried
over to subsequent taxable years pursuant to subdivisions (c) and
(d).
(h) (1) Unless otherwise specifically provided, in the case of a
taxpayer that is a partner or shareholder of an eligible pass-through
entity described in paragraph (2), any credit passed through to the
taxpayer in the taxpayer's first taxable year beginning on or after
the date the credit is no longer operative may be claimed by the
taxpayer in that taxable year, notwithstanding the repeal of the
statute authorizing the credit prior to the close of that taxable
year.
(2) For purposes of this subdivision, "eligible pass-through
entity" means any partnership or S corporation that files its return
on a fiscal year basis pursuant to Section 18566, and that is
entitled to a credit pursuant to this part for the taxable year that
begins during the last year the credit is operative.
(3) This subdivision shall apply to credits that become
inoperative on or after the operative date of the act adding this
subdivision.
SEC. 2.5. Section 17041 of the Revenue and Taxation Code is
amended to read:
17041. (a) There shall be imposed for each taxable year upon the
entire taxable income of every resident of this state who is not a
part-year resident, except the head of a household as defined in
Section 17042, taxes in the following amounts and at the following
rates upon the amount of taxable income computed for the taxable year
as if the resident were a resident of this state for the entire
taxable year and for all prior taxable years for any carryover items,
deferred income, suspended losses, or suspended deductions:
If the taxable income is: The tax is:
Not over $3,650................... 1% of the taxable income
Over $3,650 but not
over $8,650...................... $36.50 plus 2% of the excess
over $3,650
Over $8,650 but not
over $13,650..................... $136.50 plus 4% of the excess
over $8,650
Over $13,650 but not
over $18,950..................... $336.50 plus 6% of the excess
over $13,650
Over $18,950 but not
over $23,950..................... $654.50 plus 8% of the excess
over $18,950
Over $23,950...................... $1,054.50 plus 9.3% of the
excess
over $23,950
(b) (1) There shall be imposed for each taxable year upon the
taxable income of every nonresident or part-year resident, except the
head of a household as defined in Section 17042, a tax as calculated
in paragraph (2).
(2) The tax imposed under paragraph (1) shall be calculated by
multiplying the "taxable income of a nonresident or part-year
resident," as defined in subdivision (i), by a rate (expressed as a
percentage) equal to the tax computed under subdivision (a) on the
entire taxable income of the nonresident or part-year resident as if
the nonresident or part-year resident were a resident of this state
for the taxable year and as if the nonresident or part-year resident
were a resident of this state for all prior taxable years for any
carryover items, deferred income, suspended losses, or suspended
deductions, divided by the amount of that income.
(c) There shall be imposed for each taxable year upon the entire
taxable income of every resident of this state who is not a part-year
resident for that taxable year, when the resident is the head of a
household, as defined in Section 17042, taxes in the following
amounts and at the following rates upon the amount of taxable income
computed for the taxable year as if the resident were a resident of
the state for the entire taxable year and for all prior taxable years
for carryover items, deferred income, suspended losses, or suspended
deductions:
If the taxable income is: The tax is:
Not over $7,300..................... 1% of the taxable income
Over $7,300 but not
over $17,300....................... $73 plus 2% of the excess
over $7,300
Over $17,300 but not
over $22,300....................... $273 plus 4% of the excess
over $17,300
Over $22,300 but not
over $27,600....................... $473 plus 6% of the excess
over $22,300
Over $27,600 but not
over $32,600....................... $791 plus 8% of the excess
over $27,600 Over
$32,600......................... $1,191 plus 9.3% of the excess
over
$32,600
(d) (1) There shall be imposed for each taxable year upon the
taxable income of every nonresident or part-year resident when the
nonresident or part-year resident is the head of a household, as
defined in Section 17042, a tax as calculated in paragraph (2).
(2) The tax imposed under paragraph (1) shall be calculated by
multiplying the "taxable income of a nonresident or part-year
resident," as defined in subdivision (i), by a rate (expressed as a
percentage) equal to the tax computed under subdivision (a) on the
entire taxable income of the nonresident or part-year resident as if
the nonresident or part-year resident were a resident of this state
for the taxable year and as if the nonresident or part-year resident
were a resident of this state for all prior taxable years for any
carryover items, deferred income, suspended losses, or suspended
deductions, divided by the amount of that income.
(e) There shall be imposed for each taxable year upon the taxable
income of every estate, trust, or common trust fund taxes equal to
the amount computed under subdivision (a) for an individual having
the same amount of taxable income.
(f) The tax imposed by this part is not a surtax.
(g) (1) Section 1 (g) of the Internal Revenue Code, relating to
certain unearned income of minor children taxed as if the parent's
income, shall apply, except as otherwise provided.
(2) Section 1(g)(7)(B)(ii)(II) of the Internal Revenue Code,
relating to income included on parent's return, is modified, for
purposes of this part, by substituting "1 percent" for "15 percent."
(h) For each taxable year beginning on or after January 1, 1988,
the Franchise Tax Board shall recompute the income tax brackets
prescribed in subdivisions (a) and (c). That computation shall be
made as follows:
(1) The California Department of Industrial Relations shall
transmit annually to the Franchise Tax Board the percentage change in
the California Consumer Price Index for all items from June of the
prior calendar year to June of the current calendar year, no later
than August 1 of the current calendar year.
(2) The Franchise Tax Board shall do both of the following:
(A) Compute an inflation adjustment factor by adding 100 percent
to the percentage change figure that is furnished pursuant to
paragraph (1) and dividing the result by 100.
