Amended in Senate June 24, 2013

California Legislature—2013–14 Regular Session

Assembly BillNo. 93


Introduced by Committee on Budget (Blumenfield (Chair), Bloom, Bonilla,begin insert Campos,end insert Chesbro, Daly, Dickinson, Gordon, Jones-Sawyer, Mitchell, Mullin, Muratsuchi, Nazarian,begin delete Rendon,end deletebegin insert Skinner,end insert Stone, and Ting)

January 10, 2013


An actbegin delete relating to the Budget Act of 2013end deletebegin insert to amend Section 13073.5 of, and to add Sections 7090, 7099.5, and 7119 to, the Government Code, to amend and repeal Sections 17053.33, 17053.34, 17053.45, 17053.46, 17053.47, 17053.70, 17053.74, 17053.75, 17235, 17267.2, 17267.6, 17268, 17276.2, 17276.5, 17276.6, 19136.8, 23612.2, 23622.7, 23622.8, 23633, 23634, 23645, 23646, 24356.6, 24356.7, 24356.8, 24384.5, 24416.2, 24416.5, and 24416.6 of, to add Section 18410.2 to, to add and repeal Sections 6377.1, 17053.73, 17059.2, 23626, and 23689 of, and to repeal and amend Sections 17053.80 and 23623 of, the Revenue and Taxation Code, relating to economic development, making an appropriation therefor, and declaring the urgency thereof, to take effect immediatelyend insert.

LEGISLATIVE COUNSEL’S DIGEST

AB 93, as amended, Committee on Budget. begin deleteBudget Act of 2013. end deletebegin insertEconomic development: taxation: credits, deductions, and net operating losses.end insert

begin insert

(1) Existing law provides for the designation and oversight by the Department of Housing and Community Development of various economic development areas in the state, including enterprise zones, manufacturing enhancement areas, targeted tax areas, and local agency military base recovery areas, or LAMBRAs. Existing law allows various incentives to businesses operating in these areas.

end insert
begin insert

This bill would repeal the provisions authorizing those designations on January 1, 2014.

end insert
begin insert

(2) The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws, including hiring credits and sales and use tax credits for taxpayers within the specified economic development areas, and a hiring credit for taxpayers, other than those allowed a credit with respect to operating in the specified economic development areas. Those laws, for taxpayers engaged in business within specified economic development areas, authorize specified net operating loss carryovers and expense deductions in computing income subject to taxes. Those laws also authorize an interest deduction for interest received in payment of indebtedness of a person engaged in business in an enterprise zone.

end insert
begin insert

This bill generally would make these provisions inoperative for taxable years beginning on or after January 1, 2014, and repeal these provisions on either December 1, 2014, or December 1, 2019, as provided. This bill would limit the application of sales and use tax credits to sales and use tax paid for purchases before January 1, 2014, and limit the carryover of those credits to the 5 succeeding years, limit the application of the hiring credits to employees hired within a specified period before January 1, 2014, and limit the interest deduction to interest received before January 1, 2014.

end insert
begin insert

This bill would also allow a credit against tax under both laws for each taxable year beginning on or after January 1, 2014, and before January 1, 2025, in an amount as provided in a written agreement between the Governor’s Office of Business and Economic Development and the taxpayer, agreed upon by the California Competes Tax Credit Committee as established by this bill, and based on specified factors, including, but not limited to, the number of jobs the taxpayer will create or retain in the state and the amount of investment in the state by the taxpayer. The bill would limit the aggregate amount of credits allowed to taxpayers to a specified sum per fiscal year.

end insert
begin insert

This bill would, under both laws for taxable years beginning on or after January 1, 2014, and before January 1, 2019, allow a credit against tax for portions of the wages paid by a taxpayer engaged in a trade or business within a designated census tract, as defined, or a former enterprise zone to certain full-time employees who provide services for that taxpayer in connection with that trade or business. The bill would require the Population Research Unit in the Department of Finance to identify designated census tracts in accordance with certain criteria.

end insert
begin insert

(3) Existing sales and use tax laws impose taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state, and provides various exemptions from those taxes.

end insert
begin insert

The bill would exempt from those taxes, on and after January 1, 2014, and before January 1, 2019, the gross receipts from the sale of, and the storage, use, or other consumption of, qualified tangible personal property purchased by a qualified person for use primarily in manufacturing, processing, refining, fabricating, or recycling of property, as specified; qualified tangible personal property purchased for use by a contractor for specified purposes, as provided; and qualified tangible personal property purchased for use by a qualified person to be used primarily in research and development, as provided. The bill would require the purchaser to furnish the retailer with an exemption certificate, as specified.

end insert
begin insert

The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing law authorizes districts, as specified, to impose transactions and use taxes in conformity with the Transactions and Use Tax Law, which conforms to the Sales and Use Tax Law. Exemptions from state sales and use taxes are incorporated into these laws.

end insert
begin insert

This bill would specify that this exemption does not apply to local sales and use taxes, transactions and use taxes, and specified state taxes from which revenues are deposited into the Local Public Safety Fund, the Education Protection Account, the Local Revenue Fund, the Fiscal Recovery Fund, or the Local Revenue Fund 2011.

end insert
begin insert

(4) This bill would appropriate up to $600,000 for allocation to a committee and departments, as specified, by the Director of Finance in furtherance of the objectives of this bill, as provided.

end insert
begin insert

(5) This bill declare that it is to take effect immediately as an urgency statute.

end insert
begin delete

This bill would express the intent of the Legislature to enact statutory changes relating to the Budget Act of 2013.

end delete

Vote: begin deletemajority end deletebegin insert23end insert. Appropriation: begin deleteno end deletebegin insertyesend insert. Fiscal committee: begin deleteno end deletebegin insertyesend insert. State-mandated local program: no.

The people of the State of California do enact as follows:

P4    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 7090 is added to the end insertbegin insertGovernment Codeend insertbegin insert,
2to read:end insert

begin insert
3

begin insert7090.end insert  

Chapter 12.8 (commencing with Section 7070) is
4repealed on January 1, 2014.

end insert
5begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 7099.5 is added to the end insertbegin insertGovernment Codeend insertbegin insert, to
6read:end insert

begin insert
7

begin insert7099.5.end insert  

Chapter 12.93 (commencing with Section 7097) is
8repealed on January 1, 2014.

end insert
9begin insert

begin insertSEC. 3.end insert  

end insert

begin insertSection 7119 is added to the end insertbegin insertGovernment Codeend insertbegin insert, to
10read:end insert

begin insert
11

begin insert7119.end insert  

Chapter 12.97 (commencing with Section 7105) is
12repealed on January 1, 2014.

end insert
13begin insert

begin insertSEC. 4.end insert  

end insert

begin insertSection 13073.5 of the end insertbegin insertGovernment Codeend insertbegin insert is amended
14to read:end insert

15

13073.5.  

The Legislature finds and declares that: (1) population
16size and distribution patterns in California exert a major influence
17on the physical, social, and economic structure of the state and on
18the quality of the environment generally; (2) sound and current
19data and methods to estimate population trends are necessary to
20enable state, regional, and local agencies to plan and function
21properly; and (3) there is a critical need for a proper study of the
22implications of present and future population trends in order that
23state, regional, and local agencies might develop or reexamine
24policies and actions based thereon.

25The Population Research Unit shall:

26(a) Develop basic demographic data and statistical compilations,
27which may includebegin insert aend insert current population survey and a mid-decade
28census.

29(b) Design and test methods of research and data collection.

30(c) Conduct local population estimates as required by law.

31(d) Validate all official census data and population statistics.

32(e) Analyze and prepare projections of enrollments in public
33schools, colleges, and universities.

34(f) Analyze governmental records to establish characteristics
35of migration and distribution.

P5    1(g) Publish annual estimates of the population of the state and
2 its composition.

3(h) Prepare short- and long-range projections of population and
4its composition.

5(i) Provide advisory services to state agencies and other levels
6of government.

7(j) Evaluate and recommend data requirements for determining
8population and population growth.

9(k) Analyze the demographic features of the causes and
10consequences of patterns of natural increase or decrease, migration,
11and population concentration within the state.

12(l) Assess the need for population data required for determining
13the allocation of federal, state, and other subvention revenues.

14(m) Request and obtain from any department, division,
15commission, or other agency of the statebegin delete suchend deletebegin insert allend insert assistance and
16informationbegin delete as willend deletebegin insert toend insert enable the unit to effectively carry out the
17provisions of this section.

18(n) Cooperate with the Office of Planning and Research with
19respect to functions involving mutual areas of concern relating to
20demography and state planning.

21(o) Enter into agreements to carry out the purposes of this
22section, including the application for and acceptance of federal
23funds or private foundation grants for demographic studies.

24(p) Act as primary state government liaison with the Census
25Bureau, United States Department of Commerce, in the acquisition
26and distribution of census data and related documentation to state
27agencies.

28(q) Administer, with other agencies, a State Census Data Center
29which will be responsible for acquiring decennial and other census
30data from the Bureau of the Census, and for providing necessary
31information to the Legislature and to the executive branch and for
32seeking to ensure the availability of census information to local
33governments. The unit and the Office of Planning and Research
34shall be responsible for designating subcenters of the State Census
35Data Center as needed. The unit will provide materials to
36subcenters of the State Census Data Center, will coordinate the
37efforts of the subcenters to avoid duplication and may consult in
38the design of standard reports to be offered by the center and its
39subcenters.

P6    1(r) Coordinate with the Office of Planning and Research
2Environmental Data Center for the purposes of ensuring
3consistency and compatibility of data products, improving public
4access to data, ensuring the consistent interpretation of data, and
5avoiding duplication of functions.

begin insert

6(s) (1) Determine those census tracts that are to be designated
7census tracts based on data from the five-year American
8Community Survey (ACS). The census tracts that are within the
9highest quartile for both civilian unemployment and poverty
10statistics, as determined in paragraphs (2) and (3), shall be
11determined to be designated census tracts as described in
12paragraph (7) of subdivision (b) of Section 17053.73, and
13paragraph (7) of subdivision (b) of Section 23626 of the Revenue
14and Taxation Code.

end insert
begin insert

15(2) To determine the census tracts that are within the highest
16 quartile of census tracts with the highest civilian unemployment,
17the census tracts shall be sorted by the respective civilian
18unemployment rate of each in ascending order, or from the lowest
19(0 percent) to the highest (100 percent) according to the following:

end insert
begin insert

20(A) Census tracts without a civilian labor force shall be
21excluded.

end insert
begin insert

22(B) After ordering the census tracts by the civilian
23unemployment rate of each, the census tracts shall be divided into
24four equal groups or quartiles as follows:

end insert
begin insert

25(i) The first quartile shall represent the lowest fourth of the
26census tracts (1 percent to less than 26 percent).

end insert
begin insert

27(ii) The second quartile shall represent the second fourth (26
28percent to less than 51 percent).

end insert
begin insert

29(iii) The third quartile shall represent the third fourth (51
30percent to less than 76 percent).

end insert
begin insert

31(iv) The fourth quartile shall represent the fourth fourth (76
32percent to 100 percent, inclusive).

end insert
begin insert

33(C) The last or highest quartile shall represent the top 25
34percent of the census tracts with the highest civilian unemployment
35rates.

end insert
begin insert

36(3) To determine the census tracts that are within the quartile
37of census tracts with the highest poverty, the census tracts shall
38be sorted by the respective percentage of population below poverty
39of each in ascending order, or from the lowest (0 percent) to the
40highest (100 percent) according to the following:

end insert
begin insert

P7    1(A) Consistent with poverty statistics in the ACS, which adhere
2to the standards specified by the federal Office of Management
3and Budget in Statistical Policy Directive 14, the poverty thresholds
4as specified by the United States Census Bureau shall be used to
5determine those individuals below poverty.

end insert
begin insert

6(B) To determine those individuals below poverty, different
7thresholds, as specified by the United States Census Bureau, shall
8be applied to families, people living alone, or people living with
9nonrelatives (unrelated individuals).

end insert
begin insert

10(C) If a family’s total income is less than the dollar value of the
11appropriate threshold, then that family and every individual in it
12shall be considered to be below poverty.

end insert
begin insert

13(D) If an unrelated individual’s total income is less than the
14appropriate threshold, then that individual shall be considered to
15be below poverty.

end insert
begin insert

16(E) Poverty status shall be determined for all people except
17institutionalized people, people in military group quarters, people
18in college dormitories, and unrelated individuals under 15 years
19of age.

end insert
begin insert

20(F) Census tracts that do not have a population for whom
21poverty status is determined shall be excluded.

end insert
begin insert

22(G) After ordering the census tracts by the respective percent
23below poverty of each, the census tracts shall be divided into four
24equal quartiles as follows:

end insert
begin insert

25(i) The first quartile shall represent the lowest fourth of the
26census tracts (1 percent to less than 26 percent).

end insert
begin insert

27(ii) The second quartile shall represent the second fourth (26
28percent to less than 51 percent).

end insert
begin insert

29(iii) The third quartile shall represent the third fourth (51
30percent to less than 76 percent).

end insert
begin insert

31(iv) The fourth quartile shall represent the fourth fourth (76
32percent to 100 percent, inclusive).

end insert
begin insert

33(H) The last or highest quartile shall represent the top 25
34percent of the census tracts with the highest percentage of
35population below poverty.

end insert
begin insert

36(4) To determine the census tracts that are within the lowest
37quartile of census tracts with the lowest civilian unemployment
38and poverty, the census tracts shall be sorted by the respective
39civilian unemployment and poverty rates of each in ascending
P8    1order, or from the lowest (0 percent) to the highest (100 percent)
2according to the following:

end insert
begin insert

3(A) Census tracts without a civilian labor force are to be
4excluded.

end insert
begin insert

5(B) After ordering the census tracts by the civilian
6unemployment and poverty rates of each, the census tracts shall
7be divided into four equal groups or quartiles as follows:

end insert
begin insert

8(i) The first quartile shall represent the lowest fourth of the
9census tracts (1 percent to less than 26 percent).

end insert
begin insert

10(ii) The second quartile shall represent the second fourth (26
11percent to less than 51 percent).

end insert
begin insert

12(iii) The third quartile shall represent the third fourth (51
13percent to less than 76 percent).

end insert
begin insert

14(iv) The fourth quartile shall represent the fourth fourth (76
15percent to 100 percent, inclusive).

end insert
begin insert

16(C) The first or lowest quartile shall represent the bottom 25
17percent of the census tracts with the lowest civilian unemployment
18and poverty rates.

end insert
19begin insert

begin insertSEC. 5.end insert  

end insert

begin insertSection 6377.1 is added to the end insertbegin insertRevenue and Taxation
20Code
end insert
begin insert, to read:end insert

begin insert
21

begin insert6377.1.end insert  

(a) Except as provided in subdivision (e), on or after
22January 1, 2014, and before January 1, 2019, there are exempted
23from the taxes imposed by this part the gross receipts from the
24sale of, and the storage, use, or other consumption in this state of,
25any of the following:

26(1) Qualified tangible personal property purchased for use by
27a qualified person to be used primarily in any stage of the
28manufacturing, processing, refining, fabricating, or recycling of
29tangible personal property, beginning at the point any raw
30materials are received by the qualified person and introduced into
31the process and ending at the point at which the manufacturing,
32processing, refining, fabricating, or recycling has altered tangible
33 personal property to its completed form, including packaging, if
34required.

35(2) Qualified tangible personal property purchased for use by
36a qualified person to be used primarily in research and
37development.

38(3) Qualified tangible personal property purchased for use by
39a qualified person to be used primarily to maintain, repair,
P9    1measure, or test any qualified tangible personal property described
2in paragraph (1) or (2).

3(4) Qualified tangible personal property purchased for use by
4a contractor purchasing that property for use in the performance
5of a construction contract for the qualified person, that will use
6that property as an integral part of the manufacturing, processing,
7refining, fabricating, or recycling process, or as a research or
8storage facility for use in connection with those processes.

9(b) For purposes of this section:

10(1) “Fabricating” means to make, build, create, produce, or
11assemble components or tangible personal property to work in a
12new or different manner.

13(2) “Manufacturing” means the activity of converting or
14conditioning tangible personal property by changing the form,
15composition, quality, or character of the property for ultimate sale
16at retail or use in the manufacturing of a product to be ultimately
17sold at retail. Manufacturing includes any improvements to
18tangible personal property that result in a greater service life or
19greater functionality than that of the original property.

20(3) “Primarily” means 50 percent or more of the time.

21(4) “Process” means the period beginning at the point at which
22any raw materials are received by the qualified person and
23introduced into the manufacturing, processing, refining,
24fabricating, or recycling activity of the qualified person and ending
25at the point at which the manufacturing, processing, refining,
26fabricating, or recycling activity of the qualified person has altered
27tangible personal property to its completed form, including
28packaging, if required. Raw materials shall be considered to have
29been introduced into the process when the raw materials are stored
30on the same premises where the qualified person’s manufacturing,
31processing, refining, fabricating, or recycling activity is conducted.
32Raw materials that are stored on premises other than where the
33qualified person’s manufacturing, processing, refining, fabricating,
34or recycling activity is conducted shall not be considered to have
35been introduced into the manufacturing, processing, refining,
36fabricating, or recycling process.

37(5) “Processing” means the physical application of the materials
38and labor necessary to modify or change the characteristics of
39tangible personal property.

P10   1(6) (A) “Qualified person” means a person that is primarily
2engaged in those lines of business described in Codes 3111 to
33399, inclusive, 541711, or 541712 of the North American Industry
4Classification System (NAICS) published by the United States
5Office of Management and Budget (OMB), 2012 edition.

6(B) Notwithstanding subparagraph (A), “qualified person”
7shall not include either of the following:

8(i) An apportioning trade or business that is required to
9apportion its business income pursuant to subdivision (b) of Section
1025128.

11(ii) A trade or business conducted wholly within this state that
12would be required to apportion its business income pursuant to
13subdivision (b) of Section 25128 if it were subject to apportionment
14pursuant to Section 25101.

15(7) (A) “Qualified tangible personal property” includes, but
16is not limited to, all of the following:

17(i) Machinery and equipment, including component parts and
18contrivances such as belts, shafts, moving parts, and operating
19structures.

20(ii) Equipment or devices used or required to operate, control,
21regulate, or maintain the machinery, including, but not limited to,
22computers, data-processing equipment, and computer software,
23together with all repair and replacement parts with a useful life
24of one or more years therefor, whether purchased separately or
25in conjunction with a complete machine and regardless of whether
26the machine or component parts are assembled by the qualified
27person or another party.

28(iii) Tangible personal property used in pollution control that
29meets standards established by this state or any local or regional
30governmental agency within this state.

31(iv) Special purpose buildings and foundations used as an
32integral part of the manufacturing, processing, refining,
33fabricating, or recycling process, or that constitute a research or
34storage facility used during those processes. Buildings used solely
35for warehousing purposes after completion of those processes are
36not included.

37(B) “Qualified tangible personal property” shall not include
38any of the following:

39(i) Consumables with a useful life of less than one year.

P11   1(ii) Furniture, inventory, and equipment used in the extraction
2process, or equipment used to store finished products that have
3completed the manufacturing, processing, refining, fabricating,
4or recycling process.

5(iii) Tangible personal property used primarily in
6administration, general management, or marketing.

7(8) “Refining” means the process of converting a natural
8resource to an intermediate or finished product.

9(9) “Research and development” means those activities that
10are described in Section 174 of the Internal Revenue Code or in
11any regulations thereunder.

12(10) “Useful life” for tangible personal property that is treated
13as having a useful life of one or more years for state income or
14franchise tax purposes shall be deemed to have a useful life of one
15or more years for purposes of this section. “Useful life” for
16tangible personal property that is treated as having a useful life
17of less than one year for state income or franchise tax purposes
18shall be deemed to have a useful life of less than one year for
19purposes of this section.

20(c) An exemption shall not be allowed under this section unless
21the purchaser furnishes the retailer with an exemption certificate,
22completed in accordance with any instructions or regulations as
23the board may prescribe, and the retailer retains the exemption
24certificate in its records and furnishes it to the board upon request.

25(d) (1)    Notwithstanding the Bradley-Burns Uniform Local
26Sales and Use Tax Law (Part 1.5 (commencing with Section 7200))
27and the Transactions and Use Tax Law (Part 1.6 (commencing
28with Section 7251)), the exemption established by this section shall
29not apply with respect to any tax levied by a county, city, or district
30pursuant to, or in accordance with, either of those laws.

31(2) Notwithstanding subdivision (a), the exemption established
32by this section shall not apply with respect to any tax levied
33pursuant to Section 6051.2, 6051.5, 6201.2, or 6201.5, pursuant
34to Section 35 of Article XIII of the California Constitution, or any
35tax levied pursuant to Section 6051 or 6201 that is deposited in
36the State Treasury to the credit of the Local Revenue Fund 2011
37pursuant to Section 6051.15 or 6201.15.

38(e) (1) Notwithstanding subdivision (a), the exemption provided
39by this section shall not apply to either of the following:

P12   1(A) Any tangible personal property purchased during any
2calendar year that exceeds two hundred million dollars
3($200,000,000) of purchases of qualified tangible personal
4property for which an exemption is claimed by a qualified person
5under this section. For purposes of this subparagraph, in the case
6of a qualified person that is required to be included in a combined
7report under Section 25101 or authorized to be included in a
8combined report under Section 25101.15, the aggregate of all
9purchases of qualified personal property for which an exemption
10is claimed pursuant to this section by all persons that are required
11or authorized to be included in a combined report shall not exceed
12two hundred million dollars ($200,000,000) in any calendar year.

13(B) The sale or storage, use, or other consumption of property
14that, within one year from the date of purchase, is removed from
15California, converted from an exempt use under subdivision (a)
16to some other use not qualifying for exemption, or used in a manner
17not qualifying for exemption.

18(2) If a purchaser certifies in writing to the seller that the
19tangible personal property purchased without payment of the tax
20will be used in a manner entitling the seller to regard the gross
21receipts from the sale as exempt from the sales tax, and within one
22year from the date of purchase, the purchaser removes that
23property from California, converts that property for use in a
24manner not qualifying for the exemption, or uses that property in
25a manner not qualifying for the exemption, the purchaser shall be
26liable for payment of sales tax, with applicable interest, as if the
27purchaser were a retailer making a retail sale of the tangible
28personal property at the time the tangible personal property is
29removed, converted, or used, and the sales price of the tangible
30personal property to the purchaser shall be deemed the gross
31receipts from that retail sale.

32(f) This section shall apply to leases of qualified tangible
33personal property classified as “continuing sales” and “continuing
34purchases” in accordance with Sections 6006.1 and 6010.1. The
35exemption established by this section shall apply to the rentals
36payable pursuant to the lease, provided the lessee is a qualified
37person and the tangible personal property is used in an activity
38described in subdivision (a).

39(g) This section is repealed on January 1, 2019.

end insert
P13   1begin insert

begin insertSEC. 6.end insert  

end insert

begin insertSection 17053.33 of the end insertbegin insertRevenue and Taxation Codeend insert
2begin insert is amended to read:end insert

3

17053.33.  

(a) For each taxable year beginning on or after
4January 1, 1998,begin insert and before January 1, 2014,end insert there shall be allowed
5as a credit against the “net tax” (as defined in Section 17039) for
6the taxable year an amount equal to the sales or use tax paid or
7incurred during the taxable year by the qualified taxpayer in
8connection with the qualified taxpayer’s purchase of qualified
9begin delete property.end deletebegin insert property before January 1, 2014.end insert

10(b) For purposes of this section:

11(1) “Qualified property” means property that meets all of the
12following requirements:

13(A) Is any of the following:

14(i) Machinery and machinery parts used for fabricating,
15processing, assembling, and manufacturing.

16(ii) Machinery and machinery parts used for the production of
17renewable energy resources.

18(iii) Machinery and machinery parts used for either of the
19following:

20(I) Air pollution control mechanisms.

21(II) Water pollution control mechanisms.

22(iv) Data processing and communications equipment, such as
23computers, computer-automated drafting systems, copy machines,
24telephone systems, and faxes.

25(v) Motion picture manufacturing equipment central to
26production and post production, such as cameras, audio recorders,
27and digital image and sound processing equipment.

28(B) The total cost of qualified property purchased and placed
29in service in any taxable year that may be taken into account by
30any qualified taxpayer for purposes of claiming this credit shall
31not exceed one million dollars ($1,000,000).

32(C) The qualified property is used by the qualified taxpayer
33exclusively in a targeted tax area.

34(D) The qualified property is purchased and placed in service
35before the date the targeted tax area designation expires, is revoked,
36is no longer binding, or becomes inoperative.

37(2) (A) “Qualified taxpayer” means a person or entity that meets
38both of the following:

P14   1(i) Is engaged in a trade or business within a targeted tax area
2designated pursuant to Chapter 12.93 (commencing with Section
37097) of Division 7 of Title 1 of the Government Code.

4(ii) Is engaged in those lines of business described in Codes
52000 to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
6inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive,
7of the Standard Industrial Classification (SIC) Manual published
8by the United States Office of Management and Budget, 1987
9edition.

10(B) In the case of any pass-through entity, the determination of
11whether a taxpayer is a qualified taxpayer under this section shall
12be made at the entity level and any credit under this section or
13Section 23633 shall be allowed to the pass-through entity and
14passed through to the partners or shareholders in accordance with
15applicable provisions of this part or Part 11 (commencing with
16Section 23001). For purposes of this subparagraph, the term
17“pass-through entity” means any partnership or S corporation.

18(3) “Targeted tax area” means the area designated pursuant to
19Chapter 12.93 (commencing with Section 7097) of Division 7 of
20Title 1 of the Government Code.

21(c) If the qualified taxpayer is allowed a credit for qualified
22property pursuant to this section, only one credit shall be allowed
23to the taxpayer under this part with respect to that qualified
24property.

25(d) If the qualified taxpayer has purchased property upon which
26a use tax has been paid or incurred, the credit provided by this
27section shall be allowed only if qualified property of a comparable
28quality and price is not timely available for purchase in this state.

29(e) In the case where the credit otherwise allowed under this
30section exceeds the “net tax” for the taxable year, that portion of
31the credit that exceeds the “net tax” may be carried over and added
32to the credit, if any, in thebegin delete following year, andend delete succeedingbegin delete yearsend delete
33begin insert five taxable years,end insert if necessary, until the credit is exhausted. The
34credit shall be applied first to the earliest taxable years possible.

35(f) Any qualified taxpayer who elects to be subject to this section
36shall not be entitled to increase the basis of the qualified property
37as otherwise required by Section 164(a) of the Internal Revenue
38Code with respect to sales or use tax paid or incurred in connection
39with the qualified taxpayer’s purchase of qualified property.

P15   1(g) (1) The amount of the credit otherwise allowed under this
2section and Section 17053.34, including any credit carryover from
3prior years, that may reduce the “net tax” for the taxable year shall
4not exceed the amount of tax that would be imposed on the
5qualified taxpayer’s business income attributable to the targeted
6tax area determined as if that attributable income represented all
7of the income of the qualified taxpayer subject to tax under this
8part.

9(2) Attributable income shall be that portion of the taxpayer’s
10California source business income that is apportioned to the
11targeted taxbegin delete area .end deletebegin insert area.end insert For that purpose, the taxpayer’s business
12income attributable to sources in this state first shall be determined
13in accordance with Chapter 17 (commencing with Section 25101)
14of Part 11. That business income shall be further apportioned to
15the targeted tax area in accordance with Article 2 (commencing
16with Section 25120) of Chapter 17 of Part 11, modified for
17purposes of this section in accordance with paragraph (3).

18(3) Business income shall be apportioned to the targeted tax
19area by multiplying the total California business income of the
20taxpayer by a fraction, the numerator of which is the property
21factor plus the payroll factor, and the denominator of which is two.
22For purposes of this paragraph:

23(A) The property factor is a fraction, the numerator of which is
24the average value of the taxpayer’s real and tangible personal
25property owned or rented and used in the targeted tax area during
26the taxable year, and the denominator of which is the average value
27of all the taxpayer’s real and tangible personal property owned or
28rented and used in this state during the taxable year.

29(B) The payroll factor is a fraction, the numerator of which is
30the total amount paid by the taxpayer in the targeted tax area during
31the taxable year for compensation, and the denominator of which
32is the total compensation paid by the taxpayer in this state during
33the taxable year.

34(4) The portion of any credit remaining, if any, after application
35of this subdivision, shall be carried over to succeeding taxable
36years,begin insert if necessary, until the credit is exhausted,end insert as if it were an
37amount exceeding the “net tax” for the taxable year, as provided
38in subdivision (e).begin insert However, the portion of any credit remaining
39for carryover to taxable years beginning on or after January 1,
402014, if any, after application of this subdivision, shall be carried
P16   1over only to the succeeding five taxable years if necessary, until
2the credit is exhausted, as if it were an amount exceeding the “net
3tax” for the taxable year, as provided in subdivision (e).end insert

4(5) In the event that a credit carryover is allowable under
5subdivision (e) for any taxable year after the targeted tax area
6designation has expired, has been revoked, is no longer binding,
7or has become inoperative, the targeted tax area shall be deemed
8to remain in existence for purposes of computing the limitation
9specified in this subdivision.

10(h) The amendments made to this section by the act adding this
11subdivision shall apply to taxable years beginning on or after
12January 1, 1998.

begin insert

13(i) This section is repealed on December 1, 2014.

end insert
14begin insert

begin insertSEC. 7.end insert  

end insert

begin insertSection 17053.34 of the end insertbegin insertRevenue and Taxation Codeend insert
15begin insert is amended to read:end insert

16

17053.34.  

(a) For each taxable year beginning on or after
17January 1, 1998, there shall be allowed a credit against the “net
18tax” (as defined in Section 17039) to a qualified taxpayer who
19employs a qualified employee in a targeted tax area during the
20taxable year. The credit shall be equal to the sum of each of the
21following:

22(1) Fifty percent of qualified wages in the first year of
23employment.

24(2) Forty percent of qualified wages in the second year of
25employment.

26(3) Thirty percent of qualified wages in the third year of
27employment.

28(4) Twenty percent of qualified wages in the fourth year of
29 employment.

30(5) Ten percent of qualified wages in the fifth year of
31employment.

32(b) For purposes of this section:

33(1) “Qualified wages” means:

34(A) That portion of wages paid or incurred by the qualified
35taxpayer during the taxable year to qualified employees that does
36not exceed 150 percent of the minimum wage.

37(B) Wages received during the 60-month period beginning with
38the first day the employee commences employment with the
39qualified taxpayer. Reemployment in connection with any increase,
40including a regularly occurring seasonal increase, in the trade or
P17   1business operations of the qualified taxpayer does not constitute
2commencement of employment for purposes of this section.

3(C) Qualified wages do not include any wages paid or incurred
4by the qualified taxpayer on or after the targeted tax area expiration
5date. However, wages paid or incurred with respect to qualified
6employees who are employed by the qualified taxpayer within the
7targeted tax area within the 60-month period prior to the targeted
8tax area expiration date shall continue to qualify for the credit
9under this section after the targeted tax area expiration date, in
10accordance with all provisions of this section applied as if the
11targeted tax area designation were still in existence and binding.

12(2) “Minimum wage” means the wage established by the
13Industrial Welfare Commission as provided for in Chapter 1
14(commencing with Section 1171) of Part 4 of Division 2 of the
15Labor Code.

16(3) “Targeted tax area expiration date” means the date the
17targeted tax area designation expires, is revoked, is no longer
18binding,begin insert becomes inoperative,end insert orbegin delete becomes inoperative.end deletebegin insert is repealed.end insert

19(4) (A) “Qualified employee” means an individual who meets
20all of the following requirements:

21(i) At least 90 percent of his or her services for the qualified
22taxpayer during the taxable year are directly related to the conduct
23of the qualified taxpayer’s trade or business located in a targeted
24tax area.

25(ii) Performs at least 50 percent of his or her services for the
26qualified taxpayer during the taxable year in a targeted tax area.

27(iii) Is hired by the qualified taxpayer after the date of original
28designation of the area in which services were performed as a
29targeted tax area.

30(iv) Is any of the following:

31(I) Immediately preceding the qualified employee’s
32commencement of employment with the qualified taxpayer, was
33a person eligible for services under the federal Job Training
34Partnership Act (29 U.S.C. Sec. 1501 et seq.), or its successor,
35who is receiving, or is eligible to receive, subsidized employment,
36training, or services funded by the federal Job Training Partnership
37Act, or its successor.

38(II) Immediately preceding the qualified employee’s
39commencement of employment with the qualified taxpayer, was
40a person eligible to be a voluntary or mandatory registrant under
P18   1the Greater Avenues for Independence Act of 1985 (GAIN)
2provided for pursuant to Article 3.2 (commencing with Section
311320) of Chapter 2 of Part 3 of Division 9 of the Welfare and
4Institutions Code, or its successor.

5(III) Immediately preceding the qualified employee’s
6commencement of employment with the qualified taxpayer, was
7an economically disadvantaged individual 14 years of age or older.

8(IV) Immediately preceding the qualified employee’s
9commencement of employment with the qualified taxpayer, was
10a dislocated worker who meets any of the following:

11(aa) Has been terminated or laid off or who has received a notice
12of termination or layoff from employment, is eligible for or has
13exhausted entitlement to unemployment insurance benefits, and
14is unlikely to return to his or her previous industry or occupation.

15(bb) Has been terminated or has received a notice of termination
16of employment as a result of any permanent closure or any
17substantial layoff at a plant, facility, or enterprise, including an
18individual who has not received written notification but whose
19employer has made a public announcement of the closure or layoff.

20(cc) Is long-term unemployed and has limited opportunities for
21employment or reemployment in the same or a similar occupation
22in the area in which the individual resides, including an individual
2355 years of age or older who may have substantial barriers to
24employment by reason of age.

25(dd) Was self-employed (including farmers and ranchers) and
26is unemployed as a result of general economic conditions in the
27community in which he or she resides or because of natural
28disasters.

29(ee) Was a civilian employee of the Department of Defense
30employed at a military installation being closed or realigned under
31the Defense Base Closure and Realignment Act of 1990.

32(ff) Was an active member of the Armed Forces or National
33Guard as of September 30, 1990, and was either involuntarily
34separated or separated pursuant to a special benefits program.

35(gg) Is a seasonal or migrant worker who experiences chronic
36seasonal unemployment and underemployment in the agriculture
37industry, aggravated by continual advancements in technology and
38mechanization.

P19   1(hh) Has been terminated or laid off, or has received a notice
2of termination or layoff, as a consequence of compliance with the
3Clean Air Act.

4(V) Immediately preceding the qualified employee’s
5commencement of employment with the qualified taxpayer, was
6a disabled individual who is eligible for or enrolled in, or has
7completed a state rehabilitation plan or is a service-connected
8disabled veteran, veteran of the Vietnam era, or veteran who is
9recently separated from military service.

10(VI) Immediately preceding the qualified employee’s
11commencement of employment with the qualified taxpayer, was
12an ex-offender. An individual shall be treated as convicted if he
13or she was placed on probation by a state court without a finding
14of guilty.

15(VII) Immediately preceding the qualified employee’s
16commencement of employment with the qualified taxpayer, was
17a person eligible for or a recipient of any of the following:

18(aa) Federal Supplemental Security Income benefits.

19(bb) Aid to Families with Dependent Children.

20(cc) CalFresh benefits.

21(dd) State and local general assistance.

22(VIII) Immediately preceding the qualified employee’s
23commencement of employment with the qualified taxpayer, was
24a member of a federally recognized Indian tribe, band, or other
25group of Native American descent.

26(IX) Immediately preceding the qualified employee’s
27commencement of employment with the qualified taxpayer, was
28a resident of a targeted tax area.

29(X) Immediately preceding the qualified employee’s
30commencement of employment with the taxpayer, was a member
31of a targeted group as defined in Section 51(d) of the Internal
32Revenue Code, or its successor.

33(B) Priority for employment shall be provided to an individual
34who is enrolled in a qualified program under the federal Job
35Training Partnership Act or the Greater Avenues for Independence
36Act of 1985 or who is eligible as a member of a targeted group
37under the Work Opportunity Tax Credit (Section 51 of the Internal
38Revenue Code), or its successor.

39(5) (A) “Qualified taxpayer” means a person or entity that meets
40both of the following:

P20   1(i) Is engaged in a trade or business within a targeted tax area
2designated pursuant to Chapter 12.93 (commencing with Section
37097) of Division 7 of Title 1 of the Government Code.

4(ii) Is engaged in those lines of business described in Codes
52000 to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
6inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive,
7of the Standard Industrial Classification (SIC) Manual published
8by the United States Office of Management and Budget, 1987
9edition.

10(B) In the case of any passthrough entity, the determination of
11whether a taxpayer is a qualified taxpayer under this section shall
12be made at the entity level and any credit under this section or
13Section 23634 shall be allowed to the passthrough entity and passed
14through to the partners or shareholders in accordance with
15applicable provisions of this part or Part 11 (commencing with
16Section 23001). For purposes of this subdivision, the term
17“passthrough entity” means any partnership or S corporation.

18(6) “Seasonal employment” means employment by a qualified
19taxpayer that has regular and predictable substantial reductions in
20trade or business operations.

21(c) If the qualified taxpayer is allowed a credit for qualified
22wages pursuant to this section, only one credit shall be allowed to
23the taxpayer under this part with respect to those qualified wages.

24(d) The qualified taxpayer shall do both of the following:

25(1) Obtain from the Employment Development Department, as
26permitted by federal law, the local county or city Job Training
27Partnership Act administrative entity, the local county GAIN office
28or social services agency, or the local government administering
29the targeted tax area, a certification that provides that a qualified
30employee meets the eligibility requirements specified in clause
31(iv) of subparagraph (A) of paragraph (4) of subdivision (b). The
32Employment Development Department may provide preliminary
33screening and referral to a certifying agency. The Department of
34Housing and Community Development shall develop regulations
35governing the issuance of certificates pursuant to subdivision (g)
36 of Section 7097 of the Government Code, and shall develop forms
37for this purpose.

38(2) Retain a copy of the certification and provide it upon request
39to the Franchise Tax Board.

40(e) (1) For purposes of this section:

P21   1(A) All employees of trades or businesses, which are not
2incorporated, that are under common control shall be treated as
3employed by a single taxpayer.

4(B) The credit, if any, allowable by this section with respect to
5each trade or business shall be determined by reference to its
6proportionate share of the expense of the qualified wages giving
7rise to the credit, and shall be allocated in that manner.

8(C) Principles that apply in the case of controlled groups of
9corporations, as specified in subdivision (d) of Section 23634,
10shall apply with respect to determining employment.

11(2) If an employer acquires the major portion of a trade or
12business of another employer (hereinafter in this paragraph referred
13to as the “predecessor”) or the major portion of a separate unit of
14a trade or business of a predecessor, then, for purposes of applying
15this section (other than subdivision (f)) for any calendar year ending
16after that acquisition, the employment relationship between a
17qualified employee and an employer shall not be treated as
18terminated if the employee continues to be employed in that trade
19or business.

20(f) (1) (A) If the employment, other than seasonal employment,
21of any qualified employee, with respect to whom qualified wages
22are taken into account under subdivision (a) is terminated by the
23qualified taxpayer at any time during the first 270 days of that
24employment (whether or not consecutive) or before the close of
25the 270th calendar day after the day in which that employee
26completes 90 days of employment with the qualified taxpayer, the
27tax imposed by this part for the taxable year in which that
28employment is terminated shall be increased by an amount equal
29to the credit allowed under subdivision (a) for that taxable year
30and all prior taxable years attributable to qualified wages paid or
31incurred with respect to that employee.

32(B) If the seasonal employment of any qualified employee, with
33respect to whom qualified wages are taken into account under
34subdivision (a) is not continued by the qualified taxpayer for a
35period of 270 days of employment during the 60-month period
36beginning with the day the qualified employee commences seasonal
37employment with the qualified taxpayer, the tax imposed by this
38part, for the taxable year that includes the 60th month following
39the month in which the qualified employee commences seasonal
40employment with the qualified taxpayer, shall be increased by an
P22   1amount equal to the credit allowed under subdivision (a) for that
2taxable year and all prior taxable years attributable to qualified
3wages paid or incurred with respect to that qualified employee.

4(2) (A) Subparagraph (A) of paragraph (1) shall not apply to
5any of the following:

6(i) A termination of employment of a qualified employee who
7voluntarily leaves the employment of the qualified taxpayer.

8(ii) A termination of employment of a qualified employee who,
9before the close of the period referred to in subparagraph (A) of
10paragraph (1), becomes disabled and unable to perform the services
11of that employment, unless that disability is removed before the
12close of that period and the qualified taxpayer fails to offer
13reemployment to that employee.

14(iii) A termination of employment of a qualified employee, if
15it is determined that the termination was due to the misconduct (as
16defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
17the California Code of Regulations) of that employee.

18(iv) A termination of employment of a qualified employee due
19to a substantial reduction in the trade or business operations of the
20qualified taxpayer.

21(v) A termination of employment of a qualified employee, if
22that employee is replaced by other qualified employees so as to
23create a net increase in both the number of employees and the
24hours of employment.

25(B) Subparagraph (B) of paragraph (1) shall not apply to any
26of the following:

27(i) A failure to continue the seasonal employment of a qualified
28employee who voluntarily fails to return to the seasonal
29employment of the qualified taxpayer.

30(ii) A failure to continue the seasonal employment of a qualified
31employee who, before the close of the period referred to in
32subparagraph (B) of paragraph (1), becomes disabled and unable
33to perform the services of that seasonal employment, unless that
34disability is removed before the close of that period and the
35qualified taxpayer fails to offer seasonal employment to that
36qualified employee.

37(iii) A failure to continue the seasonal employment of a qualified
38employee, if it is determined that the failure to continue the
39seasonal employment was due to the misconduct (as defined in
P23   1Sections 1256-30 to 1256-43, inclusive, of Title 22 of the California
2Code of Regulations) of that qualified employee.

3(iv) A failure to continue seasonal employment of a qualified
4employee due to a substantial reduction in the regular seasonal
5trade or business operations of the qualified taxpayer.

6(v) A failure to continue the seasonal employment of a qualified
7employee, if that qualified employee is replaced by other qualified
8employees so as to create a net increase in both the number of
9seasonal employees and the hours of seasonal employment.

10(C) For purposes of paragraph (1), the employment relationship
11between the qualified taxpayer and a qualified employee shall not
12be treated as terminated by reason of a mere change in the form
13of conducting the trade or business of the qualified taxpayer, if the
14qualified employee continues to be employed in that trade or
15business and the qualified taxpayer retains a substantial interest
16in that trade or business.

17(3) Any increase in tax under paragraph (1) shall not be treated
18as tax imposed by this part for purposes of determining the amount
19of any credit allowable under this part.

20(g) In the case of an estate or trust, both of the following apply:

21(1) The qualified wages for any taxable year shall be apportioned
22between the estate or trust and the beneficiaries on the basis of the
23income of the estate or trust allocable to each.

24(2) Any beneficiary to whom any qualified wages have been
25apportioned under paragraph (1) shall be treated, for purposes of
26this part, as the employer with respect to those wages.

27(h) For purposes of this section, “targeted tax area” means an
28area designated pursuant to Chapter 12.93 (commencing with
29Section 7097) of Division 7 of Title 1 of the Government Code.

30(i) In the case where the credit otherwise allowed under this
31section exceeds the “net tax” for the taxable year, that portion of
32the credit that exceeds the “net tax” may be carried over and added
33to the credit, if any, inbegin insert theend insert succeedingbegin insert fiveend insert taxable years,begin insert if
34necessary,end insert
until the credit is exhausted. The credit shall be applied
35first to the earliest taxable years possible.

36(j) (1) The amount of the credit otherwise allowed under this
37section and Section 17053.33, including any credit carryover from
38prior years, that may reduce the “net tax” for the taxable year shall
39not exceed the amount of tax that would be imposed on the
40qualified taxpayer’s business income attributable to the targeted
P24   1tax area determined as if that attributable income represented all
2of the income of the qualified taxpayer subject to tax under this
3part.

