Amended in Assembly May 20, 2015

Amended in Assembly March 26, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 154


Introduced by Assembly Member Ting

January 16, 2015


An act to amend Sections 17024.5,begin insert 17053.46, 17053.47, 17053.74,end insert 17088, 17144, 17215, 18155, 19141.5, 19164, 19167,begin delete 19172, 19172.5,end delete 19183, 19772,begin insert 23622.7, 23622.8, 23646,end insert 23701i, 24307, 24427, 24439, 24870, 24871, and 24990.5 of, to add Sections 17240, 17241, 17323, 19131.5,begin insert 24345.5,end insert 24454, and 24459 to, and to repeal Sections 17131.7, 17131.12, 17131.14, 17134.1, 17201.1, 17280.1, 17322.1, 24452.1, and 24871.1 of, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 154, as amended, Ting. Taxation: federal conformity.

Under the Personal Income Tax Law and the Corporation Tax Law, various provisions of the federal Internal Revenue Code, as enacted as of a specified date, are referenced in various sections of the Revenue and Taxation Code. Those laws provide that for taxable years beginning on or after January 1, 2010, the specified date of those referenced Internal Revenue Code sections is January 1, 2009, unless otherwise specifically provided. Existing law requires, for any introduced bill that proposes changes in any of those dates, that the Franchise Tax Board prepare a complete analysis of the bill that describes all changes to state law that will automatically occur by reference to federal law as of the changed date. It further requires the Franchise Tax Board to immediately update and supplement that analysis upon any amendment to the bill, and requires that analysis be made available to the public and be submitted to the Legislature for publication in the daily journal of each house of the Legislature.

This bill would change the specified date of those referenced Internal Revenue Code sections to January 1, 2015, for taxable years beginning on or after January 1, 2015, and thereby would make numerous substantive changes to both the Personal Income Tax Law and the Corporation Tax Law with respect to those areas of preexisting conformity that are subject to changes under federal laws enacted after January 1, 2009, and that have not been, or are not being, excepted or modified. This bill would make certain other changes in federal income tax laws applicable, with specified exceptions and modifications, and make specified supplemental, technical, or clarifying changes for purposes of the Personal Income Tax Law or the Corporation Tax Law, or both, or the administration of those laws, with respect to, among other things, tax credits, tax on specified distributions from Archer MSAs, income exclusions, reporting requirements, qualified tuition program investment direction, disclosure of information with respect to foreign financial assets, redemptions by foreign subsidiaries, listed property,begin insert extension of time for the payment of taxes, deductions for annual fees on branded prescription pharmaceutical manufacturers and importers,end insert and penalty amounts related to the failure to file specified returns or include specified information on returns.

This bill would also specify various dates on which specified provisions apply and repeal obsolete provisions.

This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 23 of the membership of each house of the Legislature.

This bill would take effect immediately as a tax levy.

Vote: 23. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

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

P2    1

SECTION 1.  

Section 17024.5 of the Revenue and Taxation
2Code
is amended to read:

3

17024.5.  

(a) (1) Unless otherwise specifically provided, the
4terms “Internal Revenue Code,” “Internal Revenue Code of 1954,”
P3    1or “Internal Revenue Code of 1986,” for purposes of this part,
2mean Title 26 of the United States Code, including all amendments
3thereto as enacted on the specified date for the applicable taxable
4year as follows:


5

 

Taxable Year

Specified Date of
Internal Revenue
Code Sections

(A) For taxable years beginning on or after

 

January 1, 1983, and on or before December

 

31, 1983   

January 15, 1983

(B) For taxable years beginning on or after

 

January 1, 1984, and on or before December

 

31, 1984   

January 1, 1984

(C) For taxable years beginning on or after

 

January 1, 1985, and on or before December

 

31, 1985   

January 1, 1985

(D) For taxable years beginning on or after

 

January 1, 1986, and on or before December

 

31, 1986   

January 1, 1986

(E) For taxable years beginning on or after

 

January 1, 1987, and on or before December

 

31, 1988   

January 1, 1987

(F) For taxable years beginning on or after

 

January 1, 1989, and on or before December

 

31, 1989   

January 1, 1989

(G) For taxable years beginning on or after

 

January 1, 1990, and on or before December

 

31, 1990   

January 1, 1990

(H) For taxable years beginning on or after

 

January 1, 1991, and on or before December

 

31, 1991   

January 1, 1991

(I) For taxable years beginning on or after

 

January 1, 1992, and on or before December

 

31, 1992   

January 1, 1992

(J)  For taxable years beginning on or after

 

January 1, 1993, and on or before December

 

31, 1996   

January 1, 1993

(K) For taxable years beginning on or after

 

January 1, 1997, and on or before December

 

31, 1997   

January 1, 1997

(L) For taxable years beginning on or after

 

January 1, 1998, and on or before December

 

31, 2001   

January 1, 1998

(M) For taxable years beginning on or after

 

January 1, 2002, and on or before December

 

31, 2004   

January 1, 2001

(N) For taxable years beginning on or after

 

January 1, 2005, and on or before December

 

31, 2009   

January 1, 2005

(O) For taxable years beginning on or after

 

January 1, 2010, and on or before December

 

31, 2014   

January 1, 2009

(P) For taxable years beginning on or after

 

January 1, 2015   

January 1, 2015

P4   17

 

18(2) (A) Unless otherwise specifically provided, for federal laws
19enacted on or after January 1, 1987, and on or before the specified
20date for the taxable year, uncodified provisions that relate to
21provisions of the Internal Revenue Code that are incorporated for
22purposes of this part shall be applicable to the same taxable years
23as the incorporated provisions.

24(B) In the case where Section 901 of the Economic Growth and
25Tax Relief Act of 2001 (Public Law 107-16) applies to any
26provision of the Internal Revenue Code that is incorporated for
27purposes of this part, Section 901 of the Economic Growth and
28Tax Relief Act of 2001 shall apply for purposes of this part in the
29same manner and to the same taxable years as it applies for federal
30income tax purposes.

31(3) Subtitle G (Tax Technical Corrections) and Part I of Subtitle
32H (Repeal of Expired or Obsolete Provisions) of the Revenue
33Reconciliation Act of 1990 (Public Law 101-508) modified
34numerous provisions of the Internal Revenue Code and provisions
35of prior federal acts, some of which are incorporated by reference
36into this part. Unless otherwise provided, the provisions described
37in the preceding sentence, to the extent that they modify provisions
38that are incorporated into this part, are declaratory of existing law
39and shall be applied in the same manner and for the same periods
40as specified in the Revenue Reconciliation Act of 1990.