(B) Multiply the preceding taxable year income tax brackets by the
inflation adjustment factor determined in subparagraph (A) and round
off the resulting products to the nearest one dollar ($1).
(i) (1) For purposes of this part, the term "taxable income of a
nonresident or part-year resident" includes each of the following:
(A) For any part of the taxable year during which the taxpayer was
a resident of this state (as defined by Section 17014), all items of
gross income and all deductions, regardless of source.
(B) For any part of the taxable year during which the taxpayer was
not a resident of this state, gross income and deductions derived
from sources within this state, determined in accordance with Article
9 of Chapter 3 (commencing with Section 17031 and Chapter 11
(commencing with Section 17951).
(2) For purposes of computing "taxable income of a nonresident or
part-year resident" under paragraph (1), the amount of any net
operating loss sustained in any taxable year during any part of which
the taxpayer was not a resident of this state shall be limited to
the sum of the following:
(A) The amount of the loss attributable to the part of the taxable
year in which the taxpayer was a resident.
(B) The amount of the loss which, during the part of the taxable
year the taxpayer is not a resident, is attributable to California
source income and deductions allowable in arriving at taxable income
of a nonresident or part-year resident.
(3) For purposes of computing "taxable income of a nonresident or
part-year resident" under paragraph (1), any carryover items,
deferred income, suspended losses, or suspended deductions shall only
be includible or allowable to the extent that the carryover item,
deferred income, suspended loss, or suspended deduction was derived
from sources within this state.
SEC. 3. Section 17055 of the Revenue and Taxation Code is amended
to read:
17055. (a) Any individual who is a nonresident or a part-year
resident shall be allowed all credits provided under this part
against the "net tax" (as defined by Section 17039), except those
described in subdivision (b) and in Section 17053.5 (relating to the
renter's credit), and Section 18002 (relating to taxes paid to
another state), in the same proportion as the ratio that "taxable
income of a nonresident or part-year resident" computed under
paragraph (1) of subdivision (i) of Section 17041 bears to "total
taxable income" (as defined in Section 17301.5).
(b) Credits allowed under this part which are conditional upon a
transaction occurring wholly within California shall be allowed in
their entirety.
SEC. 4. Section 17062 of the Revenue and Taxation Code is amended
to read:
17062. (a) In addition to the other taxes imposed by this part,
there is hereby imposed for each taxable year, a tax equal to the
excess, if any, of--
(1) The tentative minimum tax for the taxable year, over
(2) The regular tax for the taxable year.
(b) For purposes of this chapter, each of the following shall
apply:
(1) The tentative minimum tax shall be computed in accordance with
Sections 55 to 59, inclusive, of the Internal Revenue Code, except
as otherwise provided in this part.
(2) The regular tax shall be the amount of tax imposed by Section
17041 or 17048, before reduction for any credits against the tax,
less any amount imposed under paragraph (1) of subdivision (d) and
paragraph (1) of subdivision (e) of Section 17560.
(3) (A) The provisions of Section 55(b)(1) of the Internal Revenue
Code shall be modified to provide that the tentative minimum tax for
the taxable year shall be equal to the following percent of so much
of the alternative minimum taxable income for the taxable year as
exceeds the exemption amount, before reduction for any credits
against the tax:
(i) For any taxable year beginning on or after January 1, 1991,
and before January 1, 1996, 8.5 percent.
(ii) For any taxable year beginning on or after January 1, 1996, 7
percent.
(B) In the case of a nonresident or part-year resident, the
tentative minimum tax shall be computed by multiplying the
alternative minimum taxable income of the nonresident or part-year
resident, as defined in subparagraph (C), by a rate (expressed as a
percentage) equal to the tax computed under subdivision (b) on the
alternative minimum taxable income of the nonresident or part-year
resident as if the nonresident or part-year resident were a resident
of this state for the taxable year and as if the nonresident or
part-year resident were a resident of this state for all prior
taxable years for any carryover items, deferred income, suspended
losses, or suspended deductions, divided by the amount of that
income.
(C) For purposes of this section, the term "alternative minimum
taxable income of a nonresident or part-year resident" includes each
of the following:
(i) For any period during which the taxpayer was a resident of
this state (as defined by Section 17014), all items of alternative
minimum taxable income (as modified for purposes of this chapter),
regardless of source.
(ii) For any period during which the taxpayer was not a resident
of this state, alternative minimum taxable income (as modified for
purposes of this chapter) which were derived from sources within this
state, determined in accordance with Article 9 of Chapter 3
(commencing with Section 17301) and Chapter 11 (commencing with
Section 17951).
(iii) For purposes of computing "alternative minimum taxable
income of a nonresident or part-year resident," any carryover items,
deferred income, suspended losses, or suspended deductions shall only
be allowable to the extent that the carryover item, suspended loss,
or suspended deduction was derived from sources within this state.
(4) The provisions of Section 55(b)(2) of the Internal Revenue
Code, relating to alternative minimum taxable income, shall be
modified to provide that alternative minimum taxable income shall not
include the income, adjustments, and items of tax preference
attributable to any trade or business of a qualified taxpayer.
(A) For purposes of this paragraph, "qualified taxpayer" means a
taxpayer who meets both of the following:
(i) Is the owner of, or has an ownership interest in, a trade or
business.
(ii) Has aggregate gross receipts, less returns and allowances, of
less than one million dollars ($1,000,000) during the taxable year
from all trades or businesses of which the taxpayer is the owner or
has an ownership interest, in the amount of that taxpayer's
proportionate interest in each trade or business.