4(2) Attributable income shall be that portion of the taxpayer’s
5California source business income that is apportioned to the
6targeted tax area. For that purpose, the taxpayer’s business income
7attributable to sources in this state first shall be determined in
8accordance with Chapter 17 (commencing with Section 25101) of
9Part 11. That business income shall be further apportioned to the
10targeted tax area in accordance with Article 2 (commencing with
11Section 25120) of Chapter 17 of Part 11, modified for purposes
12of this section in accordance with paragraph (3).

13(3) Business income shall be apportioned to the targeted tax
14area by multiplying the total California business income of the
15taxpayer by a fraction, the numerator of which is the property
16factor plus the payroll factor, and the denominator of which is two.
17For purposes of this paragraph:

18(A) The property factor is a fraction, the numerator of which is
19the average value of the taxpayer’s real and tangible personal
20property owned or rented and used in the targeted tax area during
21the taxable year, and the denominator of which is the average value
22of all the taxpayer’s real and tangible personal property owned or
23rented and used in this state during the taxable year.

24(B) The payroll factor is a fraction, the numerator of which is
25the total amount paid by the taxpayer in the targeted tax area during
26the taxable year for compensation, and the denominator of which
27is the total compensation paid by the taxpayer in this state during
28the taxable year.

29(4) The portion of any credit remaining, if any, after application
30of this subdivision, shall be carried over to succeeding taxable
31years,begin insert if necessary, until the credit is exhausted,end insert as if it were an
32amount exceeding the “net tax” for the taxable year, as provided
33in subdivisionbegin delete (h).end deletebegin insert (i). However, the portion of any credit remaining
34for carryover to taxable years beginning on or after January 1,
352014, if any, after application of this subdivision, shall be carried
36over only to the succeeding five taxable years, if necessary, until
37the credit is exhausted, as if it were an amount exceeding the “net
38tax” for the taxable year, as provided in subdivision (i).end insert

39(5) In the event that a credit carryover is allowable under
40subdivisionbegin delete (h)end deletebegin insert (i)end insert for any taxable year after the targeted tax area
P25   1expiration date, the targeted tax area shall be deemed to remain in
2existence for purposes of computing the limitation specified in
3this subdivision.

begin insert

4(k) (1) Except as provided in paragraph (2), this section shall
5cease to be operative for taxable years beginning on or after
6January 1, 2014, and shall be repealed on December 1, 2019.

end insert
begin insert

7(2) The section shall continue to apply with respect to qualified
8employees who are employed by the qualified taxpayer within the
9targeted tax area within the 60-month period immediately
10preceding January 1, 2014, and qualified wages paid or incurred
11with respect to those qualified employees shall continue to qualify
12for the credit under this section for taxable years beginning on or
13after January 1, 2014, in accordance with this section, as amended
14by the act adding this subdivision.

end insert
15begin insert

begin insertSEC. 8.end insert  

end insert

begin insertSection 17053.45 of the end insertbegin insertRevenue and Taxation Codeend insert
16begin insert is amended to read:end insert

17

17053.45.  

(a) For each taxable year beginning on or after
18January 1, 1995,begin insert and before January 1, 2014,end insert there shall be allowed
19as a credit against the “net tax” (as defined by Section 17039) an
20amount equal to the sales or use tax paid or incurred by the
21taxpayer in connection with the purchase of qualified property
22begin insert before January 1, 2014,end insert to the extent that the qualified property
23does not exceed a value of one million dollars ($1,000,000).

24(b) For purposes of this section:

25(1) “LAMBRA” means a local agency military base recovery
26area designated in accordance with Section 7114 of the Government
27Code.

28(2) “Taxpayer” means a taxpayer that conducts a trade or
29business within a LAMBRA and, for the first two taxable years,
30has a net increase in jobs (defined as 2,000 paid hours per employee
31per year) of one or more employees in the LAMBRA.

32(A) The net increase in the number of jobs shall be determined
33by subtracting the total number of full-time employees (defined
34as 2,000 paid hours per employee per year) the taxpayer employed
35in this state in the taxable year prior to commencing business
36operations in the LAMBRA from the total number of full-time
37employees the taxpayer employed in this state during the second
38taxable year after commencing business operations in the
39LAMBRA. For taxpayers who commence doing business in this
40state with their LAMBRA business operation, the number of
P26   1employees for the taxable year prior to commencing business
2operations in the LAMBRA shall be zero. If the taxpayer has a net
3increase in jobs in the state, the credit shall be allowed only if one
4or more full-time employees is employed within the LAMBRA.

5(B) The total number of employees employed in the LAMBRA
6shall equal the sum of both of the following:

7(i) The total number of hours worked in the LAMBRA for the
8taxpayer by employees (not to exceed 2,000 hours per employee)
9who are paid an hourly wage divided by 2,000.

10(ii) The total number of months worked in the LAMBRA for
11the taxpayer by employees who are salaried employees divided
12by 12.

13(C) In the case of a taxpayer who first commences doing
14business in the LAMBRA during the taxable year, for purposes of
15clauses (i) and (ii), respectively, of subparagraph (B), the divisors
16“2,000” and “12” shall be multiplied by a fraction, the numerator
17of which is the number of months of the taxable year that the
18taxpayer was doing business in the LAMBRA and the denominator
19of which is 12.

20(3) “Qualified property” means property that is each of the
21following:

22(A) Purchased by the taxpayer for exclusive use in a trade or
23business conducted within a LAMBRA.

24(B) Purchased before the date the LAMBRA designation expires,
25is no longer binding, or becomes inoperative.

26(C) Any of the following:

27(i) High technology equipment, including, but not limited to,
28computers and electronic processing equipment.

29(ii) Aircraft maintenance equipment, including, but not limited
30to, engine stands, hydraulic mules, power carts, test equipment,
31handtools, aircraft start carts, and tugs.

32(iii) Aircraft components, including, but not limited to, engines,
33fuel control units, hydraulic pumps, avionics, starts, wheels, and
34tires.

35(iv) Section 1245 property, as defined in Section 1245(a)(3) of
36the Internal Revenue Code.

37(c) The credit provided under subdivision (a) shall be allowed
38only for qualified property manufactured in California unless
39qualified property of a comparable quality and price is not available
40for timely purchase and delivery from a California manufacturer.

P27   1(d) In the case where the credit otherwise allowed under this
2section exceeds the “net tax” for the taxable year, that portion of
3the credit which exceeds the “net tax” may be carried over and
4added to the credit, if any, inbegin insert theend insert succeedingbegin insert five taxableend insert years,begin insert if
5necessary,end insert
until the credit is exhausted. The credit shall be applied
6first to the earliest taxable years possible.

7(e) Any taxpayer who elects to be subject to this section shall
8not be entitled to increase the basis of the property as otherwise
9required by Section 164(a) of the Internal Revenue Code with
10 respect to sales or use tax paid or incurred in connection with the
11purchase of qualified property.

12(f) (1) The amount of credit otherwise allowed under this
13section and Section 17053.46, including any credit carryover from
14prior years, that may reduce the “net tax” for the taxable year shall
15not exceed the amount of tax that would be imposed on the
16taxpayer’s business income attributed to a LAMBRA determined
17as if that attributable income represented all the income of the
18taxpayer subject to tax under this part.

19(2) Attributable income is that portion of the taxpayer’s
20California source business income that is apportioned to the
21LAMBRA. For that purpose, the taxpayer’s business income that
22is attributable to sources in this state shall first be determined in
23accordance with Chapter 17 (commencing with Section 25101) of
24Part 11. That business income shall be further apportioned to the
25LAMBRA in accordance with Article 2 (commencing with Section
2625120) of Chapter 17 of Part 11, as modified for purposes of this
27section in accordance with paragraph (3).

28(3) Income shall be apportioned to a LAMBRA by multiplying
29the total California business income of the taxpayer by a fraction,
30the numerator of which is the property factor, plus the payroll
31factor, and the denominator of which is two. For purposes of this
32paragraph:

33(A) The property factor is a fraction, the numerator of which is
34the average value of the taxpayer’s real and tangible personal
35property owned or rented and used in the LAMBRA during the
36taxable year, and the denominator of which is the average value
37of all the taxpayer’s real and tangible personal property owned or
38rented and used in this state during the taxable year.

39(B) The payroll factor is a fraction, the numerator of which is
40the total amount paid by the taxpayer in the LAMBRA during the
P28   1taxable year for compensation, and the denominator of which is
2the total compensation paid by the taxpayer in this state during the
3taxable year.

4(4) The portion of any credit remaining, if any, after application
5of this subdivision, shall be carried over to succeeding taxable
6years,begin insert if necessary, until the credit is exhausted,end insert as if it were an
7amount exceeding the “net tax” for the taxable year, as provided
8in subdivision (d).begin insert However, the portion of any credit remaining
9for carryover to taxable years beginning on or after January 1,
102014, if any, after application of this subdivision, shall be carried
11over only to the succeeding five taxable years, if necessary, until
12the credit is exhausted, as if it were an amount exceeding the “net
13tax” for the taxable year, as provided in subdivision (d).end insert

14(g) (1) If the qualified property is disposed of or no longer used
15by the taxpayer in the LAMBRA, at any time before the close of
16the second taxable year after the property is placed in service, the
17amount of the credit previously claimed, with respect to that
18property, shall be added to the taxpayer’s tax liability in the taxable
19year of that disposition or nonuse.

20(2) At the close of the second taxable year, if the taxpayer has
21not increased the number of its employees as determined by
22paragraph (2) of subdivision (b), then the amount of the credit
23previously claimed shall be added to the taxpayer’s net tax for the
24taxpayer’s second taxable year.

25(h) If the taxpayer is allowed a credit for qualified property
26pursuant to this section, only one credit shall be allowed to the
27taxpayer under this part with respect to that qualified property.

28(i) The amendments made to this section by the act adding this
29subdivision shall apply to taxable years beginning on or after
30January 1, 1998.

begin insert

31(j) This section is repealed on December 1, 2014.

end insert
32begin insert

begin insertSEC. 9.end insert  

end insert

begin insertSection 17053.46 of the end insertbegin insertRevenue and Taxation Codeend insert
33begin insert is amended to read:end insert

34

17053.46.  

(a) For each taxable year beginning on or after
35January 1, 1995, there shall be allowed as a credit against the “net
36tax” (as defined in Section 17039) to a qualified taxpayer for hiring
37a qualified disadvantaged individual or a qualified displaced
38employee during the taxable year for employment in the LAMBRA.
39The credit shall be equal to the sum of each of the following:

P29   1(1) Fifty percent of the qualified wages in the first year of
2employment.

3(2) Forty percent of the qualified wages in the second year of
4employment.

5(3) Thirty percent of the qualified wages in the third year of
6employment.

7(4) Twenty percent of the qualified wages in the fourth year of
8employment.

9(5) Ten percent of the qualified wages in the fifth year of
10employment.

11(b) For purposes of this section:

12(1) “Qualified wages” means:

13(A) That portion of wages paid or incurred by the employer
14during the taxable year to qualified disadvantaged individuals or
15qualified displaced employees that does not exceed 150 percent
16of the minimum wage.

17(B) The total amount of qualified wages which may be taken
18into account for purposes of claiming the credit allowed under this
19section shall not exceed two million dollars ($2,000,000) per
20taxable year.

21(C) Wages received during the 60-month period beginning with
22the first day the individual commences employment with the
23taxpayer. Reemployment in connection with any increase, including
24a regularly occurring seasonal increase, in the trade or business
25operations of the qualified taxpayer does not constitute
26commencement of employment for purposes of this section.

27(D) Qualified wages do not include any wages paid or incurred
28by the qualified taxpayer on or after the LAMBRA expiration date.
29However, wages paid or incurred with respect to qualified
30disadvantaged individuals or qualified displaced employees who
31are employed by the qualified taxpayer within the LAMBRA within
32the 60-month period prior to the LAMBRA expiration date shall
33continue to qualify for the credit under this section after the
34LAMBRA expiration date, in accordance with all provisions of
35this section applied as if the LAMBRA designation were still in
36existence and binding.

37(2) “Minimum wage” means the wage established by the
38Industrial Welfare Commission as provided for in Chapter 1
39(commencing with Section 1171) of Part 4 of Division 2 of the
40Labor Code.

P30   1(3) “LAMBRA” means a local agency military base recovery
2area designated in accordance with Section 7114 of the Government
3Code.

4(4) “Qualified disadvantaged individual” means an individual
5who satisfies all of the following requirements:

6(A) (i) At least 90 percent of whose services for the taxpayer
7during the taxable year are directly related to the conduct of the
8taxpayer’s trade or business located in a LAMBRA.

9(ii) Who performs at least 50 percent of his or her services for
10the taxpayer during the taxable year in the LAMBRA.

11(B) Who is hired by the employer after the designation of the
12area as a LAMBRA in which the individual’s services were
13primarily performed.

14(C) Who is any of the following immediately preceding the
15individual’s commencement of employment with the taxpayer:

16(i) An individual who has been determined eligible for services
17under the federal Job Training Partnership Act (29 U.S.C. Sec.
181501 et seq.).

19(ii) Any voluntary or mandatory registrant under the Greater
20Avenues for Independence Act of 1985 as provided pursuant to
21Article 3.2 (commencing with Section 11320) of Chapter 2 of Part
223 of Division 9 of the Welfare and Institutions Code.

23(iii) An economically disadvantaged individual age 16 years or
24older.

25(iv) A dislocated worker who meets any of the following
26conditions:

27(I) Has been terminated or laid off or who has received a notice
28of termination or layoff from employment, is eligible for or has
29exhausted entitlement to unemployment insurance benefits, and
30is unlikely to return to his or her previous industry or occupation.

31(II) Has been terminated or has received a notice of termination
32of employment as a result of any permanent closure or any
33substantial layoff at a plant, facility, or enterprise, including an
34individual who has not received written notification but whose
35employer has made a public announcement of the closure or layoff.

36(III) Is long-term unemployed and has limited opportunities for
37employment or reemployment in the same or a similar occupation
38in the area in which the individual resides, including an individual
3955 years of age or older who may have substantial barriers to
40employment by reason of age.

P31   1(IV) Was self-employed (including farmers and ranchers) and
2is unemployed as a result of general economic conditions in the
3community in which he or she resides or because of natural
4disasters.

5(V) Was a civilian employee of the Department of Defense
6employed at a military installation being closed or realigned under
7the Defense Base Closure and Realignment Act of 1990.

8(VI) Was an active member of the Armed Forces or National
9Guard as of September 30, 1990, and was either involuntarily
10separated or separated pursuant to a special benefits program.

11(VII) Experiences chronic seasonal unemployment and
12underemployment in the agriculture industry, aggravated by
13continual advancements in technology and mechanization.

14(VIII) Has been terminated or laid off or has received a notice
15of termination or layoff as a consequence of compliance with the
16Clean Air Act.

17(v) An individual who is enrolled in or has completed a state
18rehabilitation plan or is a service-connected disabled veteran,
19veteran of the Vietnam era, or veteran who is recently separated
20from military service.

21(vi) An ex-offender. An individual shall be treated as convicted
22if he or she was placed on probation by a state court without a
23finding of guilty.

24(vii) A recipient of:

25(I) Federal Supplemental Security Income benefits.

26(II) Aid to Families with Dependent Children.

27(III) CalFresh benefits.

28(IV) State and local general assistance.

29(viii) Is a member of a federally recognized Indian tribe, band,
30or other group of Native American descent.

31(5) “Qualified taxpayer” means a taxpayer or partnership that
32conducts a trade or business within a LAMBRA and, for the first
33two taxable years, has a net increase in jobs (defined as 2,000 paid
34hours per employee per year) of one or more employees in the
35LAMBRA.

36(A) The net increase in the number of jobs shall be determined
37by subtracting the total number of full-time employees (defined
38as 2,000 paid hours per employee per year) the taxpayer employed
39in this state in the taxable year prior to commencing business
40operations in the LAMBRA from the total number of full-time
P32   1employees the taxpayer employed in this state during the second
2taxable year after commencing business operations in the
3LAMBRA. For taxpayers who commence doing business in this
4state with their LAMBRA business operation, the number of
5employees for the taxable year prior to commencing business
6operations in the LAMBRA shall be zero. If the taxpayer has a net
7increase in jobs in the state, the credit shall be allowed only if one
8or more full-time employees is employed within the LAMBRA.

9(B) The total number of employees employed in the LAMBRA
10shall equal the sum of both of the following:

11(i) The total number of hours worked in the LAMBRA for the
12taxpayer by employees (not to exceed 2,000 hours per employee)
13who are paid an hourly wage divided by 2,000.

14(ii) The total number of months worked in the LAMBRA for
15the taxpayer by employees who are salaried employees divided
16by 12.

17(C) In the case of a taxpayer who first commences doing
18business in the LAMBRA during the taxable year, for purposes of
19clauses (i) and (ii), respectively, of subparagraph (B), the divisors
20“2,000” and “12” shall be multiplied by a fraction, the numerator
21of which is the number of months of the taxable year that the
22taxpayer was doing business in the LAMBRA and the denominator
23of which is 12.

24(6) “Qualified displaced employee” means an individual who
25 satisfies all of the following requirements:

26(A) Any civilian or military employee of a base or former base
27who has been displaced as a result of a federal base closure act.

28(B) (i) At least 90 percent of whose services for the taxpayer
29during the taxable year are directly related to the conduct of the
30taxpayer’s trade or business located in a LAMBRA.

31(ii) Who performs at least 50 percent of his or her services for
32the taxpayer during the taxable year in a LAMBRA.

33(C) Who is hired by the employer after the designation of the
34area in which services were performed as a LAMBRA.

35(7) “Seasonal employment” means employment by a qualified
36taxpayer that has regular and predictable substantial reductions in
37trade or business operations.

38(8) “LAMBRA expiration date” means the date the LAMBRA
39designation expires, is no longer binding,begin insert becomes inoperative,end insert or
40begin delete becomes inoperative.end deletebegin insert is repealed.end insert

P33   1(c) For qualified disadvantaged individuals or qualified displaced
2employees hired on or after January 1, 2001, the taxpayer shall do
3both of the following:

4(1) Obtain from the Employment Development Department, as
5permitted by federal law, the local county or city Job Training
6Partnership Act administrative entity, the local county GAIN office
7or social services agency, or the local government administering
8the LAMBRA, a certification that provides that a qualified
9disadvantaged individual or qualified displaced employee meets
10the eligibility requirements specified in subparagraph (C) of
11paragraph (4) of subdivision (b) or subparagraph (A) of paragraph
12(6) of subdivision (b). The Employment Development Department
13may provide preliminary screening and referral to a certifying
14agency. The Department of Housing and Community Development
15shall develop regulations governing the issuance of certificates
16pursuant to Section 7114.2 of the Government Code and shall
17develop forms for this purpose.

18(2) Retain a copy of the certification and provide it upon request
19to the Franchise Tax Board.

20(d) (1) For purposes of this section, both of the following apply:

21(A) All employees of trades or businesses that are under
22common control shall be treated as employed by a single employer.

23(B) The credit (if any) allowable by this section with respect to
24each trade or business shall be determined by reference to its
25proportionate share of the qualified wages giving rise to the credit.

26The regulations prescribed under this paragraph shall be based
27on principles similar to the principles that apply in the case of
28controlled groups of corporations as specified in subdivision (e)
29of Section 23622.

30(2) If an employer acquires the major portion of a trade or
31business of another employer (hereinafter in this paragraph referred
32to as the “predecessor”) or the major portion of a separate unit of
33a trade or business of a predecessor, then, for purposes of applying
34this section (other than subdivision (d)) for any calendar year
35ending after that acquisition, the employment relationship between
36an employee and an employer shall not be treated as terminated if
37the employee continues to be employed in that trade or business.

38(e) (1) (A) If the employment, other than seasonal employment,
39of any employee, with respect to whom qualified wages are taken
40into account under subdivision (a), is terminated by the taxpayer
P34   1at any time during the first 270 days of that employment (whether
2or not consecutive) or before the close of the 270th calendar day
3after the day in which that employee completes 90 days of
4employment with the taxpayer, the tax imposed by this part for
5the taxable year in which that employment is terminated shall be
6increased by an amount (determined under those regulations) equal
7to the credit allowed under subdivision (a) for that taxable year
8and all prior taxable years attributable to qualified wages paid or
9incurred with respect to that employee.

10(B) If the seasonal employment of any qualified disadvantaged
11individual, with respect to whom qualified wages are taken into
12account under subdivision (a), is not continued by the qualified
13taxpayer for a period of 270 days of employment during the
1460-month period beginning with the day the qualified
15disadvantaged individual commences seasonal employment with
16the qualified taxpayer, the tax imposed by this part, for the taxable
17year that includes the 60th month following the month in which
18the qualified disadvantaged individual commences seasonal
19employment with the qualified taxpayer, shall be increased by an
20amount equal to the credit allowed under subdivision (a) for that
21taxable year and all prior taxable years attributable to qualified
22wages paid or incurred with respect to that qualified disadvantaged
23individual.

24(2) (A) Subparagraph (A) of paragraph (1) shall not apply to
25any of the following:

26(i) A termination of employment of an employee who voluntarily
27leaves the employment of the taxpayer.

28(ii) A termination of employment of an individual who, before
29the close of the period referred to in subparagraph (A) of paragraph
30(1), becomes disabled to perform the services of that employment,
31unless that disability is removed before the close of that period
32and the taxpayer fails to offer reemployment to that individual.

33(iii) A termination of employment of an individual, if it is
34determined that the termination was due to the misconduct (as
35defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
36the California Code of Regulations) of that individual.

37(iv) A termination of employment of an individual due to a
38substantial reduction in the trade or business operations of the
39taxpayer.

P35   1(v) A termination of employment of an individual, if that
2individual is replaced by other qualified employees so as to create
3a net increase in both the number of employees and the hours of
4employment.

5(B) Subparagraph (B) of paragraph (1) shall not apply to any
6of the following:

7(i) A failure to continue the seasonal employment of a qualified
8disadvantaged individual who voluntarily fails to return to the
9seasonal employment of the qualified taxpayer.

10(ii) A failure to continue the seasonal employment of a qualified
11disadvantaged individual who, before the close of the period
12referred to in subparagraph (B) of paragraph (1), becomes disabled
13and unable to perform the services of that seasonal employment,
14unless that disability is removed before the close of that period
15and the qualified taxpayer fails to offer seasonal employment to
16that individual.

17(iii) A failure to continue the seasonal employment of a qualified
18disadvantaged individual, if it is determined that the failure to
19continue the seasonal employment was due to the misconduct (as
20defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
21the California Code of Regulations) of that qualified disadvantaged
22individual.

23(iv) A failure to continue seasonal employment of a qualified
24disadvantaged individual due to a substantial reduction in the
25regular seasonal trade or business operations of the qualified
26taxpayer.

27(v) A failure to continue the seasonal employment of a qualified
28disadvantaged individual, if that individual is replaced by other
29qualified displaced employees so as to create a net increase in both
30the number of seasonal employees and the hours of seasonal
31employment.

32(C) For purposes of paragraph (1), the employment relationship
33between the taxpayer and an employee shall not be treated as
34terminated by reason of a mere change in the form of conducting
35the trade or business of the taxpayer, if the employee continues to
36be employed in that trade or business and the taxpayer retains a
37substantial interest in that trade or business.

38(3) Any increase in tax under paragraph (1) shall not be treated
39as tax imposed by this part for purposes of determining the amount
40of any credit allowable under this part.

P36   1(4) At the close of the second taxable year, if the taxpayer has
2not increased the number of its employees as determined by
3paragraph (5) of subdivision (b), then the amount of the credit
4previously claimed shall be added to the taxpayer’s net tax for the
5taxpayer’s second taxable year.

6(f) In the case of an estate or trust, both of the following apply:

7(1) The qualified wages for any taxable year shall be apportioned
8between the estate or trust and the beneficiaries on the basis of the
9income of the estate or trust allocable to each.

10(2) Any beneficiary to whom any qualified wages have been
11apportioned under paragraph (1) shall be treated (for purposes of
12this part) as the employer with respect to those wages.

13(g) The credit shall be reduced by the credit allowed under
14Section 17053.7. The credit shall also be reduced by the federal
15credit allowed under Section 51 of the Internal Revenue Code.

16In addition, any deduction otherwise allowed under this part for
17the wages or salaries paid or incurred by the taxpayer upon which
18the credit is based shall be reduced by the amount of the credit,
19prior to any reduction required by subdivision (h) or (i).

20(h) In the case where the credit otherwise allowed under this
21section exceeds the “net tax” for the taxable year, that portion of
22the credit that exceeds the “net tax” may be carried over and added
23to the credit, if any, inbegin insert theend insert succeedingbegin insert five taxableend insert years,begin insert if
24necessary,end insert
until the credit is exhausted. The credit shall be applied
25first to the earliest taxable years possible.

26(i) (1) The amount of credit otherwise allowed under this section
27and Section 17053.45, including prior year credit carryovers, that
28may reduce the “net tax” for the taxable year shall not exceed the
29amount of tax that would be imposed on the taxpayer’s business
30income attributed to a LAMBRA determined as if that attributed
31income represented all of the net income of the taxpayer subject
32to tax under this part.

33(2) Attributable income shall be that portion of the taxpayer’s
34California source business income that is apportioned to the
35LAMBRA. For that purpose, the taxpayer’s business income that
36is attributable to sources in this state first shall be determined in
37accordance with Chapter 17 (commencing with Section 25101) of
38Part 11. That business income shall be further apportioned to the
39LAMBRA in accordance with Article 2 (commencing with Section
P37   125120) of Chapter 17 of Part 11, modified for purposes of this
2section in accordance with paragraph (3).

3(3) Income shall be apportioned to a LAMBRA by multiplying
4the total California business income of the taxpayer by a fraction,
5the numerator of which is the property factor plus the payroll factor,
6and the denominator of which is two. For purposes of this
7paragraph:

8(A) The property factor is a fraction, the numerator of which is
9the average value of the taxpayer’s real and tangible personal
10property owned or rented and used in the LAMBRA during the
11taxable year, and the denominator of which is the average value
12of all the taxpayer’s real and tangible personal property owned or
13rented and used in this state during the taxable year.

14(B) The payroll factor is a fraction, the numerator of which is
15the total amount paid by the taxpayer in the LAMBRA during the
16taxable year for compensation, and the denominator of which is
17the total compensation paid by the taxpayer in this state during the
18taxable year.

19(4) The portion of any credit remaining, if any, after application
20of this subdivision, shall be carried over to succeeding taxable
21years,begin insert if necessary, until the credit is exhausted,end insert as if it were an
22amount exceeding the “net tax” for the taxable year, as provided
23in subdivision (h).begin insert However, the portion of any credit remaining
24for carryover to taxable years beginning on or after January 1,
252014, if any, after application of this subdivision, shall be carried
26over only to the succeeding five taxable years if necessary, until
27the credit is exhausted, as if it were an amount exceeding the “net
28tax” for the taxable year, as provided in subdivision (h).end insert

29(j) If the taxpayer is allowed a credit pursuant to this section for
30qualified wages paid or incurred, only one credit shall be allowed
31to the taxpayer under this part with respect to any wage consisting
32in whole or in part of those qualified wages.

begin insert

33(k) (1) Except as provided in paragraph (2), this section shall
34cease to be operative for taxable years beginning on or after
35January 1, 2014, and shall be repealed on December 1, 2019.

end insert
begin insert

36(2) The section shall continue to apply with respect to qualified
37employees who are employed by the qualified taxpayer within the
38LAMBRA within the 60-month period immediately preceding
39January 1, 2014, and qualified wages paid or incurred with respect
40to those qualified employees shall continue to qualify for the credit
P38   1under this section for taxable years beginning on or after January
21, 2014, in accordance with this section, as amended by the act
3adding this subdivision.

end insert
4begin insert

begin insertSEC. 10.end insert  

end insert

begin insertSection 17053.47 of the end insertbegin insertRevenue and Taxation Codeend insert
5begin insert is amended to read:end insert

6

17053.47.  

(a) For each taxable year beginning on or after
7January 1, 1998, there shall be allowed a credit against the “net
8tax” (as defined in Section 17039) to a qualified taxpayer for hiring
9a qualified disadvantaged individual during the taxable year for
10employment in the manufacturing enhancement area. The credit
11shall be equal to the sum of each of the following:

12(1) Fifty percent of the qualified wages in the first year of
13employment.

14(2) Forty percent of the qualified wages in the second year of
15employment.

16(3) Thirty percent of the qualified wages in the third year of
17employment.

18(4) Twenty percent of the qualified wages in the fourth year of
19employment.

20(5) Ten percent of the qualified wages in the fifth year of
21employment.

22(b) For purposes of this section:

23(1) “Qualified wages” means:

24(A) That portion of wages paid or incurred by the qualified
25taxpayer during the taxable year to qualified disadvantaged
26individuals that does not exceed 150 percent of the minimum wage.

27(B) The total amount of qualified wages which may be taken
28into account for purposes of claiming the credit allowed under this
29section shall not exceed two million dollars ($2,000,000) per
30taxable year.

31(C) Wages received during the 60-month period beginning with
32the first day the qualified disadvantaged individual commences
33employment with the qualified taxpayer. Reemployment in
34connection with any increase, including a regularly occurring
35seasonal increase, in the trade or business operations of the taxpayer
36does not constitute commencement of employment for purposes
37of this section.

38(D) Qualified wages do not include any wages paid or incurred
39by the qualified taxpayer on or after the manufacturing
40enhancement area expiration date. However, wages paid or incurred
P39   1with respect to qualified employees who are employed by the
2qualified taxpayer within the manufacturing enhancement area
3within the 60-month period prior to the manufacturing enhancement
4area expiration date shall continue to qualify for the credit under
5this section after the manufacturing enhancement area expiration
6 date, in accordance with all provisions of this section applied as
7if the manufacturing enhancement area designation were still in
8existence and binding.

9(2) “Minimum wage” means the wage established by the
10Industrial Welfare Commission as provided for in Chapter 1
11(commencing with Section 1171) of Part 4 of Division 2 of the
12Labor Code.

13(3) “Manufacturing enhancement area” means an area designated
14pursuant to Section 7073.8 of the Government Code according to
15the procedures of Chapter 12.8 (commencing with Section 7070)
16of Division 7 of Title 1 of the Government Code.

17(4) “Manufacturing enhancement area expiration date” means
18the date the manufacturing enhancement area designation expires,
19is no longer binding,begin insert becomes inoperative,end insert orbegin delete becomes inoperative.end delete
20begin insert is repealed.end insert

21(5) “Qualified disadvantaged individual” means an individual
22who satisfies all of the following requirements:

23(A) (i) At least 90 percent of whose services for the qualified
24taxpayer during the taxable year are directly related to the conduct
25of the qualified taxpayer’s trade or business located in a
26manufacturing enhancement area.

27(ii) Who performs at least 50 percent of his or her services for
28the qualified taxpayer during the taxable year in the manufacturing
29enhancement area.

30(B) Who is hired by the qualified taxpayer after the designation
31of the area as a manufacturing enhancement area in which the
32individual’s services were primarily performed.

33(C) Who is any of the following immediately preceding the
34individual’s commencement of employment with the qualified
35taxpayer:

36(i) An individual who has been determined eligible for services
37under the federal Job Training Partnership Act (29 U.S.C. Sec.
381501 et seq.), or its successor.

39(ii) Any voluntary or mandatory registrant under the Greater
40Avenues for Independence Act of 1985, or its successor, as
P40   1provided pursuant to Article 3.2 (commencing with Section 11320)
2of Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions
3Code.

4(iii) Any individual who has been certified eligible by the
5Employment Development Department under the federal Targeted
6Jobs Tax Credit Program, or its successor, whether or not this
7program is in effect.

8(6) “Qualified taxpayer” means any taxpayer engaged in a trade
9or business within a manufacturing enhancement area designated
10pursuant to Section 7073.8 of the Government Code and who meets
11all of the following requirements:

12(A) Is engaged in those lines of business described in Codes
130211 to 0291, inclusive, Code 0723, or in Codes 2011 to 3999,
14inclusive, of the Standard Industrial Classification (SIC) Manual
15published by the United States Office of Management and Budget,
161987 edition.

17(B) At least 50 percent of the qualified taxpayer’s workforce
18hired after the designation of the manufacturing enhancement area
19is composed of individuals who, at the time of hire, are residents
20of the county in which the manufacturing enhancement area is
21located.

22(C) Of this percentage of local hires, at least 30 percent shall
23be qualified disadvantaged individuals.

24(7) “Seasonal employment” means employment by a qualified
25taxpayer that has regular and predictable substantial reductions in
26trade or business operations.

27(c) (1) For purposes of this section, all of the following apply:

28(A) All employees of trades or businesses that are under
29common control shall be treated as employed by a single qualified
30taxpayer.

31(B) The credit (if any) allowable by this section with respect to
32each trade or business shall be determined by reference to its
33proportionate share of the expense of the qualified wages giving
34rise to the credit and shall be allocated in that manner.

35(C) Principles that apply in the case of controlled groups of
36corporations, as specified in subdivision (d) of Section 23622.7,
37shall apply with respect to determining employment.

38(2) If a qualified taxpayer acquires the major portion of a trade
39or business of another employer (hereinafter in this paragraph
40referred to as the “predecessor”) or the major portion of a separate
P41   1unit of a trade or business of a predecessor, then, for purposes of
2applying this section (other than subdivision (d)) for any calendar
3year ending after that acquisition, the employment relationship
4between a qualified disadvantaged individual and a qualified
5taxpayer shall not be treated as terminated if the qualified
6disadvantaged individual continues to be employed in that trade
7or business.

8(d) (1) (A) If the employment, other than seasonal employment,
9of any qualified disadvantaged individual, with respect to whom
10qualified wages are taken into account under subdivision (b) is
11terminated by the qualified taxpayer at any time during the first
12270 days of that employment (whether or not consecutive) or before
13the close of the 270th calendar day after the day in which that
14qualified disadvantaged individual completes 90 days of
15employment with the qualified taxpayer, the tax imposed by this
16part for the taxable year in which that employment is terminated
17shall be increased by an amount equal to the credit allowed under
18subdivision (a) for that taxable year and all prior taxable years
19attributable to qualified wages paid or incurred with respect to that
20qualified disadvantaged individual.

21(B) If the seasonal employment of any qualified disadvantaged
22individual, with respect to whom qualified wages are taken into
23account under subdivision (a) is not continued by the qualified
24taxpayer for a period of 270 days of employment during the
2560-month period beginning with the day the qualified
26disadvantaged individual commences seasonal employment with
27the qualified taxpayer, the tax imposed by this part, for the taxable
28year that includes the 60th month following the month in which
29the qualified disadvantaged individual commences seasonal
30employment with the qualified taxpayer, shall be increased by an
31amount equal to the credit allowed under subdivision (a) for that
32taxable year and all prior taxable years attributable to qualified
33wages paid or incurred with respect to that qualified disadvantaged
34individual.

35(2) (A) Subparagraph (A) of paragraph (1) does not apply to
36any of the following:

37(i) A termination of employment of a qualified disadvantaged
38individual who voluntarily leaves the employment of the qualified
39taxpayer.

P42   1(ii) A termination of employment of a qualified disadvantaged
2individual who, before the close of the period referred to in
3subparagraph (A) of paragraph (1), becomes disabled to perform
4the services of that employment, unless that disability is removed
5before the close of that period and the taxpayer fails to offer
6reemployment to that individual.

7(iii) A termination of employment of a qualified disadvantaged
8individual, if it is determined that the termination was due to the
9misconduct (as defined in Sections 1256-30 to 1256-43, inclusive,
10of Title 22 of the California Code of Regulations) of that individual.

11(iv) A termination of employment of a qualified disadvantaged
12individual due to a substantial reduction in the trade or business
13operations of the qualified taxpayer.

14(v) A termination of employment of a qualified disadvantaged
15individual, if that individual is replaced by other qualified
16disadvantaged individuals so as to create a net increase in both the
17number of employees and the hours of employment.

18(B) Subparagraph (B) of paragraph (1) shall not apply to any
19of the following:

20(i) A failure to continue the seasonal employment of a qualified
21disadvantaged individual who voluntarily fails to return to the
22seasonal employment of the qualified taxpayer.

23(ii) A failure to continue the seasonal employment of a qualified
24disadvantaged individual who, before the close of the period
25referred to in subparagraph (B) of paragraph (1), becomes disabled
26and unable to perform the services of that seasonal employment,
27unless that disability is removed before the close of that period
28and the qualified taxpayer fails to offer seasonal employment to
29that qualified disadvantaged individual.

30(iii) A failure to continue the seasonal employment of a qualified
31disadvantaged individual, if it is determined that the failure to
32continue the seasonal employment was due to the misconduct (as
33defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
34the California Code of Regulations) of that qualified disadvantaged
35individual.

36(iv) A failure to continue seasonal employment of a qualified
37disadvantaged individual due to a substantial reduction in the
38regular seasonal trade or business operations of the qualified
39taxpayer.

P43   1(v) A failure to continue the seasonal employment of a qualified
2disadvantaged individual, if that qualified disadvantaged individual
3is replaced by other qualified disadvantaged individuals so as to
4create a net increase in both the number of seasonal employees
5and the hours of seasonal employment.

6(C) For purposes of paragraph (1), the employment relationship
7between the qualified taxpayer and a qualified disadvantaged
8individual shall not be treated as terminated by reason of a mere
9change in the form of conducting the trade or business of the
10qualified taxpayer, if the qualified disadvantaged individual
11continues to be employed in that trade or business and the qualified
12taxpayer retains a substantial interest in that trade or business.

13(3) Any increase in tax under paragraph (1) shall not be treated
14as tax imposed by this part for purposes of determining the amount
15of any credit allowable under this part.

16(e) In the case of an estate or trust, both of the following apply:

17(1) The qualified wages for any taxable year shall be apportioned
18between the estate or trust and the beneficiaries on the basis of the
19income of the estate or trust allocable to each.

20(2) Any beneficiary to whom any qualified wages have been
21apportioned under paragraph (1) shall be treated (for purposes of
22this part) as the employer with respect to those wages.

23(f) The credit shall be reduced by the credit allowed under
24Section 17053.7. The credit shall also be reduced by the federal
25credit allowed under Section 51 of the Internal Revenue Code.

26In addition, any deduction otherwise allowed under this part for
27the wages or salaries paid or incurred by the qualified taxpayer
28upon which the credit is based shall be reduced by the amount of
29the credit, prior to any reduction required by subdivision (g) or
30(h).

31(g) In the case where the credit otherwise allowed under this
32section exceeds the “net tax” for the taxable year, that portion of
33the credit that exceeds the “net tax” may be carried over and added
34to the credit, if any, inbegin insert theend insert succeedingbegin insert five taxableend insert years,begin insert if
35necessary,end insert
until the credit is exhausted. The credit shall be applied
36first to the earliest taxable years possible.

37(h) (1) The amount of credit otherwise allowed under this
38section, including prior year credit carryovers, that may reduce
39the “net tax” for the taxable year shall not exceed the amount of
40tax that would be imposed on the qualified taxpayer’s business
P44   1income attributed to a manufacturing enhancement area determined
2as if that attributed income represented all of the net income of the
3qualified taxpayer subject to tax under this part.

4(2) Attributable income shall be that portion of the taxpayer’s
5California source business income that is apportioned to the
6manufacturing enhancement area. For that purpose, the taxpayer’s
7business income that is attributable to sources in this state first
8shall be determined in accordance with Chapter 17 (commencing
9with Section 25101) of Part 11. That business income shall be
10further apportioned to the manufacturing enhancement area in
11accordance with Article 2 (commencing with Section 25120) of
12Chapter 17 of Part 11, modified for purposes of this section in
13accordance with paragraph (3).

14(3) Income shall be apportioned to a manufacturing enhancement
15area by multiplying the total California business income of the
16taxpayer by a fraction, the numerator of which is the property
17factor plus the payroll factor, and the denominator of which is two.
18For purposes of this paragraph:

19(A) The property factor is a fraction, the numerator of which is
20the average value of the taxpayer’s real and tangible personal
21property owned or rented and used in the manufacturing
22enhancement area during the taxable year, and the denominator
23of which is the average value of all the taxpayer’s real and tangible
24personal property owned or rented and used in this state during
25the taxable year.

26(B) The payroll factor is a fraction, the numerator of which is
27the total amount paid by the taxpayer in the manufacturing
28enhancement area during the taxable year for compensation, and
29the denominator of which is the total compensation paid by the
30taxpayer in this state during the taxable year.

31(4) The portion of any credit remaining, if any, after application
32of this subdivision, shall be carried over to succeeding taxable
33years,begin insert if necessary, until the credit is exhausted,end insert as if it were an
34amount exceeding the “net tax” for the taxable year, as provided
35in subdivision (g).begin insert However, the portion of any credit remaining
36for carryover to taxable years beginning on or after January 1,
372014, if any, after application of this subdivision, shall be carried
38over only to the succeeding five taxable years if necessary, until
39the credit is exhausted, as if it were an amount exceeding the “net
40tax” for the taxable year, as provided in subdivision (g).end insert

P45   1(i) If the taxpayer is allowed a credit pursuant to this section for
2qualified wages paid or incurred, only one credit shall be allowed
3to the taxpayer under this part with respect to any wage consisting
4in whole or in part of those qualified wages.

5(j) The qualified taxpayer shall do both of the following:

6(1) Obtain from the Employment Development Department, as
7permitted by federal law, the local county or city Job Training
8Partnership Act administrative entity, the local county GAIN office
9or social services agency, or the local government administering
10the manufacturing enhancement area, a certification that provides
11that a qualified disadvantaged individual meets the eligibility
12requirements specified in paragraph (5) of subdivision (b). The
13Employment Development Department may provide preliminary
14screening and referral to a certifying agency. The Department of
15Housing and Community Development shall develop regulations
16governing the issuance of certificates pursuant to subdivision (d)
17of Section 7086 of the Government Code and shall develop forms
18for this purpose.

19(2) Retain a copy of the certification and provide it upon request
20to the Franchise Tax Board.

begin insert

21(k) (1) Except as provided in paragraph (2), this section shall
22cease to be operative for taxable years beginning on or after
23January 1, 2014, and shall be repealed on December 1, 2019.

end insert
begin insert

24(2) The section shall continue to apply with respect to qualified
25employees who are employed by the qualified taxpayer within the
26manufacturing enhancement area within the 60-month period
27immediately preceding January 1, 2014, and qualified wages paid
28or incurred with respect to those qualified employees shall continue
29to qualify for the credit under this section for taxable years
30beginning on or after January 1, 2014, in accordance with the
31provisions of this section, as amended by the act adding this
32subdivision.

end insert
33begin insert

begin insertSEC. 11.end insert  

end insert

begin insertSection 17053.70 of the end insertbegin insertRevenue and Taxation Codeend insert
34begin insert is amended to read:end insert

35

17053.70.  

(a) There shall be allowed as a credit against the
36“net tax” (as defined in Section 17039) for the taxable year an
37amount equal to the sales or use tax paid or incurred during the
38taxable year by the taxpayer in connection with the taxpayer’s
39purchase of qualifiedbegin delete property.end deletebegin insert property before January 1, 2014.end insert

40(b) For purposes of this section:

P46   1(1) “Taxpayer” means a person or entity engaged in a trade or
2business within an enterprise zone.

3(2) “Qualified property” means:

4(A) Any of the following:

5(i) Machinery and machinery parts used for fabricating,
6processing, assembling, and manufacturing.

7(ii) Machinery and machinery parts used for the production of
8renewable energy resources.

9(iii) Machinery and machinery parts used for either of the
10following:

11(I) Air pollution control mechanisms.

12(II) Water pollution control mechanisms.

13(iv) Data processing and communications equipment, including,
14but not limited, to computers, computer-automated drafting
15systems, copy machines, telephone systems, and faxes.