P5    1(b) Unless otherwise specifically provided, when applying any
2provision of the Internal Revenue Code for purposes of this part,
3a reference to any of the following is not applicable for purposes
4of this part:

5(1) Except as provided in Chapter 4.5 (commencing with Section
623800) of Part 11 of Division 2, an electing small business
7corporation, as defined in Section 1361(b) of the Internal Revenue
8Code.

9(2) Domestic international sales corporations (DISC), as defined
10in Section 992(a) of the Internal Revenue Code.

11(3) A personal holding company, as defined in Section 542 of
12the Internal Revenue Code.

13(4) A foreign personal holding company, as defined in Section
14552 of the Internal Revenue Code.

15(5) A foreign investment company, as defined in Section 1246(b)
16of the Internal Revenue Code.

17(6) A foreign trust, as defined in Section 679 of the Internal
18Revenue Code.

19(7) Foreign income taxes and foreign income tax credits.

20(8) Section 911 of the Internal Revenue Code, relating to citizens
21or residents of the United States living abroad.

22(9) A foreign corporation, except that Section 367 of the Internal
23Revenue Code shall be applicable.

24(10) Federal tax credits and carryovers of federal tax credits.

25(11) Nonresident aliens.

26(12) Deduction for personal exemptions, as provided in Section
27151 of the Internal Revenue Code.

28(13) The tax on generation-skipping transfers imposed by
29Section 2601 of the Internal Revenue Code.

30(14) The tax, relating to estates, imposed by Section 2001 or
312101 of the Internal Revenue Code.

32(c) (1) The provisions contained in Sections 41 to 44, inclusive,
33and Section 172 of the Tax Reform Act of 1984 (Public Law
3498-369), relating to treatment of debt instruments, is not applicable
35for taxable years beginning before January 1, 1987.

36(2) The provisions contained in Public Law 99-121, relating to
37the treatment of debt instruments, is not applicable for taxable
38years beginning before January 1, 1987.

39(3) For each taxable year beginning on or after January 1, 1987,
40the provisions referred to by paragraphs (1) and (2) shall be
P6    1applicable for purposes of this part in the same manner and with
2respect to the same obligations as the federal provisions, except
3as otherwise provided in this part.

4(d) When applying the Internal Revenue Code for purposes of
5this part, regulations promulgated in final form or issued as
6temporary regulations by “the secretary” shall be applicable as
7regulations under this part to the extent that they do not conflict
8with this part or with regulations issued by the Franchise Tax
9Board.

10(e) Whenever this part allows a taxpayer to make an election,
11the following rules shall apply:

12(1) A proper election filed with the Internal Revenue Service
13in accordance with the Internal Revenue Code or regulations issued
14by “the secretary” shall be deemed to be a proper election for
15purposes of this part, unless otherwise provided in this part or in
16regulations issued by the Franchise Tax Board.

17(2) A copy of that election shall be furnished to the Franchise
18Tax Board upon request.

19(3) (A) Except as provided in subparagraph (B), in order to
20obtain treatment other than that elected for federal purposes, a
21separate election shall be filed at the time and in the manner
22required by the Franchise Tax Board.

23(B) (i) If a taxpayer makes a proper election for federal income
24tax purposes prior to the time that taxpayer becomes subject to the
25tax imposed under this part or Part 11 (commencing with Section
2623001), that taxpayer is deemed to have made the same election
27for purposes of the tax imposed by this part, Part 10.2 (commencing
28with Section 18401), and Part 11 (commencing with Section
2923001), as applicable, and that taxpayer may not make a separate
30election for California tax purposes unless that separate election
31is expressly authorized by this part, Part 10.2 (commencing with
32Section 18401), or Part 11 (commencing with Section 23001), or
33by regulations issued by the Franchise Tax Board.

34(ii) If a taxpayer has not made a proper election for federal
35income tax purposes prior to the time that taxpayer becomes subject
36to tax under this part or Part 11 (commencing with Section 23001),
37that taxpayer may not make a separate California election for
38purposes of this part, Part 10.2 (commencing with Section 18401),
39or Part 11 (commencing with Section 23001), unless that separate
40election is expressly authorized by this part, Part 10.2 (commencing
P7    1with Section 18401), or Part 11 (commencing with Section 23001),
2or by regulations issued by the Franchise Tax Board.

3(iii) This subparagraph applies only to the extent that the
4provisions of the Internal Revenue Code or the regulation issued
5by “the secretary” authorizing an election for federal income tax
6purposes apply for purposes of this part, Part 10.2 (commencing
7with Section 18401) or Part 11 (commencing with Section 23001).

8(f) Whenever this part allows or requires a taxpayer to file an
9application or seek consent, the rules set forth in subdivision (e)
10shall be applicable with respect to that application or consent.

11(g) When applying the Internal Revenue Code for purposes of
12determining the statute of limitations under this part, any reference
13to a period of three years shall be modified to read four years for
14purposes of this part.

15(h) When applying, for purposes of this part, any section of the
16Internal Revenue Code or any applicable regulation thereunder,
17all of the following shall apply:

18(1) References to “adjusted gross income” shall mean the
19amount computed in accordance with Section 17072, except as
20provided in paragraph (2).

21(2) (A) Except as provided in subparagraph (B), references to
22“adjusted gross income” for purposes of computing limitations
23based upon adjusted gross income, shall mean the amount required
24to be shown as adjusted gross income on the federal tax return for
25the same taxable year.

26(B) In the case of registered domestic partners and former
27registered domestic partners, adjusted gross income, for the
28purposes of computing limitations based upon adjusted gross
29income, shall mean the adjusted gross income on a federal tax
30 return computed as if the registered domestic partner or former
31registered domestic partner was treated as a spouse or former
32spouse, respectively, for federal income tax purposes, and used
33the same filing status that was used on the state tax return for the
34same taxable year.

35(3) Any reference to “subtitle” or “chapter” shall mean this part.

36(4) The provisions of Section 7806 of the Internal Revenue
37Code, relating to construction of title, shall apply.

38(5) Any provision of the Internal Revenue Code that becomes
39operative on or after the specified date for that taxable year shall
40become operative on the same date for purposes of this part.

P8    1(6) Any provision of the Internal Revenue Code that becomes
2inoperative on or after the specified date for that taxable year shall
3become inoperative on the same date for purposes of this part.

4(7) Due account shall be made for differences in federal and
5state terminology, effective dates, substitution of “Franchise Tax
6Board” for “secretary” when appropriate, and other obvious
7differences.

8(8) Except as otherwise provided, any reference to Section 501
9of the Internal Revenue Code shall be interpreted to also refer to
10Section 23701.

11(i) Any reference to a specific provision of the Internal Revenue
12Code shall include modifications of that provision, if any, in this
13part.

14begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 17053.46 of the end insertbegin insertRevenue and Taxation Codeend insert
15begin insert is amended to read:end insert

16

17053.46.  

(a) For each taxable year beginning on or after
17January 1, 1995, there shall be allowed as a credit against the “net
18tax” (as defined in Section 17039) to a qualified taxpayer for hiring
19a qualified disadvantaged individual or a qualified displaced
20employee during the taxable year for employment in the LAMBRA.
21The credit shall be equal to the sum of each of the following:

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

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

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

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

30(5) Ten percent of the 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 employer
35during the taxable year to qualified disadvantaged individuals or
36qualified displaced employees that does not exceed 150 percent
37of the minimum wage.

38(B) The total amount of qualified wages which may be taken
39into account for purposes of claiming the credit allowed under this
P9    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
7operations 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 Section 7114 of the Government
25Code.

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.).

P10   1(ii) Any voluntary or mandatory registrant under the Greater
2Avenues for Independence Act of 1985 as provided 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 age 16 years or
6older.

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,
P11   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 taxpayer or partnership that
14conducts a trade or business within a LAMBRA and, for the first
15two taxable years, has a net increase in jobs (defined as 2,000 paid
16hours per employee per year) of one or more employees in the
17LAMBRA.

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 taxpayer who first commences doing
40business in the LAMBRA during the taxable year, for purposes of
P12   1clauses (i) and (ii), respectively, of subparagraph (B), the divisors
2“2,000” and “12” shall be multiplied by a fraction, the numerator
3of which is the number of months of the taxable year that the
4taxpayer was doing business in the LAMBRA and the denominator
5of which is 12.

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

8(A) Any civilian or military employee of a base or former base
9who 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, becomes inoperative, or
22is repealed.

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 local county or city Job Training
28Partnership Act administrative entity, the local county GAIN office
29or social services agency, or the local government administering
30the LAMBRA, a certification that provides that a qualified
31disadvantaged individual or qualified displaced employee meets
32the eligibility requirements specified in subparagraph (C) of
33paragraph (4) of subdivision (b) or subparagraph (A) of paragraph
34(6) of subdivision (b). The Employment Development Department
35may provide preliminary screening and referral to a certifying
36agency. The Department of Housing and Community Development
37shall develop regulations governing the issuance of certificates
38pursuant to Section 7114.2 of the Government Code and shall
39develop forms for this purpose.

P13   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 trades or businesses that are under
5common control shall be treated as employed by a single employer.

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

9The regulations prescribed under this paragraph shall be based
10on principles similar to the principles that apply in the case of
11controlled groups of corporations as specified in subdivision (e)
12of Section 23622.

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

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

33(B) If the seasonal employment of any qualified disadvantaged
34individual, with respect to whom qualified wages are taken into
35account under subdivision (a), is not continued by the qualified
36taxpayer for a period of 270 days of employment during the
3760-month period beginning with the day the qualified
38disadvantaged individual commences seasonal employment with
39the qualified taxpayer, the tax imposed by this part, for the taxable
40year that includes the 60th month following the month in which
P14   1the qualified disadvantaged individual commences seasonal
2employment with the qualified taxpayer, shall be increased by an
3amount equal to the credit allowed under subdivision (a) for that
4taxable year and all prior taxable years attributable to qualified
5wages paid or incurred with respect to that qualified disadvantaged
6individual.

7(2) (A) Subparagraph (A) of paragraph (1) shall not apply to
8any of the following:

9(i) A termination of employment of an employee who voluntarily
10leaves the employment of the taxpayer.

11(ii) A termination of employment of an individual who, before
12the close of the period referred to in subparagraph (A) of paragraph
13(1), becomes disabled to perform the services of that employment,
14unless that disability is removed before the close of that period
15and the taxpayer fails to offer reemployment to that individual.

16(iii) A termination of employment of an individual, if it is
17determined that the termination was due to the misconduct (as
18defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
19the California Code of Regulations) of that individual.

20(iv) A termination of employment of an individual due to a
21substantial reduction in the trade or business operations of the
22taxpayer.

23(v) A termination of employment of an individual, if that
24individual is replaced by other qualified employees so as to create
25a net increase in both the number of employees and the hours of
26employment.

27(B) Subparagraph (B) of paragraph (1) shall not apply to any
28of the following:

29(i) A failure to continue the seasonal employment of a qualified
30disadvantaged individual who voluntarily fails to return to the
31seasonal employment of the qualified taxpayer.

32(ii) A failure to continue the seasonal employment of a qualified
33disadvantaged individual who, before the close of the period
34referred to in subparagraph (B) of paragraph (1), becomes disabled
35and unable to perform the services of that seasonal employment,
36unless that disability is removed before the close of that period
37and the qualified taxpayer fails to offer seasonal employment to
38that individual.

39(iii) A failure to continue the seasonal employment of a qualified
40disadvantaged individual, if it is determined that the failure to
P15   1continue the seasonal employment was due to the misconduct (as
2defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
3the California Code of Regulations) of that qualified disadvantaged
4individual.

5(iv) A failure to continue seasonal employment of a qualified
6disadvantaged individual due to a substantial reduction in the
7regular seasonal trade or business operations of the qualified
8taxpayer.

9(v) A failure to continue the seasonal employment of a qualified
10disadvantaged individual, if that individual is replaced by other
11qualified displaced employees so as to create a net increase in both
12the number of seasonal employees and the hours of seasonal
13employment.

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

20(3) Any increase in tax under paragraph (1) shall not be treated
21as tax imposed by this part for purposes of determining the amount
22of any credit allowable under this part.

23(4) At the close of the second taxable year, if the taxpayer has
24not increased the number of its employees as determined by
25paragraph (5) of subdivision (b), then the amount of the credit
26previously claimed shall be added to the taxpayer’s net tax for the
27taxpayer’s second taxable year.

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

29(1) The qualified wages for any taxable year shall be apportioned
30between the estate or trust and the beneficiaries on the basis of the
31income of the estate or trust allocable to each.

32(2) Any beneficiary to whom any qualified wages have been
33apportioned under paragraph (1) shall be treated (for purposes of
34this part) as the employer with respect to those wages.

35(g) The credit shall be reduced by the credit allowed under
36Section 17053.7. The credit shall also be reduced by the federal
37credit allowed under Section 51 of the Internal Revenuebegin delete Code.end delete
38begin insert Code, as amended by the Emergency Economic Stabilization Act
39of 2008 (Public Law 110-343).end insert

P16   1In addition, any deduction otherwise allowed under this part for
2the wages or salaries paid or incurred by the taxpayer upon which
3the credit is based shall be reduced by the amount of the credit,
4prior to any reduction required by subdivision (h) or (i).