(B) For purposes of this paragraph, "aggregate gross receipts,
less returns and allowances" means the sum of the gross receipts of
the trades or businesses which the taxpayer owns and the
proportionate interest of the gross receipts of the trades or
businesses which the taxpayer owns and of passthrough entities in
which the taxpayer holds an interest.
(C) For purposes of this paragraph, "gross receipts, less returns
and allowances" means the sum of the gross receipts from the
production of business income, as defined in subdivision (a) of
Section 25120, and the gross receipts from the production of
nonbusiness income, as defined in subdivision (d) of Section 25120.
(D) For purposes of this paragraph, "proportionate interest"
means:
(i) In the case of a passthrough entity which reports a profit for
the taxable year, the taxpayer's profit interest in the entity at
the end of the taxpayer's taxable year.
(ii) In the case of a passthrough entity which reports a loss for
the taxable year, the taxpayer's loss interest in the entity at the
end of the taxpayer's taxable year.
(iii) In the case of a passthrough entity which is sold or
liquidates during the taxable year, the taxpayer's capital account
interest in the entity at the time of the sale or liquidation.
(E) (i) For purposes of this paragraph, "proportionate interest"
includes an interest in a passthrough entity.
(ii) For purposes of this paragraph, "passthrough entity" means
any of the following:
(I) A partnership, as defined by Section 17008.
(II) An S corporation, as provided in Chapter 4.5 (commencing with
Section 23800) of Part 11.
(III) A regulated investment company, as provided in Section
24871.
(IV) A real estate investment trust, as provided in Section 24872.
(V) A real estate mortgage investment conduit, as provided in
Section 24874.
(5) For taxable years beginning on or after January 1, 1998,
Section 55(d)(1) of the Internal Revenue Code, relating to exemption
amount for taxpayers other than corporations is modified, for
purposes of this part, to provide the following exemption amounts in
lieu of those contained therein:
(A) Fifty-seven thousand two hundred sixty dollars ($57,260) in
the case of either of the following:
(i) A joint return.
(ii) A surviving spouse.
(B) Forty-two thousand nine hundred forty-five dollars ($42,945)
in the case of an individual who is both of the following:
(i) Not a married individual.
(ii) Not a surviving spouse.
(C) Twenty-eight thousand six hundred thirty dollars ($28,630) in
the case of either of the following:
(i) A married individual who files a separate return.
(ii) An estate or trust.
(6) For taxable years beginning on or after January 1, 1998,
Section 55(d)(3) of the Internal Revenue Code, relating to the
phaseout of exemption amount for taxpayers other than corporations is
modified, for purposes of this part, to provide the following
phaseout of exemption amounts in lieu of those contained therein:
(A) Two hundred fourteen thousand seven hundred twenty-five
dollars ($214,725) in the case of a taxpayer described in
subparagraph (A) of paragraph (5).
(B) One hundred sixty-one thousand forty-four dollars ($161,044)
in the case of a taxpayer described in subparagraph (B) of paragraph
(5).
(C) One hundred seven thousand three hundred sixty-two dollars
($107,362) in the case of a taxpayer described in subparagraph (C) of
paragraph (5).
(7) For each taxable year beginning on or after January 1, 1999,
the Franchise Tax Board shall recompute the exemption amounts
prescribed in paragraph (5) and the phaseout of exemption amounts
prescribed in paragraph (6). Those computations shall be made as
follows:
(A) The California Department of Industrial Relations shall
transmit annually to the Franchise Tax Board the percentage change in
the California Consumer Price Index for all items from June of the
prior calendar year to June of the current calendar year, no later
than August 1 of the current calendar year.
(B) The Franchise Tax Board shall do both of the following:
(i) Compute an inflation adjustment factor by adding 100 percent
to the percentage change figure that is furnished pursuant to
subparagraph (A) and dividing the result by 100.
(ii) Multiply the preceding taxable year exemption amounts and the
phaseout of exemption amounts by the inflation adjustment factor
determined in clause (i) and round off the resulting products to the
nearest one dollar ($1).
(c) (1) (A) Section 56(a)(6) of the Internal Revenue Code as in
effect on January 1, 1997, relating to installment sales of certain
property, shall not apply to payments received in taxable years
beginning on or after January 1, 1997, with respect to dispositions
occurring in taxable years beginning after December 31, 1987.
(B) This paragraph shall not apply to taxable years beginning on
or after January 1, 1998.
(2) Section 56(b)(1)(E) of the Internal
Revenue Code, relating to standard deduction and deduction for
personal exemptions not allowed, is modified, for purposes of this
part, to deny the standard deduction allowed by Section 17073.5.
(3) Section 56(b)(3) of the Internal Revenue Code, relating to
treatment of incentive stock options, shall be modified to
additionally provide the following:
(A) Section 421 of the Internal Revenue Code shall not apply to
the transfer of stock acquired pursuant to the exercise of a
California qualified stock option under Section 17502.
(B) Section 422(c)(2) of the Internal Revenue Code shall apply in
any case where the disposition and inclusion of a California
qualified stock option for purposes of this chapter are within the
same taxable year and that section shall not apply in any other case.
(C) The adjusted basis of any stock acquired by the exercise of a
California qualified stock option shall be determined on the basis of
the treatment prescribed by this paragraph.
(d) The provisions of Section 57(a)(5) of the Internal Revenue
Code, relating to tax-exempt interest shall not apply.
(e) (1) Section 57(a) of the Internal Revenue Code, relating to
items of tax preference, is modified to include as an item of tax
preference the amount by which the deduction allowable under Section
170 of the Internal Revenue Code, relating to charitable
contributions or gifts, or Section 642(c) of the Internal Revenue
Code, relating to deduction for amounts paid or permanently set aside
for a charitable purpose, would be reduced if all capital gain
property were taken into account at its adjusted basis.