16(v) Motion picture manufacturing equipment central to
17production and postproduction, including, but not limited to,
18cameras, audio recorders, and digital image and sound processing
19equipment.

20(B) The total cost of qualified property purchased and placed
21in service in any taxable year that may be taken into account by
22any taxpayer for purposes of claiming this credit shall not exceed
23one million dollars ($1,000,000).

24(C) The qualified property is used by the taxpayer exclusively
25in an enterprise zone.

26(D) The qualified property is purchased and placed in service
27before the date the enterprise zone designation expires, is no longer
28binding, or becomes inoperative.

29(3) “Enterprise zone” means the area designated as an enterprise
30zone pursuant to Chapter 12.8 (commencing with Section 7070)
31of Division 7 of Title 1 of the Government Codebegin insert as it read on the
32effective date of the act amending this sectionend insert
.

33(c) If the taxpayer has purchased property upon which a use tax
34has been paid or incurred, the credit provided by this section shall
35be allowed only if qualified property of a comparable quality and
36price is not timely available for purchase in this state.

37(d) In the case where the credit otherwise allowed under this
38section exceeds the “net tax” for the taxable year, that portion of
39the credit that exceeds the “net tax” may be carried over and added
40to the credit, if any, inbegin insert theend insert succeedingbegin insert fiveend insert taxable years,begin insert if
P47   1necessary,end insert
until the credit is exhausted. The credit shall be applied
2first to the earliest taxable years possible.

3(e) Any taxpayerbegin delete whoend deletebegin insert thatend insert elects to be subject to this section
4shall not be entitled to increase the basis of the qualified property
5as otherwise required by Section 164(a) of the Internal Revenue
6Code with respect to sales or use tax paid or incurred in connection
7with the taxpayer’s purchase of qualified property.

8(f) (1) The amount of the credit otherwise allowed under this
9section and Section 17053.74, including any credit carryover from
10prior years, that may reduce the “net tax” for the taxable year shall
11not exceed the amount of tax that would be imposed on the
12taxpayer’s business income attributable to the enterprise zone
13determined as if that attributable income represented all of the
14income of the taxpayer subject to tax under this part.

15(2)  Attributable income shall be that portion of the taxpayer’s
16California source business income that is apportioned to the
17enterprise zone. For that purpose, the taxpayer’s business income
18attributable to sources in this state first shall be determined in
19accordance with Chapter 17 (commencing with Section 25101) of
20Part 11. That business income shall be further apportioned to the
21enterprise zone in accordance with Article 2 (commencing with
22Section 25120) of Chapter 17 of Part 11, modified for purposes
23of this section in accordance with paragraph (3).

24(3) Business income shall be apportioned to the enterprise zone
25by multiplying the total California business income of the taxpayer
26by a fraction, the numerator of which is the property factor plus
27the payroll factor, and the denominator of which is two. For
28purposes of this paragraph:

29(A) The property factor is a fraction, the numerator of which is
30the average value of the taxpayer’s real and tangible personal
31property owned or rented and used in the enterprise zone during
32the taxable year, and the denominator of which is the average value
33of all the taxpayer’s real and tangible personal property owned or
34rented and used in this state during the taxable year.

35(B) The payroll factor is a fraction, the numerator of which is
36the total amount paid by the taxpayer in the enterprise zone during
37the taxable year for compensation, and the denominator of which
38is the total compensation paid by the taxpayer in this state during
39the taxable year.

P48   1(4) The portion of any credit remaining, if any, after application
2of this subdivision, shall be carried over to succeeding taxable
3years,begin insert if necessary, until the credit is exhausted,end insert as if it were an
4amount exceeding the “net tax” for the taxable year, as provided
5in subdivision (d).begin insert However, the portion of any credit remaining
6for carryover to taxable years beginning on or after January 1,
72014, if any, after application of this subdivision, shall be carried
8over only to the succeeding five taxable years, if necessary, until
9the credit is exhausted, as if it were an amount exceeding the “net
10tax” for the taxable year, as provided in subdivision (d).end insert

11(g) The amendments made to this section by the act adding this
12subdivision shall apply to taxable years beginning on or after
13January 1, 1998.

begin insert

14(h) This section is repealed on December 1, 2014.

end insert
15begin insert

begin insertSEC. 12.end insert  

end insert

begin insertSection 17053.73 is added to the end insertbegin insertRevenue and
16Taxation Code
end insert
begin insert, to read:end insert

begin insert
17

begin insert17053.73.end insert  

(a) (1) For each taxable year beginning on or after
18January 1, 2014, and before January 1, 2019, there shall be
19allowed to a qualified taxpayer that hires a qualified full-time
20employee and pays or incurs qualified wages attributable to work
21performed by the qualified full-time employee in a designated
22census tract or former enterprise zone, and that receives a tentative
23credit reservation for that qualified full-time employee, a credit
24against the “net tax,” as defined in Section 17039, in an amount
25calculated under this section.

26(2) The amount of the credit allowable under this section for a
27taxable year shall be equal to the product of the tentative credit
28amount for the taxable year and the applicable percentage for that
29taxable year.

30(3) (A) If a qualified taxpayer relocates to a designated census
31tract or former enterprise zone, the qualified taxpayer shall be
32allowed a credit with respect to qualified wages for each qualified
33full-time employee employed within the new location only if the
34qualified taxpayer provides each employee at the previous location
35or locations a written offer of employment at the new location in
36the designated census tract or former enterprise zone with
37comparable compensation.

38(B) For purposes of this paragraph, “relocates to a designated
39census tract or former enterprise zone” means an increase in the
40number of qualified full-time employees, employed by a qualified
P49   1taxpayer, within a designated census tract or tracts or former
2enterprise zone within a 12-month period in which there is a
3decrease in the number of full-time employees, employed by the
4qualified taxpayer in this state, but outside of designated census
5tracts or former enterprise zone.

6(C) This paragraph shall not apply to a small business.

7(4) The credit allowed by this section may be claimed only on
8a timely filed original return of the qualified taxpayer and only
9with respect to a qualified full-time employee for whom the
10qualified taxpayer has received a tentative credit reservation.

11(b) For purposes of this section:

12(1) The “tentative credit amount” for a taxable year shall be
13equal to the product of the applicable credit percentage for each
14qualified full-time employee and the qualified wages paid by the
15qualified taxpayer during the taxable year to that qualified full-time
16employee.

17(2) The “applicable percentage” for a taxable year shall be
18equal to a fraction, the numerator of which is the net increase in
19the total number of full-time employees employed in this state
20during the taxable year, determined on an annual full-time
21equivalent basis, as compared with the total number of full-time
22employees employed in this state during the base year, determined
23on the same basis, and the denominator of which shall be the total
24number of qualified full-time employees employed in this state
25during the taxable year. The applicable percentage shall not exceed
26100 percent.

27(3) The “applicable credit percentage” means the credit
28percentage for the calendar year during which a qualified full-time
29employee was first employed by the qualified taxpayer. The
30applicable credit percentage for all calendar years shall be 35
31percent.

32(4) “Base year” means the 2013 taxable year, except in the
33case of a qualified taxpayer who first hires a qualified full-time
34employee in a taxable year beginning on or after January 1, 2015,
35the base year means the taxable year immediately preceding the
36taxable year in which a qualified full-time employee was first hired
37by the qualified taxpayer.

38(5) “Acquired” includes any gift, inheritance, transfer incident
39to divorce, or any other transfer, whether or not for consideration.

40(6) “Annual full-time equivalent” means either of the following:

P50   1(A) In the case of a full-time employee paid hourly qualified
2wages, “annual full-time equivalent” means the total number of
3hours worked for the qualified taxpayer by the employee, not to
4exceed 2,000 hours per employee, divided by 2,000.

5(B) In the case of a salaried full-time employee, “annual
6full-time equivalent” means the total number of weeks worked for
7the qualified taxpayer by the employee divided by 52.

8(7) “Designated census tract” means a census tract within the
9state that is determined by the Department of Finance to have a
10civilian unemployment rate that is within the top 25 percent of all
11census tracts within the state and has a poverty rate within the top
1225 percent of all census tracts within the state, as prescribed in
13Section 13073.5 of the Government Code.

14(8) “Former enterprise zone” means an enterprise zone
15designated under former Chapter 12.8 (commencing with former
16Section 7070 of the Government Code), as in effect on December
1731, 2011, excluding any census tract within an enterprise zone
18that is identified by the Department of Finance pursuant to Section
1913073.5 of the Government Code as a census tract within the lowest
20quartile of census tracts with the lowest civilian unemployment.

21(9) “Minimum wage” means the wage established pursuant to
22Chapter 1 (commencing with Section 1171) of Part 4 of Division
232 of the Labor Code.

24(10) (A) “Qualified full-time employee” means an individual
25who meets all of the following requirements:

26(i) Performs at least 50 percent of his or her services for the
27qualified taxpayer during the taxable year in a designated census
28tract or former enterprise zone.

29(ii) Receives starting wages that are at least 150 percent of the
30minimum wage.

31(iii) Is hired by the qualified taxpayer on or after January 1,
322014.

33(iv) Is hired by the qualified taxpayer after the date the
34Department of Finance determines that the census tract or
35enterprise zone referred to in clause (i) is a designated census
36tract or former enterprise zone.

37(v) Satisfies either of the following conditions:

38(I) Is paid qualified wages by the qualified taxpayer for services
39not less than an average of 35 hours per week.

P51   1(II) Is a salaried employee and was paid compensation during
2the taxable year for full-time employment, within the meaning of
3Section 515 of the Labor Code, by the qualified taxpayer.

4(vi) Upon commencement of employment with the qualified
5taxpayer, satisfies any of the following conditions:

6(I) Was unemployed for the six months immediately preceding
7employment with the qualified taxpayer. In the case of an individual
8that completed a program of study at a college, university, or other
9postsecondary educational institution, received a baccalaureate,
10postgraduate, or professional degree, and was unemployed for the
11six months immediately preceding employment with the qualified
12taxpayer, that individual must have completed that program of
13study at least 12 months prior to the individual’s commencement
14of employment with the qualified taxpayer.

15(II) Is a veteran that had not been employed since separation
16from service in the Armed Forces of the United States.

17(III) Was a recipient of the credit allowed under Section 32 of
18the Internal Revenue Code, relating to earned income, as
19applicable for federal purposes, for the previous taxable year.

20(B) An individual may be considered a qualified full-time
21employee only for the period of time commencing with the date
22the individual is first employed by the qualified taxpayer and
23ending 60 months thereafter.

24(11) (A) “Qualified taxpayer” means a person or entity engaged
25in a trade or business within a designated census tract or former
26enterprise zone that, during the taxable year, pays or incurs
27qualified wages.

28(B) “Qualified small business taxpayer” means a qualified
29taxpayer that is a small business.

30(C) In the case of any pass-thru entity, the determination of
31whether a taxpayer is a qualified taxpayer or a qualified small
32 business taxpayer under this section shall be made at the entity
33level and any credit under this section or Section 23626 shall be
34allowed to the pass-thru entity and passed through to the partners
35and shareholders in accordance with applicable provisions of this
36part or Part 11 (commencing with Section 23001). For purposes
37of this subdivision, the term “pass-thru entity” means any
38partnership or “S” corporation.

39(D) “Qualified taxpayers” shall not include any of the following:

P52   1(i) Employers that provide temporary help services, as described
2in Code 561320 of the North American Industry Classification
3System (NAICS) published by the United States Office of
4Management and Budget, 2012 Edition.

5(ii) Employers that provide retail trade services, as described
6in Sector 44-45 of the North American Industry Classification
7 System (NAICS) published by the United States Office of
8Management and Budget, 2012 Edition.

9(iii) Employers that are primarily engaged in providing food
10services, as described in Code 711110, 722511, 722513, 722514,
11or 722515 of the North American Industry Classification System
12(NAICS) published by the United States Office of Management
13and Budget, 2012 edition.

14(iv) Employers that are primarily engaged in services as
15described in Code 713210, 721120, or 722410 of the North
16American Industry Classification System (NAICS) published by
17the United States Office of Management and Budget, 2012 edition.

18(E) Subparagraph (D) shall not apply to a taxpayer that is a
19“small business.”

20(12) “Qualified wages” means those wages that meet all of the
21following requirements:

22(A) That portion of wages paid or incurred by the qualified
23taxpayer during the taxable year to each qualified full-time
24employee that exceeds 150 percent of minimum wage, but does
25not exceed 350 percent of minimum wage.

26(B) Wages paid or incurred during the 60-month period
27beginning with the first day the qualified full-time employee
28commences employment with the qualified taxpayer. In the case
29of any employee who is reemployed, including a regularly
30occurring seasonal increase, in the trade or business operations
31of the qualified taxpayer, this reemployment shall not be treated
32as constituting commencement of employment for purposes of this
33section.

34(C) Except as provided in paragraph (3) of subdivision (m),
35qualified wages shall not include any wages paid or incurred by
36the qualified taxpayer on or after the date that the Department of
37Finance’s redesignation of designated census tracts is effective,
38as provided in paragraph (2) of subdivision (g), so that a census
39tract is no longer a designated census tract.

P53   1(13) “Seasonal employment” means employment by a qualified
2taxpayer that has regular and predictable substantial reductions
3in trade or business operations.

4(14) (A) “Small business” means a trade or business that has
5aggregate gross receipts, less returns and allowances reportable
6to this state, of less than two million dollars ($2,000,000) during
7the previous taxable year.

8(B) (i) For purposes of this paragraph, “gross receipts, less
9returns and allowances reportable to this state,” means the sum
10of the gross receipts from the production of business income, as
11 defined in subdivision (a) of Section 25120, and the gross receipts
12from the production of nonbusiness income, as defined in
13subdivision (d) of Section 25120.

14(ii) In the case of any trade or business activity conducted by a
15partnership or an “S” corporation, the limitations set forth in
16subparagraph (A) shall be applied to the partnership or “S”
17corporation at the entity level.

18(15) An individual is “unemployed” for any period for which
19the individual is all of the following:

20(A) Not in receipt of wages subject to withholding under Section
2113020 of the Unemployment Insurance Code for that period.

22(B) Not a self-employed individual (within the meaning of
23Section 401(c)(1)(B) of the Internal Revenue Code, relating to
24self-employed individual) for that period.

25(C) Not a registered full-time student at a high school, college,
26university, or other postsecondary educational institution for that
27period.

28(c) The net increase in full-time employees of a qualified
29taxpayer shall be determined as provided by this subdivision:

30(1) (A) The net increase in full-time employees shall be
31determined on an annual full-time equivalent basis by subtracting
32from the amount determined in subparagraph (C) the amount
33determined in subparagraph (B).

34(B) The total number of full-time employees employed in the
35preceding taxable year by the taxpayer and by any trade or
36business acquired by the taxpayer during the current taxable year.

37(C) The total number of full-time employees employed in the
38current taxable year by the taxpayer and by any trade or business
39acquired during the current taxable year.

P54   1(2) For taxpayers who first commence doing business in this
2state during the taxable year, the number of full-time employees
3for the base year shall be zero.

4(d) For purposes of this section:

5(1) All employees of the trades or businesses that are treated
6as related under Section 267, 318, or 707 of the Internal Revenue
7Code shall be treated as employed by a single taxpayer.

8(2) In determining whether the taxpayer has first commenced
9doing business in this state during the taxable year, the provisions
10of subdivision (f) of Section 17276.20, without application of
11paragraph (7) of that subdivision, shall apply.

12(e) (1) To be eligible for the credit allowed by this section, a
13qualified taxpayer shall, upon hiring a qualified full-time employee,
14request a tentative credit reservation from the Franchise Tax Board
15within 30 days of complying with the Employment Development
16Department’s new hire reporting requirements as provided in
17Section 1088.5 of the Unemployment Insurance Code, in a form
18and manner prescribed by the Franchise Tax Board.

19(2) To obtain a tentative credit reservation with respect to a
20qualified full-time employee, the qualified taxpayer shall provide
21necessary information, as determined by the Franchise Tax Board,
22including the name, social security number, the start date of
23employment, the rate of pay of the qualified full-time employee,
24and the qualified taxpayer’s gross receipts, less returns and
25allowances, for the previous taxable year.

26(3) The qualified taxpayer shall provide the Franchise Tax
27Board an annual certification of employment with respect to each
28qualified full-time employee hired in a previous taxable year, on
29or before, the 15th day of the third month of the taxable year. The
30certification shall include necessary information, as determined
31by the Franchise Tax Board, including the name, social security
32number, start date of employment, and rate of pay for each
33qualified full-time employee employed by the qualified taxpayer.

34(4) A tentative credit reservation provided to a taxpayer with
35respect to an employee of that taxpayer shall not constitute a
36determination by the Franchise Tax Board with respect to any of
37the requirements of this section regarding a taxpayer’s eligibility
38for the credit authorized by this section.

39(f) The Franchise Tax Board shall do all of the following:

P55   1(1) Approve a tentative credit reservation with respect to a
2qualified full-time employee hired during a calendar year and
3advise the qualified taxpayer of the applicable credit percentage
4and the small business applicable credit percentage that may apply
5with respect to the qualified full-time employee.

6(2) Determine and publish on its Internet Web site, on or before
7September 1 of each calendar year, the applicable credit
8percentage and small business applicable credit percentage for
9the following calendar year.

10(3) Estimate the tentative credit wage base amount and the small
11business tentative credit wage base amount for a calendar year
12based on the starting wage or salary and full-time employment for
13an entire calendar year.

14(4) Determine the aggregate tentative reservation amount and
15the aggregate small business tentative reservation amount for a
16calendar year.

17(5) Notwithstanding Section 19542, provide as a searchable
18database on its Internet Web site, for each taxable year beginning
19on or after January 1, 2014, and before January 1, 2019, the
20employer names, amounts of tax credit claimed, and number of
21new jobs created for each taxable year pursuant to this section
22and Section 23623.

23(g) (1) The Department of Finance shall, by January 1, 2014,
24and by January 1 of every fifth year thereafter, provide the
25Franchise Tax Board with a list of the designated census tracts
26and a list of census tracts with the lowest civilian unemployment
27rate.

28(2) The redesignation of designated census tracts and lowest
29civilian unemployment census tracts by the Department of Finance
30as provided in Section 13073.5 of the Government Code shall be
31effective, for purposes of this credit, one year after the date the
32Department of Finance redesignates the designated census tracts.

33(h) For purposes of this section:

34(1) All employees of the trades or businesses that are treated
35as related under Section 267, 318, or 707 of the Internal Revenue
36Code shall be treated as employed by a single taxpayer.

37(2) All employees of trades or businesses that are not
38incorporated, and that are under common control, shall be treated
39as employed by a single taxpayer.

P56   1(3) The credit, if any, allowable by this section with respect to
2each trade or business shall be determined by reference to its
3proportionate share of the expense of the qualified wages giving
4rise to the credit, and shall be allocated to that trade or business
5in that manner.

6(4) Principles that apply in the case of controlled groups of
7corporations, as specified in subdivision (h) of Section 23626,
8shall apply with respect to determining employment.

9(5) If an employer acquires the major portion of a trade or
10business of another employer, hereinafter in this paragraph
11referred to as the predecessor, or the major portion of a separate
12unit of a trade or business of a predecessor, then, for purposes of
13applying this section, other than subdivision (i), for any taxable
14year ending after that acquisition, the employment relationship
15between a qualified full-time employee and an employer shall not
16be treated as terminated if the employee continues to be employed
17in that trade or business.

18(i) (1) If the employment of any qualified full-time employee,
19with respect to whom qualified wages are taken into account under
20subdivision (a), is terminated by the qualified taxpayer at any time
21during the first 36 months after commencing employment with the
22qualified taxpayer, whether or not consecutive, the tax imposed
23by this part for the taxable year in which that employment is
24terminated shall be increased by an amount equal to the credit
25allowed under subdivision (a) for that taxable year and all prior
26taxable years attributable to qualified wages paid or incurred with
27respect to that employee.

28(2) Paragraph (1) shall not apply to any of the following:

29(A) A termination of employment of a qualified full-time
30employee who voluntarily leaves the employment of the qualified
31taxpayer.

32(B) A termination of employment of a qualified full-time
33employee who, before the close of the period referred to in
34paragraph (1), becomes disabled and unable to perform the
35services of that employment, unless that disability is removed
36before the close of that period and the qualified taxpayer fails to
37offer reemployment to that employee.

38(C) A termination of employment of a qualified full-time
39employee, if it is determined that the termination was due to the
P57   1misconduct, as defined in Sections 1256-30 to 1256-43, inclusive,
2of Title 22 of the California Code of Regulations, of that employee.

3(D) A termination of employment of a qualified full-time
4employee due to a substantial reduction in the trade or business
5operations of the qualified taxpayer.

6(E) A termination of employment of a qualified full-time
7employee, if that employee is replaced by other qualified full-time
8employees so as to create a net increase in both the number of
9employees and the hours of employment.

10(F) A termination of employment of a qualified full-time
11employee, when that employment is considered seasonal
12employment and the qualified employee is rehired on a seasonal
13basis.

14(3) For purposes of paragraph (1), the employment relationship
15between the qualified taxpayer and a qualified full-time employee
16shall not be treated as terminated by reason of a mere change in
17the form of conducting the trade or business of the qualified
18taxpayer, if the qualified full-time employee continues to be
19employed in that trade or business and the qualified taxpayer
20retains a substantial interest in that trade or business.

21(4) Any increase in tax under paragraph (1) shall not be treated
22as tax imposed by this part for purposes of determining the amount
23of any credit allowable under this part.

24(j) In the case of an estate or trust, both of the following apply:

25(1) The qualified wages for any taxable year shall be
26apportioned between the estate or trust and the beneficiaries on
27the basis of the income of the estate or trust allocable to each.

28(2) Any beneficiary to whom any qualified wages have been
29apportioned under paragraph (1) shall be treated, for purposes
30of this part, as the employer with respect to those wages.

31(k) In the case where the credit allowed by this section exceeds
32the “net tax,” the excess may be carried over to reduce the “net
33tax” in the following year, and the succeeding four years if
34necessary, until the credit is exhausted.

35(l) The Franchise Tax Board may prescribe rules, guidelines,
36or procedures necessary or appropriate to carry out the purposes
37of this section, including any guidelines regarding the allocation
38of the credit allowed under this section. Chapter 3.5 (commencing
39with Section 11340) of Part 1 of Division 3 of Title 2 of the
40Government Code shall not apply to any rule, guideline, or
P58   1procedure prescribed by the Franchise Tax Board pursuant to this
2section.

3(m) (1) This section shall remain in effect only until December
41, 2024, and as of that date is repealed.

5(2) Notwithstanding paragraph (1) of subdivision (a), this
6section shall continue to be operative for taxable years beginning
7on or after January 1, 2019, but only with respect to qualified
8full-time employees who commenced employment with a qualified
9taxpayer in a designated census tract or former enterprise zone
10in a taxable year beginning before January 1, 2019.

11(3) This section shall remain operative for any qualified
12taxpayer with respect to any qualified full-time employee after the
13designated census tract is no longer designated or a former
14enterprise zone ceases to be a former enterprise zone, as defined
15in this section, for the remaining period, if any, of the 60-month
16period after the original date of hiring of an otherwise qualified
17full-time employee and any wages paid or incurred with respect
18to those qualified full-time employees after the designated census
19tract is no longer designated or a former enterprise zone ceases
20to be a former enterprise zone, as defined in this section, shall be
21treated as qualified wages under this section, provided the
22employee satisfies any other requirements of paragraphs (10) and
23(12) of subdivision (b), as if the designated census tract was still
24designated and binding.

end insert
25begin insert

begin insertSEC. 13.end insert  

end insert

begin insertSection 17053.74 of the end insertbegin insertRevenue and Taxation Codeend insert
26begin insert is amended to read:end insert

27

17053.74.  

(a) There shall be allowed a credit against the “net
28tax” (as defined in Section 17039) to a taxpayer who employs a
29qualified employee in an enterprise zone during the taxable year.
30The credit shall be equal to the sum of each of the following:

31(1) Fifty percent of qualified wages in the first year of
32employment.

33(2) Forty percent of qualified wages in the second year of
34employment.

35(3) Thirty percent of qualified wages in the third year of
36employment.

37(4) Twenty percent of qualified wages in the fourth year of
38employment.

39(5) Ten percent of qualified wages in the fifth year of
40employment.

P59   1(b) For purposes of this section:

2(1) “Qualified wages” means:

3(A) (i) Except as provided in clause (ii), that portion of wages
4paid or incurred by the taxpayer during the taxable year to qualified
5employees that does not exceed 150 percent of the minimum wage.

6(ii) For up to 1,350 qualified employees who are employed by
7the taxpayer in the Long Beach Enterprise Zone in aircraft
8manufacturing activities described in Codes 3721 to 3728,
9inclusive, and Code 3812 of the Standard Industrial Classification
10(SIC) Manual published by the United States Office of
11Management and Budget, 1987 edition, “qualified wages” means
12that portion of hourly wages that does not exceed 202 percent of
13the minimum wage.

14(B) Wages received during the 60-month period beginning with
15the first day the employee commences employment with the
16taxpayer. Reemployment in connection with any increase, including
17a regularly occurring seasonal increase, in the trade or business
18operations of the taxpayer does not constitute commencement of
19employment for purposes of this section.

20(C) Qualified wages do not include any wages paid or incurred
21by the taxpayer on or after the zone expiration date. However,
22wages paid or incurred with respect to qualified employees who
23are employed by the taxpayer within the enterprise zone within
24the 60-month period prior to the zone expiration date shall continue
25to qualify for the credit under this section after the zone expiration
26date, in accordance with all provisions of this section applied as
27if the enterprise zone designation were still in existence and
28binding.

29(2) “Minimum wage” means the wage established by the
30Industrial Welfare Commission as provided for in Chapter 1
31(commencing with Section 1171) of Part 4 of Division 2 of the
32Labor Code.

33(3) “Zone expiration date” means the date the enterprise zone
34designation expires, is no longer binding,begin insert becomes inoperative,end insert or
35begin delete becomes inoperative.end deletebegin insert is repealed.end insert

36(4) (A) “Qualified employee” means an individual who meets
37all of the following requirements:

38(i) At least 90 percent of whose services for the taxpayer during
39the taxable year are directly related to the conduct of the taxpayer’s
40trade or business located in an enterprise zone.

P60   1(ii) Performs at least 50 percent of his or her services for the
2taxpayer during the taxable year in an enterprise zone.

3(iii) Is hired by the taxpayer after the date of original designation
4of the area in which services were performed as an enterprise zone.

5(iv) Is any of the following:

6(I) Immediately preceding the qualified employee’s
7commencement of employment with the taxpayer, was a person
8eligible for services under the federal Job Training Partnership
9Act (29 U.S.C. Sec. 1501 et seq.), or its successor, who is receiving,
10or is eligible to receive, subsidized employment, training, or
11services funded by the federal Job Training Partnership Act, or its
12successor.

13(II) Immediately preceding the qualified employee’s
14commencement of employment with the taxpayer, was a person
15eligible to be a voluntary or mandatory registrant under the Greater
16Avenues for Independence Act of 1985 (GAIN) provided for
17pursuant to Article 3.2 (commencing with Section 11320) of
18Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions
19Code, or its successor.

20(III) Immediately preceding the qualified employee’s
21commencement of employment with the taxpayer, was an
22economically disadvantaged individual 14 years of age or older.

23(IV) Immediately preceding the qualified employee’s
24commencement of employment with the taxpayer, was a dislocated
25worker who meets any of the following:

26(aa) Has been terminated or laid off or who has received a notice
27of termination or layoff from employment, is eligible for or has
28exhausted entitlement to unemployment insurance benefits, and
29is unlikely to return to his or her previous industry or occupation.

30(bb) Has been terminated or has received a notice of termination
31of employment as a result of any permanent closure or any
32substantial layoff at a plant, facility, or enterprise, including an
33individual who has not received written notification but whose
34employer has made a public announcement of the closure or layoff.

35(cc) Is long-term unemployed and has limited opportunities for
36employment or reemployment in the same or a similar occupation
37in the area in which the individual resides, including an individual
3855 years of age or older who may have substantial barriers to
39employment by reason of age.

P61   1(dd) Was self-employed (including farmers and ranchers) and
2is unemployed as a result of general economic conditions in the
3community in which he or she resides or because of natural
4disasters.

5(ee) Was a civilian employee of the Department of Defense
6employed at a military installation being closed or realigned under
7the Defense Base Closure and Realignment Act of 1990.

8(ff) Was an active member of the armed forces or National
9Guard as of September 30, 1990, and was either involuntarily
10separated or separated pursuant to a special benefits program.

11(gg) Is a seasonal or migrant worker who experiences chronic
12seasonal unemployment and underemployment in the agriculture
13industry, aggravated by continual advancements in technology and
14mechanization.

15(hh) Has been terminated or laid off, or has received a notice
16of termination or layoff, as a consequence of compliance with the
17Clean Air Act.

18(V) Immediately preceding the qualified employee’s
19commencement of employment with the taxpayer, was a disabled
20individual who is eligible for or enrolled in, or has completed a
21state rehabilitation plan or is a service-connected disabled veteran,
22veteran of the Vietnam era, or veteran who is recently separated
23from military service.

24(VI) Immediately preceding the qualified employee’s
25commencement of employment with the taxpayer, was an
26ex-offender. An individual shall be treated as convicted if he or
27she was placed on probation by a state court without a finding of
28guilt.

29(VII) Immediately preceding the qualified employee’s
30commencement of employment with the taxpayer, was a person
31eligible for or a recipient of any of the following:

32(aa) Federal Supplemental Security Income benefits.

33(bb) Aid to Families with Dependent Children.

34(cc) CalFresh benefits.

35(dd) State and local general assistance.

36(VIII) Immediately preceding the qualified employee’s
37commencement of employment with the taxpayer, was a member
38of a federally recognized Indian tribe, band, or other group of
39Native American descent.

P62   1(IX) Immediately preceding the qualified employee’s
2commencement of employment with the taxpayer, was a resident
3of a targeted employment area, as defined in Section 7072 of the
4Government Code.

5(X) An employee who qualified the taxpayer for the enterprise
6zone hiring credit under former Section 17053.8 or the program
7area hiring credit under former Section 17053.11.

8(XI) Immediately preceding the qualified employee’s
9commencement of employment with the taxpayer, was a member
10of a targeted group, as defined in Section 51(d) of the Internal
11Revenue Code, or its successor.

12(B) Priority for employment shall be provided to an individual
13who is enrolled in a qualified program under the federal Job
14Training Partnership Act or the Greater Avenues for Independence
15Act of 1985 or who is eligible as a member of a targeted group
16under the Work Opportunity Tax Credit (Section 51 of the Internal
17Revenue Code), or its successor.

18(5) “Taxpayer” means a person or entity engaged in a trade or
19business within an enterprise zone designated pursuant to Chapter
2012.8 (commencing with Section 7070) of the Government Code.

21(6) “Seasonal employment” means employment by a taxpayer
22that has regular and predictable substantial reductions in trade or
23business operations.

24(c) The taxpayer shall do both of the following:

25(1) Obtain from the Employment Development Department, as
26permitted by federal law, the local county or city Job Training
27Partnership Act administrative entity, the local county GAIN office
28or social services agency, or the local government administering
29the enterprise zone, a certification which provides that a qualified
30employee meets the eligibility requirements specified in clause
31(iv) of subparagraph (A) of paragraph (4) of subdivision (b). The
32Employment Development Department may provide preliminary
33screening and referral to a certifying agency. The Employment
34Development Department shall develop a form for this purpose.
35The Department of Housing and Community Development shall
36develop regulations governing the issuance of certificates by local
37governments pursuant to subdivision (a) of Section 7086 of the
38Government Code.

39(2) Retain a copy of the certification and provide it upon request
40to the Franchise Tax Board.

P63   1(d) (1) For purposes of this section:

2(A) All employees of trades or businesses, which are not
3incorporated, that are under common control shall be treated as
4employed by a single taxpayer.

5(B) The credit, if any, allowable by this section with respect to
6each trade or business shall be determined by reference to its
7proportionate share of the expense of the qualified wages giving
8rise to the credit, and shall be allocated in that manner.

9(C) Principles that apply in the case of controlled groups of
10corporations, as specified in subdivision (d) of Section 23622.7,
11shall apply with respect to determining employment.

12(2) If an employer acquires the major portion of a trade or
13business of another employer (hereinafter in this paragraph referred
14to as the “predecessor”) or the major portion of a separate unit of
15a trade or business of a predecessor, then, for purposes of applying
16this section (other than subdivision (e)) for any calendar year
17ending after that acquisition, the employment relationship between
18a qualified employee and an employer shall not be treated as
19terminated if the employee continues to be employed in that trade
20or business.

21(e) (1) (A) If the employment, other than seasonal employment,
22of any qualified employee, with respect to whom qualified wages
23are taken into account under subdivision (a), is terminated by the
24taxpayer at any time during the first 270 days of that employment
25(whether or not consecutive) or before the close of the 270th
26calendar day after the day in which that employee completes 90
27days of employment with the taxpayer, the tax imposed by this
28part for the taxable year in which that employment is terminated
29shall be increased by an amount equal to the credit allowed under
30subdivision (a) for that taxable year and all prior taxable years
31attributable to qualified wages paid or incurred with respect to that
32employee.

33(B) If the seasonal employment of any qualified employee, with
34respect to whom qualified wages are taken into account under
35subdivision (a), is not continued by the taxpayer for a period of
36270 days of employment during the 60-month period beginning
37with the day the qualified employee commences seasonal
38employment with the taxpayer, the tax imposed by this part, for
39the taxable year that includes the 60th month following the month
40in which the qualified employee commences seasonal employment
P64   1with the taxpayer, shall be increased by an amount equal to the
2credit allowed under subdivision (a) for that taxable year and all
3prior taxable years attributable to qualified wages paid or incurred
4with respect to that qualified employee.

5(2) (A) Subparagraph (A) of paragraph (1) shall not apply to
6any of the following:

7(i) A termination of employment of a qualified employee who
8voluntarily leaves the employment of the taxpayer.

9(ii) A termination of employment of a qualified employee who,
10before the close of the period referred to in paragraph (1), becomes
11disabled and unable to perform the services of that employment,
12unless that disability is removed before the close of that period
13and the taxpayer fails to offer reemployment to that employee.

14(iii) A termination of employment of a qualified employee, if
15it is determined that the termination was due to the misconduct (as
16defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
17the California Code of Regulations) of that employee.

18(iv) A termination of employment of a qualified employee due
19to a substantial reduction in the trade or business operations of the
20taxpayer.

21(v) A termination of employment of a qualified employee, if
22that employee is replaced by other qualified employees so as to
23create a net increase in both the number of employees and the
24hours of employment.

25(B) Subparagraph (B) of paragraph (1) shall not apply to any
26of the following:

27(i) A failure to continue the seasonal employment of a qualified
28employee who voluntarily fails to return to the seasonal
29employment of the taxpayer.

30(ii) A failure to continue the seasonal employment of a qualified
31employee who, before the close of the period referred to in
32subparagraph (B) of paragraph (1), becomes disabled and unable
33to perform the services of that seasonal employment, unless that
34disability is removed before the close of that period and the
35taxpayer fails to offer seasonal employment to that qualified
36employee.

37(iii) A failure to continue the seasonal employment of a qualified
38employee, if it is determined that the failure to continue the
39seasonal employment was due to the misconduct (as defined in
P65   1Sections 1256-30 to 1256-43, inclusive, of Title 22 of the California
2Code of Regulations) of that qualified employee.

3(iv) A failure to continue seasonal employment of a qualified
4employee due to a substantial reduction in the regular seasonal
5trade or business operations of the taxpayer.

6(v) A failure to continue the seasonal employment of a qualified
7employee, if that qualified employee is replaced by other qualified
8employees so as to create a net increase in both the number of
9seasonal employees and the hours of seasonal employment.

10(C) For purposes of paragraph (1), the employment relationship
11between the taxpayer and a qualified employee shall not be treated
12as terminated by reason of a mere change in the form of conducting
13the trade or business of the taxpayer, if the qualified employee
14continues to be employed in that trade or business and the taxpayer
15retains a substantial interest in that trade or business.

16(3) Any increase in tax under paragraph (1) shall not be treated
17as tax imposed by this part for purposes of determining the amount
18of any credit allowable under this part.

19(f) In the case of an estate or trust, both of the following apply:

20(1) The qualified wages for any taxable year shall be apportioned
21between the estate or trust and the beneficiaries on the basis of the
22income of the estate or trust allocable to each.

23(2) Any beneficiary to whom any qualified wages have been
24apportioned under paragraph (1) shall be treated, for purposes of
25this part, as the employer with respect to those wages.

26(g) For purposes of this section, “enterprise zone” means an
27area designated as an enterprise zone pursuant to Chapter 12.8
28(commencing with Section 7070) of Division 7 of Title 1 of the
29Government Code.

30(h) The credit allowable under this section shall be reduced by
31the credit allowed under Sections 17053.10, 17053.17, and
3217053.46 claimed for the same employee. The credit shall also be
33reduced by the federal credit allowed under Section 51 of the
34Internal Revenue Code.

35In addition, any deduction otherwise allowed under this part for
36the wages or salaries paid or incurred by the taxpayer upon which
37the credit is based shall be reduced by the amount of the credit,
38prior to any reduction required by subdivision (i) or (j).

39(i) In the case where the credit otherwise allowed under this
40section exceeds the “net tax” for the taxable year, that portion of
P66   1the credit that exceeds the “net tax” may be carried over and added
2to the credit, if any, inbegin insert theend insert succeedingbegin insert fiveend insert taxable years,begin insert if
3necessary,end insert
until the credit is exhausted. The credit shall be applied
4first to the earliest taxable years possible.

5(j) (1) The amount of the credit otherwise allowed under this
6section and Section 17053.70, including any credit carryover from
7prior years, that may reduce the “net tax” for the taxable year shall
8not exceed the amount of tax which would be imposed on the
9taxpayer’s business income attributable to the enterprise zone
10determined as if that attributable income represented all of the
11income of the taxpayer subject to tax under this part.

12(2) Attributable income shall be that portion of the taxpayer’s
13California source business income that is apportioned to the
14enterprise zone. For that purpose, the taxpayer’s business income
15attributable to sources in this state first shall be determined in
16accordance with Chapter 17 (commencing with Section 25101) of
17Part 11. That business income shall be further apportioned to the
18enterprise zone in accordance with Article 2 (commencing with
19Section 25120) of Chapter 17 of Part 11, modified for purposes
20of this section in accordance with paragraph (3).

21(3) Business income shall be apportioned to the enterprise zone
22by multiplying the total California business income of the taxpayer
23by a fraction, the numerator of which is the property factor plus
24the payroll factor, and the denominator of which is two. For
25purposes of this paragraph:

26(A) The property factor is a fraction, the numerator of which is
27the average value of the taxpayer’s real and tangible personal
28property owned or rented and used in the enterprise zone during
29the taxable year, and the denominator of which is the average value
30of all the taxpayer’s real and tangible personal property owned or
31rented and used in this state during the taxable year.

32(B) The payroll factor is a fraction, the numerator of which is
33the total amount paid by the taxpayer in the enterprise zone during
34the taxable year for compensation, and the denominator of which
35is the total compensation paid by the taxpayer in this state during
36the taxable year.

37(4) The portion of any credit remaining, if any, after application
38of this subdivision, shall be carried over to succeeding taxable
39years,begin insert if necessary, until the credit is exhausted,end insert as if it were an
40amount exceeding the “net tax” for the taxable year, as provided
P67   1in subdivision (i).begin insert However, the portion of any credit remaining
2for carryover to taxable years beginning on or after January 1,
32014, if any, after application of this subdivision, shall be carried
4over only to the succeeding five taxable years if necessary, until
5the credit is exhausted, as if it were an amount exceeding the “net
6tax” for the taxable year, as provided in subdivision (i).end insert

7(k) The changes made to this section by the act adding this
8subdivision shall apply to taxable years beginning on or after
9January 1, 1997.

begin insert

10(l) (1) Except as provided in paragraph (2), this section shall
11cease to be operative for taxable years beginning on or after
12January 1, 2014, and shall be repealed on December 1, 2019.

end insert
begin insert

13(2) The section shall continue to apply with respect to qualified
14employees who are employed by the qualified taxpayer within the
15enterprise zone within the 60-month period immediately preceding
16January 1, 2014, and qualified wages paid or incurred with respect
17to those qualified employees shall continue to qualify for the credit
18under this section for taxable years beginning on or after January
191, 2014, in accordance with this section, as amended by the act
20adding this subdivision.

end insert
21begin insert

begin insertSEC. 14.end insert  

end insert

begin insertSection 17053.75 of the end insertbegin insertRevenue and Taxation Codeend insert
22begin insert is amended to read:end insert

23

17053.75.  

(a) There shall be allowed as a credit against the
24“net tax” (as defined by Section 17039) for the taxable year an
25amount equal to five percent of the qualified wages received by
26the taxpayer during the taxable year.

27(b) For purposes of this section:

28(1) “Qualified employee” means a taxpayer who meets both of
29the following:

30(A) Is described in clauses (i) and (ii) of subparagraph (A) of
31paragraph (4) of subdivision (b) of Section 17053.74.

32(B) Is not an employee of the federal government or of this state
33or of any political subdivision of this state.

34(2) (A) “Qualified wages” means “wages,” as defined in
35subsection (b) of Section 3306 of the Internal Revenue Code,
36attributable to services performed for an employer with respect to
37whom the taxpayer is a qualified employee in an amount that does
38not exceed one and one-half times the dollar limitation specified
39in that subsection.

P68   1(B) “Qualified wages” does not include any compensation
2received from the federal government or this state or any political
3subdivision of this state.

4(C) “Qualified wages” does not include any wages received on
5or after the date the enterprise zone designation expires, is no
6longer binding, or becomes inoperative.

7(3) “Enterprise zone” means any area designated as an enterprise
8zone pursuant to Chapter 12.8 (commencing with Section 7070)
9of Division 7 of Title 1 of the Government Code.

10(c) For each dollar of income received by the taxpayer in excess
11of qualified wages, as defined in this section, the credit shall be
12reduced by nine cents ($0.09).

13(d) The amount of the credit allowed by this section in any
14taxable year shall not exceed the amount of tax that would be
15imposed on the taxpayer’s income attributable to employment
16within the enterprise zone as if that income represented all of the
17income of the taxpayer subject to tax under this part.

begin insert

18(e) This section shall cease to be operative for taxable years
19beginning on or after January 1, 2014, and shall be repealed on
20December 1, 2014.

end insert
21begin insert

begin insertSEC. 15.end insert  

end insert

begin insertSection 17053.80 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert,
22as added by Section 3 of Chapter 10 of the 3rd Extraordinary
23Session of the Statutes of 2009, is repealed.end insert

begin delete
24

17053.80.  

(a) For each taxable year beginning on or after
25January 1, 2009, there shall be allowed as a credit against the “net
26tax,” as defined in Section 17039, three thousand dollars ($3,000)
27for each net increase in qualified full-time employees, as specified
28in subdivision (c), hired during the taxable year by a qualified
29employer.

30(b) For purposes of this section:

31(1) “Acquired” includes any gift, inheritance, transfer incident
32to divorce, or any other transfer, whether or not for consideration.

33(2) “Qualified full-time employee” means:

34(A) A qualified employee who was paid qualified wages by the
35qualified employer for services of not less than an average of 35
36hours per week.

37(B) A qualified employee who was a salaried employee and
38was paid compensation during the taxable year for full-time
39employment, within the meaning of Section 515 of the Labor Code,
40by the qualified employer.

P69   1(3) A “qualified employee” shall not include any of the
2following:

3(A) An employee certified as a qualified employee in an
4enterprise zone designated in accordance with Chapter 12.8
5 (commencing with Section 7070) of Division 7 of Title 1 of the
6Government Code.