5(h) In the case where the credit otherwise allowed under this
6section exceeds the “net tax” for the taxable year, that portion of
7the credit that exceeds the “net tax” may be carried over and added
8to the credit, if any, in the succeeding 10 taxable years, if necessary,
9until the credit is exhausted. The credit shall be applied first to the
10earliest taxable years possible.

11(i) (1) The amount of credit otherwise allowed under this section
12and Section 17053.45, including prior year credit carryovers, that
13may reduce the “net tax” for the taxable year shall not exceed the
14amount of tax that would be imposed on the taxpayer’s business
15income attributed to a LAMBRA determined as if that attributed
16income represented all of the net income of the taxpayer subject
17to tax under this part.

18(2) Attributable income shall be that portion of the taxpayer’s
19California source business income that is apportioned to the
20LAMBRA. For that purpose, the taxpayer’s business income that
21is attributable to sources in this state first shall be determined in
22accordance with Chapter 17 (commencing with Section 25101) of
23Part 11. That business income shall be further apportioned to the
24LAMBRA in accordance with Article 2 (commencing with Section
2525120) of Chapter 17 of Part 11, modified for purposes of this
26section in accordance with paragraph (3).

27(3) Income shall be apportioned to a LAMBRA by multiplying
28the total California business income of the taxpayer by a fraction,
29the numerator of which is the property factor plus the payroll factor,
30and the denominator of which is two. For purposes of this
31paragraph:

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

38(B) The payroll factor is a fraction, the numerator of which is
39the total amount paid by the taxpayer in the LAMBRA during the
40taxable year for compensation, and the denominator of which is
P17   1the total compensation paid by the taxpayer in this state during the
2taxable year.

3(4) The portion of any credit remaining, if any, after application
4of this subdivision, shall be carried over to succeeding taxable
5years, if necessary, until the credit is exhausted, as if it were an
6amount exceeding the “net tax” for the taxable year, as provided
7in subdivision (h). However, the portion of any credit remaining
8for carryover to taxable years beginning on or after January 1,
92014, if any, after application of this subdivision, shall be carried
10over only to the succeeding 10 taxable years if necessary, until the
11credit is exhausted, as if it were an amount exceeding the “net tax”
12for the taxable year, as provided in subdivision (h).

13(j) If the taxpayer is allowed a credit pursuant to this section for
14qualified wages paid or incurred, only one credit shall be allowed
15to the taxpayer under this part with respect to any wage consisting
16in whole or in part of those qualified wages.

17(k) (1) Except as provided in paragraph (2), this section shall
18cease to be operative on January 1, 2014, and shall be repealed on
19December 1, 2019. A credit shall not be allowed under this section
20with respect to an employee who first commences employment
21with a qualified taxpayer on or after January 1, 2014.

22(2) This section shall continue to apply with respect to qualified
23disadvantaged individuals or qualified displaced employees who
24are employed by the qualified taxpayer within the LAMBRA within
25the 60-month period immediately preceding January 1, 2014, and
26qualified wages paid or incurred with respect to those qualified
27disadvantaged individuals or qualified displaced employees shall
28continue to qualify for the credit under this section for taxable
29years beginning on or after January 1, 2014, in accordance with
30this section, as amended by the act adding this subdivision.

31begin insert

begin insertSEC. 3.end insert  

end insert

begin insertSection 17053.47 of the end insertbegin insertRevenue and Taxation Codeend insert
32begin insert is amended to read:end insert

33

17053.47.  

(a) For each taxable year beginning on or after
34January 1, 1998, there shall be allowed a credit against the “net
35tax” (as defined in Section 17039) to a qualified taxpayer for hiring
36a qualified disadvantaged individual during the taxable year for
37employment in the manufacturing enhancement area. The credit
38shall be equal to the sum of each of the following:

39(1) Fifty percent of the qualified wages in the first year of
40employment.

P18   1(2) Forty percent of the qualified wages in the second year of
2employment.

3(3) Thirty percent of the qualified wages in the third year of
4employment.

5(4) Twenty percent of the qualified wages in the fourth year of
6employment.

7(5) Ten percent of the qualified wages in the fifth year of
8employment.

9(b) For purposes of this section:

10(1) “Qualified wages” means:

11(A) That portion of wages paid or incurred by the qualified
12taxpayer during the taxable year to qualified disadvantaged
13individuals that does not exceed 150 percent of the minimum wage.

14(B) The total amount of qualified wages which may be taken
15into account for purposes of claiming the credit allowed under this
16section shall not exceed two million dollars ($2,000,000) per
17taxable year.

18(C) Wages received during the 60-month period beginning with
19the first day the qualified disadvantaged individual commences
20employment with the qualified taxpayer. Reemployment in
21connection with any increase, including a regularly occurring
22seasonal increase, in the trade or business operations of the taxpayer
23does not constitute commencement of employment for purposes
24of this section.

25(D) Qualified wages do not include any wages paid or incurred
26by the qualified taxpayer on or after the manufacturing
27enhancement area expiration date. However, wages paid or incurred
28with respect to qualified employees who are employed by the
29qualified taxpayer within the manufacturing enhancement area
30within the 60-month period prior to the manufacturing enhancement
31area expiration date shall continue to qualify for the credit under
32this section after the manufacturing enhancement area expiration
33date, in accordance with all provisions of this section applied as
34if the manufacturing enhancement area designation were still in
35existence and binding.

36(2) “Minimum wage” means the wage established by the
37Industrial Welfare Commission as provided for in Chapter 1
38(commencing with Section 1171) of Part 4 of Division 2 of the
39Labor Code.

P19   1(3) “Manufacturing enhancement area” means an area designated
2pursuant to Section 7073.8 of the Government Code according to
3the procedures of Chapter 12.8 (commencing with Section 7070)
4of Division 7 of Title 1 of the Government Code.

5(4) “Manufacturing enhancement area expiration date” means
6the date the manufacturing enhancement area designation expires,
7is no longer binding, becomes inoperative, or is repealed.

8(5) “Qualified disadvantaged individual” means an individual
9who satisfies all of the following requirements:

10(A) (i) At least 90 percent of whose services for the qualified
11taxpayer during the taxable year are directly related to the conduct
12of the qualified taxpayer’s trade or business located in a
13manufacturing enhancement area.

14(ii) Who performs at least 50 percent of his or her services for
15the qualified taxpayer during the taxable year in the manufacturing
16enhancement area.

17(B) Who is hired by the qualified taxpayer after the designation
18of the area as a manufacturing enhancement area in which the
19individual’s services were primarily performed.