(2) For purposes of paragraph (1), the term "capital gain property"
has the meaning given to that term by Section 170(b)(1)(C)(iv) of
the Internal Revenue Code. That term shall not include any property
to which an election under Section 170(b)(1)(C)(iii) of the Internal
Revenue Code applies.
(f) Section 57(a) of the Internal Revenue Code, relating to items
of tax preference, is modified to include as an item of tax
preference an amount equal to one-half of the amount excluded from
gross income for the taxable year under Section 18152.5.
(g) The provisions of Section 59(a) of the Internal Revenue Code,
relating to the alternative minimum tax foreign tax credit, shall not
apply.
SEC. 4.5. Section 17063 of the Revenue and Taxation Code is
amended to read:
17063. (a) There shall be allowed as a credit against the net tax
(as defined by Section 17039) for any taxable year an amount equal
to the minimum tax credit for that taxable year.
(b) For purposes of subdivision (a), the minimum tax credit shall
be determined in accordance with Section 53 of the Internal Revenue
Code, except as otherwise provided in this part.
(c) For purposes of this chapter, the amount determined under
Section 53(c)(1) of the Internal Revenue Code shall be the regular
tax as defined by paragraph (2) of subdivision (b) of Section 17062,
reduced by the sum of the credits allowable under this part, other
than:
(1) The credits described in paragraph (7) of subdivision (a) of
Section 17039.
(2) Any credit which reduces the tax below the tentative minimum
tax, as defined by Section 17062.
(d) Section 53(d)(1)(B)(ii)(II) of the Internal Revenue Code,
relating to credit not allowed for exclusion preferences, is modified
to include subdivision (f) of Section 17062, as a specified item.
(e) Section 53(d)(1)(B)(ii)(II) of the Internal Revenue Code,
relating to credit not allowed for exclusion preferences, is modified
to include subdivision (e) of Section 17062, as a specified item.
SEC. 5. Section 17301 of the Revenue and Taxation Code is amended
to read:
17301. For purposes of this part, in the case of a nonresident or
part-year resident, the proper apportionment and allocation of the
deductions in computing "taxable income of a nonresident or part-year
resident" computed under paragraph (1) of subdivision (i) of Section
17041 with respect to sources of income within and without the state
shall be determined under rules and regulations prescribed by the
Franchise Tax Board.
SEC. 6. Section 17301.3 is added to the Revenue and Taxation Code,
to read:
17301.3. For purposes of this part, in the case of a nonresident
or part-year resident, the term "California adjusted gross income"
means adjusted gross income for the entire year derived from sources
within this state, determined in accordance with Chapter 11
(commencing with Section 17951) and this article.
SEC. 7. Section 17301.4 is added to the Revenue and Taxation Code,
to read:
17301.4. For purposes of this part, in the case of a nonresident
or part-year resident, the term "total adjusted gross income" means
adjusted gross income for the entire year determined under Section
17072 regardless of source, taking into account paragraph (2) of
subdivision (h) of Section 17024.5 and Section 17203.
SEC. 8. Section 17301.5 is added to the Revenue and Taxation Code,
to read:
17301.5. For purposes of this part, in the case of a nonresident
or part-year resident, the term "total taxable income" means taxable
income for the entire year determined under Section 17073 regardless
of source.
SEC. 10. Section 17303 of the Revenue and Taxation Code is
repealed.
SEC. 11. Section 17304 is added to the Revenue and Taxation Code,
to read:
17304. In the case of a nonresident or part-year resident,
itemized deductions allowed as a deduction for the taxable year under
Section 63 of the Internal Revenue Code, as modified by Section
17073, or the standard deduction (as provided in Section 17073.5),
shall be allowed in computing "taxable income of a nonresident or
part-year resident" in the ratio (not to exceed 1.00) that California
adjusted gross income (as defined in Section 17301.3) bears to total
adjusted gross income (as defined in Section 17301.4).
SEC. 12. Section 17306 is added to the Revenue and Taxation Code,
to read:
17306. In the case of a nonresident or part-year resident, in
computing "taxable income of a nonresident or part-year resident"
under paragraph (1) of subdivision (i) of Section 17041, references
to "adjusted gross income" for purposes of computing limitations
based upon adjusted gross income, shall mean "California adjusted
gross income" (as defined in Section 17301.3) for the same taxable
year without regard to the limitation used pursuant to paragraph (2)
of subdivision (h) of Section 17024.5 in computing "total adjusted
gross income" (as defined in Section 17301.4) for that taxable year.
SEC. 13. Section 17307 is added to the Revenue and Taxation Code,
to read:
17307. In the case of a nonresident or part-year resident, in
computing "taxable income of a nonresident or part-year resident"
under paragraph (1) of subdivision (i) of Section 17041, for purposes
of computing limitations on the deductions described in this
section, any reference to "compensation" or "earned income" shall be
a reference to the amount of "compensation" or "earned income"
required to be included in computing "California adjusted gross
income" (as defined in Section 17301.3) for the same taxable year
without regard to the limitation used pursuant to Section 17203 in
computing "total adjusted gross income" (as defined in Section
17301.4) for that taxable year.
(a) The deduction allowed by Section 219 of the Internal Revenue
Code.
(b) The deductions allowed by Sections 162(1) and 404 of the
Internal Revenue Code in the case of an individual who is an employee
within the meaning of Section 401(c)(1) of the Internal Revenue
Code.
SEC. 14. Section 17310 of the Revenue and Taxation Code is
repealed.