7(B) An employee certified as a qualified disadvantaged
8individual in a manufacturing enhancement area designated in
9accordance with Section 7073.8 of the Government Code.

10(C) An employee certified as a qualified employee in a targeted
11tax area designated in accordance with Section 7097 of the
12Government Code.

13(D) An employee certified as a qualified disadvantaged
14individual or a qualified displaced employee in a local agency
15military base recovery area (LAMBRA) designated in accordance
16with Chapter 12.97 (commencing with Section 7105) of Division
177 of Title 1 of the Government Code.

18(E) An employee whose wages are included in calculating any
19other credit allowed under this part.

20(4) “Qualified employer” means a taxpayer that, as of the last
21day of the preceding taxable year, employed a total of 20 or fewer
22employees.

23(5) “Qualified wages” means wages subject to Division 6
24(commencing with Section 13000) of the Unemployment Insurance
25Code.

26(6) “Annual full-time equivalent” means either of the following:

27(A) In the case of a full-time employee paid hourly qualified
28wages, “annual full-time equivalent” means the total number of
29hours worked for the taxpayer by the employee (not to exceed
302,000 hours per employee) divided by 2,000.

31(B) In the case of a salaried full-time employee, “annual
32full-time equivalent” means the total number of weeks worked for
33the taxpayer by the employee divided by 52.

34(c) The net increase in qualified full-time employees of a
35qualified employer shall be determined as provided by this
36subdivision:

37(1) (A) The net increase in qualified full-time employees shall
38be determined on an annual full-time equivalent basis by
39subtracting from the amount determined in subparagraph (C) the
40amount determined in subparagraph (B).

P70   1(B) The total number of qualified full-time employees employed
2in the preceding taxable year by the taxpayer and by any trade or
3business acquired by the taxpayer during the current taxable year.

4(C) The total number of full-time employees employed in the
5current taxable year by the taxpayer and by any trade or business
6acquired during the current taxable year.

7(2) For taxpayers who first commence doing business in this
8state during the taxable year, the number of full-time employees
9for the immediately preceding prior taxable year shall be zero.

10(d) In the case where the credit allowed by this section exceeds
11the “net tax,” the excess may be carried over to reduce the “net
12tax” in the following year, and succeeding seven years if necessary,
13until the credit is exhausted.

14(e) Any deduction otherwise allowed under this part for qualified
15wages shall not be reduced by the amount of the credit allowed
16under this section.

17(f) For purposes of this section:

18(1) All employees of the trades or businesses that are treated as
19related under either Section 267, 318, or 707 of the Internal
20Revenue Code shall be treated as employed by a single taxpayer.

21(2) In determining whether the taxpayer has first commenced
22doing business in this state during the taxable year, the provisions
23of subdivision (f) of Section 17276, without application of
24paragraph (7) of that subdivision, shall apply.

25(g) (1) (A) Credit under this section and Section 23623 shall
26be allowed only for credits claimed on timely filed original returns
27received by the Franchise Tax Board on or before the cut-off date
28established by the Franchise Tax Board.

29(B) For purposes of this paragraph, the cut-off date shall be the
30last day of the calendar quarter within which the Franchise Tax
31Board estimates it will have received timely filed original returns
32claiming credits under this section and Section 23623 that
33cumulatively total four hundred million dollars ($400,000,000)
34for all taxable years.

35(2) The date a return is received shall be determined by the
36Franchise Tax Board.

37(3) (A) The determinations of the Franchise Tax Board with
38respect to the cut-off date, the date a return is received, and whether
39a return has been timely filed for purposes of this subdivision may
40not be reviewed in any administrative or judicial proceeding

P71   1(B) Any disallowance of a credit claimed due to a determination
2under this subdivision, including the application of the limitation
3specified in paragraph (1), shall be treated as a mathematical error
4appearing on the return. Any amount of tax resulting from such
5disallowance may be assessed by the Franchise Tax Board in the
6same manner as provided by Section 19051.

7(4) The Franchise Tax Board shall periodically provide notice
8on its Web site with respect to the amount of credit under this
9section and Section 23623 claimed on timely filed original returns
10received by the Franchise Tax Board.

11(h) (1) The Franchise Tax Board may prescribe rules, guidelines
12or procedures necessary or appropriate to carry out the purposes
13of this section, including any guidelines regarding the limitation
14on total credits allowable under this section and Section 23623
15and guidelines necessary to avoid the application of paragraph (2)
16of subdivision (f) through split-ups, shell corporations, partnerships,
17tiered ownership structures, or otherwise.

18(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
19Division 3 of Title 2 of the Government Code does not apply to
20any standard, criterion, procedure, determination, rule, notice, or
21guideline established or issued by the Franchise Tax Board
22pursuant to this section.

23(i) This section shall remain in effect only until December 1 of
24the calendar year after the year of the cut-off date, and as of that
25December 1 is repealed.

end delete
26begin insert

begin insertSEC. 16.end insert  

end insert

begin insertSection 17053.80 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert,
27as added by Section 3 of Chapter 10 of the 3rd Extraordinary
28Session of the Statutes of 2009, is amended to read:end insert

29

17053.80.  

(a) For each taxable year beginning on or after
30January 1, 2009, there shall be allowed as a credit against the “net
31tax,” as defined in Section 17039, three thousand dollars ($3,000)
32for each net increase in qualified full-time employees, as specified
33in subdivision (c), hired during the taxable year by a qualified
34employer.

35(b) For purposes of this section:

36(1) “Acquired” includes any gift, inheritance, transfer incident
37to divorce, or any other transfer, whether or not for consideration.

38(2) “Qualified full-time employee” means:

P72   1(A) A qualified employee who was paid qualified wages by the
2qualified employer for services of not less than an average of 35
3hours per week.

4(B) A qualified employee who was a salaried employee and
5was paid compensation during the taxable year for full-time
6employment, within the meaning of Section 515 of the Labor Code,
7by the qualified employer.

8(3) A “qualified employee” shall not include any of the
9following:

10(A) An employee certified as a qualified employee in an
11enterprise zone designated in accordance with Chapter 12.8
12(commencing with Section 7070) of Division 7 of Title 1 of the
13Government Code.

14(B) An employee certified as a qualified disadvantaged
15individual in a manufacturing enhancement area designated in
16accordance with Section 7073.8 of the Government Code.

17(C) An employee certified as a qualified employee in a targeted
18tax area designated in accordance with Section 7097 of the
19Government Code.

20(D) An employee certified as a qualified disadvantaged
21individual or a qualified displaced employee in a local agency
22military base recovery area (LAMBRA) designated in accordance
23with Chapter 12.97 (commencing with Section 7105) of Division
247 of Title 1 of the Government Code.

25(E) An employee whose wages are included in calculating any
26other credit allowed under this part.

27(4) “Qualified employer” means a taxpayer that, as of the last
28day of the preceding taxable year, employed a total of 20 or fewer
29employees.

30(5) “Qualified wages” means wages subject to Division 6
31(commencing with Section 13000) of the Unemployment Insurance
32Code.

33(6) “Annual full-time equivalent” means either of the following:

34(A) In the case of a full-time employee paid hourly qualified
35wages, “annual full-time equivalent” means the total number of
36hours worked for the taxpayer by the employee (not to exceed
372,000 hours per employee) divided by 2,000.

38(B) In the case of a salaried full-time employee, “annual
39full-time equivalent” means the total number of weeks worked for
40the taxpayer by the employee divided by 52.

P73   1(c) The net increase in qualified full-time employees of a
2qualified employer shall be determined as provided by this
3subdivision:

4(1) (A) The net increase in qualified full-time employees shall
5be determined on an annual full-time equivalent basis by
6subtracting from the amount determined in subparagraph (C) the
7amount determined in subparagraph (B).

8(B) The total number of qualified full-time employees employed
9in the preceding taxable year by the taxpayer and by any trade or
10business acquired by the taxpayer during the current taxable year.

11(C) The total number of full-time employees employed in the
12current taxable year by the taxpayer and by any trade or business
13acquired during the current taxable year.

14(2) For taxpayers who first commence doing business in this
15state during the taxable year, the number of full-time employees
16for the immediately preceding prior taxable year shall be zero.

17(d) In the case where the credit allowed by this section exceeds
18the “net tax,” the excess may be carried over to reduce the “net
19tax” in the following year, and succeeding seven years if necessary,
20until the credit is exhausted.

21(e) Any deduction otherwise allowed under this part for qualified
22wages shall not be reduced by the amount of the credit allowed
23under this section.

24(f) For purposes of this section:

25(1) All employees of the trades or businesses that are treated as
26related under either Section 267, 318, or 707 of the Internal
27Revenue Code shall be treated as employed by a single taxpayer.

28(2) In determining whether the taxpayer has first commenced
29 doing business in this state during the taxable year, the provisions
30of subdivision (f) of Section 17276, without application of
31paragraph (7) of that subdivision, shall apply.

32(g) (1) (A) Credit under this section and Section 23623 shall
33be allowed only for credits claimed on timely filed original returns
34received by the Franchise Tax Board on or before the cut-off date
35established by the Franchise Tax Board.

36(B) For purposes of this paragraph, the cut-off date shall be the
37last day of the calendar quarter within which the Franchise Tax
38Board estimates it will have received timely filed original returns
39claiming credits under this section and Section 23623 that
P74   1cumulatively total four hundred million dollars ($400,000,000)
2for all taxable years.

3(2) The date a return is received shall be determined by the
4Franchise Tax Board.

5(3) (A) The determinations of the Franchise Tax Board with
6respect to the cut-off date, the date a return is received, and whether
7a return has been timely filed for purposes of this subdivision may
8not be reviewed in any administrative or judicial proceeding

9(B) Any disallowance of a credit claimed due to a determination
10under this subdivision, including the application of the limitation
11specified in paragraph (1), shall be treated as a mathematical error
12appearing on the return. Any amount of tax resulting from such
13disallowance may be assessed by the Franchise Tax Board in the
14same manner as provided by Section 19051.

15(4) The Franchise Tax Board shall periodically provide notice
16on its Web site with respect to the amount of credit under this
17section and Section 23623 claimed on timely filed original returns
18received by the Franchise Tax Board.

19(h) (1) The Franchise Tax Board may prescribe rules, guidelines
20or procedures necessary or appropriate to carry out the purposes
21of this section, including any guidelines regarding the limitation
22on total credits allowable under this section and Section 23623
23and guidelines necessary to avoid the application of paragraph (2)
24of subdivision (f) through split-ups, shell corporations, partnerships,
25tiered ownership structures, or otherwise.

26(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
27Division 3 of Title 2 of the Government Code does not apply to
28any standard, criterion, procedure, determination, rule, notice, or
29guideline established or issued by the Franchise Tax Board
30pursuant to this section.

31begin insert(i)end insertbegin insertend insertbegin insertThis section shall cease to be operative for taxable years
32beginning on or after January 1, 2014, and shall be repealed on
33December 1, 2014.end insert

34begin insert

begin insertSEC. 17.end insert  

end insert

begin insertSection 17059.2 is added to the end insertbegin insertRevenue and Taxation
35Code
end insert
begin insert, to read:end insert

begin insert
36

begin insert17059.2.end insert  

(a) (1) For each taxable year beginning on and after
37January 1, 2014, and before January 1, 2025, there shall be
38allowed as a credit against the “net tax,” as defined in Section
3917039, an amount as determined by the committee pursuant to
40paragraph (2) and approved pursuant to Section 18410.2.

P75   1(2) The amount of credit allocated to a taxpayer for a taxable
2year pursuant to this section shall be as set forth in a written
3agreement between GO-Biz and the taxpayer and shall be based
4on, but not limited to, the following factors:

5(A) The number of jobs the taxpayer will create or retain in this
6state.

7(B) The compensation paid or proposed to be paid by the
8taxpayer to its employees, including wages and fringe benefits.

9(C) The amount of investment in this state by the taxpayer.

10(D) The extent of unemployment in the area in which the
11taxpayer’s project or business is proposed or located.

12(E) The incentives available to the taxpayer in this state,
13including incentives from the state, local government, and other
14entities.

15(F) The incentives available to the taxpayer in other states.

16(G) The duration of the proposed project and the duration the
17taxpayer commits to remain in this state.

18(H) The overall economic impact in this state of the taxpayer’s
19project or business.

20(I) The strategic importance of the taxpayer’s project or business
21to the state, region, or locality.

22(J) The opportunity for future growth and expansion in this state
23by the taxpayer’s business.

24(K) The extent to which the anticipated benefit to the state
25exceeds the projected benefit to the taxpayer from the tax credit.

26(3) The written agreement entered into pursuant to paragraph
27(2) shall include:

28(A) Terms and conditions that include a minimum compensation
29level and a minimum job retention period.

30(B) Provisions indicating whether the credit is to be allocated
31in full upon approval or in increments based on mutually agreed
32upon milestones when satisfactorily met by the taxpayer.

33(C) Provisions that allow the committee to recapture the credit,
34in whole or in part, if the taxpayer fails to fulfill the terms and
35conditions of the written agreement.

36(b) For purposes of this section:

37(1) “Committee” means the California Competes Tax Credit
38Committee established pursuant to Section 18410.2.

39(2) “GO-Biz” means the Governor’s Office of Business and
40 Economic Development.

P76   1(c) For purposes of this section, GO-Biz shall do the following:

2(1) Give priority to a taxpayer whose project or business is
3located or proposed to be located in an area of high unemployment
4or poverty.

5(2) Negotiate with a taxpayer the terms and conditions of
6proposed written agreements that provide the credit allowed
7pursuant to this section to a taxpayer.

8(3) Provide the negotiated written agreement to the committee
9for its approval pursuant to Section 18410.2.

10(4) Inform the Franchise Tax Board of the terms and conditions
11of the written agreement upon approval of the written agreement
12by the committee.

13(5) Inform the Franchise Tax Board of any recapture, in whole
14or in part, of a previously allocated credit upon approval of the
15recapture by the committee.

16(6) Post on its Internet Web site all of the following:

17(A) The name of each taxpayer allocated a credit pursuant to
18this section.

19(B) The estimated amount of the investment by each taxpayer.

20(C) The estimated number of jobs created or retained.

21(D) The amount of the credit allocated to the taxpayer.

22(E) The amount of the credit recaptured from the taxpayer, if
23applicable.

24(d) For purposes of this section, the Franchise Tax Board shall
25do all of the following:

26(1) (A) Except as provided in subparagraph (B), review the
27books and records of all taxpayers allocated a credit pursuant to
28this section to ensure compliance with the terms and conditions
29of the written agreement between the taxpayer and GO-Biz.

30(B) In the case of a taxpayer that is a “small business,” as
31defined in Section 17053.73, review the books and records of the
32taxpayer allocated a credit pursuant to this section to ensure
33compliance with the terms and conditions of the written agreement
34between the taxpayer and GO-Biz when, in the sole discretion of
35the Franchise Tax Board, a review of those books and records is
36appropriate or necessary in the best interests of the state.

37(2) Notwithstanding Section 19542:

38(A) Notify GO-Biz of a possible breach of the written agreement
39by a taxpayer and provide detailed information regarding the basis
40for that determination.

P77   1(B) Provide information to GO-Biz with respect to whether a
2taxpayer is a “small business,” as defined in Section 17053.73.

3(e) In the case where the credit allowed under this section
4exceeds the “net tax,” as defined in Section 17059, for a taxable
5year, the excess credit may be carried over to reduce the “net tax”
6in the following taxable year, and succeeding five taxable years,
7if necessary, until the credit has been exhausted.

8(f) Any recapture, in whole or in part, of a credit approved by
9the committee pursuant to Section 18410.2 shall be treated as a
10mathematical error appearing on the return. Any amount of tax
11resulting from that recapture shall be assessed by the Franchise
12Tax Board in the same manner as provided by Section 19051. The
13amount of tax resulting from the recapture shall be added to the
14tax otherwise due by the taxpayer for the taxable year in which
15the committee’s recapture determination occurred.

16(g) (1) The aggregate amount of credit that may be allocated
17in any fiscal year pursuant to this section and Section 23689 shall
18be an amount equal to the sum of subparagraphs (A), (B), (C), and
19(D):

20(A) Thirty million dollars ($30,000,000) for the 2013-14 fiscal
21year, one hundred fifty million dollars ($150,000,000) for the
222014-15 fiscal year, and two hundred million dollars
23($200,000,000) for each fiscal year from 2015-16 to 2018-19,
24inclusive.

25(B) The unallocated credit amount, if any, from the preceding
26fiscal year.

27(C) The amount of any previously allocated credits that have
28been recaptured.

29(D) The amount by which the exemptions claimed in the prior
30year pursuant to Section 6377.1 plus the amounts claimed in the
31prior year pursuant to this section and Sections 17053.73, 23626,
32and 23689 are less than seven hundred fifty million dollars
33($750,000,000).

34(2) Each fiscal year, 25 percent of the aggregate amount of the
35credit that may be allocated pursuant to this section and Section
3623689 shall be reserved for small business, as defined in Section
3717053.73 or 23626.

38(3) Each fiscal year, no more than 20 percent of the aggregate
39amount of the credit that may be allocated pursuant to this section
40shall be allocated to any one taxpayer.

P78   1(h) GO-Biz may prescribe rules and regulations as necessary
2to carry out the purposes of this section. Any rule or regulation
3prescribed pursuant to this section may be by adoption of an
4emergency regulation in accordance with Chapter 3.5
5(commencing with Section 11340) of Part 1 of Division 3 of Title
62 of the Government Code.

7(i) (1) A written agreement between GO-Biz and a taxpayer
8with respect to the credit authorized by this section shall not
9restrict, broaden, or otherwise alter the ability to prohibit the
10taxpayer to assign that credit or any portion thereof in accordance
11with Section 23663.

12(2) A written agreement between GO-Biz and a taxpayer with
13respect to the credit authorized by this section shall comply with
14existing law on the date the agreement is executed.

15(j) This section is repealed on December 1, 2025.

end insert
16begin insert

begin insertSEC. 18.end insert  

end insert

begin insertSection 17235 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
17amended to read:end insert

18

17235.  

(a) There shall be allowed as a deduction the amount
19of net interest received by the taxpayerbegin insert before January 1, 2014,end insert
20 in payment on indebtedness of a person or entity engaged in the
21conduct of a trade or business located in an enterprise zone.

22(b) begin deleteNo end deletebegin insertA end insertdeduction shallbegin insert notend insert be allowed under this section unless
23at the time the indebtedness is incurred each of the following
24requirements are met:

25(1) The trade or business is located solely within an enterprise
26zone.

27(2) The indebtedness is incurred solely in connection with
28activity within the enterprise zone.

29(3) The taxpayer has no equity or other ownership interest in
30the debtor.

31(c) “Enterprise zone” means an area designated as an enterprise
32zone pursuant to Chapter 12.8 (commencing with Section 7070)
33of Division 7 of Title 1 of the Government Code.

begin insert

34(d) This section shall cease to be operative for taxable years
35beginning on or after January 1, 2014, and shall be repealed on
36December 1 2014.

end insert
37begin insert

begin insertSEC. 19.end insert  

end insert

begin insertSection 17267.2 of the end insertbegin insertRevenue and Taxation Codeend insert
38begin insert is amended to read:end insert

39

17267.2.  

(a) A taxpayer may elect to treat 40 percent of the
40cost of any Section 17267.2 property as an expense which is not
P79   1chargeable to a capital account. Any cost so treated shall be allowed
2as a deduction for the taxable year in which the taxpayer places
3the Section 17267.2 property in service.

4(b) In the case of a husband and wife filing separate returns for
5a taxable year, the applicable amount under subdivision (a) shall
6be equal to 50 percent of the percentage specified in subdivision
7(a).

8(c) (1) An election under this section for any taxable year shall
9do both of the following:

10(A) Specify the items of Section 17267.2 property to which the
11election applies and the percentage of the cost of each of those
12items that are to be taken into account under subdivision (a).

13(B) Be made on the taxpayer’s original return of the tax imposed
14by this part for the taxable year.

15(2) Any election made under this section, and any specification
16contained in that election, may not be revoked except with the
17consent of the Franchise Tax Board.

18(d) (1) For purposes of this section, “Section 17267.2 property”
19means any recovery property that is:

20(A) Section 1245 property (as defined in Section 1245(a) (3) of
21the Internal Revenue Code).

22(B) Purchased and placed in service by the taxpayer for
23exclusive use in a trade or business conducted within an enterprise
24zone designated pursuant to Chapter 12.8 (commencing with
25Section 7070) of Division 7 of Title 1 of the Government Code.

26(C) Purchased and placed in service before the date the
27enterprise zone designation expires, is no longer binding, or
28becomes inoperative.

29(2) For purposes of paragraph (1), “purchase” means any
30acquisition of property, but only if both of the following apply:

31(A) The property is not acquired from a person whose
32relationship to the person acquiring it would result in the
33disallowance of losses under Section 267 or Section 707 (b) of the
34Internal Revenue Code. However, in applying Section 267(b) and
35267(c) for purposes of this section, Section 267(c) (4) shall be
36treated as providing that the family of an individual shall include
37only the individual’s spouse, ancestors, and lineal descendants.

38(B) The basis of the property in the hands of the person acquiring
39it is not determined in whole or in part by reference to the adjusted
P80   1basis of that property in the hands of the person from whom it is
2acquired.

3(3) For purposes of this section, the cost of property does not
4include that portion of the basis of the property that is determined
5by reference to the basis of other property held at any time by the
6person acquiring the property.

7(4) This section shall not apply to estates and trusts.

8(5) This section shall not apply to any property for which the
9taxpayer may not make an election for the taxable year under
10Section 179 of the Internal Revenue Code because of the
11application of the provisions of Section 179(d) of the Internal
12Revenue Code.

13(6) In the case of a partnership, the percentage limitation
14specified in subdivision (a) shall apply at the partnership level and
15at the partner level.

16(e) For purposes of this section, “taxpayer” means a person or
17entity who conducts a trade or business within an enterprise zone
18designated pursuant to Chapter 12.8 (commencing with Section
197070) of Division 7 of Title 1 of the Government Code.

20(f) Any taxpayer who elects to be subject to this section shall
21not be entitled to claim for the same property, the deduction under
22Section 179 of the Internal Revenue Code, relating to an election
23to expense certain depreciable business assets. However, the
24taxpayer may claim depreciation by any method permitted by
25Section 168 of the Internal Revenue Code, commencing with the
26taxable year following the taxable year in which the Section
2717267.2 property is placed in service.

28(g) The aggregate cost of all Section 17267.2 property that may
29be taken into account under subdivision (a) for any taxable year
30shall not exceed the following applicable amount for the taxable
31year of the designation of the relevant enterprise zone and taxable
32years thereafter:

 

 

The applicable

 

amount is:

Taxable year of designation   

$100,000

1st taxable year thereafter   

  100,000

2nd taxable year thereafter   

  75,000

3rd taxable year thereafter   

  75,000

Each taxable year thereafter   

  50,000

 

P81   1(h) Any amounts deducted under subdivision (a) with respect
2to property subject to this section that ceases to be used in the
3taxpayer’s trade or business within an enterprise zone at any time
4before the close of the second taxable year after the property is
5placed in service shall be included in income in the taxable year
6in which the property ceases to be so used.

begin insert

7(i) This section shall cease to be operative for taxable years
8beginning on or after January 1, 2014, and shall be repealed on
9December 1, 2014.

end insert
10begin insert

begin insertSEC. 20.end insert  

end insert

begin insertSection 17267.6 of the end insertbegin insertRevenue and Taxation Codeend insert
11begin insert is amended to read:end insert

12

17267.6.  

(a) For each taxable year beginning on or after
13January 1, 1998, a qualified taxpayer may elect to treat 40 percent
14of the cost of any Section 17267.6 property as an expense that is
15not chargeable to a capital account. Any cost so treated shall be
16allowed as a deduction for the taxable year in which the qualified
17taxpayer places the Section 17267.6 property in service.

18(b) In the case of a husband and wife filing separate returns for
19a taxable year, the applicable amount under subdivision (a) shall
20be equal to 50 percent of the percentage specified in subdivision
21(a).

22(c) (1) An election under this section for any taxable year shall
23 do both of the following:

24(A) Specify the items of Section 17267.6 property to which the
25election applies and the percentage of the cost of each of those
26items that are to be taken into account under subdivision (a).

27(B) Be made on the qualified taxpayer’s original return of the
28tax imposed by this part for the taxable year.

29(2) Any election made under this section, and any specification
30contained in that election, may not be revoked except with the
31consent of the Franchise Tax Board.

32(d) (1) For purposes of this section, “Section 17267.6 property”
33means any recovery property that is:

34(A) Section 1245 property (as defined in Section 1245(a)(3) of
35the Internal Revenue Code).

36(B) Purchased and placed in service by the qualified taxpayer
37for exclusive use in a trade or business conducted within a targeted
38tax area designated pursuant to Chapter 12.93 (commencing with
39Section 7097) of Division 7 of Title 1 of the Government Code.

P82   1(C) Purchased and placed in service before the date the targeted
2tax area designation expires, is revoked, is no longer binding, or
3becomes inoperative.

4(2) For purposes of paragraph (1), “purchase” means any
5acquisition of property, but only if both of the following apply:

6(A) The property is not acquired from a person whose
7relationship to the person acquiring it would result in the
8disallowance of losses under Section 267 or Section 707(b) of the
9Internal Revenue Code. However, in applying Sections 267(b) and
10267(c) for purposes of this section, Section 267(c)(4) shall be
11treated as providing that the family of an individual shall include
12only the individual’s spouse, ancestors, and lineal descendants.

13(B) The basis of the property in the hands of the person acquiring
14it is not determined in whole or in part by reference to the adjusted
15basis of that property in the hands of the person from whom it is
16acquired.

17(3) For purposes of this section, the cost of property does not
18include that portion of the basis of the property that is determined
19by reference to the basis of other property held at any time by the
20person acquiring the property.

21(4) This section shall not apply to estates and trusts.

22(5) This section shall not apply to any property for which the
23qualified taxpayer may not make an election for the taxable year
24under Section 179 of the Internal Revenue Code because of the
25application of the provisions of Section 179(d) of the Internal
26Revenue Code.

27(6) In the case of a partnership, the percentage limitation
28specified in subdivision (a) shall apply at the partnership level and
29at the partner level.

30(e) (1) For purposes of this section, “qualified taxpayer” means
31a person or entity that meets both of the following:

32(A) Is engaged in a trade or business within a targeted tax area
33designated pursuant to Chapter 12.93 (commencing with Section
347097) of Division 7 of Title 1 of the Government Code.

35(B) Is engaged in those lines of business described in Codes
36 2000 to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
37inclusive; 4500 to 4599, inclusive, and 4700 to 5199, inclusive,
38of the Standard Industrial Classification (SIC) Manual published
39by the United State Office of Management and Budget, 1987
40edition.

P83   1(2) In the case of any pass-through entity, the determination of
2whether a taxpayer is a qualified taxpayer under this section shall
3be made at the entity level and any deduction under this section
4or Section 24356.6 shall be allowed to the pass-through entity and
5passed through to the partners or shareholders in accordance with
6applicable provisions of this part of Part 11 (commencing with
7Section 23001). For purposes of this subparagraph, the term
8“pass-through entity” means any partnership or S corporation.

9(f) Any qualified taxpayer who elects to be subject to this section
10shall not be entitled to claim for the same property, the deduction
11under Section 179 of the Internal Revenue Code, relating to an
12election to expense certain depreciable business assets. However,
13the qualified taxpayer may claim depreciation by any method
14permitted by Section 168 of the Internal Revenue Code,
15commencing with the taxable year following the taxable year in
16which the Section 17267.6 property is placed in service.

17(g) The aggregate cost of all Section 17267.6 property that may
18be taken into account under subdivision (a) for any taxable year
19shall not exceed the following applicable amount for the taxable
20year of the designation of the relevant targeted tax area and taxable
21years thereafter:

 

 

The applicable
amount is:

Taxable year of designation   

$100,000

1st taxable year thereafter   

 100,000

2nd taxable year thereafter   

  75,000

3rd taxable year thereafter   

  75,000

Each taxable year thereafter   

  50,000

 

31(h) Any amounts deducted under subdivision (a) with respect
32to Section 17267.6 property that ceases to be used in the qualified
33taxpayer’s trade or business within a targeted tax area at any time
34before the close of the second taxable year after the property is
35placed in service shall be included in income in the taxable year
36in which the property ceases to be so used.

begin insert

37(i) This section shall cease to be operative for taxable years
38beginning on or after January 1, 2014, and shall be repealed on
39December 1, 2014.

end insert
P84   1begin insert

begin insertSEC. 21.end insert  

end insert

begin insertSection 17268 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
2amended to read:end insert

3

17268.  

(a) For each taxable year beginning on or after January
41, 1995, a taxpayer may elect to treat 40 percent of the cost of any
5Section 17268 property as an expense that is not chargeable to the
6capital account. Any cost so treated shall be allowed as a deduction
7for the taxable year in which the taxpayer places the Section 17268
8property in service.

9(b) In the case of a husband or wife filing separate returns for
10a taxable year in which a spouse is entitled to the deduction under
11subdivision (a), the applicable amount shall be equal to 50 percent
12of the amount otherwise determined under subdivision (a).

13(c) (1) An election under this section for any taxable year shall
14meet both of the following requirements:

15(A) Specify the items of Section 17268 property to which the
16election applies and the portion of the cost of each of those items
17that is to be taken into account under subdivision (a).

18(B) Be made on the taxpayer’s return of the tax imposed by this
19part for the taxable year.

20(2) Any election made under this section, and any specification
21contained in that election, may not be revoked except with the
22consent of the Franchise Tax Board.

23(d) (1) For purposes of this section, “Section 17268 property”
24means any recovery property that is each of the following:

25(A) Section 1245 property (as defined in Section 1245(a)(3) of
26the Internal Revenue Code).

27(B) Purchased by the taxpayer for exclusive use in a trade or
28business conducted within a LAMBRA.

29(C) Purchased before the date the LAMBRA designation expires,
30is no longer binding, or becomes inoperative.

31(2) For purposes of paragraph (1), “purchase” means any
32acquisition of property, but only if both of the following apply:

33(A) The property is not acquired from a person whose
34relationship to the person acquiring it would result in the
35disallowance of losses under Section 267 or 707(b) of the Internal
36Revenue Code (but, in applying Section 267(b) and Section 267(c)
37of the Internal Revenue Code for purposes of this section, Section
38267(c)(4) of the Internal Revenue Code shall be treated as
39providing that the family of an individual shall include only his or
40her spouse, ancestors, and lineal descendants).

P85   1(B) The basis of the property in the hands of the person acquiring
2it is not determined by either of the following:

3(i) In whole or in part by reference to the adjusted basis of the
4property in the hands of the person from whom acquired.

5(ii) Under Section 1014 of the Internal Revenue Code, relating
6to basis of property acquired from a decedent.

7(3) For purposes of this section, the cost of property does not
8include that portion of the basis of the property that is determined
9by reference to the basis of other property held at any time by the
10person acquiring the property.

11(4) This section shall not apply to estates and trusts.

12(5) This section shall not apply to any property for which the
13taxpayer may not make an election for the taxable year under
14Section 179 of the Internal Revenue Code because of the provisions
15of Section 179(d) of the Internal Revenue Code.

16(6) In the case of a partnership, the dollar limitation in
17subdivision (f) shall apply at the partnership level and at the partner
18level.

19(7) This section shall not apply to any property described in
20Section 168(f) of the Internal Revenue Code, relating to property
21to which Section 168 of the Internal Revenue Code does not apply.

22(e) For purposes of this section:

23(1) “LAMBRA” means a local agency military base recovery
24area designated in accordance with the provisions of Section 7114
25of the Government Code.

26(2) “Taxpayer” means a taxpayer that conducts a trade or
27business within a LAMBRA and, for the first two taxable years,
28has a net increase in jobs (defined as 2,000 paid hours per employee
29per year) of one or more employees in the LAMBRA.

30(A) The net increase in the number of jobs shall be determined
31by subtracting the total number of full-time employees (defined
32as 2,000 paid hours per employee per year) the taxpayer employed
33in this state in the taxable year prior to commencing business
34operations in the LAMBRA from the total number of full-time
35employees the taxpayer employed in this state during the second
36taxable year after commencing business operations in the
37LAMBRA. For taxpayers who commence doing business in this
38state with their LAMBRA business operation, the number of
39employees for the taxable year prior to commencing business
40operations in the LAMBRA shall be zero. If the taxpayer has a net
P86   1increase in jobs in the state, the credit shall be allowed only if one
2or more full-time employees is employed within the LAMBRA.

3(B) The total number of employees employed in the LAMBRA
4shall equal the sum of both of the following:

5(i) The total number of hours worked in the LAMBRA for the
6taxpayer by employees (not to exceed 2,000 hours per employee)
7who are paid an hourly wage divided by 2,000.

8(ii) The total number of months worked in the LAMBRA for
9the taxpayer by employees who are salaried employees divided
10by 12.

11(C) In the case of a taxpayer who first commences doing
12business in the LAMBRA during the taxable year, for purposes of
13clauses (i) and (ii), respectively, of subparagraph (B) the divisors
14“2,000” and “12” shall be multiplied by a fraction, the numerator
15of which is the number of months of the taxable year that the
16taxpayer was doing business in the LAMBRA and the denominator
17of which is 12.

18(f) The aggregate cost of all Section 17268 property that may
19be taken into account under subdivision (a) for any taxable year
20shall not exceed the following applicable amounts for the taxable
21year of the designation of the relevant LAMBRA and taxable years
22thereafter:

 

   

The applicable
amount is:

Taxable year of designation   

$100,000

1st taxable year thereafter   

 100,000

2nd taxable year thereafter   

 75,000

3rd taxable year thereafter   

 75,000

Each taxable year thereafter   

 50,000

 

32(g) This section shall apply only to property that is used
33exclusively in a trade or business conducted within a LAMBRA.

34(h) (1) Any amounts deducted under subdivision (a) with respect
35to property that ceases to be used in the trade or business within
36a LAMBRA at any time before the close of the second taxable
37year after the property was placed in service shall be included in
38income for that year.

39(2) At the close of the second taxable year, if the taxpayer has
40not increased the number of its employees as determined by
P87   1paragraph (2) of subdivision (e), then the amount of the deduction
2previously claimed shall be added to the taxpayer’s taxable income
3for the taxpayer’s second taxable year.

4(i) Any taxpayer who elects to be subject to this section shall
5not be entitled to claim for the same property the deduction under
6Section 179 of the Internal Revenue Code, relating to an election
7to expense certain depreciable business assets.

begin insert

8(j) This section shall cease to be operative for taxable years
9beginning on or after January 1, 2014, and shall be repealed on
10December 1, 2014.

end insert
11begin insert

begin insertSEC. 22.end insert  

end insert

begin insertSection 17276.2 of the end insertbegin insertRevenue and Taxation Codeend insert
12begin insert is amended to read:end insert

13

17276.2.  

(a) The term “qualified taxpayer” as used in Section
1417276.1 includes a person or entity engaged in the conduct of a
15trade or business within an enterprise zone designated pursuant to
16Chapter 12.8 (commencing with Section 7070) of Division 7 of
17Title 1 of the Government Code. For purposes of this subdivision,
18all of the following shall apply:

19(1) A net operating loss shall not be a net operating loss
20carryback to any taxable year and a net operating loss for any
21taxable year beginning on or after the date that the area in which
22the taxpayer conducts a trade or business is designated as an
23enterprise zone shall be a net operating loss carryover to each of
24the 15 taxable years following the taxable year of loss.

25(2) For purposes of this subdivision:

26(A) “Net operating loss” means the loss determined under
27Section 172 of the Internal Revenue Code, as modified by Section
2817276.1, attributable to the taxpayer’s business activities within
29the enterprise zone (as defined in Chapter 12.8 (commencing with
30Section 7070) of Division 7 of Title 1 of the Government Code)
31prior to the enterprise zone expiration date. That attributable loss
32shall be determined in accordance with Chapter 17 (commencing
33with Section 25101) of Part 11, modified for purposes of this
34subdivision, as follows:

35(i) Loss shall be apportioned to the enterprise zone by
36multiplying total loss from the business by a fraction, the numerator
37of which is the property factor plus the payroll factor, and the
38denominator of which is two.

39(ii) “The enterprise zone” shall be substituted for “this state.”

P88   1(B) A net operating loss carryover shall be a deduction only
2with respect to the taxpayer’s business income attributable to the
3enterprise zone as defined in Chapter 12.8 (commencing with
4Section 7070) of Division 7 of Title 1 of the Government Code.

5(C) Attributable income is that portion of the taxpayer’s
6California source business income that is apportioned to the
7enterprise zone. For that purpose, the taxpayer’s business income
8attributable to sources in this state first shall be determined in
9accordance with Chapter 17 (commencing with Section 25101) of
10Part 11. That business income shall be further apportioned to the
11enterprise zone in accordance with Article 2 (commencing with
12Section 25120) of Chapter 17 of Part 11, modified for purposes
13of this subdivision as follows:

14(i) Business income shall be apportioned to the enterprise zone
15by multiplying the total California business income of the taxpayer
16by a fraction, the numerator of which is the property factor plus
17the payroll factor, and the denominator of which is two. For
18purposes of this clause:

19(I) The property factor is a fraction, the numerator of which is
20the average value of the taxpayer’s real and tangible personal
21property owned or rented and used in the enterprise zone during
22the taxable year, and the denominator of which is the average value
23of all the taxpayer’s real and tangible personal property owned or
24rented and used in this state during the taxable year.

25(II) The payroll factor is a fraction, the numerator of which is
26the total amount paid by the taxpayer in the enterprise zone during
27the taxable year for compensation, and the denominator of which
28is the total compensation paid by the taxpayer in this state during
29the taxable year.

30(ii) If a loss carryover is allowable pursuant to this section for
31any taxable year after the enterprise zone designation has expired,
32the enterprise zone shall be deemed to remain in existence for
33purposes of computing the limitation set forth in subparagraph (B)
34and allowing a net operating loss deduction.

35(D) “Enterprise zone expiration date” means the date the
36enterprise zone designation expires, is no longer binding, or
37becomes inoperative.

38(3) The changes made to this subdivision by the act adding this
39paragraph shall apply to taxable years beginning on or after January
401, 1998.

P89   1(b) A taxpayer who qualifies as a “qualified taxpayer” under
2one or more sections shall, for the taxable year of the net operating
3loss and any taxable year to which that net operating loss may be
4carried, designate on the original return filed for each year the
5section which applies to that taxpayer with respect to that net
6operating loss. If the taxpayer is eligible to qualify under more
7than one section, the designation is to be made after taking into
8account subdivision (c).

9(c) If a taxpayer is eligible to qualify under this section and
10either Section 17276.4, 17276.5, or 17276.6 as a “qualified
11taxpayer,” with respect to a net operating loss in a taxable year,
12the taxpayer shall designate which section is to apply to the
13taxpayer.

14(d) Notwithstanding Section 17276, the amount of the loss
15determined under this section or Section 17276.4, 17276.5, or
1617276.6 shall be the only net operating loss allowed to be carried
17over from that taxable year and the designation under subdivision
18(b) shall be included in the election under Section 17276.1.

begin insert

19(e) This section shall cease to be operative for taxable years
20beginning on or after January 1, 2014, and shall be repealed on
21December 1, 2014.

end insert
22begin insert

begin insertSEC. 23.end insert  

end insert

begin insertSection 17276.5 of the end insertbegin insertRevenue and Taxation Codeend insert
23begin insert is amended to read:end insert

24

17276.5.  

(a) For each taxable year beginning on or after
25January 1, 1995, the term “qualified taxpayer” as used in Section
2617276.1 includes a taxpayer engaged in the conduct of a trade or
27business within a LAMBRA. For purposes of this subdivision, all
28of the following shall apply:

29(1) A net operating loss shall not be a net operating loss
30carryback for any taxable year, and a net operating loss for any
31taxable year beginning on or after the date the area in which the
32taxpayer conducts a trade or business is designated a LAMBRA
33shall be a net operating loss carryover to each following taxable
34year that ends before the LAMBRA expiration date or to each of
35the 15 taxable years following the taxable year of loss, if longer.

36(2) “LAMBRA” means a local agency military base recovery
37area designated in accordance with Section 7114 of the Government
38Code.

39(3) “Taxpayer” means a person or entity that conducts a trade
40or business within a LAMBRA and, for the first two taxable years,
P90   1has a net increase in jobs (defined as 2,000 paid hours per employee
2per year) of one or more employees in the LAMBRA and this state.
3For purposes of this paragraph:

4(A) The net increase in the number of jobs shall be determined
5by subtracting the total number of full-time employees (defined
6as 2,000 paid hours per employee per year) the taxpayer employed
7in this state in the taxable year prior to commencing business
8operations in the LAMBRA from the total number of full-time
9employees the taxpayer employed in this state during the second
10taxable year after commencing business operations in the
11LAMBRA. For taxpayers who commence doing business in this
12state with their LAMBRA business operation, the number of
13employees for the taxable year prior to commencing business
14operations in the LAMBRA shall be zero. The deduction shall be
15allowed only if the taxpayer has a net increase in jobs in the state,
16and if one or more full-time employees is employed within the
17LAMBRA.

18(B) The total number of employees employed in the LAMBRA
19shall equal the sum of both of the following:

20(i) The total number of hours worked in the LAMBRA for the
21taxpayer by employees (not to exceed 2,000 hours per employee)
22who are paid an hourly wage divided by 2,000.

23(ii) The total number of months worked in the LAMBRA for
24the taxpayer by employees who are salaried employees divided
25by 12.

26(C) In the case of a taxpayer who first commences doing
27business in the LAMBRA during the taxable year, for purposes of
28clauses (i) and (ii), respectively, of subparagraph (B), the divisors
29“2,000” and “12” shall be multiplied by a fraction, the numerator
30of which is the number of months of the taxable year that the
31taxpayer was doing business in the LAMBRA and the denominator
32of which is 12.

33(4) “Net operating loss” means the loss determined under
34Section 172 of the Internal Revenue Code, as modified by Section
3517276.1, attributable to the taxpayer’s business activities within a
36LAMBRA prior to the LAMBRA expiration date. The attributable
37loss shall be determined in accordance with Chapter 17
38(commencing with Section 25101) of Part 11, modified for
39purposes of this section as follows:

P91   1(A) Loss shall be apportioned to a LAMBRA by multiplying
2total loss from the business by a fraction, the numerator of which
3is the property factor plus the payroll factor, and the denominator
4of which is 2.

5(B) “The LAMBRA” shall be substituted for “this state.”

6(5) A net operating loss carryover shall be a deduction only with
7respect to the taxpayer’s business income attributable to a
8LAMBRA.

9(6) Attributable income is that portion of the taxpayer’s
10California source business income that is apportioned to the
11LAMBRA. For that purpose, the taxpayer’s business income
12attributable to sources in this state first shall be determined in
13accordance with Chapter 17 (commencing with Section 25101) of
14Part 11. That business income shall be further apportioned to the
15LAMBRA in accordance with Article 2 (commencing with Section
1625120) of Chapter 17 of Part 11, modified for purposes of this
17subdivision as follows:

18(A) Business income shall be apportioned to a LAMBRA by
19multiplying total California business income of the taxpayer by a
20fraction, the numerator of which is the property factor plus the
21payroll factor, and the denominator of which is two. For purposes
22of this clause:

23(i) The property factor is a fraction, the numerator of which is
24the average value of the taxpayer’s real and tangible personal
25property owned or rented and used in the LAMBRA during the
26taxable year, and the denominator of which is the average value
27of all the taxpayer’s real and tangible personal property owned or
28rented and used in this state during the taxable year.

29(ii) The payroll factor is a fraction, the numerator of which is
30the total amount paid by the taxpayer in the LAMBRA during the
31 taxable year for compensation, and the denominator of which is
32the total compensation paid by the taxpayer in this state during the
33taxable year.