20(C) Who is any of the following immediately preceding the
21individual’s commencement of employment with the qualified
22taxpayer:

23(i) An individual who has been determined eligible for services
24under the federal Job Training Partnership Act (29 U.S.C. Sec.
251501 et seq.), or its successor.

26(ii) Any voluntary or mandatory registrant under the Greater
27Avenues for Independence Act of 1985, or its successor, as
28provided pursuant to Article 3.2 (commencing with Section 11320)
29of Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions
30Code.

31(iii) Any individual who has been certified eligible by the
32Employment Development Department under the federal Targeted
33Jobs Tax Credit Program, or its successor, whether or not this
34program is in effect.

35(6) “Qualified taxpayer” means any taxpayer engaged in a trade
36or business within a manufacturing enhancement area designated
37pursuant to Section 7073.8 of the Government Code and who meets
38all of the following requirements:

39(A) Is engaged in those lines of business described in Codes
400211 to 0291, inclusive, Code 0723, or in Codes 2011 to 3999,
P20   1inclusive, of the Standard Industrial Classification (SIC) Manual
2published by the United States Office of Management and Budget,
31987 edition.

4(B) At least 50 percent of the qualified taxpayer’s workforce
5hired after the designation of the manufacturing enhancement area
6is composed of individuals who, at the time of hire, are residents
7of the county in which the manufacturing enhancement area is
8located.

9(C) Of this percentage of local hires, at least 30 percent shall
10be qualified disadvantaged individuals.

11(7) “Seasonal employment” means employment by a qualified
12taxpayer that has regular and predictable substantial reductions in
13trade or business operations.

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

15(A) All employees of trades or businesses that are under
16common control shall be treated as employed by a single qualified
17taxpayer.

18(B) The credit (if any) allowable by this section with respect to
19each trade or business shall be determined by reference to its
20proportionate share of the expense of the qualified wages giving
21rise to the credit and shall be allocated in that manner.

22(C) Principles that apply in the case of controlled groups of
23corporations, as specified in subdivision (d) of Section 23622.7,
24shall apply with respect to determining employment.

25(2) If a qualified taxpayer acquires the major portion of a trade
26or business of another employer (hereinafter in this paragraph
27referred to as the “predecessor”) or the major portion of a separate
28unit of a trade or business of a predecessor, then, for purposes of
29applying this section (other than subdivision (d)) for any calendar
30year ending after that acquisition, the employment relationship
31between a qualified disadvantaged individual and a qualified
32taxpayer shall not be treated as terminated if the qualified
33disadvantaged individual continues to be employed in that trade
34or business.

35(d) (1) (A) If the employment, other than seasonal employment,
36of any qualified disadvantaged individual, with respect to whom
37qualified wages are taken into account under subdivision (b) is
38terminated by the qualified taxpayer at any time during the first
39270 days of that employment (whether or not consecutive) or before
40the close of the 270th calendar day after the day in which that
P21   1qualified disadvantaged individual completes 90 days of
2employment with the qualified taxpayer, the tax imposed by this
3part for the taxable year in which that employment is terminated
4shall be increased by an amount equal to the credit allowed under
5subdivision (a) for that taxable year and all prior taxable years
6attributable to qualified wages paid or incurred with respect to that
7qualified disadvantaged individual.

8(B) If the seasonal employment of any qualified disadvantaged
9individual, with respect to whom qualified wages are taken into
10account under subdivision (a) is not continued by the qualified
11taxpayer for a period of 270 days of employment during the
1260-month period beginning with the day the qualified
13disadvantaged individual commences seasonal employment with
14the qualified taxpayer, the tax imposed by this part, for the taxable
15year that includes the 60th month following the month in which
16the qualified disadvantaged individual commences seasonal
17employment with the qualified taxpayer, shall be increased by an
18amount equal to the credit allowed under subdivision (a) for that
19taxable year and all prior taxable years attributable to qualified
20wages paid or incurred with respect to that qualified disadvantaged
21individual.

22(2) (A) Subparagraph (A) of paragraph (1) does not apply to
23any of the following:

24(i) A termination of employment of a qualified disadvantaged
25individual who voluntarily leaves the employment of the qualified
26taxpayer.

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

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

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

P22   1(v) A termination of employment of a qualified disadvantaged
2individual, if that individual is replaced by other qualified
3disadvantaged individuals so as to create a net increase in both the
4number of employees and the hours 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
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 qualified disadvantaged 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 qualified disadvantaged individual
29is replaced by other qualified disadvantaged individuals so as to
30create a net increase in both the number of seasonal employees
31and the hours of seasonal employment.

32(C) For purposes of paragraph (1), the employment relationship
33between the qualified taxpayer and a qualified disadvantaged
34individual shall not be treated as terminated by reason of a mere
35change in the form of conducting the trade or business of the
36qualified taxpayer, if the qualified disadvantaged individual
37continues to be employed in that trade or business and the qualified
38taxpayer retains a substantial interest in that trade or business.

P23   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(e) In the case of an estate or trust, both of the following apply:

5(1) The qualified wages for any taxable year shall be apportioned
6between the estate or trust and the beneficiaries on the basis of the
7income of the estate or trust allocable to each.

8(2) Any beneficiary to whom any qualified wages have been
9apportioned under paragraph (1) shall be treated (for purposes of
10this part) as the employer with respect to those wages.

11(f) The credit shall be reduced by the credit allowed under
12Section 17053.7. The credit shall also be reduced by the federal
13credit allowed under Section 51 of the Internal Revenuebegin delete Code.end delete
14begin insert Code, as amended by the Emergency Economic Stabilization Act
15of 2008 (Public Law 110-343).end insert

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

21(g) In the case where the credit otherwise allowed under this
22section exceeds the “net tax” for the taxable year, that portion of
23the credit that exceeds the “net tax” may be carried over and added
24to the credit, if any, in the succeeding 10 taxable years, if necessary,
25until the credit is exhausted. The credit shall be applied first to the
26earliest taxable years possible.

27(h) (1) The amount of credit otherwise allowed under this
28section, including prior year credit carryovers, that may reduce
29the “net tax” for the taxable year shall not exceed the amount of
30tax that would be imposed on the qualified taxpayer’s business
31income attributed to a manufacturing enhancement area determined
32 as if that attributed income represented all of the net income of the
33qualified taxpayer subject to tax under this part.

34(2) Attributable income shall be that portion of the taxpayer’s
35California source business income that is apportioned to the
36manufacturing enhancement area. For that purpose, the taxpayer’s
37business income that is attributable to sources in this state first
38shall be determined in accordance with Chapter 17 (commencing
39with Section 25101) of Part 11. That business income shall be
40further apportioned to the manufacturing enhancement area in
P24   1accordance with Article 2 (commencing with Section 25120) of
2Chapter 17 of Part 11, modified for purposes of this section in
3accordance with paragraph (3).