SEC. 15. Section 17554 of the Revenue and Taxation Code is
repealed.
SEC. 16. Section 17734 of the Revenue and Taxation Code is amended
to read:
17734. For purposes of computing "taxable income of a nonresident
or part-year resident" under paragraph (1) of subdivision (i) of
Section 17041, in the case of a nonresident beneficiary, income and
deduction derived through an estate or trust shall be included in
that computation only to the extent that the income or deduction is
derived by the estate or trust from sources within this state.
SEC. 17. Section 17935 of the Revenue and Taxation Code is amended
to read:
17935. (a) For each taxable year beginning on or after January 1,
1997, every limited partnership doing business in this state (as
defined by Section 23101) and required to file a return under Section
18633 shall pay annually to this state a tax for the privilege of
doing business in this state in an amount equal to the applicable
amount specified in Section 23153.
(b) (1) In addition to any limited partnership that is doing
business in this state and therefore is subject to the tax imposed by
subdivision (a), for each taxable year beginning on or after January
1, 1997, every limited partnership that has executed, acknowledged,
and filed a certificate of limited partnership with the Secretary of
State pursuant to Section 15621 of the Corporations Code, and every
foreign limited partnership that has registered with the Secretary of
State pursuant to Section 15692 of the Corporations Code, shall pay
annually the tax prescribed in subdivision (a). The tax shall be
paid for each taxable year, or part thereof, until a certificate of
cancellation is filed on behalf of the limited partnership with the
office of the Secretary of State pursuant to Section 15623 or 15696
of the Corporations Code.
(2) If a taxpayer files a return with the Franchise Tax Board that
is designated its final return, that board shall notify the taxpayer
that the tax imposed by this chapter is due annually until a
certificate of cancellation is filed with the Secretary of State
pursuant to Section 15623 or 15696 of the Corporations Code.
(c) The tax imposed by this chapter shall be due and payable on
the date the return is required to be filed under former Section
18432 or 18633.
(d) For purposes of this section, "limited partnership" means any
partnership formed by two or more persons under the laws of this
state or any other jurisdiction and having one or more general
partners and one or more limited partners.
(e) Notwithstanding subdivision (b), any limited partnership that
ceased doing business prior to January 1, 1997, filed a final return
with the Franchise Tax Board for a taxable year ending before January
1, 1997, and filed a certificate of dissolution with the Secretary
of State pursuant to Section 15623 of the Corporations Code prior to
January 1, 1997, shall not be subject to the tax imposed by this
chapter for any period following the date the certificate of
dissolution was filed with the Secretary of State, but only if the
limited partnership files a certificate of cancellation with the
Secretary of State pursuant to Section 15623 of the Corporations
Code. In the case where a notice of proposed deficiency assessment
of tax or a notice of tax due (whichever is applicable) is mailed
after January 1, 2001, the first sentence of this subdivision shall
not apply unless the certificate of cancellation is filed with the
Secretary of State not later than 60 days after the date of the
mailing of the notice.
SEC. 18. Section 17854 of the Revenue and Taxation Code is amended
to read:
17854. For purposes of computing "taxable income of a nonresident
or part-year resident" under paragraph (1) of subdivision (i) of
Section 17041, in the case of a nonresident partner, guaranteed
payments, as defined by Section 707(c) of the Internal Revenue Code,
shall be included in that computation as gross income from sources
within this state in the same manner as if those payments were a
distributive share of that partnership.
SEC. 19. Section 17951 of the Revenue and Taxation Code is amended
to read:
17951. For purposes of computing "taxable income of a nonresident
or part-year resident" under paragraph (1) of subdivision (i) of
Section 17041, in the case of nonresident taxpayers the gross income
includes only the gross income from sources within this state.
SEC. 20. Section 17952 of the Revenue and Taxation Code is amended
to read:
17952. For purposes of computing "taxable income of a nonresident
or part-year resident" under paragraph (1) of subdivision (i) of
Section 17041, income of nonresidents from stocks, bonds, notes, or
other intangible personal property is not income from sources within
this state unless the property has acquired a business situs in this
state, except that if a nonresident buys or sells such property in
this state or places orders with brokers in this state to buy or sell
such property so regularly, systematically, and continuously as to
constitute doing business in this state, the profit or gain derived
from such activity is income from sources within this state
irrespective of the situs of the property.
SEC. 21. Section 17952.5 of the Revenue and Taxation Code is
amended to read:
17952.5. (a) For purposes of computing "taxable income of a
nonresident or part-year resident" under paragraph (1) of subdivision
(i) of Section 17041, gross income of a nonresident, as defined in
Section 17015, from sources within this state shall not include
"qualified retirement income" received on or after January 1, 1996,
for any part of the taxable year during which the taxpayer was not a
resident of this state.
(b) For purposes of this section, "qualified retirement income"
means income from any of the following:
(1) A qualified trust under Section 401(a) of the Internal Revenue
Code that is exempt under Section 501(a) of the Internal Revenue
Code from taxation.
(2) A simplified employee pension as defined in Section 408(k) of
the Internal Revenue Code.
(3) An annuity plan described in Section 403(a) of the Internal
Revenue Code.
(4) An annuity contract described in Section 403(b) of the
Internal Revenue Code.
(5) An individual retirement plan described in Section 7701(a)(37)
of the Internal Revenue Code.
(6) An eligible deferred compensation plan as defined in Section
457 of the Internal Revenue Code.
(7) A governmental plan as defined in Section 414(d) of the
Internal Revenue Code.
(8) A trust described in Section 501(c)(18) of the Internal
Revenue Code.