34(B) If a loss carryover is allowable pursuant to this section for
35any taxable year after the LAMBRA designation has expired, the
36LAMBRA shall be deemed to remain in existence for purposes of
37computing the limitation specified in paragraph (5) and allowing
38a net operating loss deduction.

P92   1(7) “LAMBRA expiration date” means the date the LAMBRA
2designation expires, is no longer binding, or becomes inoperative
3pursuant to Section 7110 of the Government Code.

4(b) A taxpayer who qualifies as a “qualified taxpayer” under
5one or more sections shall, for the taxable year of the net operating
6loss and any taxable year to which that net operating loss may be
7carried, designate on the original return filed for each year the
8section that applies to that taxpayer with respect to that net
9operating loss. If the taxpayer is eligible to qualify under more
10than one section, the designation is to be made after taking into
11account subdivision (c).

12(c) If a taxpayer is eligible to qualify under this section and
13either Section 17276.2, 17276.4, or 17276.6 as a “qualified
14taxpayer,” with respect to a net operating loss in a taxable year,
15the taxpayer shall designate which section is to apply to the
16taxpayer.

17(d) Notwithstanding Section 17276, the amount of the loss
18determined under this section or Section 17276.2, 17276.4, or
1917276.6 shall be the only net operating loss allowed to be carried
20over from that taxable year and the designation under subdivision
21(b) shall be included in the election under Section 17276.1.

22(e) This section shall apply to taxable years beginning on or
23after January 1, 1998.

begin insert

24(f) This section shall cease to be operative for taxable years
25beginning on or after January 1, 2014, and shall be repealed on
26December 1, 2014.

end insert
27begin insert

begin insertSEC. 24.end insert  

end insert

begin insertSection 17276.6 of the end insertbegin insertRevenue and Taxation Codeend insert
28begin insert is amended to read:end insert

29

17276.6.  

(a) For each taxable year beginning on or after
30January 1, 1998, the term “qualified taxpayer” as used in Section
3117276.1 includes a person or entity that meets both of the
32following:

33(1) Is engaged in a trade or business within a targeted tax area
34designated pursuant to Chapter 12.93 (commencing with Section
357097) of Division 7 of Title 1 of the Government Code.

36(2) Is engaged in those lines of business described in Codes
372000 to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
38inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive,
39of the Standard Industrial Classification (SIC) Manual published
40by the United States Office of Management and Budget, 1987
P93   1edition. In the case of any pass-through entity, the determination
2of whether a taxpayer is a qualified taxpayer under this section
3shall be made at the entity level.

4(b) For purposes of subdivision (a), all of the following shall
5apply:

6(1) A net operating loss shall not be a net operating loss
7carryback to any taxable year and a net operating loss for any
8taxable year beginning on or after the date that the area in which
9the qualified taxpayer conducts a trade or business is designated
10as a targeted tax area shall be a net operating loss carryover to each
11of the 15 taxable years following the taxable year of loss.

12(2) “Net operating loss” means the loss determined under
13Section 172 of the Internal Revenue Code, as modified by Section
1417276.1, attributable to the qualified taxpayer’s business activities
15within the targeted tax area (as defined in Chapter 12.93
16(commencing with Section 7097) of Division 7 of Title 1 of the
17Government Code) prior to the targeted tax area expiration date.
18That attributable loss shall be determined in accordance with
19Chapter 17 (commencing with Section 25101) of Part 11, modified
20for purposes of this section as follows:

21(A) Loss shall be apportioned to the targeted tax area by
22multiplying total loss from the business by a fraction, the numerator
23of which is the property factor plus the payroll factor, and the
24denominator of which is 2.

25(B) “The targeted tax area” shall be substituted for “this state.”

26(3) A net operating loss carryover shall be a deduction only with
27respect to the qualified taxpayer’s business income attributable to
28the targeted tax area as defined in Chapter 12.93 (commencing
29with Section 7097) of Division 7 of Title 1 of the Government
30Code.

31(4) Attributable income shall be that portion of the qualified
32taxpayer’s California source business income that is apportioned
33to the targeted tax area. For that purpose, the qualified taxpayer’s
34business income attributable to sources in this state first shall be
35determined in accordance with Chapter 17 (commencing with
36Section 25101) of Part 11. That business income shall be further
37apportioned to the targeted tax area in accordance with Article 2
38(commencing with Section 25120) of Chapter 17 of Part 11,
39modified for purposes of this subdivision as follows:

P94   1(A) Business income shall be apportioned to the targeted tax
2area by multiplying the total business income of the taxpayer by
3a fraction, the numerator of which is the property factor plus the
4payroll factor, and the denominator of which is two. For purposes
5of this clause:

6(i) The property factor is a fraction, the numerator of which is
7the average value of the taxpayer’s real and tangible personal
8property owned or rented and used in the targeted tax area during
9the taxable year, and the denominator of which is the average value
10of all the taxpayer’s real and tangible personal property owned or
11rented and used in this state during the taxable year.

12(ii) The payroll factor is a fraction, the numerator of which is
13the total amount paid by the taxpayer in the targeted tax area during
14the taxable year for compensation, and the denominator of which
15is the total compensation paid by the taxpayer in this state during
16the taxable year.

17(B) If a loss carryover is allowable pursuant to this subdivision
18for any taxable year after the targeted tax area expiration date, the
19targeted tax area designation shall be deemed to remain in existence
20for purposes of computing the limitation specified in subparagraph
21(B) and allowing a net operating loss deduction.

22(5) “Targeted tax area expiration date” means the date the
23targeted tax area designation expires, is revoked, is no longer
24binding, or becomes inoperative.

begin delete

25(b)

end delete

26begin insert (c)end insert A taxpayer who qualifies as a “qualified taxpayer” under
27one or more sections shall, for the taxable year of the net operating
28loss and any taxable year to which that net operating loss may be
29carried, designate on the original return filed for each year the
30section that applies to that taxpayer with respect to that net
31operating loss. If the taxpayer is eligible to qualify under more
32than one section, the designation is to be made after taking into
33account subdivisionbegin delete (c).end deletebegin insert (d).end insert

begin delete

34(c)

end delete

35begin insert (d)end insert If a taxpayer is eligible to qualify under this section and
36either Section 17276.2, 17276.4, or 17276.5 as a “qualified
37taxpayer,” with respect to a net operating loss in a taxable year,
38the taxpayer shall designate which section is to apply to the
39taxpayer.

begin delete

40(d)

end delete

P95   1begin insert (e)end insert Notwithstanding Section 17276, the amount of the loss
2determined under this section or Section 17276.2, 17276.4, or
317276.5 shall be the only net operating loss allowed to be carried
4over from that taxable year and the designation under subdivision
5begin delete (b)end deletebegin insert (c)end insert shall be included in the election under Section 17276.1.

begin delete

6(e)

end delete

7begin insert (f)end insert This section shall apply to taxable years beginning on or
8after January 1, 1998.

begin insert

9(g) This section shall cease to be operative for taxable years
10beginning on or after January 1, 2014, and shall be repealed on
11December 1, 2014.

end insert
12begin insert

begin insertSEC. 25.end insert  

end insert

begin insertSection 18410.2 is added to the end insertbegin insertRevenue and Taxation
13Code
end insert
begin insert, to read:end insert

begin insert
14

begin insert18410.2.end insert  

(a) The California Competes Tax Credit Committee
15is hereby established. The committee shall consist of the Treasurer,
16the Director of Finance, the Director of the Governor’s Office of
17Business and Economic Development, and an appointee of the
18Senate and Assembly, or their designated representatives.

19(b) For purposes of Sections 17059.2 and 23689, the California
20Competes Tax Credit Committee shall do all of the following:

21(1) Approve or reject any written agreement for a tax credit
22allocation by resolution at a duly noticed public meeting held in
23accordance with the Bagley-Keene Open Meeting Act (Article 9
24(commencing with Section 11120) of Chapter 1 of Part 1 of
25Division 3 of Title 2 of the Government Code), but only after
26receipt of the fully executed written agreement between the
27taxpayer and the Governor’s Office of Business and Economic
28Development.

29(2) Approve or reject any recommendation to recapture, in
30whole or in part, a tax credit allocation by resolution at a duly
31noticed public meeting held in accordance with the Bagley-Keene
32Open Meeting Act (Article 9 (commencing with Section 11120) of
33Chapter 1 of Part 1 of Division 3 of Title 2 of the Government
34Code), but only after receipt of the recommendation from the
35Governor’s Office of Business and Economic Development
36pursuant to the terms of the fully executed written agreement.

end insert
37begin insert

begin insertSEC. 26.end insert  

end insert

begin insertSection 19136.8 of the end insertbegin insertRevenue and Taxation Codeend insert
38begin insert is amended to read:end insert

39

19136.8.  

(a) No addition to tax shall be made under Section
4019136 with respect to any underpayment of an installment to the
P96   1extent that the underpayment was created or increased by the
2disallowance of a credit under subdivision (g) of Section 17053.80.

3(b) No addition to tax shall be made under Section 19142 with
4respect to any underpayment of an installment to the extent that
5the underpayment was created or increased by the disallowance
6of a credit under subdivision (g) of Section 23623.

7(c) The Franchise Tax Board shall adopt procedures, forms, and
8instructions necessary to implement this section in a reasonable
9manner.

begin insert

10(d) This section shall cease to be operative for taxable years
11beginning on or after January 1, 2014, and shall be repealed on
12December 1, 2014.

end insert
13begin insert

begin insertSEC. 27.end insert  

end insert

begin insertSection 23612.2 of the end insertbegin insertRevenue and Taxation Codeend insert
14begin insert is amended to read:end insert

15

23612.2.  

(a) There shall be allowed as a credit against the
16“tax” (as defined by Section 23036) for the taxable year an amount
17equal to the sales or use tax paid or incurred during the taxable
18year by the taxpayer in connection with the taxpayer’s purchase
19of qualifiedbegin delete property.end deletebegin insert property before January 1, 2014.end insert

20(b) For purposes of this section:

21(1) “Taxpayer” means a corporation engaged in a trade or
22business within an enterprise zone.

23(2) “Qualified property” means:

24(A) Any of the following:

25(i) Machinery and machinery parts used for fabricating,
26processing, assembling, and manufacturing.

27(ii) Machinery and machinery parts used for the production of
28renewable energy resources.

29(iii) Machinery and machinery parts used for either of the
30following:

31(I) Air pollution control mechanisms.

32(II) Water pollution control mechanisms.

33(iv) Data-processing and communications equipment, including,
34but not limited to, computers, computer-automated drafting
35systems, copy machines, telephone systems, and faxes.

36(v) Motion picture manufacturing equipment central to
37production and postproduction, including, but not limited to,
38cameras, audio recorders, and digital image and sound processing
39equipment.

P97   1(B) The total cost of qualified property purchased and placed
2in service in any taxable year that may be taken into account by
3any taxpayer for purposes of claiming this credit shall not exceed
4twenty million dollars ($20,000,000).

5(C) The qualified property is used by the taxpayer exclusively
6in an enterprise zone.

7(D) The qualified property is purchased and placed in service
8before the date the enterprise zone designation expires, is no longer
9binding, or becomes inoperative.

10(3) “Enterprise zone” means the area designated as an enterprise
11zone pursuant to Chapter 12.8 (commencing with Section 7070)
12of Division 7 of Title 1 of the Government Codebegin insert as it read on the
13effective date of the act amending this sectionend insert
.

14(c) If the taxpayer has purchased property upon which a use tax
15has been paid or incurred, the credit provided by this section shall
16be allowed only if qualified property of a comparable quality and
17price is not timely available for purchase in this state.

18(d) In the case where the credit otherwise allowed under this
19section exceeds the “tax” for the taxable year, that portion of the
20credit which exceeds the “tax” may be carried over and added to
21the credit, if any, in thebegin delete following year, and succeedingend deletebegin insert succeeding
22five taxableend insert
years if necessary, until the credit is exhausted. The
23credit shall be applied first to the earliest taxable years possible.

24(e) Any taxpayerbegin delete whoend deletebegin insert thatend insert elects to be subject to this section
25shall not be entitled to increase the basis of the qualified property
26as otherwise required by Section 164(a) of the Internal Revenue
27Code with respect to sales or use tax paid or incurred in connection
28with the taxpayer’s purchase of qualified property.

29(f) (1) The amount of credit otherwise allowed under this
30section and Section 23622.7, including any credit carryover from
31prior years, that may reduce the “tax” for the taxable year shall
32not exceed the amount of tax which would be imposed on the
33taxpayer’s business income attributable to the enterprise zone
34determined as if that attributable income represented all of the
35income of the taxpayer subject to tax under this part.

36(2) Attributable income shall be that portion of the taxpayer’s
37California source business income that is apportioned to the
38enterprise zone. For that purpose, the taxpayer’s business income
39attributable to sources in this state first shall be determined in
40accordance with Chapter 17 (commencing with Section 25101).
P98   1That business income shall be further apportioned to the enterprise
2zone in accordance with Article 2 (commencing with Section
325120) of Chapter 17, modified for purposes of this section in
4accordance with paragraph (3).

5(3) Business income shall be apportioned to the enterprise zone
6by multiplying the total California business income of the taxpayer
7by a fraction, the numerator of which is the property factor plus
8the payroll factor, and the denominator of which is two. For
9purposes of this paragraph:

10(A) The property factor is a fraction, the numerator of which is
11the average value of the taxpayer’s real and tangible personal
12property owned or rented and used in the enterprise zone during
13the taxable year, and the denominator of which is the average value
14of all the taxpayer’s real and tangible personal property owned or
15rented and used in this state during the taxable year.

16(B) The payroll factor is a fraction, the numerator of which is
17the total amount paid by the taxpayer in the enterprise zone during
18the taxable year for compensation, and the denominator of which
19is the total compensation paid by the taxpayer in this state during
20the taxable year.

21(4) The portion of any credit remaining, if any, after application
22of this subdivision, shall be carried over to succeeding taxable
23begin delete years,end deletebegin insert years if necessary, until the credit is exhausted,end insert as if it were
24an amount exceeding the “tax” for the taxable year, as provided
25in subdivision (d).begin insert However, the portion of any credit remaining
26for carryover to taxable years beginning on January 1, 2014, if
27any, after application of this subdivision, shall be carried over
28only to the succeeding five taxable years if necessary, until the
29credit is exhausted, as if it were an amount exceeding the “tax”
30for the taxable year, as provided in subdivision (d).end insert

31(g) The amendments made to this section by the act adding this
32subdivision shall apply to taxable years beginning on or after
33January 1, 1998.

begin insert

34(h) This section is repealed on December 1, 2014.

end insert
35begin insert

begin insertSEC. 28.end insert  

end insert

begin insertSection 23622.7 of the end insertbegin insertRevenue and Taxation Codeend insert
36begin insert is amended to read:end insert

37

23622.7.  

(a) There shall be allowed a credit against the “tax”
38(as defined by Section 23036) to a taxpayer who employs a
39qualified employee in an enterprise zone during the taxable year.
40The credit shall be equal to the sum of each of the following:

P99   1(1) Fifty percent of qualified wages in the first year of
2employment.

3(2) Forty percent of qualified wages in the second year of
4employment.

5(3) Thirty percent of qualified wages in the third year of
6employment.

7(4) Twenty percent of qualified wages in the fourth year of
8employment.

9(5) Ten percent of qualified wages in the fifth year of
10employment.

11(b) For purposes of this section:

12(1) “Qualified wages” means:

13(A) (i) Except as provided in clause (ii), that portion of wages
14paid or incurred by the taxpayer during the taxable year to qualified
15employees that does not exceed 150 percent of the minimum wage.

16(ii) For up to 1,350 qualified employees who are employed by
17the taxpayer in the Long Beach Enterprise Zone in aircraft
18manufacturing activities described in Codes 3721 to 3728,
19inclusive, and Code 3812 of the Standard Industrial Classification
20(SIC) Manual published by the United States Office of
21Management and Budget, 1987 edition, “qualified wages” means
22that portion of hourly wages that does not exceed 202 percent of
23the minimum wage.

24(B) Wages received during the 60-month period beginning with
25the first day the employee commences employment with the
26taxpayer. Reemployment in connection with any increase, including
27a regularly occurring seasonal increase, in the trade or business
28operations of the taxpayer does not constitute commencement of
29employment for purposes of this section.

30(C) Qualified wages do not include any wages paid or incurred
31by the taxpayer on or after the zone expiration date. However,
32wages paid or incurred with respect to qualified employees who
33are employed by the taxpayer within the enterprise zone within
34the 60-month period prior to the zone expiration date shall continue
35to qualify for the credit under this section after the zone expiration
36date, in accordance with all provisions of this section applied as
37if the enterprise zone designation were still in existence and
38binding.

39(2) “Minimum wage” means the wage established by the
40Industrial Welfare Commission as provided for in Chapter 1
P100  1(commencing with Section 1171) of Part 4 of Division 2 of the
2Labor Code.

3(3) “Zone expiration date” means the date the enterprise zone
4designation expires, is no longer binding,begin insert becomes inoperative,end insert or
5begin delete becomes inoperative.end deletebegin insert is repealed.end insert

6(4) (A) “Qualified employee” means an individual who meets
7all of the following requirements:

8(i) At least 90 percent of whose services for the taxpayer during
9the taxable year are directly related to the conduct of the taxpayer’s
10trade or business located in an enterprise zone.

11(ii) Performs at least 50 percent of his or her services for the
12taxpayer during the taxable year in an enterprise zone.

13(iii) Is hired by the taxpayer after the date of original designation
14of the area in which services were performed as an enterprise zone.

15(iv) Is any of the following:

16(I) Immediately preceding the qualified employee’s
17commencement of employment with the taxpayer, was a person
18eligible for services under the federal Job Training Partnership
19Act (29 U.S.C. Sec. 1501 et seq.), or its successor, who is receiving,
20or is eligible to receive, subsidized employment, training, or
21services funded by the federal Job Training Partnership Act, or its
22successor.

23(II) Immediately preceding the qualified employee’s
24commencement of employment with the taxpayer, was a person
25eligible to be a voluntary or mandatory registrant under the Greater
26Avenues for Independence Act of 1985 (GAIN) provided for
27pursuant to Article 3.2 (commencing with Section 11320) of
28Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions
29Code, or its successor.

30(III) Immediately preceding the qualified employee’s
31commencement of employment with the taxpayer, was an
32economically disadvantaged individual 14 years of age or older.

33(IV) Immediately preceding the qualified employee’s
34commencement of employment with the taxpayer, was a dislocated
35worker who meets any of the following:

36(aa) Has been terminated or laid off or who has received a notice
37of termination or layoff from employment, is eligible for or has
38exhausted entitlement to unemployment insurance benefits, and
39is unlikely to return to his or her previous industry or occupation.

P101  1(bb) Has been terminated or has received a notice of termination
2of employment as a result of any permanent closure or any
3substantial layoff at a plant, facility, or enterprise, including an
4individual who has not received written notification but whose
5employer has made a public announcement of the closure or layoff.

6(cc) Is long-term unemployed and has limited opportunities for
7employment or reemployment in the same or a similar occupation
8in the area in which the individual resides, including an individual
955 years of age or older who may have substantial barriers to
10employment by reason of age.

11(dd) Was self-employed (including farmers and ranchers) and
12is unemployed as a result of general economic conditions in the
13community in which he or she resides or because of natural
14disasters.

15(ee) Was a civilian employee of the Department of Defense
16employed at a military installation being closed or realigned under
17the Defense Base Closure and Realignment Act of 1990.

18(ff) Was an active member of the armed forces or National
19Guard as of September 30, 1990, and was either involuntarily
20separated or separated pursuant to a special benefits program.

21(gg) Is a seasonal or migrant worker who experiences chronic
22seasonal unemployment and underemployment in the agriculture
23industry, aggravated by continual advancements in technology and
24mechanization.

25(hh) Has been terminated or laid off, or has received a notice
26of termination or layoff, as a consequence of compliance with the
27Clean Air Act.

28(V) Immediately preceding the qualified employee’s
29commencement of employment with the taxpayer, was a disabled
30individual who is eligible for or enrolled in, or has completed a
31state rehabilitation plan or is a service-connected disabled veteran,
32veteran of the Vietnam era, or veteran who is recently separated
33from military service.

34(VI) Immediately preceding the qualified employee’s
35commencement of employment with the taxpayer, was an
36ex-offender. An individual shall be treated as convicted if he or
37she was placed on probation by a state court without a finding of
38guilt.

P102  1(VII) Immediately preceding the qualified employee’s
2commencement of employment with the taxpayer, was a person
3eligible for or a recipient of any of the following:

4(aa) Federal Supplemental Security Income benefits.

5(bb) Aid to Families with Dependent Children.

6(cc) CalFresh benefits.

7(dd) State and local general assistance.

8(VIII) Immediately preceding the qualified employee’s
9commencement of employment with the taxpayer, was a member
10of a federally recognized Indian tribe, band, or other group of
11Native American descent.

12(IX) Immediately preceding the qualified employee’s
13commencement of employment with the taxpayer, was a resident
14of a targeted employment area (as defined in Section 7072 of the
15Government Code).

16(X) An employee who qualified the taxpayer for the enterprise
17zone hiring credit under former Section 23622 or the program area
18hiring credit under former Section 23623.

19(XI) Immediately preceding the qualified employee’s
20commencement of employment with the taxpayer, was a member
21of a targeted group, as defined in Section 51(d) of the Internal
22Revenue Code, or its successor.

23(B) Priority for employment shall be provided to an individual
24who is enrolled in a qualified program under the federal Job
25Training Partnership Act or the Greater Avenues for Independence
26Act of 1985 or who is eligible as a member of a targeted group
27under the Work Opportunity Tax Credit (Section 51 of the Internal
28Revenue Code), or its successor.

29(5) “Taxpayer” means a corporation engaged in a trade or
30business within an enterprise zone designated pursuant to Chapter
3112.8 (commencing with Section 7070) of Division 7 of Title 1 of
32the Government Code.

33(6) “Seasonal employment” means employment by a taxpayer
34that has regular and predictable substantial reductions in trade or
35business operations.

36(c) The taxpayer shall do both of the following:

37(1) Obtain from the Employment Development Department, as
38permitted by federal law, the local county or city Job Training
39Partnership Act administrative entity, the local county GAIN office
40or social services agency, or the local government administering
P103  1the enterprise zone, a certification that provides that a qualified
2employee meets the eligibility requirements specified in clause
3(iv) of subparagraph (A) of paragraph (4) of subdivision (b). The
4Employment Development Department may provide preliminary
5screening and referral to a certifying agency. The Employment
6Development Department shall develop a form for this purpose.
7The Department of Housing and Community Development shall
8develop regulations governing the issuance of certificates by local
9governments pursuant to subdivision (a) of Section 7086 of the
10Government Code.

11(2) Retain a copy of the certification and provide it upon request
12to the Franchise Tax Board.

13(d) (1) For purposes of this section:

14(A) All employees of all corporations which are members of
15the same controlled group of corporations shall be treated as
16employed by a single taxpayer.

17(B) The credit, if any, allowable by this section to each member
18shall be determined by reference to its proportionate share of the
19expense of the qualified wages giving rise to the credit, and shall
20be allocated in that manner.

21(C) For purposes of this subdivision, “controlled group of
22corporations” means “controlled group of corporations” as defined
23in Section 1563(a) of the Internal Revenue Code, except that:

24(i) “More than 50 percent” shall be substituted for “at least 80
25percent” each place it appears in Section 1563(a)(1) of the Internal
26Revenue Code.

27(ii) The determination shall be made without regard to
28subsections (a)(4) and (e)(3)(C) of Section 1563 of the Internal
29Revenue Code.

30(2) If an employer acquires the major portion of a trade or
31business of another employer (hereinafter in this paragraph referred
32to as the “predecessor”) or the major portion of a separate unit of
33a trade or business of a predecessor, then, for purposes of applying
34this section (other than subdivision (e)) for any calendar year
35ending after that acquisition, the employment relationship between
36a qualified employee and an employer shall not be treated as
37terminated if the employee continues to be employed in that trade
38or business.

39(e) (1) (A) If the employment, other than seasonal employment,
40of any qualified employee with respect to whom qualified wages
P104  1are taken into account under subdivision (a) is terminated by the
2taxpayer at any time during the first 270 days of that employment,
3whether or not consecutive, or before the close of the 270th
4calendar day after the day in which that employee completes 90
5days of employment with the taxpayer, the tax imposed by this
6part for the taxable year in which that employment is terminated
7shall be increased by an amount equal to the credit allowed under
8subdivision (a) for that taxable year and all prior taxable years
9attributable to qualified wages paid or incurred with respect to that
10employee.

11(B) If the seasonal employment of any qualified employee, with
12respect to whom qualified wages are taken into account under
13 subdivision (a) is not continued by the taxpayer for a period of
14270 days of employment during the 60-month period beginning
15with the day the qualified employee commences seasonal
16employment with the taxpayer, the tax imposed by this part, for
17the taxable year that includes the 60th month following the month
18in which the qualified employee commences seasonal employment
19with the taxpayer, shall be increased by an amount equal to the
20credit allowed under subdivision (a) for that taxable year and all
21prior taxable years attributable to qualified wages paid or incurred
22with respect to that qualified employee.

23(2) (A) Subparagraph (A) of paragraph (1) shall not apply to
24any of the following:

25(i) A termination of employment of a qualified employee who
26voluntarily leaves the employment of the taxpayer.

27(ii) A termination of employment of a qualified employee who,
28before the close of the period referred to in subparagraph (A) of
29paragraph (1), becomes disabled and unable to perform the services
30of that employment, unless that disability is removed before the
31close of that period and the taxpayer fails to offer reemployment
32to that employee.

33(iii) A termination of employment of a qualified employee, if
34it is determined that the termination was due to the misconduct (as
35defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
36the California Code of Regulations) of that employee.

37(iv) A termination of employment of a qualified employee due
38to a substantial reduction in the trade or business operations of the
39taxpayer.

P105  1(v) A termination of employment of a qualified employee, if
2that employee is replaced by other qualified employees so as to
3create a net increase in both the number of employees and the
4hours of employment.

5(B) Subparagraph (B) of paragraph (1) shall not apply to any
6of the following:

7(i) A failure to continue the seasonal employment of a qualified
8employee who voluntarily fails to return to the seasonal
9employment of the taxpayer.

10(ii) A failure to continue the seasonal employment of a qualified
11employee who, before the close of the period referred to in
12subparagraph (B) of paragraph (1), becomes disabled and unable
13to perform the services of that seasonal employment, unless that
14disability is removed before the close of that period and the
15taxpayer fails to offer seasonal employment to that qualified
16employee.

17(iii) A failure to continue the seasonal employment of a qualified
18employee, if it is determined that the failure to continue the
19seasonal employment was due to the misconduct (as defined in
20Sections 1256-30 to 1256-43, inclusive, of Title 22 of the California
21Code of Regulations) of that qualified employee.

22(iv) A failure to continue seasonal employment of a qualified
23employee due to a substantial reduction in the regular seasonal
24trade or business operations of the taxpayer.

25(v) A failure to continue the seasonal employment of a qualified
26employee, if that qualified employee is replaced by other qualified
27employees so as to create a net increase in both the number of
28seasonal employees and the hours of seasonal employment.

29(C) For purposes of paragraph (1), the employment relationship
30between the taxpayer and a qualified employee shall not be treated
31as terminated by either of the following:

32(i) By a transaction to which Section 381(a) of the Internal
33Revenue Code applies, if the qualified employee continues to be
34employed by the acquiring corporation.

35(ii) By reason of a mere change in the form of conducting the
36trade or business of the taxpayer, if the qualified employee
37continues to be employed in that trade or business and the taxpayer
38retains a substantial interest in that trade or business.

P106  1(3) Any increase in tax under paragraph (1) shall not be treated
2as tax imposed by this part for purposes of determining the amount
3of any credit allowable under this part.

4(f) Rules similar to the rules provided in Section 46(e) and (h)
5of the Internal Revenue Code shall apply to both of the following:

6(1) An organization to which Section 593 of the Internal
7Revenue Code applies.

8(2) A regulated investment company or a real estate investment
9trust subject to taxation under this part.

10(g) For purposes of this section, “enterprise zone” means an
11area designated as an enterprise zone pursuant to Chapter 12.8
12(commencing with Section 7070) of Division 7 of Title 1 of the
13Government Code.

14(h) The credit allowable under this section shall be reduced by
15the credit allowed under Sections 23623.5, 23625, and 23646
16claimed for the same employee. The credit shall also be reduced
17by the federal credit allowed under Section 51 of the Internal
18Revenue Code.

19In addition, any deduction otherwise allowed under this part for
20the wages or salaries paid or incurred by the taxpayer upon which
21the credit is based shall be reduced by the amount of the credit,
22prior to any reduction required by subdivision (i) or (j).

23(i) In the case where the credit otherwise allowed under this
24section exceeds the “tax” for the taxable year, that portion of the
25credit that exceeds the “tax” may be carried over and added to the
26credit, if any, inbegin insert theend insert succeedingbegin insert fiveend insert taxable years,begin insert if necessary,end insert
27 until the credit is exhausted. The credit shall be applied first to the
28earliest taxable years possible.

29(j) (1) The amount of the credit otherwise allowed under this
30section and Section 23612.2, including any credit carryover from
31prior years, that may reduce the “tax” for the taxable year shall
32not exceed the amount of tax which would be imposed on the
33taxpayer’s business income attributable to the enterprise zone
34determined as if that attributable income represented all of the
35income of the taxpayer subject to tax under this part.

36(2) Attributable income shall be that portion of the taxpayer’s
37California source business income that is apportioned to the
38enterprise zone. For that purpose, the taxpayer’s business
39attributable to sources in this state first shall be determined in
40accordance with Chapter 17 (commencing with Section 25101).
P107  1That business income shall be further apportioned to the enterprise
2zone in accordance with Article 2 (commencing with Section
325120) of Chapter 17, modified for purposes of this section in
4accordance with paragraph (3).

5(3) Business income shall be apportioned to the enterprise zone
6by multiplying the total California business income of the taxpayer
7by a fraction, the numerator of which is the property factor plus
8the payroll factor, and the denominator of which is two. For
9purposes of this paragraph:

10(A) The property factor is a fraction, the numerator of which is
11the average value of the taxpayer’s real and tangible personal
12property owned or rented and used in the enterprise zone during
13the income year, and the denominator of which is the average value
14of all the taxpayer’s real and tangible personal property owned or
15rented and used in this state during the income year.

16(B) The payroll factor is a fraction, the numerator of which is
17the total amount paid by the taxpayer in the enterprise zone during
18the income year for compensation, and the denominator of which
19is the total compensation paid by the taxpayer in this state during
20the income year.

21(4) The portion of any credit remaining, if any, after application
22of this subdivision, shall be carried over to succeeding taxable
23years,begin insert if necessary, until the credit is exhausted,end insert as if it were an
24amount exceeding the “tax” for the taxable year, as provided in
25subdivision (i).begin insert However, the portion of any credit remaining for
26carryover to taxable years beginning on or after January 1, 2014,
27if any, after application of this subdivision, shall be carried over
28only to the succeeding five taxable years if necessary, until the
29credit is exhausted, as if it were an amount exceeding the “tax”
30 for the taxable year, as provided in subdivision (i).end insert

31(k) The changes made to this section by the act adding this
32subdivision shall apply to taxable years on or after January 1, 1997.

begin insert

33(l) (1) Except as provided in paragraph (2), this section shall
34cease to be operative for taxable years beginning on or after
35January 1, 2014, and shall be repealed on December 1, 2019.

end insert
begin insert

36(2) The section shall continue to apply with respect to qualified
37employees who are employed by the qualified taxpayer within the
38enterprise zone within the 60-month period immediately preceding
39January 1, 2014, and qualified wages paid or incurred with respect
40to those qualified employees shall continue to qualify for the credit
P108  1under this section for taxable years beginning on or after January
21, 2014, in accordance with this section, as amended by the act
3adding this subdivision.

end insert
4begin insert

begin insertSEC. 29.end insert  

end insert

begin insertSection 23622.8 of the end insertbegin insertRevenue and Taxation Codeend insert
5begin insert is amended to read:end insert

6

23622.8.  

(a) For each taxable year beginning on or after
7January 1, 1998, there shall be allowed a credit against the “tax”
8(as defined in Section 23036) to a qualified taxpayer for hiring a
9qualified disadvantaged individual during the taxable year for
10employment in the manufacturing enhancement area. The credit
11shall be equal to the sum of each of the following:

12(1) Fifty percent of the qualified wages in the first year of
13employment.

14(2) Forty percent of the qualified wages in the second year of
15employment.

16(3) Thirty percent of the qualified wages in the third year of
17employment.

18(4) Twenty percent of the qualified wages in the fourth year of
19employment.

20(5) Ten percent of the qualified wages in the fifth year of
21employment.

22(b) For purposes of this section:

23(1) “Qualified wages” means:

24(A) That portion of wages paid or incurred by the qualified
25taxpayer during the taxable year to qualified disadvantaged
26individuals that does not exceed 150 percent of the minimum wage.

27(B) The total amount of qualified wages which may be taken
28into account for purposes of claiming the credit allowed under this
29section shall not exceed two million dollars ($2,000,000) per
30taxable year.

31(C) Wages received during the 60-month period beginning with
32the first day the qualified disadvantaged individual commences
33employment with the qualified taxpayer. Reemployment in
34connection with any increase, including a regularly occurring
35seasonal increase, in the trade or business operations of the
36qualified taxpayer does not constitute commencement of
37employment for purposes of this section.

38(D) Qualified wages do not include any wages paid or incurred
39by the qualified taxpayer on or after the manufacturing
40enhancement area expiration date. However, wages paid or incurred
P109  1with respect to qualified employees who are employed by the
2qualified taxpayer within the manufacturing enhancement area
3within the 60-month period prior to the manufacturing enhancement
4area expiration date shall continue to qualify for the credit under
5this section after the manufacturing enhancement area expiration
6date, in accordance with all provisions of this section applied as
7if the manufacturing enhancement area designation were still in
8existence and binding.

9(2) “Minimum wage” means the wage established by the
10Industrial Welfare Commission as provided for in Chapter 1
11(commencing with Section 1171) of Part 4 of Division 2 of the
12Labor Code.

13(3) “Manufacturing enhancement area” means an area designated
14pursuant to Section 7073.8 of the Government Code according to
15the procedures of Chapter 12.8 (commencing with Section 7070)
16of Division 7 of Title 1 of the Government Code.

17(4) “Manufacturing enhancement area expiration date” means
18the date the manufacturing enhancement area designation expires,
19is no longer binding,begin insert becomes inoperative,end insert orbegin delete becomes inoperative.end delete
20begin insert is repealed.end insert

21(5) “Qualified disadvantaged individual” means an individual
22who satisfies all of the following requirements:

23(A) (i) At least 90 percent of whose services for the qualified
24taxpayer during the taxable year are directly related to the conduct
25of the qualified taxpayer’s trade or business located in a
26manufacturing enhancement area.

27(ii) Who performs at least 50 percent of his or her services for
28the qualified taxpayer during the taxable year in the manufacturing
29enhancement area.

30(B) Who is hired by the qualified taxpayer after the designation
31of the area as a manufacturing enhancement area in which the
32individual’s services were primarily performed.

33(C) Who is any of the following immediately preceding the
34individual’s commencement of employment with the qualified
35taxpayer:

36(i) An individual who has been determined eligible for services
37under the federal Job Training Partnership Act (29 U.S.C. Sec.
381501 et seq.) or its successor.

39(ii) Any voluntary or mandatory registrant under the Greater
40Avenues for Independence Act of 1985, or its successor, as
P110  1provided pursuant to Article 3.2 (commencing with Section 11320)
2of Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions
3Code.

4(iii) Any individual who has been certified eligible by the
5Employment Development Department under the federal Targeted
6Jobs Tax Credit Program, or its successor, whether or not this
7program is in effect.

8(6) “Qualified taxpayer” means any corporation engaged in a
9trade or business within a manufacturing enhancement area
10designated pursuant to Section 7073.8 of the Government Code
11and that meets all of the following requirements:

12(A) Is engaged in those lines of business described in Codes
130211 to 0291, inclusive, Code 0723, or in Codes 2011 to 3999,
14inclusive, of the Standard Industrial Classification (SIC) Manual
15published by the United States Office of Management and Budget,
161987 edition.

17(B) At least 50 percent of the qualified taxpayer’s workforce
18hired after the designation of the manufacturing enhancement area
19is composed of individuals who, at the time of hire, are residents
20of the county in which the manufacturing enhancement area is
21located.

22(C) Of this percentage of local hires, at least 30 percent shall
23be qualified disadvantaged individuals.

24(7) “Seasonal employment” means employment by a qualified
25taxpayer that has regular and predictable substantial reductions in
26trade or business operations.

27(c) (1) For purposes of this section, all of the following apply:

28(A) All employees of all corporations that are members of the
29same controlled group of corporations shall be treated as employed
30by a single qualified taxpayer.

31(B) The credit (if any) allowable by this section with respect to
32each member shall be determined by reference to its proportionate
33share of the expenses of the qualified wages giving rise to the
34credit and shall be allocated in that manner.

35(C) Principles that apply in the case of controlled groups of
36corporations, as specified in subdivision (d) of Section 23622.7,
37shall apply with respect to determining employment.

38(2) If a qualified taxpayer acquires the major portion of a trade
39or business of another employer (hereinafter in this paragraph
40referred to as the “predecessor”) or the major portion of a separate
P111  1unit of a trade or business of a predecessor, then, for purposes of
2applying this section (other than subdivision (d)) for any calendar
3year ending after that acquisition, the employment relationship
4between a qualified disadvantaged individual and a qualified
5taxpayer shall not be treated as terminated if the qualified
6disadvantaged individual continues to be employed in that trade
7or business.

8(d) (1) (A) If the employment, other than seasonal employment,
9of any qualified disadvantaged individual, with respect to whom
10qualified wages are taken into account under subdivision (b) is
11terminated by the qualified taxpayer at any time during the first
12270 days of that employment (whether or not consecutive) or before
13the close of the 270th calendar day after the day in which that
14qualified disadvantaged individual completes 90 days of
15employment with the qualified taxpayer, the tax imposed by this
16part for the taxable year in which that employment is terminated
17shall be increased by an amount equal to the credit allowed under
18subdivision (a) for that taxable year and all prior taxable years
19attributable to qualified wages paid or incurred with respect to that
20qualified disadvantaged individual.

21(B) If the seasonal employment of any qualified disadvantaged
22individual, with respect to whom qualified wages are taken into
23account under subdivision (a) is not continued by the qualified
24taxpayer for a period of 270 days of employment during the
2560-month period beginning with the day the qualified
26disadvantaged individual commences seasonal employment with
27the qualified taxpayer, the tax imposed by this part, for the income
28year that includes the 60th month following the month in which
29the qualified disadvantaged individual commences seasonal
30employment with the qualified taxpayer, shall be increased by an
31amount equal to the credit allowed under subdivision (a) for that
32taxable year and all prior taxable years attributable to qualified
33wages paid or incurred with respect to that qualified disadvantaged
34individual.

35(2) (A) Subparagraph (A) of paragraph (1) does not apply to
36any of the following:

37(i) A termination of employment of a qualified disadvantaged
38individual who voluntarily leaves the employment of the qualified
39taxpayer.

P112  1(ii) A termination of employment of a qualified disadvantaged
2individual who, before the close of the period referred to in
3subparagraph (A) of paragraph (1), becomes disabled to perform
4the services of that employment, unless that disability is removed
5before the close of that period and the qualified taxpayer fails to
6offer reemployment to that individual.

7(iii) A termination of employment of a qualified disadvantaged
8individual, if it is determined that the termination was due to the
9misconduct (as defined in Sections 1256-30 to 1256-43, inclusive,
10of Title 22 of the California Code of Regulations) of that individual.

11(iv) A termination of employment of a qualified disadvantaged
12individual due to a substantial reduction in the trade or business
13operations of the qualified taxpayer.

14(v) A termination of employment of a qualified disadvantaged
15individual, if that individual is replaced by other qualified
16disadvantaged individuals so as to create a net increase in both the
17number of employees and the hours of employment.

18(B) Subparagraph (B) of paragraph (1) shall not apply to any
19of the following:

20(i) A failure to continue the seasonal employment of a qualified
21disadvantaged individual who voluntarily fails to return to the
22seasonal employment of the qualified taxpayer.

23(ii) A failure to continue the seasonal employment of a qualified
24disadvantaged individual who, before the close of the period
25referred to in subparagraph (B) of paragraph (1), becomes disabled
26and unable to perform the services of that seasonal employment,
27unless that disability is removed before the close of that period
28and the qualified taxpayer fails to offer seasonal employment to
29that qualified disadvantaged individual.

30(iii) A failure to continue the seasonal employment of a qualified
31disadvantaged individual, if it is determined that the failure to
32continue the seasonal employment was due to the misconduct (as
33defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
34the California Code of Regulations) of that qualified disadvantaged
35individual.

36(iv) A failure to continue seasonal employment of a qualified
37disadvantaged individual due to a substantial reduction in the
38regular seasonal trade or business operations of the qualified
39taxpayer.

P113  1(v) A failure to continue the seasonal employment of a qualified
2disadvantaged individual, if that qualified disadvantaged individual
3is replaced by other qualified disadvantaged individuals so as to
4create a net increase in both the number of seasonal employees
5and the hours of seasonal employment.

6(C) For purposes of paragraph (1), the employment relationship
7between the qualified taxpayer and a qualified disadvantaged
8individual shall not be treated as terminated by either of the
9following:

10(i) By a transaction to which Section 381(a) of the Internal
11Revenue Code applies, if the qualified disadvantaged individual
12continues to be employed by the acquiring corporation.

13(ii) By reason of a mere change in the form of conducting the
14trade or business of the qualified taxpayer, if the qualified
15 disadvantaged individual continues to be employed in that trade
16or business and the qualified taxpayer retains a substantial interest
17in that trade or business.

18(3) Any increase in tax under paragraph (1) shall not be treated
19as tax imposed by this part for purposes of determining the amount
20of any credit allowable under this part.

21(e) The credit shall be reduced by the credit allowed under
22Section 23621. The credit shall also be reduced by the federal
23credit allowed under Section 51 of the Internal Revenue Code.

24In addition, any deduction otherwise allowed under this part for
25the wages or salaries paid or incurred by the qualified taxpayer
26upon which the credit is based shall be reduced by the amount of
27the credit, prior to any reduction required by subdivision (f) or (g).

28(f) In the case where the credit otherwise allowed under this
29section exceeds the “tax” for the taxable year, that portion of the
30credit that exceeds the “tax” may be carried over and added to the
31credit, if any, inbegin insert theend insert succeedingbegin insert five taxableend insert years,begin insert if necessary,end insert
32 until the credit is exhausted. The credit shall be applied first to the
33earliest taxable years possible.

34(g) (1) The amount of credit otherwise allowed under this
35section, including prior year credit carryovers, that may reduce
36the “tax” for the taxable year shall not exceed the amount of tax
37that would be imposed on the qualified taxpayer’s business income
38attributed to a manufacturing enhancement area determined as if
39that attributed income represented all of the net income of the
40qualified taxpayer subject to tax under this part.

P114  1(2) Attributable income is that portion of the taxpayer’s
2California source business income that is apportioned to the
3manufacturing enhancement area. For that purpose, the taxpayer’s
4business income attributable to sources in this state first shall be
5determined in accordance with Chapter 17 (commencing with
6Section 25101). That business income shall be further apportioned
7to the manufacturing enhancement area in accordance with Article
82 (commencing with Section 25120) of Chapter 17, modified for
9purposes of this section in accordance with paragraph (3).