4(3) Income shall be apportioned to a manufacturing enhancement
5area by multiplying the total California business income of the
6taxpayer by a fraction, the numerator of which is the property
7factor plus the payroll factor, and the denominator of which is two.
8For purposes of this paragraph:

9(A) The property factor is a fraction, the numerator of which is
10the average value of the taxpayer’s real and tangible personal
11property owned or rented and used in the manufacturing
12enhancement area during the taxable year, and the denominator
13of which is the average value of all the taxpayer’s real and tangible
14personal property owned or rented and used in this state during
15the taxable year.

16(B) The payroll factor is a fraction, the numerator of which is
17the total amount paid by the taxpayer in the manufacturing
18enhancement area during the taxable year for compensation, and
19the denominator of which is the total compensation paid by the
20taxpayer in this state during the taxable year.

21(4) The portion of any credit remaining, if any, after application
22of this subdivision, shall be carried over to succeeding taxable
23years, if necessary, until the credit is exhausted, as if it were an
24amount exceeding the “net tax” for the taxable year, as provided
25in subdivision (g). However, the portion of any credit remaining
26for carryover to taxable years beginning on or after January 1,
272014, if any, after application of this subdivision, shall be carried
28over only to the succeeding 10 taxable years if necessary, until the
29credit is exhausted, as if it were an amount exceeding the “net tax”
30for the taxable year, as provided in subdivision (g).

31(i) If the taxpayer is allowed a credit pursuant to this section for
32qualified wages paid or incurred, only one credit shall be allowed
33to the taxpayer under this part with respect to any wage consisting
34in whole or in part of those qualified wages.

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

36(1) Obtain from the Employment Development Department, as
37permitted by federal law, the local county or city Job Training
38Partnership Act administrative entity, the local county GAIN office
39or social services agency, or the local government administering
40the manufacturing enhancement area, a certification that provides
P25   1that a qualified disadvantaged individual meets the eligibility
2requirements specified in paragraph (5) of subdivision (b). The
3Employment Development Department may provide preliminary
4screening and referral to a certifying agency. The Department of
5Housing and Community Development shall develop regulations
6governing the issuance of certificates pursuant to subdivision (d)
7of Section 7086 of the Government Code and shall develop forms
8for this purpose.

9(2) Retain a copy of the certification and provide it upon request
10to the Franchise Tax Board.

11(k) (1) Except as provided in paragraph (2), this section shall
12cease to be operative for taxable years beginning on or after January
131, 2014, and shall be repealed on December 1, 2019.

14(2) The section shall continue to apply with respect to qualified
15employees who are employed by the qualified taxpayer within the
16manufacturing enhancement area within the 60-month period
17immediately preceding January 1, 2014, and qualified wages paid
18or incurred with respect to those qualified employees shall continue
19to qualify for the credit under this section for taxable years
20beginning on or after January 1, 2014, in accordance with the
21provisions of this section, as amended by the act adding this
22subdivision.

23begin insert

begin insertSEC. 4.end insert  

end insert

begin insertSection 17053.74 of the end insertbegin insertRevenue and Taxation Codeend insert
24begin insert is amended to read:end insert

25

17053.74.  

(a) There shall be allowed a credit against the “net
26tax” (as defined in Section 17039) to a taxpayer who employs a
27qualified employee in an enterprise zone during the taxable year.
28The credit shall be equal to the sum of each of the following:

29(1) Fifty percent of qualified wages in the first year of
30employment.

31(2) Forty percent of qualified wages in the second year of
32employment.

33(3) Thirty percent of qualified wages in the third year of
34employment.

35(4) Twenty percent of qualified wages in the fourth year of
36employment.

37(5) Ten percent of qualified wages in the fifth year of
38employment.

39(b) For purposes of this section:

40(1) “Qualified wages” means:

P26   1(A) (i) Except as provided in clause (ii), that portion of wages
2paid or incurred by the taxpayer during the taxable year to qualified
3employees that does not exceed 150 percent of the minimum wage.

4(ii) For up to 1,350 qualified employees who are employed by
5the taxpayer in the Long Beach Enterprise Zone in aircraft
6manufacturing activities described in Codes 3721 to 3728,
7inclusive, and Code 3812 of the Standard Industrial Classification
8(SIC) Manual published by the United States Office of
9Management and Budget, 1987 edition, “qualified wages” means
10that portion of hourly wages that does not exceed 202 percent of
11the minimum wage.

12(B) Wages received during the 60-month period beginning with
13the first day the employee commences employment with the
14taxpayer. Reemployment in connection with any increase, including
15a regularly occurring seasonal increase, in the trade or business
16operations of the taxpayer does not constitute commencement of
17employment for purposes of this section.

18(C) Qualified wages do not include any wages paid or incurred
19by the taxpayer on or after the zone expiration date. However,
20wages paid or incurred with respect to qualified employees who
21are employed by the taxpayer within the enterprise zone within
22the 60-month period prior to the zone expiration date shall continue
23to qualify for the credit under this section after the zone expiration
24date, in accordance with all provisions of this section applied as
25if the enterprise zone designation were still in existence and
26binding.

27(2) “Minimum wage” means the wage established by the
28Industrial Welfare Commission as provided for in Chapter 1
29(commencing with Section 1171) of Part 4 of Division 2 of the
30Labor Code.

31(3) “Zone expiration date” means the date the enterprise zone
32designation expires, is no longer binding, becomes inoperative, or
33is repealed.

34(4) (A) “Qualified employee” means an individual who meets
35all of the following requirements:

36(i) At least 90 percent of whose services for the taxpayer during
37the taxable year are directly related to the conduct of the taxpayer’s
38trade or business located in an enterprise zone.

39(ii) Performs at least 50 percent of his or her services for the
40taxpayer during the taxable year in an enterprise zone.

P27   1(iii) Is hired by the taxpayer after the date of original designation
2of the area in which services were performed as an enterprise zone.

3(iv) Is any of the following:

4(I) Immediately preceding the qualified employee’s
5commencement of employment with the taxpayer, was a person
6eligible for services under the federal Job Training Partnership
7Act (29 U.S.C. Sec. 1501 et seq.), or its successor, who is receiving,
8or is eligible to receive, subsidized employment, training, or
9services funded by the federal Job Training Partnership Act, or its
10successor.

11(II) Immediately preceding the qualified employee’s
12commencement of employment with the taxpayer, was a person
13eligible to be a voluntary or mandatory registrant under the Greater
14Avenues for Independence Act of 1985 (GAIN) provided for
15pursuant to Article 3.2 (commencing with Section 11320) of
16Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions
17Code, or its successor.