(9) Any plan, program, or arrangement described in Section 3121(v)
(2)(C) of the Internal Revenue Code, if that income is either of the
following:
(A) Part of a series of substantially equal periodic payments (not
less frequently than annually) made for either of the following:
(i) The life or the life expectancy of the recipient (or the joint
lives or joint life expectancies of the recipient and the designated
beneficiary of the recipient).
(ii) A period of not less than 10 years.
(B) A payment received after termination of employment, under a
plan, program, or arrangement to which that employment relates,
maintained solely for the purpose of providing retirement benefits
for employees in excess of the limitation imposed by Section 401(a)
(17), 401(k), 401(m), 402(g), 403(b), 408(k), or 415 of the Internal
Revenue Code, or any combination of those sections, or any other
limitation on contributions or benefits in the Internal Revenue Code
on plans to which any of those sections apply.
(10) Any retired or retainer pay of a member or former member of a
uniform service computed under Chapter 71 (commencing with Sec.
1401) of Title 10 of the United States Code.
(c) This section shall apply only to any taxable year, or portion
thereof, that the provisions of Section 114 of Title 4 of the United
States Code, relating to limitation on state income taxation of
certain pension income, are effective.
(d) References to the Internal Revenue Code are subject to
paragraph (1) of subdivision (a) of Section 17024.5 which identifies,
for each taxable year, the effective date of the referenced
provisions of the Internal Revenue Code.
SEC. 22. Section 17953 of the Revenue and Taxation Code is amended
to read:
17953. For purposes of computing "taxable income of a nonresident
or part-year resident" under paragraph (1) of subdivision (i) of
Section 17041, income of estates and trusts distributed or
distributable to nonresident beneficiaries is income from sources
within this state only if distributed or distributable out of income
of the estate or trust derived from sources within this state. For
the purposes of this section, the nonresident beneficiary shall be
deemed to be the owner of intangible personal property from which the
income of the estate or trust is derived.
SEC. 23. Section 17954 of the Revenue and Taxation Code is amended
to read:
17954. For purposes of computing "taxable income of a nonresident
or part-year resident" under paragraph (1) of subdivision (i) of
Section 17041, except as provided in Section 25141, gross income from
sources within and without this state shall be allocated and
apportioned under rules and regulations prescribed by the Franchise
Tax Board.
SEC. 24. Section 17955 of the Revenue and Taxation Code is amended
to read:
17955. (a) For purposes of computing "taxable income of a
nonresident or part-year resident" under paragraph (1) of subdivision
(i) of Section 17041, notwithstanding Sections 17951, 17952, and
17953, gross income of a nonresident (as defined in Section 17015)
from sources within this state shall not include dividends, interest,
or gains and losses from qualifying investment securities if any of
the following apply:
(1) In the case of an individual, with respect to the qualifying
investment securities, the taxpayer's only contact with this state is
through a broker, dealer, or investment adviser located in this
state.
(2) In the case of a partner's distributive share of income from
qualifying investment securities, the partnership qualifies as an
investment partnership, whether or not the partnership has a usual
place of business located in this state.
(3) In the case of a beneficiary of a qualifying estate or trust,
the taxpayer's only contact with this state is through an investment
account managed by a corporate fiduciary located in this state.
(4) In the case of a unit holder in a regulated investment company
(as defined in Section 851 of the Internal Revenue Code), to the
extent of the dividends distributed by the regulated investment
company, whether or not the regulated investment company has a
principal place of business in this state.
(b) This section shall not apply to income derived from investment
activity that is interrelated with any trade or business activity of
the nonresident or an entity in which the nonresident owns an
interest in this state, whose primary activities are separate and
distinct from the acts of acquiring, managing, or disposing of
qualified investment securities, or if those securities were acquired
with working capital of a trade or business activity conducted in
this state in which the nonresident owns an interest.
(c) For purposes of this section:
(1) "Investment partnership" means a partnership that meets both
of the following requirements:
(A) No less than 90 percent of the partnership's cost of its total
assets consist of qualifying investment securities, deposits at
banks or other financial institutions, and office space and equipment
reasonably necessary to carry on its activities as an investment
partnership.
(B) No less than 90 percent of its gross income consists of
interest, dividends, and gains from the sale or exchange of
qualifying investment securities.
(2) "Qualifying estate or trust" means an estate or trust that
meets both of the following requirements:
(A) No less than 90 percent of the estate's or trust's cost of its
total assets consist of qualifying investment securities, deposits
at banks or other financial institutions, and office space and
equipment reasonably necessary to carry on its investment activities.
(B) No less than 90 percent of its gross income consists of
interest, dividends, and gains from the sale or exchange of
qualifying investment securities.
(3) (A) "Qualifying investment securities" include all of the
following:
(i) Common stock, including preferred or debt securities
convertible into common stock, and preferred stock.
(ii) Bonds, debentures, and other debt securities.
(iii) Foreign and domestic currency deposits or equivalents and
securities convertible into foreign securities.
(iv) Mortgage- or asset-backed securities secured by federal,
state, or local governmental agencies.
(v) Repurchase agreements and loan participations.
(vi) Foreign currency exchange contracts and forward and futures
contracts on foreign currencies.
(vii) Stock and bond index securities and futures contracts, and
other similar financial securities and futures contracts on those
securities.
(viii) Options for the purchase or sale of any of the securities,
currencies, contracts, or financial instruments described in clauses
(i) to (vii), inclusive.
(ix) Regulated futures contracts.
(B) "Qualifying investment securities" does not include an
interest in a partnership unless that partnership is itself an
investment partnership.