10(3) Income shall be apportioned to a manufacturing enhancement
11area by multiplying the total California business income of the
12taxpayer by a fraction, the numerator of which is the property
13factor plus the payroll factor, and the denominator of which is two.
14For the purposes of this paragraph:

15(A) The property factor is a fraction, the numerator of which is
16the average value of the taxpayer’s real and tangible personal
17property owned or rented and used in the manufacturing
18enhancement area during the taxable year, and the denominator
19of which is the average value of all the taxpayer’s real and tangible
20personal property owned or rented and used in this state during
21the taxable year.

22(B) The payroll factor is a fraction, the numerator of which is
23the total amount paid by the taxpayer in the manufacturing
24enhancement area during the taxable year for compensation, and
25the denominator of which is the total compensation paid by the
26taxpayer in this state during the taxable year.

27(4) The portion of any credit remaining, if any, after application
28of this subdivision, shall be carried over to succeeding taxable
29years,begin insert if necessary, until the credit is exhausted,end insert as if it were an
30amount exceeding the “tax” for the taxable year, as provided in
31subdivision (g).begin insert However, the portion of any credit remaining for
32carryover to taxable years beginning on or after January 1, 2014,
33if any, after application of this subdivision, shall be carried over
34only to the succeeding five taxable years if necessary, until the
35credit is exhausted, as if it were an amount exceeding the “tax”
36for the taxable year, as provided in subdivision (g).end insert

37(h) If the taxpayer is allowed a credit pursuant to this section
38for qualified wages paid or incurred, only one credit shall be
39allowed to the taxpayer under this part with respect to any wage
40consisting in whole or in part of those qualified wages.

P115  1(i) The qualified taxpayer shall do both of the following:

2(1) Obtain from the Employment Development Department, as
3permitted by federal law, the local county or city Job Training
4Partnership Act administrative entity, the local county GAIN office
5or social services agency, or the local government administering
6the manufacturing enhancement area, a certification that provides
7that a qualified disadvantaged individual meets the eligibility
8requirements specified in paragraph (5) of subdivision (b). The
9Employment Development Department may provide preliminary
10screening and referral to a certifying agency. The Department of
11Housing and Community Development shall develop regulations
12governing the issuance of certificates pursuant to subdivision (d)
13of Section 7086 of the Government Code and shall develop forms
14for this purpose.

15(2) Retain a copy of the certification and provide it upon request
16to the Franchise Tax Board.

begin insert

17(j) (1) Except as provided in paragraph (2), this section shall
18cease to be operative for taxable years beginning on or after
19January 1, 2014, and shall be repealed on December 1, 2019.

end insert
begin insert

20(2) The section shall continue to apply with respect to qualified
21employees who are employed by the qualified taxpayer within the
22manufacturing enhancement area within the 60-month period
23immediately preceding January 1, 2014, and qualified wages paid
24or incurred with respect to those qualified employees shall continue
25to qualify for the credit under this section for taxable years
26beginning on or after January 1, 2014, in accordance with this
27section, as amended by the act adding this subdivision.

end insert
28begin insert

begin insertSEC. 30.end insert  

end insert

begin insertSection 23623 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert, as
29added by Section 8 of Chapter 10 of the 3rd Extraordinary Session
30of the Statutes of 2009, is repealed.end insert

begin delete
31

23623.  

(a) For each taxable year beginning on or after January
321, 2009, there shall be allowed as a credit against the “tax,” as
33defined in Section 23036, three thousand dollars ($3,000) for each
34net increase in qualified full-time employees, as specified in
35subdivision (c), hired during the taxable year by a qualified
36employer.

37(b) For purposes of this section:

38(1) “Acquired” includes any gift, inheritance, transfer incident
39to divorce, or any other transfer, whether or not for consideration.

40(2) “Qualified full-time employee” means:

P116  1(A) A qualified employee who was paid qualified wages during
2the taxable year by the qualified employer for services of not less
3than an average of 35 hours per week.

4(B) A qualified employee who was a salaried employee and
5was paid compensation during the taxable year for full-time
6employment, within the meaning of Section 515 of the Labor Code,
7by the qualified employer.

8(3) A “qualified employee” shall not include any of the
9following:

10(A) An employee certified as a qualified employee in an
11enterprise zone designated in accordance with Chapter 12.8
12(commencing with Section 7070) of Division 7 of Title 1 of the
13Government Code.

14(B) An employee certified as a qualified disadvantaged
15individual in a manufacturing enhancement area designated in
16accordance with Section 7073.8 of the Government Code.

17(C) An employee certified as a qualified employee in a targeted
18tax area designated in accordance with Section 7097 of the
19Government Code.

20(D) An employee certified as a qualified disadvantaged
21individual or a qualified displaced employee in a local agency
22military base recovery area (LAMBRA) designated in accordance
23with Chapter 12.97 (commencing with Section 7105) of Division
247 of Title 1 of the Government Code.

25(E) An employee whose wages are included in calculating any
26other credit allowed under this part.

27(4) “Qualified employer” means a taxpayer that, as of the last
28day of the preceding taxable year, employed a total of 20 or fewer
29employees.

30(5) “Qualified wages” means wages subject to Division 6
31(commencing with Section 13000) of the Unemployment Insurance
32Code.

33(6) “Annual full-time equivalent” means either of the following:

34(A) In the case of a full-time employee paid hourly qualified
35wages, “annual full-time equivalent” means the total number of
36hours worked for the taxpayer by the employee (not to exceed
372,000 hours per employee) divided by 2,000.

38(B) In the case of a salaried full-time employee, “annual
39full-time equivalent” means the total number of weeks worked for
40the taxpayer by the employee divided by 52.

P117  1(c) The net increase in qualified full-time employees of a
2qualified employer shall be determined as provided by this
3subdivision:

4(1) (A) The net increase in qualified full-time employees shall
5be determined on an annual full-time equivalent basis by
6subtracting from the amount determined in subparagraph (C) the
7amount determined in subparagraph (B).

8(B) The total number of qualified full-time employees employed
9in the preceding taxable year by the taxpayer and by any trade or
10business acquired by the taxpayer during the current taxable year.

11(C) The total number of full-time employees employed in the
12current taxable year by the taxpayer and by any trade or business
13acquired during the current taxable year.

14(2) For taxpayers who first commence doing business in this
15state during the taxable year, the number of full-time employees
16for the immediately preceding prior taxable year shall be zero.

17(d) In the case where the credit allowed by this section exceeds
18the “tax,” the excess may be carried over to reduce the “tax” in
19the following year, and succeeding seven years if necessary, until
20the credit is exhausted.

21(e) Any deduction otherwise allowed under this part for qualified
22wages shall not be reduced by the amount of the credit allowed
23under this section.

24(f) For purposes of this section:

25(1) All employees of the trades or businesses that are treated as
26related under either Section 267, 318, or 707 of the Internal
27Revenue Code shall be treated as employed by a single taxpayer.

28(2) In determining whether the taxpayer has first commenced
29doing business in this state during the taxable year, the provisions
30of subdivision (f) of Section 17276, without application of
31paragraph (7) of that subdivision, shall apply.

32(g) (1) (A) Credit under this section and Section 17053.80 shall
33be allowed only for credits claimed on timely filed original returns
34received by the Franchise Tax Board on or before the cut-off date
35established by the Franchise Tax Board.

36(B) For purposes of this paragraph, the cut-off date shall be the
37last day of the calendar quarter within which the Franchise Tax
38Board estimates it will have received timely filed original returns
39claiming credits under this section and Section 17053.80 that
P118  1cumulatively total four hundred million dollars ($400,000,000)
2for all taxable years.

3(2) The date a return is received shall be determined by the
4Franchise Tax Board.

5(3) (A) The determinations of the Franchise Tax Board with
6respect to the cut-off date, the date a return is received, and whether
7a return has been timely filed for purposes of this subdivision may
8not be reviewed in any administrative or judicial proceeding.

9(B) Any disallowance of a credit claimed due to a determination
10under this subdivision, including the application of the limitation
11specified in paragraph (1), shall be treated as a mathematical error
12appearing on the return. Any amount of tax resulting from such
13disallowance may be assessed by the Franchise Tax Board in the
14same manner as provided by Section 19051.

15(4) The Franchise Tax Board shall periodically provide notice
16on its Web site with respect to the amount of credit under this
17section and Section 17053.80 claimed on timely filed original
18returns received by the Franchise Tax Board.

19(h) (1) The Franchise Tax Board may prescribe rules, guidelines
20or procedures necessary or appropriate to carry out the purposes
21of this section, including any guidelines regarding the limitation
22on total credits allowable under this section and Section 17053.80
23and guidelines necessary to avoid the application of paragraph (2)
24of subdivision (f) through split-ups, shell corporations, partnerships,
25tiered ownership structures, or otherwise.

26(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
27Division 3 of Title 2 of the Government Code does not apply to
28any standard, criterion, procedure, determination, rule, notice, or
29guideline established or issued by the Franchise Tax Board
30pursuant to this section.

31(i) This section shall remain in effect only until December 1 of
32the calendar year after the year of the cut-off date, and as of that
33December 1 is repealed.

34

17053.80.  

(a) For each taxable year beginning on or after
35January 1, 2009, there shall be allowed as a credit against the “net
36tax,” as defined in Section 17039, three thousand dollars ($3,000)
37for each net increase in qualified full-time employees, as specified
38in subdivision (c), hired during the taxable year by a qualified
39employer.

40(b) For purposes of this section:

P119  1(1) “Acquired” includes any gift, inheritance, transfer incident
2to divorce, or any other transfer, whether or not for consideration.

3(2) “Qualified full-time employee” means:

4(A) A qualified employee who was paid qualified wages by the
5qualified employer for services of not less than an average of 35
6hours per week.

7(B) A qualified employee who was a salaried employee and
8was paid compensation during the taxable year for full-time
9employment, within the meaning of Section 515 of the Labor Code,
10by the qualified employer.

11(3) A “qualified employee” shall not include any of the
12following:

13(A) An employee certified as a qualified employee in an
14enterprise zone designated in accordance with Chapter 12.8
15(commencing with Section 7070) of Division 7 of Title 1 of the
16Government Code.

17(B) An employee certified as a qualified disadvantaged
18individual in a manufacturing enhancement area designated in
19accordance with Section 7073.8 of the Government Code.

20(C) An employee certified as a qualified employee in a targeted
21tax area designated in accordance with Section 7097 of the
22Government Code.

23(D) An employee certified as a qualified disadvantaged
24individual or a qualified displaced employee in a local agency
25military base recovery area (LAMBRA) designated in accordance
26with Chapter 12.97 (commencing with Section 7105) of Division
277 of Title 1 of the Government Code.

28(E) An employee whose wages are included in calculating any
29other credit allowed under this part.

30(4) “Qualified employer” means a taxpayer that, as of the last
31day of the preceding taxable year, employed a total of 20 or fewer
32employees.

33(5) “Qualified wages” means wages subject to Division 6
34(commencing with Section 13000) of the Unemployment Insurance
35Code.

36(6) “Annual full-time equivalent” means either of the following:

37(A) In the case of a full-time employee paid hourly qualified
38wages, “annual full-time equivalent” means the total number of
39hours worked for the taxpayer by the employee (not to exceed
402,000 hours per employee) divided by 2,000.

P120  1(B) In the case of a salaried full-time employee, “annual
2full-time equivalent” means the total number of weeks worked for
3the taxpayer by the employee divided by 52.

4(c) The net increase in qualified full-time employees of a
5qualified employer shall be determined as provided by this
6subdivision:

7(1) (A) The net increase in qualified full-time employees shall
8be determined on an annual full-time equivalent basis by
9subtracting from the amount determined in subparagraph (C) the
10amount determined in subparagraph (B).

11(B) The total number of qualified full-time employees employed
12in the preceding taxable year by the taxpayer and by any trade or
13business acquired by the taxpayer during the current taxable year.

14(C) The total number of full-time employees employed in the
15current taxable year by the taxpayer and by any trade or business
16acquired during the current taxable year.

17(2) For taxpayers who first commence doing business in this
18state during the taxable year, the number of full-time employees
19for the immediately preceding prior taxable year shall be zero.

20(d) In the case where the credit allowed by this section exceeds
21the “net tax,” the excess may be carried over to reduce the “net
22tax” in the following year, and succeeding seven years if necessary,
23until the credit is exhausted.

24(e) Any deduction otherwise allowed under this part for qualified
25wages shall not be reduced by the amount of the credit allowed
26under this section.

27(f) For purposes of this section:

28(1) All employees of the trades or businesses that are treated as
29related under either Section 267, 318, or 707 of the Internal
30Revenue Code shall be treated as employed by a single taxpayer.

31(2) In determining whether the taxpayer has first commenced
32 doing business in this state during the taxable year, the provisions
33of subdivision (f) of Section 17276, without application of
34paragraph (7) of that subdivision, shall apply.

35(g) (1) (A) Credit under this section and Section 23623 shall
36be allowed only for credits claimed on timely filed original returns
37received by the Franchise Tax Board on or before the cut-off date
38established by the Franchise Tax Board.

39(B) For purposes of this paragraph, the cut-off date shall be the
40last day of the calendar quarter within which the Franchise Tax
P121  1Board estimates it will have received timely filed original returns
2claiming credits under this section and Section 23623 that
3cumulatively total four hundred million dollars ($400,000,000)
4for all taxable years.

5(2) The date a return is received shall be determined by the
6Franchise Tax Board.

7(3) (A) The determinations of the Franchise Tax Board with
8respect to the cut-off date, the date a return is received, and whether
9a return has been timely filed for purposes of this subdivision may
10not be reviewed in any administrative or judicial proceeding

11(B) Any disallowance of a credit claimed due to a determination
12under this subdivision, including the application of the limitation
13specified in paragraph (1), shall be treated as a mathematical error
14appearing on the return. Any amount of tax resulting from such
15disallowance may be assessed by the Franchise Tax Board in the
16same manner as provided by Section 19051.

17(4) The Franchise Tax Board shall periodically provide notice
18on its Web site with respect to the amount of credit under this
19section and Section 23623 claimed on timely filed original returns
20received by the Franchise Tax Board.

21(h) (1) The Franchise Tax Board may prescribe rules, guidelines
22or procedures necessary or appropriate to carry out the purposes
23of this section, including any guidelines regarding the limitation
24on total credits allowable under this section and Section 23623
25and guidelines necessary to avoid the application of paragraph (2)
26of subdivision (f) through split-ups, shell corporations, partnerships,
27tiered ownership structures, or otherwise.

28(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
29Division 3 of Title 2 of the Government Code does not apply to
30any standard, criterion, procedure, determination, rule, notice, or
31guideline established or issued by the Franchise Tax Board
32pursuant to this section.

33(i) This section shall remain in effect only until December 1 of
34the calendar year after the year of the cut-off date, and as of that
35December 1 is repealed.

end delete
36begin insert

begin insertSEC. 31.end insert  

end insert

begin insertSection 23623 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert, as
37added by Section 8 of Chapter 17 of the 3rd Extraordinary Session
38of the Statutes of 2009, is amended to read:end insert

39

23623.  

(a) For each taxable year beginning on or after January
401, 2009, there shall be allowed as a credit against the “tax,” as
P122  1defined in Section 23036, three thousand dollars ($3,000) for each
2net increase in qualified full-time employees, as specified in
3subdivision (c), hired during the taxable year by a qualified
4employer.

5(b) For purposes of this section:

6(1) “Acquired” includes any gift, inheritance, transfer incident
7to divorce, or any other transfer, whether or not for consideration.

8(2) “Qualified full-time employee” means:

9(A) A qualified employee who was paid qualified wages during
10the taxable year by the qualified employer for services of not less
11than an average of 35 hours per week.

12(B) A qualified employee who was a salaried employee and
13was paid compensation during the taxable year for full-time
14employment, within the meaning of Section 515 of the Labor Code,
15by the qualified employer.

16(3) A “qualified employee” shall not include any of the
17following:

18(A) An employee certified as a qualified employee in an
19enterprise zone designated in accordance with Chapter 12.8
20(commencing with Section 7070) of Division 7 of Title 1 of the
21Government Code.

22(B) An employee certified as a qualified disadvantaged
23individual in a manufacturing enhancement area designated in
24accordance with Section 7073.8 of the Government Code.

25(C) An employee certified as a qualified employee in a targeted
26tax area designated in accordance with Section 7097 of the
27Government Code.

28(D) An employee certified as a qualified disadvantaged
29individual or a qualified displaced employee in a local agency
30military base recovery area (LAMBRA) designated in accordance
31with Chapter 12.97 (commencing with Section 7105) of Division
327 of Title 1 of the Government Code.

33(E) An employee whose wages are included in calculating any
34other credit allowed under this part.

35(4) “Qualified employer” means a taxpayer that, as of the last
36day of the preceding taxable year, employed a total of 20 or fewer
37employees.

38(5) “Qualified wages” means wages subject to Division 6
39(commencing with Section 13000) of the Unemployment Insurance
40Code.

P123  1(6) “Annual full-time equivalent” means either of the following:

2(A) In the case of a full-time employee paid hourly qualified
3wages, “annual full-time equivalent” means the total number of
4hours worked for the taxpayer by the employee (not to exceed
52,000 hours per employee) divided by 2,000.

6(B) In the case of a salaried full-time employee, “annual
7full-time equivalent” means the total number of weeks worked for
8the taxpayer by the employee divided by 52.

9(c) The net increase in qualified full-time employees of a
10qualified employer shall be determined as provided by this
11 subdivision:

12(1) (A) The net increase in qualified full-time employees shall
13be determined on an annual full-time equivalent basis by
14subtracting from the amount determined in subparagraph (C) the
15amount determined in subparagraph (B).

16(B) The total number of qualified full-time employees employed
17in the preceding taxable year by the taxpayer and by any trade or
18business acquired by the taxpayer during the current taxable year.

19(C) The total number of full-time employees employed in the
20current taxable year by the taxpayer and by any trade or business
21acquired during the current taxable year.

22(2) For taxpayers who first commence doing business in this
23state during the taxable year, the number of full-time employees
24for the immediately preceding prior taxable year shall be zero.

25(d) In the case where the credit allowed by this section exceeds
26the “tax,” the excess may be carried over to reduce the “tax” in
27the following year, and succeeding seven years if necessary, until
28the credit is exhausted.

29(e) Any deduction otherwise allowed under this part for qualified
30wages shall not be reduced by the amount of the credit allowed
31under this section.

32(f) For purposes of this section:

33(1) All employees of the trades or businesses that are treated as
34related under either Section 267, 318, or 707 of the Internal
35Revenue Code shall be treated as employed by a single taxpayer.

36(2) In determining whether the taxpayer has first commenced
37doing business in this state during the taxable year, the provisions
38of subdivision (f) of Section 17276, without application of
39paragraph (7) of that subdivision, shall apply.

P124  1(g) (1) (A) Credit under this section and Section 17053.80 shall
2be allowed only for credits claimed on timely filed original returns
3received by the Franchise Tax Board on or before the cut-off date
4established by the Franchise Tax Board.

5(B) For purposes of this paragraph, the cut-off date shall be the
6last day of the calendar quarter within which the Franchise Tax
7Board estimates it will have received timely filed original returns
8claiming credits under this section and Section 17053.80 that
9cumulatively total four hundred million dollars ($400,000,000)
10for all taxable years.

11(2) The date a return is received shall be determined by the
12Franchise Tax Board.

13(3) (A) The determinations of the Franchise Tax Board with
14respect to the cut-off date, the date a return is received, and whether
15a return has been timely filed for purposes of this subdivision may
16not be reviewed in any administrative or judicial proceeding.

17(B) Any disallowance of a credit claimed due to a determination
18under this subdivision, including the application of the limitation
19specified in paragraph (1), shall be treated as a mathematical error
20appearing on the return. Any amount of tax resulting from such
21disallowance may be assessed by the Franchise Tax Board in the
22same manner as provided by Section 19051.

23(4) The Franchise Tax Board shall periodically provide notice
24on its Web site with respect to the amount of credit under this
25section and Section 17053.80 claimed on timely filed original
26returns received by the Franchise Tax Board.

27(h) (1) The Franchise Tax Board may prescribe rules, guidelines
28or procedures necessary or appropriate to carry out the purposes
29of this section, including any guidelines regarding the limitation
30on total credits allowable under this section and Section 17053.80
31and guidelines necessary to avoid the application of paragraph (2)
32of subdivision (f) through split-ups, shell corporations, partnerships,
33tiered ownership structures, or otherwise.

34(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
35Division 3 of Title 2 of the Government Code does not apply to
36any standard, criterion, procedure, determination, rule, notice, or
37guideline established or issued by the Franchise Tax Board
38pursuant to this section.

39(i) This section shallbegin delete remain in effect only until December 1 of
40the calendar yearend delete
begin insert cease to be operative for taxable years beginning
P125  1on orend insert
afterbegin delete the year of the cut-off date,end deletebegin insert January 1, 2014,end insert andbegin delete as of
2thatend delete
begin insert shall be repealed onend insert Decemberbegin delete 1 is repealed.end deletebegin insert 1, 2014.end insert

3begin insert

begin insertSEC. 32.end insert  

end insert

begin insertSection 23626 is added to the end insertbegin insertRevenue and Taxation
4Code
end insert
begin insert, to read:end insert

begin insert
5

begin insert23626.end insert  

(a) (1) For each taxable year beginning on or after
6January 1, 2014, and before January 1, 2019, there shall be
7allowed to a qualified taxpayer that hires a qualified full-time
8employee and pays or incurs qualified wages attributable to work
9performed by the qualified full-time employee in a designated
10census tract or former enterprise zone, and that receives a tentative
11credit reservation for that qualified full-time employee, a credit
12against the “tax,” as defined by Section 23036, in an amount
13calculated under this section.

14(2) The amount of the credit allowable under this section for a
15taxable year shall be equal to the product of the tentative credit
16amount for the taxable year and the applicable percentage for the
17 taxable year.

18(3) (A) If a qualified taxpayer relocates to a designated census
19tract or former enterprise zone, the qualified taxpayer shall be
20allowed a credit with respect to qualified wages for each qualified
21full-time employee who is employed within the new location only
22if the qualified taxpayer provides each employee at the previous
23location or locations a written offer of employment at the new
24location in the designated census tract or former enterprise zone
25with comparable compensation.

26(B) For purposes of this paragraph, “relocates to a designated
27census tract or former enterprise zone ” means an increase in the
28number of qualified full-time employees, employed by a qualified
29taxpayer, within a designated census tract or tracts or former
30enterprise zone within a 12-month period in which there is a
31decrease in the number of full-time employees, employed by the
32qualified taxpayer in this state, but outside of designated census
33tracts or former enterprise zone.

34(4) The credit allowed by this section may only be claimed on
35a timely filed original return of the qualified taxpayer and only
36with respect to a qualified full-time employee for whom the
37qualified taxpayer has received a tentative credit reservation.

38(C) This paragraph shall not apply to a small business.

39(b) For purposes of this section:

P126  1(1) The “tentative credit amount” for a taxable year shall be
2equal to the product of the applicable credit percentage for each
3qualified full-time employee and the qualified wages paid by the
4qualified taxpayer during the taxable year to that qualified full-time
5employee.

6(2) The “applicable percentage” for a taxable year shall be
7equal to a fraction, the numerator of which is the net increase in
8the total number of full-time employees employed in this state
9during the taxable year, determined on an annual full-time
10equivalent basis, as compared with the total number of full-time
11employees employed in this state during the base year, determined
12on the same basis, and the denominator of which shall be the total
13number of qualified full-time employees employed in this state
14during the taxable year. The applicable percentage shall not exceed
15100 percent.

16(3) The “applicable credit percentage” means the credit
17percentage for the calendar year during which a qualified full-time
18employee was first employed by the qualified taxpayer. The
19applicable credit percentage for all calendar years shall be 35
20percent.

21(4) “Base year” means the 2013 taxable year, or in the case of
22a qualified taxpayer who first hires a qualified full-time employee
23in a taxable year beginning on or after January 2015, the taxable
24year immediately preceding the taxable year in which the qualified
25full-time employee was hired.

26(5) “Acquired” includes any gift, inheritance, transfer incident
27to divorce, or any other transfer, whether or not for consideration.

28(6) “Annual full-time equivalent” means either of the following:

29(A) In the case of a full-time employee paid hourly qualified
30wages, “annual full-time equivalent” means the total number of
31hours worked for the qualified taxpayer by the employee (not to
32exceed 2,000 hours per employee) divided by 2,000.

33(B) In the case of a salaried full-time employee, “annual
34full-time equivalent” means the total number of weeks worked for
35the qualified taxpayer by the employee divided by 52.

36(7) “Designated census tract” means a census tract within the
37state that is determined by the Department of Finance to have a
38civilian unemployment rate that is within the top 25 percent of all
39census tracts within the state and has a poverty rate within the top
P127  125 percent of all census tracts within the state, as prescribed in
2Section 13073.5 of the Government Code.

3(8) “Former enterprise zone” means an enterprise zone
4designated under former Chapter 12.8 (commencing with former
5section 7070 of the Government Code), as in effect on December
631, 2011, excluding any census tract within an enterprise zone
7that is identified by the Department of Finance pursuant to Section
813073.5 of the Government Code as a census tract within the lowest
9quartile of census tracts with the lowest civilian unemployment.

10(9) “Minimum wage” means the wage established pursuant to
11Chapter 1 (commencing with Section 1171) of Part 4 of Division
122 of the Labor Code.

13(10) (A) “Qualified full-time employee” means an individual
14who meets all of the following requirements:

15(i) Performs at least 50 percent of his or her services for the
16qualified taxpayer during the taxable year in a designated census
17tract.

18(ii) Receives starting wages that are at least 150 percent of the
19minimum wage.

20(iii) Is hired by the qualified taxpayer on or after January 1,
212014.

22(iv) Is hired by the qualified taxpayer after the date the
23Department of Finance determines that the census tract or
24enterprise zone referred to in clause (i) is a designated census
25tract or former enterprise zone.

26(v) Satisfies either of the following conditions:

27(I) Is paid qualified wages by the qualified taxpayer for services
28not less than an average of 35 hours per week.

29(II) Is a salaried employee and was paid compensation during
30the taxable year for full-time employment, within the meaning of
31Section 515 of the Labor Code, by the qualified taxpayer.

32(vii) Upon commencement of employment with the qualified
33taxpayer, satisfies any of the following conditions:

34(I) Was unemployed for the six months immediately preceding
35employment with the qualified taxpayer. In the case of an individual
36who completed a program of study at a college, university, or other
37postsecondary educational institution, received a baccalaureate,
38postgraduate, or professional degree, and was unemployed for the
39six months immediately preceding employment with the qualified
40taxpayer, that individual must have completed that program of
P128  1study at least 12 months prior to the individual’s commencement
2of employment with the qualified taxpayer.

3(II) Is a veteran that had not been employed since separation
4from service in the Armed Forces of the United States.

5(III) Was a recipient of the credit allowed under Section 32 of
6the Internal Revenue Code, relating to earned income, as
7applicable for federal purposes, for the previous taxable year.

8(B) An individual may only be considered a qualified full-time
9employee for the period of time commencing with the date the
10individual is first employed by the qualified taxpayer and ending
1160 months thereafter.

12(11) (A) “Qualified taxpayer” means a corporation engaged
13in a trade or business within designated census tract or former
14enterprise zone that, during the taxable year, pays or incurs
15qualified wages.

16(B) “Qualified small business taxpayer” means a qualified
17taxpayer that is a small business.

18(C) In the case of any pass-thru entity, the determination of
19whether a taxpayer is a qualified taxpayer or a qualified small
20business taxpayer under this section shall be made at the entity
21level and any credit under this section or Section 17053.73 shall
22be allowed to the pass-thru entity and passed through to the
23partners and shareholders in accordance with applicable
24provisions of this part or Part 10 (commencing with Section
2517001). For purposes of this subdivision, the term “pass-thru
26entity” means any partnership or “S” corporation.

27(D) “Qualified taxpayer” shall not include any of the following:

28(i) Employers that provide temporary help services, as described
29in Code 561320 of the North American Industry Classification
30System (NAICS) published by the United States Office of
31Management and Budget, 2012 edition.

32(ii) Employers that provide retail trade services, as described
33in Sector 44-45 of the North American Industry Classification
34System (NAICS) published by the United States Office of
35Management and Budget, 2012 edition.

36(iii) Employers that are primarily engaged in providing food
37services, as described in Code 711110, 722511, 722513, 722514,
38or 722515 of the North American Industry Classification System
39(NAICS) published by the United States Office of Management
40and Budget, 2012 edition.

P129  1(iv) Employers that are primarily engaged in services as
2described in Code 713210, 721120, or 722410 of the North
3American Industry Classification System (NAICS) published by
4the United States Office of Management and Budget, 2012 edition.

5(E) Subparagraph (D) shall not apply to a taxpayer that is a
6“small business.”

7(12) “Qualified wages” means those wages that meet all of the
8following requirements:

9(A) That portion of wages paid or incurred by the qualified
10taxpayer during the taxable year to each qualified full-time
11employee that exceeds 150 percent of minimum wage, but does
12not exceed 350 percent of the minimum wage.

13(B) Wages paid or incurred during the 60-month period
14beginning with the first day the qualified full-time employee
15commences employment with the qualified taxpayer. In the case
16of any employee who is reemployed, including regularly occurring
17seasonal increase, in the trade or business operations of the
18qualified taxpayer, this reemployment shall not be treated as
19constituting commencement of employment for purposes of this
20section.

21(C) Except as provided in paragraph (3) of subdivision (j),
22qualified wages shall not include any wages paid or incurred by
23the qualified taxpayer on or after the date that the Department of
24Finance’s redesignation of designated census tracts is effective,
25as provided in paragraph (2) of subdivision (e), so that a census
26tract is no longer determined to be a designated census tract.

27(13) “Seasonal employment” means employment by a qualified
28taxpayer that has regular and predictable substantial reductions
29in trade or business operations.

30(14) (A) “Small business” means a trade or business that has
31aggregate gross receipts, less returns and allowances reportable
32to this state, of less than two million dollars ($2,000,000) during
33the previous taxable year.

34(B) (i) For purposes of this paragraph, “gross receipts, less
35returns and allowances reportable to this state,” means the sum
36of the gross receipts from the production of business income, as
37defined in subdivision (a) of Section 25120, and the gross receipts
38from the production of nonbusiness income, as defined in
39subdivision (d) of Section 25120.

P130  1(ii) In the case of any trade or business activity conducted by a
2partnership or an “S” corporation, the limitations set forth in
3subparagraph (A) shall be applied to the partnership or “S”
4corporation at the entity level.

5(15) An individual is “unemployed” for any period for which
6the individual is all of the following:

7(A) Not in receipt of wages subject to withholding under Section
813020 of the Unemployment Insurance Code for that period.

9(B) Not a self-employed individual (within the meaning of
10Section 401(c)(1)(B) of the Internal Revenue Code, relating to
11self-employed individual) for that period.

12(C) Not a registered full-time student at a high school, college,
13university, or other postsecondary educational institution for that
14period.

15(c) The net increase in full-time employees of a qualified
16taxpayer shall be determined as provided by this subdivision:

17(1) (A) The net increase in full-time employees shall be
18determined on an annual full-time equivalent basis by subtracting
19from the amount determined in subparagraph (C) the amount
20determined in subparagraph (B).

21(B) The total number of full-time employees employed in the
22base year by the taxpayer and by any trade or business acquired
23by the taxpayer during the current taxable year.

24(C) The total number of full-time employees employed in the
25current taxable year by the taxpayer and by any trade or business
26acquired during the current taxable year.

27(2) For taxpayers who first commence doing business in this
28state during the taxable year, the number of full-time employees
29for the base year shall be zero.

30(d) For purposes of this section:

31(1) All employees of the trades or businesses that are treated
32as related under Section 267, 318, or 707 of the Internal Revenue
33Code shall be treated as employed by a single taxpayer.

34(2) In determining whether the taxpayer has first commenced
35doing business in this state during the taxable year, the provisions
36of subdivision (g) of Section 24416.20, without application of
37paragraph (7) of that subdivision, shall apply.

38(e) (1) To be eligible for the credit allowed by this section, a
39qualified taxpayer shall, upon hiring a qualified full-time employee,
40request a tentative credit reservation from the Franchise Tax Board
P131  1within 30 days of complying with the Employment development
2Department’s new hire reporting requirement as provided in
3Section 1088.5 of the Unemployment Insurance code.

4(2) To obtain a tentative credit reservation with respect to a
5qualified full-time employee, the qualified taxpayer shall provide
6necessary information, as determined by the Franchise Tax Board,
7including the name, the social security number, the start date of
8employment, the rate of pay of the qualified full-time employee,
9and the qualified taxpayer’s gross receipts, less returns and
10allowances in this state, for the previous taxable year.

11(3) The qualified taxpayer shall provide the Franchise Tax
12Board an annual certification of employment with respect to each
13qualified full-time employee hire in a previous taxable year, on or
14before the 15th day of the third month of the taxable year. The
15certification shall include necessary information, as determined
16by the Franchise Tax Board, including the name, social security
17number, start date of employment, and rate of pay for each
18qualified full-time employee employed by the qualified taxpayer.

19(4) A tentative credit reservation provided to a taxpayer with
20respect to an employee of that taxpayer shall not constitute a
21determination by the Franchise Tax Board with respect to any of
22the requirements of this section regarding a taxpayer’s eligibility
23for the credit authorized by this section.

24(f) The Franchise Tax Board shall do all of the following:

25(1) Approve a tentative credit reservation with respect to a
26qualified full-time employee hired during a calendar year and
27advise the qualified taxpayer of the applicable credit percentage
28and the small business applicable credit percentage that may apply
29with respect to that qualified full-time employee.

30(2) Determine and publish on its Internet Web site, on or before
31September 1 of each calendar year, the applicable credit
32percentage and small business applicable credit percentage for
33the following calendar year.

34(3) Estimate the tentative credit wage base amount and the small
35business tentative credit wage base amount for a calendar year
36based on the starting wage or salary and full-time employment for
37an entire calendar year.

38(4) Determine the aggregate tentative reservation amount and
39the aggregate small business tentative reservation amount for a
40calendar year.

P132  1(5) Notwithstanding section 19542, provide as a searchable
2database on its Internet Web site, for each taxable year beginning
3on or after January 1, 2014, and before January 1, 2019, the
4employer names, amounts of tax credit claimed, and number of
5new jobs created for each taxable year pursuant to this section
6and section 17053.73.

7(g) (1) The Department of Finance shall, by January 1, 2014,
8and by January 1 of every fifth year thereafter, provide the
9Franchise Tax Board with a list of the designated census tracts
10and a list of census tracts with the lowest civilian unemployment
11rate.

12(2) The redesignation of designated census tracts and lowest
13civilian unemployment census tracts by the Department of Finance
14as provided in Section 13073.5 of the Government Code shall be
15effective, for purposes of this credit, one year after the date that
16the Department of Finance redesignates the designated census
17tracts.

18(h) (1) For purposes of this section:

19(A) All employees of the trades or businesses that are treated
20as related under Section 267, 318, or 707 of the Internal Revenue
21Code shall be treated as employed by a single qualified taxpayer.

22(B) All employees of all corporations that are members of the
23same controlled group of corporations shall be treated as employed
24by a single qualified taxpayer.

25(C) The credit, if any, allowable by this section to each member
26shall be determined by reference to its proportionate share of the
27expense of the qualified wages giving rise to the credit, and shall
28be allocated in that manner.

29(D) If a qualified taxpayer acquires the major portion of a trade
30or business of another taxpayer, hereinafter in this paragraph
31referred to as the predecessor, or the major portion of a separate
32unit of a trade or business of a predecessor, then, for purposes of
33applying this section for any taxable year ending after that
34acquisition, the employment relationship between a qualified
35full-time employee and a qualified taxpayer shall not be treated
36as terminated if the employee continues to be employed in that
37trade or business.

38(2) For purposes of this subdivision, “controlled group of
39corporations” means a controlled group of corporations as defined
40in Section 1563(a) of the Internal Revenue Code, except that:

P133  1(A) “More than 50 percent” shall be substituted for “at least
280 percent” each place it appears in Section 1563(a)(1) of the
3Internal Revenue Code.

4(B) The determination shall be made without regard to
5subsections (a)(4) and (e)(3)(C) of Section 1563 of the Internal
6Revenue Code.

7(3) Rules similar to the rules provided in Sections 46(e) and
846(h) of the Internal Revenue Code, as in effect on November 4,
91990, shall apply to both of the following:

10(A) An organization to which Section 593 of the Internal
11Revenue Code applies.

12(B) A regulated investment company or a real estate investment
13trust subject to taxation under this part.

14(i) (1) If the employment of any qualified full-time employee,
15with respect to whom qualified wages are taken into account under
16subdivision (a), is terminated by the qualified taxpayer at any time
17during the first 36 months after commencing employment with the
18qualified taxpayer, whether or not consecutive, the tax imposed
19by this part for the taxable year in which that employment is
20terminated shall be increased by an amount equal to the credit
21allowed under subdivision (a) for that taxable year and all prior
22taxable years attributable to qualified wages paid or incurred with
23respect to that employee.

24(2) Paragraph (1) shall not apply to any of the following:

25(A) A termination of employment of a qualified full-time
26employee who voluntarily leaves the employment of the qualified
27taxpayer.

28(B) A termination of employment of a qualified full-time
29employee who, before the close of the period referred to in
30paragraph (1), becomes disabled and unable to perform the
31services of that employment, unless that disability is removed
32before the close of that period and the qualified taxpayer fails to
33offer reemployment to that employee.

34(C) A termination of employment of a qualified full-time
35employee, if it is determined that the termination was due to the
36misconduct, as defined in Sections 1256-30 to 1256-43, inclusive,
37of Title 22 of the California Code of Regulations, of that employee.

38(D) A termination of employment of a qualified full-time
39employee due to a substantial reduction in the trade or business
40operations of the qualified taxpayer.

P134  1(E) A termination of employment of a qualified full-time
2employee, if that employee is replaced by other qualified full-time
3employees so as to create a net increase in both the number of
4employees and the hours of employment.

5(F) A termination of employment of a qualified full-time
6employee, when that employment is considered seasonal
7employment and the qualified employee is rehired on a seasonal
8basis.

9(3) For purposes of paragraph (1), the employment relationship
10between the qualified taxpayer and a qualified full-time employee
11shall not be treated as terminated by reason of a mere change in
12the form of conducting the trade or business of the qualified
13taxpayer, if the qualified full-time employee continues to be
14employed in that trade or business and the qualified taxpayer
15retains a substantial interest in that trade or business.

16(4) Any increase in tax under paragraph (1) shall not be treated
17as tax imposed by this part for purposes of determining the amount
18of any credit allowable under this part.

19(j) In the case where the credit allowed by this section exceeds
20the “tax,” the excess may be carried over to reduce the “tax” in
21the following year, and the succeeding four years if necessary,
22until exhausted.

23(k) The Franchise Tax Board may prescribe rules, guidelines,
24or procedures necessary or appropriate to carry out the purposes
25of this section, including any guidelines regarding the allocation
26of the credit allowed under this section. Chapter 3.5 (commencing
27with Section 11340) of Part 1 of Division 3 of Title 2 of the
28Government Code shall not apply to any rule, guideline, or
29procedure prescribed by the Franchise Tax Board pursuant to this
30section.

31(l) (1) This section shall remain in effect only until December
321, 2024, and as of that date is repealed.

33(2) Notwithstanding paragraph (1) of subdivision (a), this
34section shall continue to be operative for taxable years beginning
35on or after January 1, 2019, but only with respect to qualified
36full-time employees who commenced employment with a qualified
37taxpayer in a designated census tract or former enterprise zone
38in a taxable year beginning before January 1, 2019.

39(3) This section shall remain operative for any qualified
40taxpayer with respect to any qualified full-time employee after the
P135  1designated census tract is no longer designated or a former
2enterprise zone ceases to be a former enterprise zone, as defined
3in this section, for the remaining period, if any, of the 60-month
4period after the original date of hiring of an otherwise qualified
5full-time employee and any wages paid or incurred with respect
6to those qualified full-time employees after the designated census
7tract is no longer designated or a former enterprise zone ceases
8to be a former enterprise zone, ad defined in this section, shall be
9treated as qualified wages under this section, provided the
10employee satisfies any other requirements of paragraphs (10) and
11(12) of subdivision (b), as if the designated census tract was still
12designated and binding.

end insert
13begin insert

begin insertSEC. 33.end insert  

end insert

begin insertSection 23633 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
14amended to read:end insert

15

23633.  

(a) For each taxable year beginning on or after January
161, 1998,begin insert and before January 1, 2014,end insert there shall be allowed as a
17credit against the “tax” (as defined by Section 23036) for the
18taxable year an amount equal to the sales or use tax paid or incurred
19during the taxable year by the qualified taxpayer in connection
20with the qualified taxpayer’s purchase of qualifiedbegin delete property.end delete
21begin insert property before January 1, 2014.end insert

22(b) For purposes of this section:

23(1) “Qualified property” means property that meets all of the
24following requirements:

25(A) Is any of the following:

26(i) Machinery and machinery parts used for fabricating,
27processing, assembling, and manufacturing.

28(ii) Machinery and machinery parts used for the production of
29renewable energy resources.

30(iii) Machinery and machinery parts used for either of the
31following:

32(I) Air pollution control mechanisms.

33(II) Water pollution control mechanisms.

34(iv) Data-processing and communications equipment, such as
35computers, computer-automated drafting systems, copy machines,
36telephone systems, and faxes.

37(v) Motion picture manufacturing equipment central to
38production and post production, such as cameras, audio recorders,
39and digital image and sound processing equipment.

P136  1(B) The total cost of qualified property purchased and placed
2in service in any taxable year that may be taken into account by
3any qualified taxpayer for purposes of claiming this credit shall
4not exceed twenty million dollars ($20,000,000).

5(C) The qualified property is used by the qualified taxpayer
6exclusively in a targeted tax area.

7(D) The qualified property is purchased and placed in service
8before the date the targeted tax area designation expires, is revoked,
9is no longer binding, or becomes inoperative.

10(2) (A) “Qualified taxpayer” means a corporation that meets
11both of the following:

12(i) Is engaged in a trade or business within a targeted tax area
13designated pursuant to Chapter 12.93 (commencing with Section
147097) of Division 7 of Title 1 of the Government Code.

15(ii) Is engaged in those lines of business described in Codes
162000 to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
17 inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive,
18of the Standard Industrial Classification (SIC) Manual published
19by the United States Office of Management and Budget, 1987
20edition.

21(B) In the case of any pass-through entity, the determination of
22whether a taxpayer is a qualified taxpayer under this section shall
23be made at the entity level and any credit under this section or
24Section 17053.33 shall be allowed to the pass-through entity and
25passed through to the partners or shareholders in accordance with
26applicable provisions of this part or Part 10 (commencing with
27Section 17001). For purposes of this subparagraph, the term
28“pass-through entity” means any partnership or S corporation.

29(3) “Targeted tax area” means the area designated pursuant to
30Chapter 12.93 (commencing with Section 7097) of Division 7 of
31Title 1 of the Government Code.

32(c) If the qualified taxpayer is allowed a credit for qualified
33property pursuant to this section, only one credit shall be allowed
34to the taxpayer under this part with respect to that qualified
35property.

36(d) If the qualified taxpayer has purchased property upon which
37a use tax has been paid or incurred, the credit provided by this
38section shall be allowed only if qualified property of a comparable
39quality and price is not timely available for purchase in this state.

P137  1(e) In the case where the credit otherwise allowed under this
2section exceeds the “tax” for the taxable year, that portion of the
3credit that exceeds the “tax” may be carried over and added to the
4credit, if any, in thebegin delete following year, andend delete succeedingbegin delete yearsend deletebegin insert five
5taxable years,end insert
if necessary, until the credit is exhausted. The credit
6shall be applied first to the earliest taxable years possible.

7(f) Any qualified taxpayer who elects to be subject to this section
8shall not be entitled to increase the basis of the qualified property
9as otherwise required by Section 164(a) of the Internal Revenue
10Code with respect to sales or use tax paid or incurred in connection
11with the qualified taxpayer’s purchase of qualified property.