18(III) Immediately preceding the qualified employee’s
19commencement of employment with the taxpayer, was an
20economically disadvantaged individual 14 years of age or older.

21(IV) Immediately preceding the qualified employee’s
22commencement of employment with the taxpayer, was a dislocated
23worker who meets any of the following:

24(aa) Has been terminated or laid off or who has received a notice
25of termination or layoff from employment, is eligible for or has
26exhausted entitlement to unemployment insurance benefits, and
27is unlikely to return to his or her previous industry or occupation.

28(bb) Has been terminated or has received a notice of termination
29of employment as a result of any permanent closure or any
30substantial layoff at a plant, facility, or enterprise, including an
31individual who has not received written notification but whose
32employer has made a public announcement of the closure or layoff.

33(cc) Is long-term unemployed and has limited opportunities for
34employment or reemployment in the same or a similar occupation
35in the area in which the individual resides, including an individual
3655 years of age or older who may have substantial barriers to
37employment by reason of age.

38(dd) Was self-employed (including farmers and ranchers) and
39is unemployed as a result of general economic conditions in the
P28   1community in which he or she resides or because of natural
2disasters.

3(ee) Was a civilian employee of the Department of Defense
4employed at a military installation being closed or realigned under
5the Defense Base Closure and Realignment Act of 1990.

6(ff) Was an active member of the armed forces or National
7Guard as of September 30, 1990, and was either involuntarily
8separated or separated pursuant to a special benefits program.

9(gg) Is a seasonal or migrant worker who experiences chronic
10seasonal unemployment and underemployment in the agriculture
11industry, aggravated by continual advancements in technology and
12mechanization.

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

16(V) Immediately preceding the qualified employee’s
17commencement of employment with the taxpayer, was a disabled
18individual who is eligible for or enrolled in, or has completed a
19state rehabilitation plan or is a service-connected disabled veteran,
20veteran of the Vietnam era, or veteran who is recently separated
21from military service.

22(VI) Immediately preceding the qualified employee’s
23commencement of employment with the taxpayer, was an
24ex-offender. An individual shall be treated as convicted if he or
25she was placed on probation by a state court without a finding of
26guilt.

27(VII) Immediately preceding the qualified employee’s
28commencement of employment with the taxpayer, was a person
29eligible for or a recipient of any of the following:

30(aa) Federal Supplemental Security Income benefits.

31(bb) Aid to Families with Dependent Children.

32(cc) CalFresh benefits.

33(dd) State and local general assistance.

34(VIII) Immediately preceding the qualified employee’s
35commencement of employment with the taxpayer, was a member
36of a federally recognized Indian tribe, band, or other group of
37Native American descent.

38(IX) Immediately preceding the qualified employee’s
39commencement of employment with the taxpayer, was a resident
P29   1of a targeted employment area, as defined in Section 7072 of the
2Government Code.

3(X) An employee who qualified the taxpayer for the enterprise
4zone hiring credit under former Section 17053.8 or the program
5area hiring credit under former Section 17053.11.

6(XI) Immediately preceding the qualified employee’s
7commencement of employment with the taxpayer, was a member
8of a targeted group, as defined in Section 51(d) of the Internal
9Revenue Code, or its successor.

10(B) Priority for employment shall be provided to an individual
11who is enrolled in a qualified program under the federal Job
12Training Partnership Act or the Greater Avenues for Independence
13Act of 1985 or who is eligible as a member of a targeted group
14under the Work Opportunity Tax Credit (Section 51 of the Internal
15Revenue Code), or its successor.

16(5) “Taxpayer” means a person or entity engaged in a trade or
17business within an enterprise zone designated pursuant to Chapter
1812.8 (commencing with Section 7070) of the Government Code.

19(6) “Seasonal employment” means employment by a taxpayer
20that has regular and predictable substantial reductions in trade or
21business operations.

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

23(1) Obtain from the Employment Development Department, as
24permitted by federal law, the local county or city Job Training
25Partnership Act administrative entity, the local county GAIN office
26or social services agency, or the local government administering
27the enterprise zone, a certification which provides that a qualified
28employee meets the eligibility requirements specified in clause
29(iv) of subparagraph (A) of paragraph (4) of subdivision (b). The
30Employment Development Department may provide preliminary
31screening and referral to a certifying agency. The Employment
32Development Department shall develop a form for this purpose.
33The Department of Housing and Community Development shall
34develop regulations governing the issuance of certificates by local
35governments pursuant to subdivision (a) of Section 7086 of the
36Government Code.

37(2) Retain a copy of the certification and provide it upon request
38to the Franchise Tax Board.

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

P30   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 23622.7,
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 (e)) for any calendar year
16ending after that acquisition, the employment relationship between
17a qualified employee and an employer shall not be treated as
18terminated if the employee continues to be employed in that trade
19or business.

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

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 taxpayer for a period of
35 270 days of employment during the 60-month period beginning
36with the day the qualified employee commences seasonal
37employment with the taxpayer, the tax imposed by this part, for
38the taxable year that includes the 60th month following the month
39in which the qualified employee commences seasonal employment
40with the taxpayer, shall be increased by an amount equal to the
P31   1credit allowed under subdivision (a) for that taxable year and all
2prior taxable years attributable to qualified wages paid or incurred
3with 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 taxpayer.

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

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

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

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

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

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

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

36(iii) A failure to continue the seasonal employment of a qualified
37employee, if it is determined that the failure to continue the
38seasonal employment was due to the misconduct (as defined in
39Sections 1256-30 to 1256-43, inclusive, of Title 22 of the California
40Code of Regulations) of that qualified employee.

P32   1(iv) A failure to continue seasonal employment of a qualified
2employee due to a substantial reduction in the regular seasonal
3trade or business operations of the taxpayer.

4(v) A failure to continue the seasonal employment of a qualified
5employee, if that qualified employee is replaced by other qualified
6employees so as to create a net increase in both the number of
7seasonal employees and the hours of seasonal employment.

8(C) For purposes of paragraph (1), the employment relationship
9between the taxpayer and a qualified employee shall not be treated
10as terminated by reason of a mere change in the form of conducting
11the trade or business of the taxpayer, if the qualified employee
12continues to be employed in that trade or business and the taxpayer
13retains a substantial interest in that trade or business.

14(3) Any increase in tax under paragraph (1) shall not be treated
15as tax imposed by this part for purposes of determining the amount
16of any credit allowable under this part.

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

18(1) The qualified wages for any taxable year shall be apportioned
19between the estate or trust and the beneficiaries on the basis of the
20income of the estate or trust allocable to each.