SEC. 25. Section 19322.1 is added to the Revenue and Taxation
Code, to read:
19322.1. (a) A claim for refund that is otherwise valid under
Section 19322, but that is made in the case in which payment of the
entire tax assessed or asserted has not been made, shall be a claim
only for purposes of tolling the time periods set forth in Section
19306. For all other purposes (including the application of Sections
19323, 19324, 19331, 19335, 19384, and 19385) the claim shall be
deemed filed on the date that full payment of the tax is made.
However, no credit or refund may be made or allowed for any payment
made more than seven years before the date that full payment of the
tax is made.
(b) This section shall apply to all claims for refund filed on or
after the effective date of the act adding this section, without
regard to taxable year.
SEC. 26. Section 19556 is added to the Revenue and Taxation Code,
to read:
19556. (a) The Franchise Tax Board may disclose to persons
described in paragraphs (1) to (4), inclusive, tax return and return
information solely for use in an action or proceeding affecting the
personnel rights of an employee or former employee, or in preparation
of the action or proceeding, but only to the extent the Franchise
Tax Board determines that the return or return information is, or may
be, relevant and material to the action or proceeding. Tax return
and return information may be disclosed pursuant to this section to
any of the following persons:
(1) An employee or former employee of the Franchise Tax Board who
is, or may be, a party to an administrative action or proceeding
affecting the personnel rights of that employee or former employee.
(2) Upon written request by the employee or former employee, to
the employee's or former employee's duly authorized legal
representative.
(3) Officers and employees of the Franchise Tax Board for use in
any action or proceeding affecting the rights of an employee or
former employee, to the extent necessary to advance or protect the
interests of the State of California.
(4) An administrative law judge, administrative board member,
judge, or justice, or authorized officer or employee thereof, in
connection with an administrative hearing, adjudication, or appeal
thereof, related to an action or proceeding affecting the personnel
rights of an employee or former employee.
(b) For purposes of this section, an action or proceeding
affecting the personnel rights of an employee or former employee of
the Franchise Tax Board means an action proceeding arising under
either of the following:
(1) The State Civil Service Act (Part 2 (commencing with Section
18500) of Division 5 of the Government Code).
(2) The Ralph C. Dills Act (Chapter 10.3 (commencing with Section
3512) of Division 4 of Title 1 of the Government Code).
(c) Any unauthorized disclosure by a person described in
paragraphs (1) to (4), inclusive, of subdivision (a) of any tax
return or return information disclosed to that person pursuant to
this section shall be subject to criminal penalty and civil liability
under this part for that unauthorized disclosure.
SEC. 27. Section 23036 of the Revenue and Taxation Code is amended
to read:
23036. (a) (1) The term "tax" includes any of the following:
(A) The tax imposed under Chapter 2 (commencing with Section
23101).
(B) The tax imposed under Chapter 3 (commencing with Section
23501).
(C) The tax on unrelated business taxable income, imposed under
Section 23731.
(D) The tax on S corporations imposed under Section 23802.
(2) The term "tax" does not include any amount imposed under
paragraph (1) of subdivision (e) of Section 24667 or paragraph (2) of
subdivision (f) of Section 24667.
(b) For purposes of Article 5 (commencing with Section 18661) of
Chapter 2, Article 3 (commencing with Section 19031) of Chapter 4,
Article 6 (commencing with Section 19101) of Chapter 4, and Chapter 7
(commencing with Section 19501) of Part 10.2, and for purposes of
Sections 18601, 19001, and 19005, the term "tax" shall also include
all of the following:
(1) The tax on limited partnerships, imposed under Section 17935
or Section 23081, the tax on limited liability companies, imposed
under Section 17941 or Section 23091, and the tax on registered
limited liability partnerships and foreign limited liability
partnerships imposed under Section 17948 or Section 23097.
(2) The alternative minimum tax imposed under Chapter 2.5
(commencing with Section 23400).
(3) The tax on built-in gains of S corporations, imposed under
Section 23809.
(4) The tax on excess passive investment income of S corporations,
imposed under Section 23811.
(c) Notwithstanding any other provision of this part, credits
shall be allowed against the "tax" in the following order:
(1) Credits that do not contain carryover provisions.
(2) Credits that, when the credit exceeds the "tax," allow the
excess to be carried over to offset the "tax" in succeeding taxable
years, except for those credits that are allowed to reduce the "tax"
below the tentative minimum tax, as defined by Section 23455. The
order of credits within this paragraph shall be determined by the
Franchise Tax Board.
(3) The minimum tax credit allowed by Section 23453.
(4) Credits that are allowed to reduce the "tax" below the
tentative minimum tax, as defined by Section 23455.
(5) Credits for taxes withheld under Section 18662.
(d) Notwithstanding any other provision of this part, each of the
following shall be applicable:
(1) No credit shall reduce the "tax" below the tentative minimum
tax (as defined by paragraph (1) of subdivision (a) of Section
23455), except the following credits:
(A) The credit allowed by former Section 23601 (relating to solar
energy).
(B) The credit allowed by former Section 23601.4 (relating to
solar energy).
(C) The credit allowed by Section 23601.5 (relating to solar
energy).
(D) The credit allowed by Section 23609 (relating to research
expenditures).
(E) The credit allowed by Section 23609.5 (relating to clinical
testing expenses).
(F) The credit allowed by Section 23610.5 (relating to low-income
housing).
(G) The credit allowed by former Section 23612 (relating to sales
and use tax credit).
(H) The credit allowed by Section 23612.2 (relating to enterprise
zone sales or use tax credit).