12(g) (1) The amount of credit otherwise allowed under this
13section and Section 23634, including any credit carryover from
14prior years, that may reduce the “tax” for the taxable year shall
15not exceed the amount of tax that would be imposed on the
16qualified taxpayer’s business income attributable to the targeted
17tax area determined as if that attributable income represented all
18of the income of the qualified taxpayer subject to tax under this
19part.

20(2) Attributable income shall be that portion of the taxpayer’s
21California source business income that is apportioned to the
22targeted tax area. For that purpose, the taxpayer’s business income
23attributable to sources in this state first shall be determined in
24accordance with Chapter 17 (commencing with Section 25101).
25That business income shall be further apportioned to the targeted
26tax area in accordance with Article 2 (commencing with Section
2725120) of Chapter 17, modified for purposes of this section in
28accordance with paragraph (3).

29(3) Business income shall be apportioned to the targeted tax
30area by multiplying the total California business income of the
31 taxpayer by a fraction, the numerator of which is the property
32factor plus the payroll factor, and the denominator of which is two.
33For purposes of this paragraph:

34(A) The property factor is a fraction, the numerator of which is
35the average value of the taxpayer’s real and tangible personal
36property owned or rented and used in the targeted tax area during
37the taxable year and the denominator of which is the average value
38of all the taxpayer’s real and tangible personal property owned or
39rented and used in this state during the taxable year.

P138  1(B) The payroll factor is a fraction, the numerator of which is
2the total amount paid by the taxpayer in the targeted tax area during
3the taxable year for compensation, and the denominator of which
4is the total compensation paid by the taxpayer in this state during
5the taxable year.

6(4) The portion of any credit remaining, if any, after application
7of this subdivision, shall be carried over to succeeding taxable
8years,begin insert if necessary, until the credit is exhausted,end insert as if it were an
9amount exceeding the “tax” for the taxable year, as provided in
10subdivision (e).begin insert However, the portion of any credit remaining for
11carryover to taxable years beginning on or after January 1, 2014,
12if any, after application of this subdivision, shall be carried over
13only to the succeeding five taxable years if necessary, until the
14credit is exhausted, as if it were an amount exceeding the “tax”
15for the taxable year, as provided in subdivision (e).end insert

16(5) In the event that a credit carryover is allowable under
17subdivision (e) for any taxable year after the targeted tax area
18designation has expired, has been revoked, is no longer binding,
19or has become inoperative, the targeted tax area shall be deemed
20to remain in existence for purposes of computing the limitation
21specified in this subdivision.

22(h) The changes made to this section by the act adding this
23subdivision shall apply to taxable years beginning on or after
24January 1, 1998.

begin insert

25(i) This section is repealed on December 1, 2014.

end insert
26begin insert

begin insertSEC. 34.end insert  

end insert

begin insertSection 23634 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
27amended to read:end insert

28

23634.  

(a) For each taxable year beginning on or after January
291, 1998, there shall be allowed a credit against the “tax” (as defined
30by Section 23036) to a qualified taxpayer who employs a qualified
31employee in a targeted tax area during the taxable year. The credit
32shall be equal to the sum of each of the following:

33(1) Fifty percent of qualified wages in the first year of
34employment.

35(2) Forty percent of qualified wages in the second year of
36employment.

37(3) Thirty percent of qualified wages in the third year of
38employment.

39(4) Twenty percent of qualified wages in the fourth year of
40employment.

P139  1(5) Ten percent of qualified wages in the fifth year of
2employment.

3(b) For purposes of this section:

4(1) “Qualified wages” means:

5(A) That portion of wages paid or incurred by the qualified
6taxpayer during the taxable year to qualified employees that does
7not exceed 150 percent of the minimum wage.

8(B) Wages received during the 60-month period beginning with
9the first day the employee commences employment with the
10qualified taxpayer. Reemployment in connection with any increase,
11including a regularly occurring seasonal increase, in the trade or
12business operations of the qualified taxpayer does not constitute
13commencement of employment for purposes of this section.

14(C) Qualified wages do not include any wages paid or incurred
15by the qualified taxpayer on or after the targeted tax area expiration
16date. However, wages paid or incurred with respect to qualified
17employees who are employed by the qualified taxpayer within the
18targeted tax area within the 60-month period prior to the targeted
19tax area expiration date shall continue to qualify for the credit
20under this section after the targeted tax area expiration date, in
21accordance with all provisions of this section applied as if the
22targeted tax area designation were still in existence and binding.

23(2) “Minimum wage” means the wage established by the
24Industrial Welfare Commission as provided for in Chapter 1
25(commencing with Section 1171) of Part 4 of Division 2 of the
26Labor Code.

27(3) “Targeted tax area expiration date” means the date the
28targeted tax area designation expires, is revoked, is no longer
29binding,begin insert becomes inoperative,end insert orbegin delete becomes inoperative.end deletebegin insert is repealed.end insert

30(4) (A) “Qualified employee” means an individual who meets
31all of the following requirements:

32(i) At least 90 percent of his or her services for the qualified
33taxpayer during the taxable year are directly related to the conduct
34of the qualified taxpayer’s trade or business located in a targeted
35tax area.

36(ii) Performs at least 50 percent of his or her services for the
37qualified taxpayer during the taxable year in a targeted tax area.

38(iii) Is hired by the qualified taxpayer after the date of original
39designation of the area in which services were performed as a
40targeted tax area.

P140  1(iv) Is any of the following:

2(I) Immediately preceding the qualified employee’s
3commencement of employment with the qualified taxpayer, was
4a person eligible for services under the federal Job Training
5Partnership Act (29 U.S.C. Sec. 1501 et seq.), or its successor,
6who is receiving, or is eligible to receive, subsidized employment,
7training, or services funded by the federal Job Training Partnership
8Act, or its successor.

9(II) Immediately preceding the qualified employee’s
10commencement of employment with the qualified taxpayer, was
11a person eligible to be a voluntary or mandatory registrant under
12the Greater Avenues for Independence Act of 1985 (GAIN)
13provided for pursuant to Article 3.2 (commencing with Section
1411320) of Chapter 2 of Part 3 of Division 9 of the Welfare and
15Institutions Code, or its successor.

16(III) Immediately preceding the qualified employee’s
17commencement of employment with the qualified taxpayer, was
18an economically disadvantaged individual 14 years of age or older.

19(IV) Immediately preceding the qualified employee’s
20commencement of employment with the qualified taxpayer, was
21a dislocated worker who meets any of the following:

22(aa) Has been terminated or laid off or who has received a notice
23of termination or layoff from employment, is eligible for or has
24exhausted entitlement to unemployment insurance benefits, and
25is unlikely to return to his or her previous industry or occupation.

26(bb) Has been terminated or has received a notice of termination
27of employment as a result of any permanent closure or any
28substantial layoff at a plant, facility, or enterprise, including an
29individual who has not received written notification but whose
30employer has made a public announcement of the closure or layoff.

31(cc) Is long-term unemployed and has limited opportunities for
32employment or reemployment in the same or a similar occupation
33in the area in which the individual resides, including an individual
3455 years of age or older who may have substantial barriers to
35employment by reason of age.

36(dd) Was self-employed (including farmers and ranchers) and
37is unemployed as a result of general economic conditions in the
38community in which he or she resides or because of natural
39disasters.

P141  1(ee) Was a civilian employee of the Department of Defense
2employed at a military installation being closed or realigned under
3the Defense Base Closure and Realignment Act of 1990.

4(ff) Was an active member of the Armed Forces or National
5Guard as of September 30, 1990, and was either involuntarily
6separated or separated pursuant to a special benefits program.

7(gg) Is a seasonal or migrant worker who experiences chronic
8seasonal unemployment and underemployment in the agriculture
9industry, aggravated by continual advancements in technology and
10mechanization.

11(hh) Has been terminated or laid off, or has received a notice
12of termination or layoff, as a consequence of compliance with the
13Clean Air Act.

14(V) Immediately preceding the qualified employee’s
15commencement of employment with the qualified taxpayer, was
16a disabled individual who is eligible for or enrolled in, or has
17completed a state rehabilitation plan or is a service-connected
18disabled veteran, veteran of the Vietnam era, or veteran who is
19recently separated from military service.

20(VI) Immediately preceding the qualified employee’s
21commencement of employment with the qualified taxpayer, was
22an ex-offender. An individual shall be treated as convicted if he
23or she was placed on probation by a state court without a finding
24of guilt.

25(VII) Immediately preceding the qualified employee’s
26commencement of employment with the qualified taxpayer, was
27a person eligible for or a recipient of any of the following:

28(aa) Federal Supplemental Security Income benefits.

29(bb) Aid to Families with Dependent Children.

30(cc) CalFresh benefits.

31(dd) State and local general assistance.

32(VIII) Immediately preceding the qualified employee’s
33commencement of employment with the qualified taxpayer, was
34a member of a federally recognized Indian tribe, band, or other
35group of Native American descent.

36(IX) Immediately preceding the qualified employee’s
37commencement of employment with the qualified taxpayer, was
38a resident of a targeted tax area.

39(X) Immediately preceding the qualified employee’s
40commencement of employment with the taxpayer, was a member
P142  1of a targeted group, as defined in Section 51(d) of the Internal
2Revenue Code, or its successor.

3(B) Priority for employment shall be provided to an individual
4who is enrolled in a qualified program under the federal Job
5Training Partnership Act or the Greater Avenues for Independence
6Act of 1985 or who is eligible as a member of a targeted group
7under the Work Opportunity Tax Credit (Section 51 of the Internal
8Revenue Code), or its successor.

9(5) (A) “Qualified taxpayer” means a person or entity that meets
10both of the following:

11(i) Is engaged in a trade or business within a targeted tax area
12designated pursuant to Chapter 12.93 (commencing with Section
137097) of Division 7 of Title 1 of the Government Code.

14(ii) Is engaged in those lines of business described in Codes
152000 to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
16inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive,
17of the Standard Industrial Classification (SIC) Manual published
18by the United States Office of Management and Budget, 1987
19edition.

20(B) In the case of any passthrough entity, the determination of
21whether a taxpayer is a qualified taxpayer under this section shall
22be made at the entity level and any credit under this section or
23Section 17053.34 shall be allowed to the passthrough entity and
24passed through to the partners or shareholders in accordance with
25applicable provisions of this part or Part 10 (commencing with
26Section 17001). For purposes of this subparagraph, the term
27“passthrough entity” means any partnership or S corporation.

28(6) “Seasonal employment” means employment by a qualified
29taxpayer that has regular and predictable substantial reductions in
30trade or business operations.

31(c) If the qualified taxpayer is allowed a credit for qualified
32wages pursuant to this section, only one credit shall be allowed to
33the taxpayer under this part with respect to those qualified wages.

34(d) The qualified taxpayer shall do both of the following:

35(1) Obtain from the Employment Development Department, as
36permitted by federal law, the local county or city Job Training
37Partnership Act administrative entity, the local county GAIN office
38or social services agency, or the local government administering
39the targeted tax area, a certification that provides that a qualified
40employee meets the eligibility requirements specified in clause
P143  1(iv) of subparagraph (A) of paragraph (4) of subdivision (b). The
2Employment Development Department may provide preliminary
3screening and referral to a certifying agency. The Department of
4Housing and Community Development shall develop regulations
5for the issuance of certificates pursuant to subdivision (g) of
6 Section 7097 of the Government Code, and shall develop forms
7for this purpose.

8(2) Retain a copy of the certification and provide it upon request
9to the Franchise Tax Board.

10(e) (1) For purposes of this section:

11(A) All employees of all corporations that are members of the
12same controlled group of corporations shall be treated as employed
13by a single taxpayer.

14(B) The credit, if any, allowable by this section to each member
15shall be determined by reference to its proportionate share of the
16expense of the qualified wages giving rise to the credit, and shall
17be allocated in that manner.

18(C) For purposes of this subdivision, “controlled group of
19corporations” means “controlled group of corporations” as defined
20in Section 1563(a) of the Internal Revenue Code, except that:

21(i) “More than 50 percent” shall be substituted for “at least 80
22percent” each place it appears in Section 1563(a)(1) of the Internal
23Revenue Code.

24(ii) The determination shall be made without regard to
25subsections (a)(4) and (e)(3)(C) of Section 1563 of the Internal
26Revenue Code.

27(2) If an employer acquires the major portion of a trade or
28business of another employer (hereinafter in this paragraph referred
29to as the “predecessor”) or the major portion of a separate unit of
30a trade or business of a predecessor, then, for purposes of applying
31this section (other than subdivision (f)) for any calendar year ending
32after that acquisition, the employment relationship between a
33qualified employee and an employer shall not be treated as
34terminated if the employee continues to be employed in that trade
35or business.

36(f) (1) (A) If the employment, other than seasonal employment,
37of any qualified employee with respect to whom qualified wages
38are taken into account under subdivision (a) is terminated by the
39qualified taxpayer at any time during the first 270 days of that
40employment (whether or not consecutive) or before the close of
P144  1the 270th calendar day after the day in which that employee
2completes 90 days of employment with the qualified taxpayer, the
3tax imposed by this part for the taxable year in which that
4employment is terminated shall be increased by an amount equal
5to the credit allowed under subdivision (a) for that taxable year
6and all prior taxable years attributable to qualified wages paid or
7incurred with respect to that employee.

8(B) If the seasonal employment of any qualified employee, with
9respect to whom qualified wages are taken into account under
10subdivision (a) is not continued by the qualified taxpayer for a
11period of 270 days of employment during the 60-month period
12beginning with the day the qualified employee commences seasonal
13employment with the qualified taxpayer, the tax imposed by this
14part, for the taxable year that includes the 60th month following
15the month in which the qualified employee commences seasonal
16employment with the qualified taxpayer, shall be increased by an
17amount equal to the credit allowed under subdivision (a) for that
18taxable year and all prior taxable years attributable to qualified
19wages paid or incurred with respect to that qualified employee.

20(2) (A) Subparagraph (A) of paragraph (1) shall not apply to
21any of the following:

22(i) A termination of employment of a qualified employee who
23voluntarily leaves the employment of the qualified taxpayer.

24(ii) A termination of employment of a qualified employee who,
25before the close of the period referred to in subparagraph (A) of
26paragraph (1), becomes disabled and unable to perform the services
27of that employment, unless that disability is removed before the
28close of that period and the qualified taxpayer fails to offer
29reemployment to that employee.

30(iii) A termination of employment of a qualified employee, if
31it is determined that the termination was due to the misconduct (as
32defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
33the California Code of Regulations) of that employee.

34(iv) A termination of employment of a qualified employee due
35to a substantial reduction in the trade or business operations of the
36taxpayer.

37(v) A termination of employment of a qualified employee, if
38that employee is replaced by other qualified employees so as to
39create a net increase in both the number of employees and the
40hours of employment.

P145  1(B) Subparagraph (B) of paragraph (1) shall not apply to any
2of the following:

3(i) A failure to continue the seasonal employment of a qualified
4employee who voluntarily fails to return to the seasonal
5employment of the qualified taxpayer.

6(ii) A failure to continue the seasonal employment of a qualified
7employee who, before the close of the period referred to in
8subparagraph (B) of paragraph (1), becomes disabled and unable
9to perform the services of that seasonal employment, unless that
10disability is removed before the close of that period and the
11qualified taxpayer fails to offer seasonal employment to that
12qualified employee.

13(iii) A failure to continue the seasonal employment of a qualified
14employee, if it is determined that the failure to continue the
15seasonal employment was due to the misconduct (as defined in
16Sections 1256-30 to 1256-43, inclusive, of Title 22 of the California
17Code of Regulations) of that qualified employee.

18(iv) A failure to continue seasonal employment of a qualified
19employee due to a substantial reduction in the regular seasonal
20trade or business operations of the qualified taxpayer.

21(v) A failure to continue the seasonal employment of a qualified
22employee, if that qualified employee is replaced by other qualified
23employees so as to create a net increase in both the number of
24seasonal employees and the hours of seasonal employment.

25(C) For purposes of paragraph (1), the employment relationship
26between the qualified taxpayer and a qualified employee shall not
27be treated as terminated by either of the following:

28(i) By a transaction to which Section 381(a) of the Internal
29Revenue Code applies, if the qualified employee continues to be
30employed by the acquiring corporation.

31(ii) By reason of a mere change in the form of conducting the
32trade or business of the qualified taxpayer, if the qualified
33employee continues to be employed in that trade or business and
34the qualified taxpayer retains a substantial interest in that trade or
35business.

36(3) Any increase in tax under paragraph (1) shall not be treated
37as tax imposed by this part for purposes of determining the amount
38of any credit allowable under this part.

39(g) Rules similar to the rules provided in Sections 46(e) and (h)
40of the Internal Revenue Code shall apply to both of the following:

P146  1(1) An organization to which Section 593 of the Internal
2Revenue Code applies.

3(2) A regulated investment company or a real estate investment
4trust subject to taxation under this part.

5(h) For purposes of this section, “targeted tax area” means an
6area designated pursuant to Chapter 12.93 (commencing with
7Section 7097) of Division 7 of Title 1 of the Government Code.

8(i) In the case where the credit otherwise allowed under this
9section exceeds the “tax” for the taxable year, that portion of the
10 credit that exceeds the “tax” may be carried over and added to the
11credit, if any, inbegin insert theend insert succeedingbegin insert fiveend insert taxable years,begin insert if necessary,end insert
12 until the credit is exhausted. The credit shall be applied first to the
13earliest taxable years possible.

14(j) (1) The amount of the credit otherwise allowed under this
15section and Section 23633, including any credit carryover from
16prior years, that may reduce the “tax” for the taxable year shall
17not exceed the amount of tax that would be imposed on the
18qualified taxpayer’s business income attributable to the targeted
19tax area determined as if that attributable income represented all
20of the income of the qualified taxpayer subject to tax under this
21part.

22(2) Attributable income shall be that portion of the taxpayer’s
23California source business income that is apportioned to the
24targeted tax area. For that purpose, the taxpayer’s business income
25attributable to sources in this state first shall be determined in
26accordance with Chapter 17 (commencing with Section 25101).
27That business income shall be further apportioned to the targeted
28tax area in accordance with Article 2 (commencing with Section
2925120) of Chapter 17, modified for purposes of this section in
30accordance with paragraph (3).

31(3) Business income shall be apportioned to the targeted tax
32area by multiplying the total California business income of the
33taxpayer by a fraction, the numerator of which is the property
34factor plus the payroll factor, and the denominator of which is two.
35For purposes of this paragraph:

36(A) The property factor is a fraction, the numerator of which is
37the average value of the taxpayer’s real and tangible personal
38property owned or rented and used in the targeted tax area during
39the taxable year, and the denominator of which is the average value
P147  1of all the taxpayer’s real and tangible personal property owned or
2rented and used in this state during the taxable year.

3(B) The payroll factor is a fraction, the numerator of which is
4the total amount paid by the taxpayer in the targeted tax area during
5the taxable year for compensation, and the denominator of which
6is the total compensation paid by the taxpayer in this state during
7the taxable year.

8(4) The portion of any credit remaining, if any, after application
9of this subdivision, shall be carried over to succeeding taxable
10 years,begin insert if necessary, until the credit is exhausted,end insert as if it were an
11amount exceeding the “tax” for the taxable year, as provided in
12subdivisionbegin delete (h).end deletebegin insert (i). However, the portion of any credit remaining
13for carryover to taxable years beginning on or after January 1,
142014, if any, after application of this subdivision, shall be carried
15over only to the succeeding five taxable years if necessary, until
16the credit is exhausted, as if it were an amount exceeding the “tax”
17for the taxable year, as provided in subdivision (i).end insert

18(5) In the event that a credit carryover is allowable under
19subdivision (h) for any taxable year after the targeted tax area
20designation has expired or been revoked, the targeted tax area shall
21be deemed to remain in existence for purposes of computing the
22limitation specified in this subdivision.

begin insert

23(k) (1) Except as provided in paragraph (2), this section shall
24cease to be operative for taxable years beginning on or after
25January 1, 2014, and shall be repealed on December 1, 2019.

end insert
begin insert

26(2) The section shall continue to apply with respect to qualified
27employees who are employed by the qualified taxpayer within the
28targeted tax area within the 60-month period immediately
29preceding January 1, 2014, and qualified wages paid or incurred
30with respect to those qualified employees shall continue to qualify
31for the credit under this section for taxable years beginning on or
32after January 1, 2014, in accordance with this section, as amended
33by the act adding this subdivision.

end insert
34begin insert

begin insertSEC. 35.end insert  

end insert

begin insertSection 23645 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
35amended to read:end insert

36

23645.  

(a) For each taxable year beginning on or after January
371, 1995,begin insert and before January 1, 2014,end insert there shall be allowed as a
38credit against the “tax” (as defined by Section 23036) for the
39taxable year an amount equal to the sales or use tax paid or incurred
40by the taxpayer in connection with the purchase of qualified
P148  1propertybegin insert before January 1, 2014,end insert to the extent that the qualified
2property does not exceed a value of twenty million dollars
3($20,000,000).

4(b) For purposes of this section:

5(1) “LAMBRA” means a local agency military base recovery
6area designated in accordance with Section 7114 of the Government
7Code.

8(2) “Taxpayer” means a corporation that conducts a trade or
9business within a LAMBRA and, for the first two taxable years,
10has a net increase in jobs (defined as 2,000 paid hours per employee
11per year) of one or more employees in the LAMBRA.

12(A) The net increase in the number of jobs shall be determined
13by subtracting the total number of full-time employees (defined
14as 2,000 paid hours per employee per year) the taxpayer employed
15in this state in the taxable year prior to commencing business
16operations in the LAMBRA from the total number of full-time
17employees the taxpayer employed in this state during the second
18taxable year after commencing business operations in the
19LAMBRA. For taxpayers who commence doing business in this
20state with their LAMBRA business operation, the number of
21employees for the taxable year prior to commencing business
22operations in the LAMBRA shall be zero. If the taxpayer has a net
23increase in jobs in the state, the credit shall be allowed only if one
24or more full-time employees is employed within the LAMBRA.

25(B) The total number of employees employed in the LAMBRA
26shall equal the sum of both of the following:

27(i) The total number of hours worked in the LAMBRA for the
28taxpayer by employees (not to exceed 2,000 hours per employee)
29who are paid an hourly wage divided by 2,000.

30(ii) The total number of months worked in the LAMBRA for
31the taxpayer by employees that are salaried employees divided by
3212.

33(C) In the case of a taxpayer who first commences doing
34business in the LAMBRA during the taxable year, for purposes of
35clauses (i) and (ii), respectively, of subparagraph (B) the divisors
36“2,000” and “12” shall be multiplied by a fraction, the numerator
37of which is the number of months of the taxable year that the
38taxpayer was doing business in the LAMBRA and the denominator
39of which is 12.

P149  1(3) “Qualified property” means property that is each of the
2following:

3(A) Purchased by the taxpayer for exclusive use in a trade or
4business conducted within a LAMBRA.

5(B) Purchased before the date the LAMBRA designation expires,
6is no longer binding, or becomes inoperative.

7(C) Any of the following:

8(i) High technology equipment, including, but not limited to,
9computers and electronic processing equipment.

10(ii) Aircraft maintenance equipment, including, but not limited
11to, engine stands, hydraulic mules, power carts, test equipment,
12handtools, aircraft start carts, and tugs.

13(iii) Aircraft components, including, but not limited to, engines,
14fuel control units, hydraulic pumps, avionics, starts, wheels, and
15tires.

16(iv) Section 1245 property, as defined in Section 1245(a)(3) of
17the Internal Revenue Code.

18(c) The credit provided under subdivision (a) shall only be
19allowed for qualified property manufactured in California unless
20qualified property of a comparable quality and price is not available
21for timely purchase and delivery from a California manufacturer.

22(d) In the case where the credit otherwise allowed under this
23section exceeds the “tax” for the taxable year, that portion of the
24credit which exceeds the “tax” may be carried over and added to
25the credit, if any, inbegin insert theend insert succeedingbegin insert five taxableend insert years,begin insert if necessary,end insert
26 until the credit is exhausted. The credit shall be applied first to the
27earliest taxable years possible.

28(e) Any taxpayer who elects to be subject to this section shall
29not be entitled to increase the basis of the property as otherwise
30required by Section 164(a) of the Internal Revenue Code with
31respect to sales or use tax paid or incurred in connection with the
32purchase of qualified property.

33(f) (1) The amount of the credit otherwise allowed under this
34section and Section 23646, including any credit carryovers from
35prior years, that may reduce the “tax” for the taxable year shall
36not exceed the amount of tax that would be imposed on the
37taxpayer’s business income attributed to a LAMBRA determined
38as if that attributable income represented all the income of the
39taxpayer subject to tax under this part.

P150  1(2) Attributable income shall be that portion of the taxpayer’s
2California source business income that is apportioned to the
3LAMBRA. For that purpose, the taxpayer’s business income that
4is attributable to sources in this state shall first be determined in
5accordance with Chapter 17 (commencing with Section 25101).
6That business income shall be further apportioned to the LAMBRA
7in accordance with Article 2 (commencing with Section 25120)
8of Chapter 17, modified for purposes of this section in accordance
9with paragraph (3).

10(3) Income shall be apportioned to a LAMBRA by multiplying
11the total California business income of the taxpayer by a fraction,
12the numerator of which is the property factor, plus the payroll
13factor, and the denominator of which is two. For purposes of this
14paragraph:

15(A) The property factor is a fraction, the numerator of which is
16the average value of the taxpayer’s real and tangible personal
17property owned or rented and used in the LAMBRA during the
18taxable year, and the denominator of which is the average value
19of all the taxpayer’s real and tangible personal property owned or
20rented and used in this state during the taxable year.

21(B) The payroll factor is a fraction, the numerator of which is
22the total amount paid by the taxpayer in the LAMBRA during the
23taxable year for compensation, and the denominator of which is
24the total compensation paid by the taxpayer in this state during the
25taxable year.

26(4) The portion of any credit remaining, if any, after application
27of this subdivision, shall be carried over to succeeding taxable
28years,begin insert if necessary, until the credit is exhausted,end insert as if it were an
29amount exceeding the “tax” for the taxable year, as provided in
30subdivision (d).begin insert However, the portion of any credit remaining for
31carryover to taxable years beginning on or after January 1, 2014,
32if any, after application of this subdivision, shall be carried over
33only to the succeeding five taxable years, if necessary, until the
34credit is exhausted, as if it were an amount exceeding the “tax”
35for the taxable year, as provided in subdivision (d).end insert

36(g) (1) If the qualified property is disposed of or no longer used
37by the taxpayer in the LAMBRA, at any time before the close of
38the second taxable year after the property is placed in service, the
39amount of the credit previously claimed, with respect to that
P151  1property, shall be added to the taxpayer’s tax liability in the taxable
2year of that disposition or nonuse.

3(2) At the close of the second taxable year, if the taxpayer has
4not increased the number of its employees as determined by
5paragraph (2) of subdivision (b), then the amount of the credit
6previously claimed shall be added to the taxpayer’s tax for the
7taxpayer’s second taxable year.

8(h) If the taxpayer is allowed a credit for qualified property
9pursuant to this section, only one credit shall be allowed to the
10taxpayer under this part with respect to that qualified property.

11(i) The amendments made to this section by the act adding this
12subdivision shall apply to taxable years beginning on or after
13January 1, 1998.

begin insert

14(j) This section is repealed on December 1, 2014.

end insert
15begin insert

begin insertSEC. 36.end insert  

end insert

begin insertSection 23646 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
16amended to read:end insert

17

23646.  

(a) For each taxable year beginning on or after January
181, 1995, there shall be allowed as a credit against the “tax” (as
19defined in Section 23036) to a qualified taxpayer for hiring a
20qualified disadvantaged individual or a qualified displaced
21employee during the taxable year for employment in the LAMBRA.
22The credit shall be equal to the sum of each of the following:

23(1) Fifty percent of the qualified wages in the first year of
24employment.

25(2) Forty percent of the qualified wages in the second year of
26employment.

27(3) Thirty percent of the qualified wages in the third year of
28employment.

29(4) Twenty percent of the qualified wages in the fourth year of
30employment.

31(5) Ten percent of the qualified wages in the fifth year of
32employment.

33(b) For purposes of this section:

34(1) “Qualified wages” means:

35(A) That portion of wages paid or incurred by the employer
36during the taxable year to qualified disadvantaged individuals or
37qualified displaced employees that does not exceed 150 percent
38of the minimum wage.

39(B) The total amount of qualified wages which may be taken
40into account for purposes of claiming the credit allowed under this
P152  1section shall not exceed two million dollars ($2,000,000) per
2taxable year.

3(C) Wages received during the 60-month period beginning with
4the first day the individual commences employment with the
5taxpayer. Reemployment in connection with any increase, including
6a regularly occurring seasonal increase, in the trade or business
7operation of the qualified taxpayer does not constitute
8commencement of employment for purposes of this section.

9(D) Qualified wages do not include any wages paid or incurred
10by the qualified taxpayer on or after the LAMBRA expiration date.
11However, wages paid or incurred with respect to qualified
12disadvantaged individuals or qualified displaced employees who
13are employed by the qualified taxpayer within the LAMBRA within
14the 60-month period prior to the LAMBRA expiration date shall
15continue to qualify for the credit under this section after the
16LAMBRA expiration date, in accordance with all provisions of
17this section applied as if the LAMBRA designation were still in
18existence and binding.

19(2) “Minimum wage” means the wage established by the
20Industrial Welfare Commission as provided for in Chapter 1
21(commencing with Section 1171) of Part 4 of Division 2 of the
22Labor Code.

23(3) “LAMBRA” means a local agency military base recovery
24area designated in accordance with the provisions of Section 7114
25of the Government Code.

26(4) “Qualified disadvantaged individual” means an individual
27who satisfies all of the following requirements:

28(A) (i) At least 90 percent of whose services for the taxpayer
29during the taxable year are directly related to the conduct of the
30taxpayer’s trade or business located in a LAMBRA.

31(ii) Who performs at least 50 percent of his or her services for
32the taxpayer during the taxable year in the LAMBRA.

33(B) Who is hired by the employer after the designation of the
34area as a LAMBRA in which the individual’s services were
35primarily performed.

36(C) Who is any of the following immediately preceding the
37individual’s commencement of employment with the taxpayer:

38(i) An individual who has been determined eligible for services
39under the federal Job Training Partnership Act (29 U.S.C. Sec.
401501 et seq.), or its successor.

P153  1(ii) Any voluntary or mandatory registrant under the Greater
2Avenues for Independence Act of 1985 provided for pursuant to
3Article 3.2 (commencing with Section 11320) of Chapter 2 of Part
43 of Division 9 of the Welfare and Institutions Code.

5(iii) An economically disadvantaged individual 16 years of age
6or older.

7(iv) A dislocated worker who meets any of the following
8conditions:

9(I) Has been terminated or laid off or who has received a notice
10of termination or layoff from employment, is eligible for or has
11exhausted entitlement to unemployment insurance benefits, and
12is unlikely to return to his or her previous industry or occupation.

13(II) Has been terminated or has received a notice of termination
14of employment as a result of any permanent closure or any
15substantial layoff at a plant, facility, or enterprise, including an
16individual who has not received written notification but whose
17employer has made a public announcement of the closure or layoff.

18(III) Is long-term unemployed and has limited opportunities for
19employment or reemployment in the same or a similar occupation
20in the area in which the individual resides, including an individual
2155 years of age or older who may have substantial barriers to
22employment by reason of age.

23(IV) Was self-employed (including farmers and ranchers) and
24is unemployed as a result of general economic conditions in the
25community in which he or she resides or because of natural
26disasters.

27(V) Was a civilian employee of the Department of Defense
28employed at a military installation being closed or realigned under
29the Defense Base Closure and Realignment Act of 1990.

30(VI) Was an active member of the Armed Forces or National
31Guard as of September 30, 1990, and was either involuntarily
32separated or separated pursuant to a special benefits program.

33(VII) Experiences chronic seasonal unemployment and
34underemployment in the agriculture industry, aggravated by
35continual advancements in technology and mechanization.

36(VIII) Has been terminated or laid off or has received a notice
37of termination or layoff as a consequence of compliance with the
38Clean Air Act.

39(v) An individual who is enrolled in or has completed a state
40rehabilitation plan or is a service-connected disabled veteran,
P154  1veteran of the Vietnam era, or veteran who is recently separated
2from military service.

3(vi) An ex-offender. An individual shall be treated as convicted
4if he or she was placed on probation by a state court without a
5finding of guilty.

6(vii) A recipient of:

7(I) Federal Supplemental Security Income benefits.

8(II) Aid to Families with Dependent Children.

9(III) CalFresh benefits.

10(IV) State and local general assistance.

11(viii) Is a member of a federally recognized Indian tribe, band,
12or other group of Native American descent.

13(5) “Qualified taxpayer” means a corporation that conducts a
14trade or business within a LAMBRA and, for the first two taxable
15years, has a net increase in jobs (defined as 2,000 paid hours per
16employee per year) of one or more employees as determined below
17in the LAMBRA.

18(A) The net increase in the number of jobs shall be determined
19by subtracting the total number of full-time employees (defined
20as 2,000 paid hours per employee per year) the taxpayer employed
21in this state in the taxable year prior to commencing business
22operations in the LAMBRA from the total number of full-time
23employees the taxpayer employed in this state during the second
24taxable year after commencing business operations in the
25LAMBRA. For taxpayers who commence doing business in this
26state with their LAMBRA business operation, the number of
27employees for the taxable year prior to commencing business
28operations in the LAMBRA shall be zero. If the taxpayer has a net
29increase in jobs in the state, the credit shall be allowed only if one
30or more full-time employees is employed within the LAMBRA.

31(B) The total number of employees employed in the LAMBRA
32shall equal the sum of both of the following:

33(i) The total number of hours worked in the LAMBRA for the
34taxpayer by employees (not to exceed 2,000 hours per employee)
35who are paid an hourly wage divided by 2,000.

36(ii) The total number of months worked in the LAMBRA for
37the taxpayer by employees who are salaried employees divided
38by 12.

39(C) In the case of a qualified taxpayer that first commences
40doing business in the LAMBRA during the taxable year, for
P155  1purposes of clauses (i) and (ii), respectively, of subparagraph (B)
2the divisors “2,000” and “12” shall be multiplied by a fraction, the
3numerator of which is the number of months of the taxable year
4that the taxpayer was doing business in the LAMBRA and the
5denominator of which is 12.

6(6) “Qualified displaced employee” means an individual who
7satisfies all of the following requirements:

8(A) Any civilian or military employee of a base or former base
9that has been displaced as a result of a federal base closure act.

10(B) (i) At least 90 percent of whose services for the taxpayer
11during the taxable year are directly related to the conduct of the
12taxpayer’s trade or business located in a LAMBRA.

13(ii) Who performs at least 50 percent of his or her services for
14the taxpayer during the taxable year in a LAMBRA.

15(C) Who is hired by the employer after the designation of the
16area in which services were performed as a LAMBRA.

17(7) “Seasonal employment” means employment by a qualified
18taxpayer that has regular and predictable substantial reductions in
19trade or business operations.

20(8) “LAMBRA expiration date” means the date the LAMBRA
21designation expires, is no longer binding,begin insert becomes inoperative,end insert or
22begin delete becomes inoperative.end deletebegin insert is repealed.end insert

23(c) For qualified disadvantaged individuals or qualified displaced
24employees hired on or after January 1, 2001, the taxpayer shall do
25both of the following:

26(1) Obtain from the Employment Development Department, as
27permitted by federal law, the administrative entity of the local
28county or city for the federal Job Training Partnership Act, or its
29successor, the local county GAIN office or social services agency,
30or the local government administering the LAMBRA, a
31certification that provides that a qualified disadvantaged individual
32or qualified displaced employee meets the eligibility requirements
33specified in subparagraph (C) of paragraph (4) of subdivision (b)
34or subparagraph (A) of paragraph (6) of subdivision (b). The
35Employment Development Department may provide preliminary
36screening and referral to a certifying agency. The Department of
37Housing and Community Development shall develop regulations
38governing the issuance of certificates pursuant to Section 7114.2
39of the Government Code and shall develop forms for this purpose.

P156  1(2) Retain a copy of the certification and provide it upon request
2to the Franchise Tax Board.

3(d) (1) For purposes of this section, both of the following apply:

4(A) All employees of all corporations that are members of the
5same controlled group of corporations shall be treated as employed
6by a single employer.

7(B) The credit (if any) allowable by this section to each member
8shall be determined by reference to its proportionate share of the
9qualified wages giving rise to the credit.

10(2) For purposes of this subdivision, “controlled group of
11corporations” has the meaning given to that term by Section
121563(a) of the Internal Revenue Code, except that both of the
13following apply:

14(A) “More than 50 percent” shall be substituted for “at least 80
15percent” each place it appears in Section 1563(a)(1) of the Internal
16Revenue Code.

17(B) The determination shall be made without regard to Section
181563(a)(4) and Section 1563(e)(3)(C) of the Internal Revenue
19Code.

20(3) If an employer acquires the major portion of a trade or
21business of another employer (hereinafter in this paragraph referred
22to as the “predecessor”) or the major portion of a separate unit of
23a trade or business of a predecessor, then, for purposes of applying
24this section (other than subdivision (e)) for any calendar year
25ending after that acquisition, the employment relationship between
26an employee and an employer shall not be treated as terminated if
27the employee continues to be employed in that trade or business.

28(e) (1) (A) If the employment of any employee, other than
29seasonal employment, with respect to whom qualified wages are
30taken into account under subdivision (a) is terminated by the
31taxpayer at any time during the first 270 days of that employment
32(whether or not consecutive) or before the close of the 270th
33calendar day after the day in which that employee completes 90
34days of employment with the taxpayer, the tax imposed by this
35part for the taxable year in which that employment is terminated
36shall be increased by an amount equal to the credit allowed under
37 subdivision (a) for that taxable year and all prior income years
38attributable to qualified wages paid or incurred with respect to that
39employee.

P157  1(B) If the seasonal employment of any qualified disadvantaged
2individual, with respect to whom qualified wages are taken into
3account under subdivision (a) is not continued by the qualified
4taxpayer for a period of 270 days of employment during the
560-month period beginning with the day the qualified
6disadvantaged individual commences seasonal employment with
7the qualified taxpayer, the tax imposed by this part, for the taxable
8year that includes the 60th month following the month in which
9the qualified disadvantaged individual commences seasonal
10employment with the qualified taxpayer, shall be increased by an
11amount equal to the credit allowed under subdivision (a) for that
12taxable year and all prior taxable years attributable to qualified
13wages paid or incurred with respect to that qualified disadvantaged
14individual.

15(2) (A) Subparagraph (A) of paragraph (1) shall not apply to
16any of the following:

17(i) A termination of employment of an employee who voluntarily
18leaves the employment of the taxpayer.

19(ii) A termination of employment of an individual who, before
20the close of the period referred to in paragraph (1), becomes
21disabled to perform the services of that employment, unless that
22disability is removed before the close of that period and the
23taxpayer fails to offer reemployment to that individual.

24(iii) A termination of employment of an individual, if it is
25determined that the termination was due to the misconduct (as
26defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
27the California Code of Regulations) of that individual.

28(iv) A termination of employment of an individual due to a
29substantial reduction in the trade or business operations of the
30taxpayer.

31(v) A termination of employment of an individual, if that
32individual is replaced by other qualified employees so as to create
33a net increase in both the number of employees and the hours of
34employment.

35(B) Subparagraph (B) of paragraph (1) shall not apply to any
36of the following:

37(i) A failure to continue the seasonal employment of a qualified
38disadvantaged individual who voluntarily fails to return to the
39seasonal employment of the qualified taxpayer.

P158  1(ii) A failure to continue the seasonal employment of a qualified
2 disadvantaged individual who, before the close of the period
3referred to in subparagraph (B) of paragraph (1), becomes disabled
4and unable to perform the services of that seasonal employment,
5unless that disability is removed before the close of that period
6and the qualified taxpayer fails to offer seasonal employment to
7that qualified disadvantaged individual.

8(iii) A failure to continue the seasonal employment of a qualified
9disadvantaged individual, if it is determined that the failure to
10continue the seasonal employment was due to the misconduct (as
11defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
12the California Code of Regulations) of that individual.

13(iv) A failure to continue seasonal employment of a qualified
14disadvantaged individual due to a substantial reduction in the
15regular seasonal trade or business operations of the qualified
16taxpayer.

17(v) A failure to continue the seasonal employment of a qualified
18disadvantaged individual, if that individual is replaced by other
19qualified disadvantaged individuals so as to create a net increase
20in both the number of seasonal employees and the hours of seasonal
21employment.

22(C) For purposes of paragraph (1), the employment relationship
23between the taxpayer and an employee shall not be treated as
24terminated by either of the following:

25(i) A transaction to which Section 381(a) of the Internal Revenue
26Code applies, if the employee continues to be employed by the
27acquiring corporation.

28(ii) A mere change in the form of conducting the trade or
29business of the taxpayer, if the employee continues to be employed
30in that trade or business and the taxpayer retains a substantial
31interest in that trade or business.

32(3) Any increase in tax under paragraph (1) shall not be treated
33as tax imposed by this part for purposes of determining the amount
34of any credit allowable under this part.

35(4) At the close of the second taxable year, if the taxpayer has
36not increased the number of its employees as determined by
37paragraph (5) of subdivision (b), then the amount of the credit
38previously claimed shall be added to the taxpayer’s tax for the
39taxpayer’s second taxable year.

P159  1(f) In the case of an organization to which Section 593 of the
2Internal Revenue Code applies, and a regulated investment
3company or a real estate investment trust subject to taxation under
4this part, rules similar to the rules provided in Section 46(e) and
5Section 46(h) of the Internal Revenue Code shall apply.

6(g) The credit shall be reduced by the credit allowed under
7Section 23621. The credit shall also be reduced by the federal
8credit allowed under Section 51 of the Internal Revenue Code.

9In addition, any deduction otherwise allowed under this part for
10the wages or salaries paid or incurred by the taxpayer upon which
11the credit is based shall be reduced by the amount of the credit,
12prior to any reduction required by subdivision (h) or (i).

13(h) In the case where the credit otherwise allowed under this
14section exceeds the “tax” for the taxable year, that portion of the
15credit that exceeds the “tax” may be carried over and added to the
16credit, if any, inbegin insert theend insert succeedingbegin insert five taxableend insert years,begin insert if necessary,end insert
17 until the credit is exhausted. The credit shall be applied first to the
18earliest taxable years possible.

19(i) (1) The amount of credit otherwise allowed under this section
20and Section 23645, including any prior year carryovers, that may
21reduce the “tax” for the taxable year shall not exceed the amount
22of tax that would be imposed on the taxpayer’s business income
23attributed to a LAMBRA determined as if that attributed income
24represented all of the income of the taxpayer subject to tax under
25this part.

26(2) Attributable income shall be that portion of the taxpayer’s
27California source business income that is apportioned to the
28LAMBRA. For that purpose, the taxpayer’s business income that
29is attributable to sources in this state first shall be determined in
30accordance with Chapter 17 (commencing with Section 25101).
31That business income shall be further apportioned to the LAMBRA
32in accordance with Article 2 (commencing with Section 25120)
33of Chapter 17, modified for purposes of this section in accordance
34with paragraph (3).

35(3) Income shall be apportioned to a LAMBRA by multiplying
36the total California business income of the taxpayer by a fraction,
37the numerator of which is the property factor plus the payroll factor,
38and the denominator of which is two. For purposes of this
39paragraph:

P160  1(A) The property factor is a fraction, the numerator of which is
2the average value of the taxpayer’s real and tangible personal
3property owned or rented and used in the LAMBRA during the
4taxable year, and the denominator of which is the average value
5of all the taxpayer’s real and tangible personal property owned or
6rented and used in this state during the taxable year.

7(B) The payroll factor is a fraction, the numerator of which is
8the total amount paid by the taxpayer in the LAMBRA during the
9taxable year for compensation, and the denominator of which is
10the total compensation paid by the taxpayer in this state during the
11taxable year.

12(4) The portion of any credit remaining, if any, after application
13of this subdivision, shall be carried over to succeeding taxable
14years,begin insert if necessary, until the credit is exhausted,end insert as if it were an
15amount exceeding the “tax” for the taxable year, as provided in
16subdivision (h).begin insert However, the portion of any credit remaining for
17carryover to taxable years beginning on or after January 1, 2014,
18if any, after application of this subdivision, shall be carried over
19only to the succeeding five taxable years, if necessary, until the
20credit is exhausted, as if it were an amount exceeding the “tax”
21for the taxable year, as provided in subdivision (h).end insert

22(j) If the taxpayer is allowed a credit pursuant to this section for
23qualified wages paid or incurred, only one credit shall be allowed
24to the taxpayer under this part with respect to any wage consisting
25in whole or in part of those qualified wages.

begin insert

26(k) (1) Except as provided in paragraph (2), this section shall
27cease to be operative for taxable years beginning on or after
28January 1, 2014, and shall be repealed on December 1, 2019.

end insert
begin insert

29(2) The section shall continue to apply with respect to qualified
30employees who are employed by the qualified taxpayer within the
31LAMBRA within the 60-month period immediately preceding
32January 1, 2014, and qualified wages paid or incurred with respect
33to those qualified employees shall continue to qualify for the credit
34under this section for taxable years beginning on or after January
351, 2014, in accordance with this section, as amended by the act
36adding this subdivision.

end insert
37begin insert

begin insertSEC. 37.end insert  

end insert

begin insertSection 23689 is added to the end insertbegin insertRevenue and Taxation
38Code
end insert
begin insert, to read:end insert

begin insert
39

begin insert23689.end insert  

(a) (1) For each taxable year beginning on and after
40January 1, 2014, and before January 1, 2025, there shall be
P161  1allowed as a credit against the “tax,” as defined in Section 23036,
2an amount as determined by the committee pursuant to paragraph
3(2) and approved pursuant to Section 18410.2.

4(2) The amount of credit allocated to a taxpayer for a taxable
5year pursuant to this section shall be as set forth in a written
6agreement between GO-Biz and the taxpayer and shall be based
7on, but not limited to, the following factors:

8(A) The number of jobs the taxpayer will create or retain in this
9state.

10(B) The compensation paid or proposed to be paid by the
11taxpayer to its employees, including wages and fringe benefits.

12(C) The amount of investment in this state by the taxpayer.

13(D) The extent of unemployment in the area in which the
14taxpayer’s project or business is proposed or located.

15(E) The incentives available to the taxpayer in the state,
16including incentives from the state, local government and other
17entities.

18(F) The incentives available to the taxpayer in other states.

19(G) The duration of the proposed project and the duration the
20taxpayer commits to remain in this state.

21(H) The overall economic impact in this state of the taxpayer’s
22project or business.

23(I) The strategic importance of the taxpayer’s project or business
24to the state, region, or locality.

25(J) The opportunity for future growth and expansion in this state
26by the taxpayer’s business.

27(K) The extent to which the anticipated benefit to the state
28exceeds the projected benefit to the taxpayer from the tax credit.

29(3) The written agreement entered into pursuant to paragraph
30(2) shall include:

31(A) Terms and conditions that include a minimum compensation
32level and a minimum job retention period.

33(B) Provisions indicating whether the credit is to be allocated
34in full upon approval or in increments based on mutually agreed
35upon milestones when satisfactorily met by the taxpayer.

36(C) Provisions that allow the committee to recapture the credit,
37in whole or in part, if the taxpayer fails to fulfill the terms and
38conditions of the written agreement.

39(b) For purposes of this section:

P162  1(1) “Committee” means the California Competes Tax Credit
2Committee established pursuant to Section 18410.2.

3(2) “GO-Biz” means the Governor’s Office of Business and
4Economic Development.

5(c) For purposes of this section, GO-Biz shall do the following:

6(1) Give priority to a taxpayer whose project or business is
7located or proposed to be located in an area of high unemployment
8or poverty.

9(2) Negotiate with a taxpayer the terms and conditions of
10proposed written agreements that provide the credit allowed
11pursuant to this section to a taxpayer.

12(3) Provide the negotiated written agreement to the committee
13for its approval pursuant to Section 18410.2.

14(4) Inform the Franchise Tax Board of the terms and conditions
15of the written agreement upon approval of the written agreement
16by the committee.

17(5) Inform the Franchise Tax Board of any recapture, in whole
18or in part, of a previously allocated credit upon approval of the
19recapture by the committee.

20(6) Post on its Internet Web site all of the following:

21(A) The name of each taxpayer allocated a credit pursuant to
22this section.

23(B) The estimated amount of the investment by each taxpayer.

24(C) The estimated number of jobs created or retained.

25(D) The amount of the credit allocated to the taxpayer.

26(E) The amount of the credit recaptured from the taxpayer, if
27applicable.

28(d) For purposes of this section, the Franchise Tax Board shall
29do all of the following:

30(1) (A) Except as provided in subparagraph (B), review the
31books and records of all taxpayers allocated a credit pursuant to
32this section to ensure compliance with the terms and conditions
33of the written agreement between the taxpayer and GO-Biz.

34(B) In the case of a taxpayer that is a “small business,” as
35defined in Section 23626, review the books and records of the
36taxpayer allocated a credit pursuant to this section to ensure
37compliance with the terms and conditions of the written agreement
38between the taxpayers and GO-Biz when, in the sole discretion of
39the Franchise Tax Board, a review of those books and records is
40 appropriate or necessary in the best interests of the state.

P163  1(2) Notwithstanding Section 19542:

2(A) Notify GO-Biz of a possible breach of the written agreement
3by a taxpayer and provide detailed information regarding the basis
4for that determination.

5(B) Provide information to GO-Biz with respect to whether a
6taxpayer is a “small business,” as defined in Section 23626.

7(e) In the case where the credit allowed under this section
8exceeds the “tax,” as defined in Section 23036, for a taxable year,
9the excess credit may be carried over to reduce the “tax” in the
10following taxable year, and succeeding five taxable years, if
11necessary, until the credit has been exhausted.

12(f) Any recapture, in whole or in part, of a credit approved by
13the committee pursuant to Section 18410.2 shall be treated as a
14mathematical error appearing on the return. Any amount of tax
15resulting from that recapture shall be assessed by the Franchise
16Tax Board in the same manner as provided by Section 19051. The
17amount of tax resulting from the recapture shall be added to the
18tax otherwise due by the taxpayer for the taxable year in which
19the committee’s recapture determination occurred.

20(g) (1) The aggregate amount of credit that may be allocated
21in any fiscal year pursuant to this section and Section 17059.2
22shall be an amount equal to the sum of subparagraphs (A), (B),
23(C), and (D):

24(A) Thirty million dollars ($30,000,000) for the 2013-14 fiscal
25year, one hundred fifty million dollars ($150,000,000) for the
262014-15 fiscal year, and two hundred million dollars
27($200,000,000) for each fiscal year from 2015-16 to 2018-19,
28inclusive.

29(B) The unallocated credit amount, if any, from the preceding
30fiscal year.

31(C) The amount of any previously allocated credits that have
32been recaptured.

33(D) The amount by which the exemptions claimed in the prior
34year pursuant to Section 6377.1 plus the amounts claimed in the
35prior year pursuant to this section and Sections 17053.73, 17059.2,
36and 23626, exceed seven hundred fifty million dollars
37($750,000,000).

38(2) Each fiscal year, 25 percent of the aggregate amount of the
39credit that may be allocated pursuant to this section and Section
P164  1 17059.2 shall be reserved for “small business,” as defined in
2Section 17053.73 or 23626.

3(3) Each fiscal year, no more than 20 percent of the aggregate
4amount of the credit that shall be allocated pursuant to this section
5may be allocated to any one taxpayer.

6(h) GO-Biz may prescribe rules and regulations as necessary
7to carry out the purposes of this section. Any rule or regulation
8prescribed pursuant to this section may be by adoption of an
9emergency regulation in accordance with Chapter 3.5
10(commencing with Section 11340) of Part 1 of Division 3 of Title
112 of the Government Code.

12(i) (1) A written agreement between GO-Biz and a taxpayer
13with respect to the credit authorized by this section shall not
14restrict, broaden, or otherwise alter the ability of the taxpayer to
15assign that credit or any portion thereof in accordance with Section
1623663.

17(2) A written agreement between GO-Biz and a taxpayer with
18respect to the credit authorized by this section must comply with
19existing law on the date the agreement is executed.

20(j) This section is repealed on December 1, 2025.

end insert
21begin insert

begin insertSEC. 38.end insert  

end insert

begin insertSection 24356.6 of the end insertbegin insertRevenue and Taxation Codeend insert
22begin insert is amended to read:end insert

23

24356.6.  

(a) For each taxable year beginning on or after
24January 1, 1998, a qualified taxpayer may elect to treat 40 percent
25of the cost of any Section 24356.6 property as an expense that is
26not chargeable to a capital account. Any cost so treated shall be
27allowed as a deduction for the taxable year in which the qualified
28taxpayer places the Section 24356.6 property in service.

29(b) (1) An election under this section for any taxable year shall
30do both of the following:

31(A) Specify the items of Section 24356.6 property to which the
32election applies and the percentage of the cost of each of those
33items that are to be taken into account under subdivision (a).

34(B) Be made on the qualified taxpayer’s original return of the
35tax imposed by this part for the taxable year.

36(2) Any election made under this section, and any specification
37contained in that election, may not be revoked except with the
38consent of the Franchise Tax Board.

39(c) (1) For purposes of this section, “Section 24356.6 property”
40means any recovery property that is:

P165  1(A) Section 1245 property (as defined in Section 1245 (a)(3) of
2the Internal Revenue Code).

3(B) Purchased and placed in service by the qualified taxpayer
4for exclusive use in a trade or business conducted within a targeted
5tax area designated pursuant to Chapter 12.93 (commencing with
6Section 7097) of Division 7 of Title 1 of the Government Code.

7(C) Purchased and placed in service before the date the targeted
8tax area designation expires, is revoked, is no longer binding, or
9becomes inoperative.

10(2) For purposes of paragraph (1), “purchase” means any
11acquisition of property, but only if all of the following apply:

12(A) The property is not acquired from a person whose
13relationship to the person acquiring it would result in the
14disallowance of losses under Section 267 or 707(b) of the Internal
15Revenue Code. However, in applying Sections 267(b) and 267(c)
16for purposes of this section, Section 267(c)(4) shall be treated as
17providing that the family of an individual shall include only the
18individual’s spouse, ancestors, and lineal descendants.

19(B) The property is not acquired by one member of an affiliated
20group from another member of the same affiliated group.

21(C) The basis of the property in the hands of the person acquiring
22it is not determined in whole or in part by reference to the adjusted
23basis of that property in the hands of the person from who it is
24acquired.

25(3) For purposes of this section, the cost of property does not
26include that portion of the basis of that property that is determined
27by reference to the basis of other property held at any time by the
28person acquiring that property.

29(4) This section shall not apply to any property for which the
30qualified taxpayer may not make an election under Section 179 of
31the Internal Revenue Code because of the application of the
32provisions of Section 179(d) of the Internal Revenue Code.

33(5) For purposes of subdivision (b), both of the following apply:

34(A) All members of an affiliated group shall be treated as one
35qualified taxpayer.

36(B) The qualified taxpayer shall apportion the dollar limitation
37contained in subdivision (f) among the members of the affiliated
38group in whatever manner the board shall prescribe.

39(6) For purposes of paragraphs (2) and (5), “affiliated group”
40means “affiliated group” as defined in Section 1504 of the Internal
P166  1Revenue Code, except that, for these purposes, the phrase “more
2than 50 percent” shall be substituted for the phrase “at least 80
3percent” each place it appears in Section 1504(a) of the Internal
4Revenue Code.

5(d) (1) For purposes of this section, “qualified taxpayer” means
6a corporation that meets both of the following:

7(A) Is engaged in conducting a trade or business within a
8targeted tax area designated pursuant to Chapter 12.93
9(commencing with Section 7097) of Division 7 of Title 1 of the
10Government Code.

11(B) Is engaged in those lines of business described in Codes
122000 to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
13inclusive; 4500 to 4599, inclusive, and 4700 to 5199, inclusive,
14of the Standard Industrial Classification (SIC) Manual published
15by the United States Office of Management and Budget, 1987
16edition.

17(2) In the case of any pass-through entity, the determination of
18whether a taxpayer is a qualified taxpayer under this section shall
19be made at the entity level and any deduction under this section
20or Section 17267.6 shall be allowed to the pass-through entity and
21passed through to the partners or shareholders in accordance with
22applicable provisions of this part or Part 10 (commencing with
23Section 17001). For purposes of this subparagraph, the term
24“pass-through entity” means any partnership or S corporation.

25(e) Any qualified taxpayer who elects to be subject to this
26section shall not be entitled to claim additional depreciation
27pursuant to Section 24356 with respect to any property that
28constitutes Section 24356.6 property. However, the qualified
29taxpayer may claim depreciation by any method permitted by
30Section 24349 commencing with the taxable year following the
31taxable year in which Section 24356.6 property is placed in service.

32(f) The aggregate cost of all Section 24356.6 property that may
33be taken into account under subdivision (a) for any taxable year
34shall not exceed the following applicable amount for the taxable
35year of the designation of the relevant targeted tax area and taxable
36years thereafter:

 

   

The applicable
amount is:

Taxable year of designation   

$100,000

1st taxable year thereafter   

 100,000

2nd taxable year thereafter   

  75,000

3rd taxable year thereafter   

   75,000

Each taxable year thereafter   

   50,000

 

P167  6(g) Any amounts deducted under subdivision (a) with respect
7to Section 24356.6 property that ceases to be used in the qualified
8taxpayer’s trade or business within a targeted tax area at any time
9before the close of the second taxable year after the property is
10placed in service shall be included in income in the taxable year
11in which the property ceases to be so used.

begin insert

12(h) This section shall cease to be operative for taxable years
13beginning on or after January 1, 2014, and shall be repealed on
14December 1, 2014.

end insert
15begin insert

begin insertSEC. 39.end insert  

end insert

begin insertSection 24356.7 of the end insertbegin insertRevenue and Taxation Codeend insert
16begin insert is amended to read:end insert

17

24356.7.  

(a) A taxpayer may elect to treat 40 percent of the
18cost of any Section 24356.7 property as an expense that is not
19chargeable to a capital account. Any cost so treated shall be allowed
20as a deduction for the taxable year in which the taxpayer places
21the Section 24356.7 property in service.

22(b) (1) An election under this section for any taxable year shall
23do both of the following:

24(A) Specify the items of Section 24356.7 property to which the
25election applies and the percentage of the cost of each of those
26items that are to be taken into account under subdivision (a).

27(B) Be made on the taxpayer’s original return of the tax imposed
28by this part for the taxable year.

29(2) Any election made under this section, and any specification
30contained in that election, may not be revoked except with the
31consent of the Franchise Tax Board.

32(c) (1) For purposes of this section, “Section 24356.7 property”
33means any recovery property that is:

34(A) Section 1245 property (as defined in Section 1245(a)(3) of
35the Internal Revenue Code).

36(B) Purchased and placed in service by the taxpayer for
37exclusive use in a trade or business conducted within an enterprise
38zone designated pursuant to Chapter 12.8 (commencing with
39Section 7070) of Division 7 of Title 1 of the Government Code.

P168  1(C) Purchased and placed in service before the date the
2enterprise zone designation expires, is no longer binding, or
3becomes inoperative.

4(2) For purposes of paragraph (1), “purchase” means any
5acquisition of property, but only if all of the following apply:

6(A) The property is not acquired from a person whose
7relationship to the person acquiring it would result in the
8disallowance of losses under Sections 24427 through 24429.
9However, in applying Sections 24428 and 24429 for purposes of
10this section, subdivision (d) of Section 24429 shall be treated as
11providing that the family of an individual shall include only his or
12her spouse, ancestors, and lineal descendants.

13(B) The property is not acquired by one member of an affiliated
14group from another member of the same affiliated group.

15(C) The basis of the property in the hands of the person acquiring
16it is not determined in whole or in part by reference to the adjusted
17basis of that property in the hands of the person from whom it is
18acquired.

19(3) For purposes of this section, the cost of property does not
20include that portion of the basis of that property that is determined
21by reference to the basis of other property held at any time by the
22person acquiring that property.

23(4) This section shall not apply to any property for which the
24taxpayer could not make a federal election under Section 179 of
25the Internal Revenue Code because of the application of the
26provisions of Section 179(d) of the Internal Revenue Code.

27(5) For purposes of subdivision (b) of this section, both of the
28following apply:

29(A) All members of an affiliated group shall be treated as one
30taxpayer.

31(B) The taxpayer shall apportion the dollar limitation contained
32in subdivision (f) among the members of the affiliated group in
33whatever manner the board shall prescribe.

34(6) For purposes of paragraphs (2) and (5), “affiliated group”
35means “affiliated group” as defined in Section 1504 of the Internal
36Revenue Code, except that, for these purposes, the phrase “more
37than 50 percent” shall be substituted for the phrase “at least 80
38percent” each place it appears in Section 1504(a) of the Internal
39Revenue Code.

P169  1(d) For purposes of this section, “taxpayer” means a bank or
2corporation that conducts a trade or business within an enterprise
3zone designated pursuant to Chapter 12.8 (commencing with
4Section 7070) of Division 7 of Title 1 of the Government Code.

5(e) Any taxpayer who elects to be subject to this section shall
6not be entitled to claim additional depreciation pursuant to Section
724356 with respect to any property that constitutes Section 24356.7
8property. However, the taxpayer may claim depreciation by any
9method permitted by Section 24349 commencing with the taxable
10year following the taxable year in which Section 24356.7 property
11is placed in service.

12(f) The aggregate cost of all Section 24356.7 property that may
13be taken into account under subdivision (a) for any taxable years
14shall not exceed the following applicable amount for the taxable
15year of the designation of the relevant enterprise zone and taxable
16years thereafter:

 

 

The applicable

 

amount is:

Taxable year of designation   

$100,000

1st taxable year thereafter   

  100,000

2nd taxable year thereafter   

    75,000

3rd taxable year thereafter   

     75,000

Each taxable year thereafter   

     50,000

 

26(g) Any amounts deducted under subdivision (a) with respect
27to Section 24356.7 property that ceases to be used in the taxpayer’s
28trade or business within an enterprise zone at any time before the
29close of the second taxable year after the property is placed in
30service shall be included in income in the taxable year in which
31the property ceases to be so used.

begin insert

32(h) This section shall cease to be operative for taxable years
33beginning on or after January 1, 2014, and shall be repealed on
34December 1, 2014.

end insert
35begin insert

begin insertSEC. 40.end insert  

end insert

begin insertSection 24356.8 of the end insertbegin insertRevenue and Taxation Codeend insert
36begin insert is amended to read:end insert

37

24356.8.  

(a) For each taxable year beginning on or after
38January 1, 1995, a taxpayer may elect to treat 40 percent of the
39cost of any Section 24356.8 property as an expense that is not
40chargeable to the capital account. Any cost so treated shall be
P170  1allowed as a deduction for the taxable year in which the taxpayer
2places the Section 24356.8 property in service.

3(b) (1) An election under this section for any taxable year shall
4meet both of the following requirements:

5(A) Specify the items of Section 24356.8 property to which the
6election applies and the portion of the cost of each of those items
7that is to be taken into account under subdivision (a).

8(B) Be made on the taxpayer’s return of the tax imposed by this
9part for the taxable year.

10(2) Any election made under this section, and any specification
11contained in that election, may not be revoked except with the
12consent of the Franchise Tax Board.

13(c) (1) For purposes of this section, “Section 24356.8 property”
14means any recovery property that is:

15(A) Section 1245 property (as defined in Section 1245(a)(3) of
16the Internal Revenue Code).

17(B) Purchased by the taxpayer for exclusive use in a trade or
18business conducted within a LAMBRA.

19(C) Purchased before the date the LAMBRA designation expires,
20 is no longer binding, or becomes inoperative.

21(2) For purposes of paragraph (1), “purchase” means any
22acquisition of property, but only if all of the following apply:

23(A) The property is not acquired from a person whose
24relationship to the person acquiring it would result in the
25disallowance of losses under Section 267 or 707(b) of the Internal
26Revenue Code (but, in applying Sections 267(b) and 267(c) of the
27Internal Revenue Code for purposes of this section, Section
28267(c)(4) of the Internal Revenue Code shall be treated as
29providing that the family of an individual shall include only his or
30her spouse, ancestors, and lineal descendants).

31(B) The property is not acquired by one component member of
32an affiliated group from another component member of the same
33affiliated group.

34(C) The basis of the property in the hands of the person acquiring
35it is not determined in whole or in part by reference to the adjusted
36basis of that property in the hands of the person from whom
37acquired.

38(3) For purposes of this section, the cost of property does not
39include so much of the basis of that property as is determined by
P171  1reference to the basis of other property held at any time by the
2person acquiring that property.

3(4) This section shall not apply to any property for which the
4taxpayer may not make an election for the taxable year under
5Section 179 of the Internal Revenue Code because of the provisions
6of Section 179(d) of the Internal Revenue Code.

7(5) For purposes of subdivision (b), both of the following apply:

8(A) All members of an affiliated group shall be treated as one
9taxpayer.

10(B) The taxpayer shall apportion the dollar limitation contained
11in subdivision (f) among the component members of the affiliated
12group in whatever manner the board shall by regulations prescribe.

13(6) For purposes of paragraphs (2) and (5), “affiliated group”
14has the meaning assigned to it by Section 1504 of the Internal
15Revenue Code, except that, for these purposes, the phrase “more
16than 50 percent” shall be substituted for the phrase “at least 80
17percent” each place it appears in Section 1504(a) of the Internal
18Revenue Code.

19(7) This section shall not apply to any property described in
20Section 168(f) of the Internal Revenue Code.

21(8) In the case of an S corporation, the dollar limitation
22contained in subdivision (f) shall be applied at the entity level and
23at the shareholder level.

24(d) For purposes of this section:

25(1) “LAMBRA” means a local agency military base recovery
26area designated in accordance with the provisions of Section 7114
27of the Government Code.

28(2) “Taxpayer” means a corporation that conducts a trade or
29business within a LAMBRA and, for the first two taxable years,
30has a net increase in jobs (defined as 2,000 paid hours per employee
31per year) of one or more employees in the LAMBRA.

32(A) The net increase in the number of jobs shall be determined
33by subtracting the total number of full-time employees (defined
34as 2,000 paid hours per employee per year) the taxpayer employed
35in this state in the taxable year prior to commencing business
36operations in the LAMBRA from the total number of full-time
37employees the taxpayer employed in this state during the second
38taxable year after commencing business operations in the
39LAMBRA. For taxpayers who commence doing business in this
40state with their LAMBRA business operation, the number of
P172  1employees for the taxable year prior to commencing business
2operations in the LAMBRA shall be zero. If the taxpayer has a net
3increase in jobs in the state, the credit shall be allowed only if one
4or more full-time employees is employed within the LAMBRA.

5(B) The total number of employees employed in the LAMBRA
6shall equal the sum of both of the following:

7(i) The total number of hours worked in the LAMBRA for the
8taxpayer by employees (not to exceed 2,000 hours per employee)
9who are paid an hourly wage divided by 2,000.

10(ii) The total number of months worked in the LAMBRA for
11the taxpayer by employees who are salaried employees divided
12by 12.

13(C) In the case of a taxpayer that first commences doing business
14in the LAMBRA during the taxable year, for purposes of clauses
15(i) and (ii), respectively, of subparagraph (B), the divisors “2,000”
16and “12” shall be multiplied by a fraction, the numerator of which
17is the number of months of the taxable year that the taxpayer was
18doing business in the LAMBRA and the denominator of which is
1912.

20(e) Any taxpayer who elects to be subject to this section shall
21not be entitled to claim additional depreciation pursuant to Section
2224356 with respect to any property that constitutes Section 24356.8
23property.

24(f) The aggregate cost of all Section 24356.8 property that may
25be taken into account under subdivision (a) for any taxable year
26shall not exceed the following applicable amounts for the taxable
27year of the designation of the relevant LAMBRA and taxable years
28thereafter:

 

   

The applicable
amount is:


Taxable year of designation   


$100,000

1st taxable year thereafter   

 100,000

2nd taxable year thereafter   

  75,000

3rd taxable year thereafter   

  75,000

Each taxable year thereafter   

  50,000

 

39(g) This section shall apply only to property that is used
40exclusively in a trade or business conducted within a LAMBRA.

P173  1(h) (1) Any amounts deducted under subdivision (a) with respect
2to property that ceases to be used in the trade or business within
3a LAMBRA at any time before the close of the second taxable
4year after the property was placed in service shall be included in
5income for that year.

6(2) At the close of the second taxable year, if the taxpayer has
7not increased the number of its employees as determined by
8paragraph (2) of subdivision (d), then the amount of the deduction
9previously claimed shall be added to the taxpayer’s net income
10for the taxpayer’s second taxable year.

11(i) Any taxpayer who elects to be subject to this section shall
12not be entitled to claim for the same property the deduction under
13Section 179 of the Internal Revenue Code, relating to an election
14to expense certain depreciable business assets.

begin insert

15(j) This section shall cease to be operative for taxable years
16beginning on or after January 1, 2014, and shall be repealed on
17December 1, 2014.

end insert
18begin insert

begin insertSEC. 41.end insert  

end insert

begin insertSection 24384.5 of the end insertbegin insertRevenue and Taxation Codeend insert
19begin insert is amended to read:end insert

20

24384.5.  

(a) There shall be allowed as a deduction the amount
21of net interest received by the taxpayerbegin insert before January 1, 2014,end insert
22 in payment of indebtedness of a person or entity engaged in a trade
23or business located in an enterprise zone.

24(b) begin deleteNo end deletebegin insertA end insertdeduction shallbegin insert notend insert be allowed under this section unless
25at the time the indebtedness is incurred each of the following
26requirements are met:

27(1) The trade or business is located solely within an enterprise
28zone.

29(2) The indebtedness is incurred solely in connection with
30activity within the enterprise zone.

31(3) The taxpayer has no equity or other ownership interest in
32the debtor.

33(c) “Enterprise zone” means an area designated as an enterprise
34zone pursuant to Chapter 12.8 (commencing with Section 7070)
35of Division 7 of Title 1 of the Government Code.

begin insert

36(d) This section shall cease to be operative for taxable years
37beginning on or after January 1, 2014, and shall be repealed on
38December 1, 2014.

end insert
39begin insert

begin insertSEC. 42.end insert  

end insert

begin insertSection 24416.2 of the end insertbegin insertRevenue and Taxation Codeend insert
40begin insert is amended to read:end insert

P174  1

24416.2.  

(a) The term “qualified taxpayer” as used in Section
224416.1 includes a corporation engaged in the conduct of a trade
3or business within an enterprise zone designated pursuant to
4Chapter 12.8 (commencing with Section 7070) of Division 7 of
5Title 1 of the Government Code. For purposes of this subdivision,
6all of the following shall apply:

7(1) A net operating loss shall not be a net operating loss
8carryback for any taxable year and a net operating loss for any
9taxable year beginning on or after the date that the area in which
10the taxpayer conducts a trade or business is designated as an
11enterprise zone shall be a net operating loss carryover to each of
12the 15 taxable years following the taxable year of loss.

13(2) For purposes of this subdivision:

14(A) “Net operating loss” means the loss determined under
15Section 172 of the Internal Revenue Code, as modified by Section
1624416.1, attributable to the taxpayer’s business activities within
17the enterprise zone (as defined in Chapter 12.8 (commencing with
18Section 7070) of Division 7 of Title 1 of the Government Code)
19prior to the enterprise zone expiration date. That attributable loss
20shall be determined in accordance with Chapter 17 (commencing
21with Section 25101), modified for purposes of this subdivision as
22follows:

23(i) Loss shall be apportioned to the enterprise zone by
24multiplying total loss from the business by a fraction, the numerator
25of which is the property factor plus the payroll factor, and the
26denominator of which is two.

27(ii) “The enterprise zone” shall be substituted for “this state.”

28(B) A net operating loss carryover shall be a deduction only
29with respect to the taxpayer’s business income attributable to the
30enterprise zone as defined in Chapter 12.8 (commencing with
31Section 7070) of Division 7 of Title 1 of the Government Code.

32(C) Attributable income is that portion of the taxpayer’s
33California source business income that is apportioned to the
34enterprise zone. For that purpose, the taxpayer’s business income
35attributable to sources in this state first shall be determined in
36accordance with Chapter 17 (commencing with Section 25101).
37That business income shall be further apportioned to the enterprise
38zone in accordance with Article 2 (commencing with Section
3925120) of Chapter 17, modified for purposes of this subdivision
40as follows:

P175  1(i) Business income shall be apportioned to the enterprise zone
2by multiplying the total California business income of the taxpayer
3by a fraction, the numerator of which is the property factor plus
4the payroll factor, and the denominator of which is two. For
5purposes of this clause:

6(I) The property factor is a fraction, the numerator of which is
7the average value of the taxpayer’s real and tangible personal
8property owned or rented and used in the enterprise zone during
9the taxable year, and the denominator of which is the average value
10of all the taxpayer’s real and tangible personal property owned or
11rented and used in this state during the taxable year.

12(II) The payroll factor is a fraction, the numerator of which is
13the total amount paid by the taxpayer in the enterprise zone during
14the taxable year for compensation, and the denominator of which
15is the total compensation paid by the taxpayer in this state during
16the taxable year.

17(ii) If a loss carryover is allowable pursuant to this section for
18any taxable year after the enterprise zone designation has expired,
19the enterprise zone shall be deemed to remain in existence for
20purposes of computing the limitation set forth in subparagraph (B)
21and allowing a net operating loss deduction.

22(D) “Enterprise zone expiration date” means the date the
23enterprise zone designation expires, is no longer binding, or
24becomes inoperative.

25(3) The changes made to this subdivision by the act adding this
26paragraph shall apply to taxable years beginning on or after January
271, 1998.

28(b) A taxpayer who qualifies as a “qualified taxpayer” under
29one or more sections shall, for the taxable year of the net operating
30loss and any taxable year to which that net operating loss may be
31carried, designate on the original return filed for each year the
32section which applies to that taxpayer with respect to that net
33operating loss. If the taxpayer is eligible to qualify under more
34than one section, the designation is to be made after taking into
35account subdivision (c).

36(c) If a taxpayer is eligible to qualify under this section and
37either Section 24416.4, 24416.5, or 24416.6 as a “qualified
38taxpayer,” with respect to a net operating loss in a taxable year,
39the taxpayer shall designate which section is to apply to the
40taxpayer.

P176  1(d) Notwithstanding Section 24416, the amount of the loss
2determined under this section, or Section 24416.4, 24416.5, or
324416.6 shall be the only net operating loss allowed to be carried
4over from that taxable year and the designation under subdivision
5(b) shall be included in the election under Section 24416.1.

begin insert

6(e) This section shall cease to be operative for taxable years
7beginning on or after January 1, 2014, and shall be repealed on
8December 1, 2014.

end insert
9begin insert

begin insertSEC. 43.end insert  

end insert

begin insertSection 24416.5 of the end insertbegin insertRevenue and Taxation Codeend insert
10begin insert is amended to read:end insert

11

24416.5.  

(a) For each taxable year beginning on or after
12January 1, 1995, the term “qualified taxpayer” as used in Section
1324416.1 includes a taxpayer engaged in the conduct of a trade or
14business within a LAMBRA. For purposes of this subdivision, all
15of the following shall apply:

16(1) A net operating loss shall not be a net operating loss
17carryback for any taxable year and, except as provided in
18subparagraph (B), a net operating loss for any taxable year
19beginning on or after the date the area in which the taxpayer
20conducts a trade or business is designated a LAMBRA shall be a
21net operating loss carryover to each following taxable year that
22ends before the LAMBRA expiration date or to each of the 15
23taxable years following the taxable year of loss, if longer.

24(2) In the case of a financial institution to which Section 585,
25586, or 593 of the Internal Revenue Code applies, a net operating
26loss for any taxable year beginning on or after January 1, 1984,
27shall be a net operating loss carryover to each of the five years
28following the taxable year of the loss. Subdivision (b) of Section
2924416.1 shall not apply.

30(3) “LAMBRA” means a local agency military base recovery
31area designated in accordance with Section 7114 of the Government
32Code.

33(4) “Taxpayer” means a bank or corporation that conducts a
34trade or business within a LAMBRA and, for the first two taxable
35years, has a net increase in jobs (defined as 2,000 paid hours per
36employee per year) of one or more employees in the LAMBRA
37and this state. For purposes of this paragraph, all of the following
38shall apply:

39(A) The net increase in the number of jobs shall be determined
40by subtracting the total number of full-time employees (defined
P177  1as 2,000 paid hours per employee per year) the taxpayer employed
2in this state in the taxable year prior to commencing business
3operations in the LAMBRA from the total number of full-time
4employees the taxpayer employed in this state during the second
5taxable year after commencing business operations in the
6LAMBRA. For taxpayers who commence doing business in this
7state with their LAMBRA business operation, the number of
8employees for the taxable year prior to commencing business
9operations in the LAMBRA shall be zero. The deduction shall be
10allowed only if the taxpayer has a net increase in jobs in the state,
11and if one or more full-time employees are employed within the
12LAMBRA.

13(B) The total number of employees employed in the LAMBRA
14shall equal the sum of both of the following:

15(i) The total number of hours worked in the LAMBRA for the
16taxpayer by employees (not to exceed 2,000 hours per employee)
17who are paid an hourly wage divided by 2,000.

18(ii) The total number of months worked in the LAMBRA for
19the taxpayer by employees who are salaried employees divided
20by 12.

21(C) In the case of a taxpayer that first commences doing business
22in the LAMBRA during the taxable year, for purposes of clauses
23(i) and (ii), respectively, of subparagraph (B) the divisors “2,000”
24and “12” shall be multiplied by a fraction, the numerator of which
25is the number of months of the taxable year that the taxpayer was
26doing business in the LAMBRA and the denominator of which is
2712.

28(5) “Net operating loss” means the loss determined under
29Section 172 of the Internal Revenue Code, as modified by Section
3024416.1, attributable to the taxpayer’s business activities within a
31LAMBRA prior to the LAMBRA expiration date. The attributable
32loss shall be determined in accordance with Chapter 17
33(commencing with Section 25101), modified for purposes of this
34section as follows:

35(A) Loss shall be apportioned to a LAMBRA by multiplying
36total loss from the business by a fraction, the numerator of which
37is the property factor plus the payroll factor, and the denominator
38of which is 2.

39(B) “The LAMBRA” shall be substituted for “this state.”

P178  1(6) A net operating loss carryover shall be a deduction only with
2respect to the taxpayer’s business income attributable to a
3LAMBRA.

4(7) Attributable income is that portion of the taxpayer’s
5California source business income that is apportioned to the
6LAMBRA. For that purpose, the taxpayer’s business income
7attributable to sources in this state first shall be determined in
8accordance with Chapter 17 (commencing with Section 25101).
9That business income shall be further apportioned to the LAMBRA
10in accordance with Article 2 (commencing with Section 25120)
11of Chapter 17, modified as follows:

12(A) Business income shall be apportioned to a LAMBRA by
13multiplying total California business income of the taxpayer by a
14fraction, the numerator of which is the property factor plus the
15payroll factor, and the denominator of which is two. For purposes
16of this clause:

17(i) The property factor is a fraction, the numerator of which is
18the average value of the taxpayer’s real and tangible personal
19property owned or rented and used in the LAMBRA during the
20taxable year, and the denominator of which is the average value
21of all the taxpayer’s real and tangible personal property owned or
22rented and used in this state during the taxable year.

23(ii) The payroll factor is a fraction, the numerator of which is
24the total amount paid by the taxpayer in the LAMBRA during the
25taxable year for compensation, and the denominator of which is
26the total compensation paid by the taxpayer in this state during the
27taxable year.

28(B) If a loss carryover is allowable pursuant to this section for
29any taxable year after the LAMBRA designation has expired, the
30LAMBRA shall be deemed to remain in existence for purposes of
31computing the limitation specified in subparagraph (D) and
32allowing a net operating loss deduction.

33(8) “LAMBRA expiration date” means the date the LAMBRA
34designation expires, is no longer binding, or becomes inoperative
35pursuant to Section 7110 of the Government Code.

36(b) A taxpayer who qualifies as a “qualified taxpayer” under
37one or more sections shall, for the taxable year of the net operating
38loss and any taxable year to which that net operating loss may be
39carried, designate on the original return filed for each year the
40section that applies to that taxpayer with respect to that net
P179  1operating loss. If the taxpayer is eligible to qualify under more
2than one section, the designation is to be made after taking into
3account subdivision (c).

4(c) If a taxpayer is eligible to qualify under this section and
5either Section 24416.2, 24416.4, or 24416.6 as a “qualified
6taxpayer,” with respect to a net operating loss in a taxable year,
7the taxpayer shall designate which section is to apply to the
8taxpayer.

9(d) Notwithstanding Section 24416, the amount of the loss
10determined under this section or Section 24416.2, 24416.4, or
1124416.6 shall be the only net operating loss allowed to be carried
12over from that taxable year and the designation under subdivision
13(b) shall be included in the election under Section 24416.1.

14(e) This section shall apply to taxable years beginning on and
15after January 1, 1998.

begin insert

16(f) This section shall cease to be operative for taxable years
17beginning on or after January 1, 2014, and shall be repealed on
18December 1, 2014.

end insert
19begin insert

begin insertSEC. 44.end insert  

end insert

begin insertSection 24416.6 of the end insertbegin insertRevenue and Taxation Codeend insert
20begin insert is amended to read:end insert

21

24416.6.  

(a) For each taxable year beginning on or after
22January 1, 1998, the term “qualified taxpayer” as used in Section
2324416.1 includes a corporation that meets both of the following:

24(1) Is engaged in the conduct of a trade or business within a
25targeted tax area designated pursuant to Chapter 12.93
26(commencing with Section 7097) of Division 7 of Title 1 of the
27Government Code.

28(2) Is engaged in those lines of business described in Codes
292000 to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,
30inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive,
31of the Standard Industrial Classification (SIC) Manual published
32by the United States Office of Management and Budget, 1987
33edition. In the case of any pass-through entity, the determination
34of whether a taxpayer is a qualified taxpayer shall be made at the
35entity level.

36(b) For purposes of subdivision (a), all of the following shall
37apply:

38(1) A net operating loss shall not be a net operating loss
39carryback for any taxable year and a net operating loss for any
40taxable year beginning on or after the date that the area in which
P180  1the qualified taxpayer conducts a trade or business is designated
2as a targeted tax area shall be a net operating loss carryover to each
3of the 15 taxable years following the taxable year of loss.

4(2) “Net operating loss” means the loss determined under
5Section 172 of the Internal Revenue Code, as modified by Section
624416.1, attributable to the qualified taxpayer’s business activities
7 within the targeted tax area (as defined in Chapter 12.93
8(commencing with Section 7097) of Division 7 of Title 1 of the
9Government Code) prior to the targeted tax area expiration date.
10That attributable loss shall be determined in accordance with
11Chapter 17 (commencing with Section 25101), modified for
12purposes of this section as follows:

13(A) Loss shall be apportioned to the targeted tax area by
14multiplying total loss from the business by a fraction, the numerator
15of which is the property factor plus the payroll factor, and the
16denominator of which is 2.

17(B) “The targeted tax area” shall be substituted for “this state.”

18(3) A net operating loss carryover shall be a deduction only with
19respect to the qualified taxpayer’s business income attributable to
20the targeted tax area as defined in Chapter 12.93 (commencing
21 with Section 7097) of Division 7 of Title 1 of the Government
22Code.

23(4) Attributable income is that portion of the taxpayer’s
24California source business income that is apportioned to the
25targeted tax area. For that purpose, the taxpayer’s business income
26attributable to sources in this state first shall be determined in
27accordance with Chapter 17 (commencing with Section 25101).
28That business income shall be further apportioned to the targeted
29tax area in accordance with Article 2 (commencing with Section
3025120) of Chapter 17, modified for purposes of this subdivision
31as follows:

32(A) Business income shall be apportioned to the targeted tax
33 area by multiplying the total California business income of the
34taxpayer by a fraction, the numerator of which is the property
35factor plus the payroll factor, and the denominator of which is two.
36For purposes of this clause:

37(i) The property factor is a fraction, the numerator of which is
38the average value of the taxpayer’s real and tangible personal
39property owned or rented and used in the targeted tax area during
40the taxable year, and the denominator of which is the average value
P181  1of all the taxpayer’s real and tangible personal property owned or
2rented and used in this state during the taxable year.

3(ii) The payroll factor is a fraction, the numerator of which is
4the total amount paid by the taxpayer in the targeted tax area during
5the taxable year for compensation, and the denominator of which
6is the total compensation paid by the taxpayer in this state during
7the taxable year.

8(B) If a loss carryover is allowable pursuant to this subdivision
9for any taxable year after the targeted tax area expiration date, the
10targeted tax area designation shall be deemed to remain in existence
11for purposes of computing the limitation specified in subparagraph
12(B) and allowing a net operating loss deduction.

13(5) “Targeted tax area expiration date” means the date the
14targeted tax area designation expires, is revoked, is no longer
15binding, or becomes inoperative.

16(c) A taxpayer who qualifies as a “qualified taxpayer” under
17one or more sections shall, for the taxable year of the net operating
18loss and any taxable year to which that net operating loss may be
19carried, designate on the original return filed for each year the
20section that applies to that taxpayer with respect to that net
21operating loss. If the taxpayer is eligible to qualify under more
22than one section, the designation is to be made after taking into
23account subdivision (e).

24(d) If a taxpayer is eligible to qualify under this section and
25either Section 24416.2, 24416.4, or 24416.5 as a “qualified
26taxpayer,” with respect to a net operating loss in a taxable year,
27the taxpayer shall designate which section is to apply to the
28taxpayer.

29(e) Notwithstanding Section 24416, the amount of the loss
30determined under this section or Section 24416.2, 24416.4, or
3124416.5 shall be the only net operating loss allowed to be carried
32over from that taxable year and the designation under subdivision
33(c) shall be included in the election under Section 24416.1.

34(f) This section shall apply to taxable years beginning on or
35after January 1, 1998.

begin insert

36(g) This section shall cease to be operative for taxable years
37beginning on or after January 1, 2014, and shall be repealed on
38December 1, 2014.

end insert
39begin insert

begin insertSEC. 45.end insert  

end insert
begin insert

There is hereby appropriated up to six hundred
40thousand dollars ($600,000) from the General Fund for allocation
P182  1to the committee and departments that are required to administer
2this act and by the Director of Finance in furtherance of the
3objectives of this act. An allocation of funds approved by the
4Director of Finance under this item shall become effective no
5sooner than 30 days after the director files written notification
6thereof with the Chairperson of the Joint Legislative Budget
7Committee and the chairpersons of the fiscal committees in each
8house of the Legislature, or no sooner than any lesser time the
9 chairperson of the joint committee, or his or her designee, may in
10each instance determine.

end insert
11begin insert

begin insertSEC. 46.end insert  

end insert
begin insert

This act is an urgency statute necessary for the
12immediate preservation of the public peace, health, or safety within
13the meaning of Article IV of the Constitution and shall go into
14immediate effect. The facts constituting the necessity are:

end insert
begin insert

15In order to ensure the public good by providing certainty
16regarding the incentives available for attracting and retaining
17jobs in economically distressed areas of the state, it is necessary
18that this act take effect immediately.

end insert
begin delete
19

SECTION 1.  

It is the intent of the Legislature to enact statutory
20changes relating to the Budget Act of 2013.

end delete


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