(I) The credit allowed by Section 23612.6 (relating to Los Angeles
Revitalization Zone sales tax credit).
(J) The credit allowed by former Section 23622 (relating to
enterprise zone hiring credit).
(K) The credit allowed by Section 23622.7 (relating to enterprise
zone hiring credit).
(L) The credit allowed by former Section 23623 (relating to
program area hiring credit).
(M) For each taxable year beginning on or after January 1, 1994,
the credit allowed by Section 23623.5 (relating to Los Angeles
Revitalization Zone hiring credit).
(N) The credit allowed by Section 23625 (relating to Los Angeles
Revitalization Zone hiring credit).
(O) The credit allowed by Section 23633 (relating to targeted tax
area sales or use tax credit).
(P) The credit allowed by Section 23634 (relating to targeted tax
area hiring credit).
(Q) The credit allowed by Section 23649 (relating to qualified
property).
(2) No credit against the tax shall reduce the minimum franchise
tax imposed under Chapter 2 (commencing with Section 23101).
(e) Any credit which is partially or totally denied under
subdivision (d) shall be allowed to be carried over to reduce the
"tax" in the following year, and succeeding years if necessary, if
the provisions relating to that credit include a provision to allow a
carryover of the unused portion of that credit.
(f) Unless otherwise provided, any remaining carryover from a
credit that has been repealed or made inoperative shall continue to
be allowed to be carried over under the provisions of that section as
it read immediately prior to being repealed or becoming inoperative.
(g) Unless otherwise provided, if two or more taxpayers share in
costs that would be eligible for a tax credit allowed under this
part, each taxpayer shall be eligible to receive the tax credit in
proportion to its respective share of the costs paid or incurred.
(h) Unless otherwise provided, in the case of an S corporation,
any credit allowed by this part shall be computed at the S
corporation level, and any limitation on the expenses qualifying for
the credit or limitation upon the amount of the credit shall be
applied to the S corporation and to each shareholder.
(i) (1) With respect to any taxpayer that directly or indirectly
owns an interest in a business entity that is disregarded for tax
purposes pursuant to Section 23038 and any regulations thereunder,
the amount of any credit or credit carryforward allowable for any
taxable year attributable to the disregarded business entity shall be
limited in accordance with paragraphs (2) and (3).
(2) The amount of any credit otherwise allowed under this part,
including any credit carryover from prior years, that may be applied
to reduce the taxpayer's "tax," as defined in subdivision (a), for
the taxable year shall be limited to an amount equal to the excess of
the taxpayer's regular tax (as defined in Section 23455), determined
by including income attributable to the disregarded business entity
that generated the credit or credit carryover, over the taxpayer's
regular tax (as defined in Section 23455), determined by excluding
the income attributable to that disregarded business entity. No
credit shall be allowed if the taxpayer's regular tax (as defined in
Section 23455), determined by including the income attributable to
the disregarded business entity is less than the taxpayer's regular
tax (as defined in Section 23455), determined by excluding the income
attributable to the disregarded business entity.
(3) If the amount of a credit allowed pursuant to the section
establishing the credit exceeds the amount allowable under this
subdivision in any taxable year, the excess amount may be carried
over to subsequent taxable years pursuant to subdivisions (d), (e),
and (f).
(j) (1) Unless otherwise specifically provided, in the case of a
taxpayer that is a partner or shareholder of an eligible pass-through
entity described in paragraph (2), any credit passed through to the
taxpayer in the taxpayer's first taxable year beginning on or after
the date the credit is no longer operative may be claimed by the
taxpayer in that taxable year, notwithstanding the repeal of the
statute authorizing the credit prior to the close of that taxable
year.
(2) For purposes of this subdivision, "eligible pass-through
entity" means any partnership or S corporation that files its return
on a fiscal year basis pursuant to Section 18566, and that is
entitled to a credit pursuant to this part for the taxable year that
begins during the last year a credit is operative.
(3) This subdivision shall apply to credits that become
inoperative on or after the operative date of the act adding this
subdivision.
SEC. 28. Section 23453 of the Revenue and Taxation Code is amended
to read:
23453. (a) There shall be allowed as a credit against the regular
tax (as defined by subdivision (c) of Section 23455), for any
taxable year, an amount equal to the minimum tax credit for that
taxable year.
(b) For purposes of subdivision (a), the minimum tax credit shall
be determined in accordance with Section 53 of the Internal Revenue
Code, except as otherwise provided in this part.
(c) For purposes of this chapter, the amount determined under
Section 53(c)(1) of the Internal Revenue Code shall be the regular
tax as defined by subdivision (c) of Section 23455, reduced by the
sum of the credits allowable under this part other than any credit
which reduces the tax below the tentative minimum tax, as defined by
Section 23455.
SEC. 29. The amendments made by this act to Sections 17041, 17055,
17062, 17301, 17334, 17854, 17951, 17952, 17952.5, 17953, 17954, and
17955 of, the additions made by this act of Sections 17051.5.
17301.3, 17301.4, 17301.5, 17304, 17306, and 17307 to, and the repeal
made by this act of Sections 17303, 17310, and 17554 of, the Revenue
and Taxation Code, shall apply to taxable years beginning on or
after January 1, 2002.
SEC. 30. No reimbursement is required by this act pursuant to
Section 6 of Article XIIIB of the California Constitution because the
only costs that may be incurred by a local agency or school district
will be incurred because this act creates a new crime or infraction,
eliminates a crime or infraction, or changes the penalty for a crime
or infraction, within the meaning of Section 17556 of the Government
Code, or changes the definition of a crime within the meaning of
Section 6 of Article XIIIB of the California Constitution.