21(2) Any beneficiary to whom any qualified wages have been
22apportioned under paragraph (1) shall be treated, for purposes of
23this part, as the employer with respect to those wages.

24(g) For purposes of this section, “enterprise zone” means an
25area designated as an enterprise zone pursuant to Chapter 12.8
26(commencing with Section 7070) of Division 7 of Title 1 of the
27Government Code.

28(h) The credit allowable under this section shall be reduced by
29the credit allowed under Sections 17053.10, 17053.17, and
3017053.46 claimed for the same employee. The credit shall also be
31reduced by the federal credit allowed under Section 51 of the
32Internal Revenuebegin delete Code.end deletebegin insert Code, as amended by the Economic
33Stabilization Act of 2008 (Public Law 110-343).end insert

34In addition, any deduction otherwise allowed under this part for
35the wages or salaries paid or incurred by the taxpayer upon which
36the credit is based shall be reduced by the amount of the credit,
37prior to any reduction required by subdivision (i) or (j).

38(i) In the case where the credit otherwise allowed under this
39section exceeds the “net tax” for the taxable year, that portion of
40the credit that exceeds the “net tax” may be carried over and added
P33   1to the credit, if any, in the succeeding 10 taxable years, if necessary,
2until the credit is exhausted. The credit shall be applied first to the
3earliest taxable years possible.

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

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

20(3) Business income shall be apportioned to the enterprise zone
21by multiplying the total California business income of the taxpayer
22by a fraction, the numerator of which is the property factor plus
23the payroll factor, and the denominator of which is two. For
24purposes of this paragraph:

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

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

36(4) The portion of any credit remaining, if any, after application
37of this subdivision, shall be carried over to succeeding taxable
38years, if necessary, until the credit is exhausted, as if it were an
39amount exceeding the “net tax” for the taxable year, as provided
40in subdivision (i). However, the portion of any credit remaining
P34   1for carryover to taxable years beginning on or after January 1,
22014, if any, after application of this subdivision, shall be carried
3over only to the succeeding 10 taxable years if necessary, until the
4credit is exhausted, as if it were an amount exceeding the “net tax”
5for the taxable year, as provided in subdivision (i).

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

9(l) (1) Except as provided in paragraph (2), this section shall
10cease to be operative on January 1, 2014, and shall be repealed on
11December 1, 2019. A credit shall not be allowed under this section
12with respect to an employee who first commences employment
13with a taxpayer on or after January 1, 2014.

14(2) This section shall continue to apply with respect to qualified
15employees who are employed by the taxpayer within the enterprise
16zone within the 60-month period immediately preceding January
171, 2014, and qualified wages paid or incurred with respect to those
18qualified employees shall continue to qualify for the credit under
19this section for taxable years beginning on or after January 1, 2014,
20in accordance with this section, as amended by the act adding this
21subdivision.

22

begin deleteSEC. 2.end delete
23begin insertSEC. 5.end insert  

Section 17088 of the Revenue and Taxation Code is
24amended to read:

25

17088.  

(a) Subchapter M of Chapter 1 of Subtitle A of the
26Internal Revenue Code, relating to regulated investment companies
27and real estate investment trusts, shall apply, except as otherwise
28provided.

29(b) Section 17145 shall apply in lieu of Section 852(b)(5) of the
30Internal Revenue Code, relating to exempt-interest dividends.

31(c) (1) Section 852(b)(3)(D) of the Internal Revenue Code,
32relating to treatment by shareholders of undistributed capital gains,
33shall not apply.

34(2) Section 852(g)(1)(A) of the Internal Revenue Code is
35modified by substituting the phrase “subdivision (a) of Section
3617145” for the phrase “the first sentence of subsection (b)(5)”
37contained therein.

38

begin deleteSEC. 3.end delete
39begin insertSEC. 6.end insert  

Section 17131.7 of the Revenue and Taxation Code is
40repealed.

P35   1

begin deleteSEC. 4.end delete
2begin insertSEC. 7.end insert  

Section 17131.12 of the Revenue and Taxation Code
3 is repealed.

4

begin deleteSEC. 5.end delete
5begin insertSEC. 8.end insert  

Section 17131.14 of the Revenue and Taxation Code
6 is repealed.

7

begin deleteSEC. 6.end delete
8begin insertSEC. 9.end insert  

Section 17134.1 of the Revenue and Taxation Code is
9repealed.

10

begin deleteSEC. 7.end delete
11begin insertSEC. 10.end insert  

Section 17144 of the Revenue and Taxation Code is
12amended to read:

13

17144.  

(a) Section 108(b)(2)(B) of the Internal Revenue Code,
14relating to general business credit, is modified by substituting “this
15part” in lieu of “Section 38 (relating to general business credit).”

16(b) Section 108(b)(2)(G) of the Internal Revenue Code, relating
17to foreign tax credit carryovers, shall not apply.

18(c) Section 108(b)(3)(B) of the Internal Revenue Code, relating
19to credit carryover reduction, is modified by substituting “11.1
20cents” in lieu of “3313 cents” in each place in which it appears. In
21the case where more than one credit is allowable under this part,
22the credits shall be reduced on a pro rata basis.

23(d) Section 108(g)(3)(B) of the Internal Revenue Code, relating
24to adjusted tax attributes, is modified by substituting “($9)” in lieu
25of “($3).”

26(e) (1) If a taxpayer makes an election for federal income tax
27purposes under Section 108(c) of the Internal Revenue Code,
28relating to treatment of discharge of qualified real property business
29indebtedness, a separate election shall not be allowed under
30paragraph (3) of subdivision (e) of Section 17024.5 and the federal
31election shall be binding for purposes of this part.

32(2) If a taxpayer has not made an election for federal income
33tax purposes under Section 108(c) of the Internal Revenue Code,
34relating to treatment of discharge of qualified real property business
35indebtedness, then the taxpayer shall not be allowed to make that
36election for purposes of this part.

37(f) Section 108(i) of the Internal Revenue Code, relating to
38deferral and ratable inclusion of income arising from business
39indebtedness discharged by the reacquisition of a debt instrument,
40shall not apply.

P36   1

begin deleteSEC. 8.end delete
2begin insertSEC. 11.end insert  

Section 17201.1 of the Revenue and Taxation Code
3 is repealed.

4

begin deleteSEC. 9.end delete
5begin insertSEC. 12.end insert  

Section 17215 of the Revenue and Taxation Code is
6amended to read:

7

17215.  

(a) Section 220(a) of the Internal Revenue Code,
8relating to deduction allowed, is modified to provide that the
9amount allowed as a deduction shall be an amount equal to the
10amount allowed to that individual as a deduction under Section
11220 of the Internal Revenue Code, relating to medical savings
12accounts, on the federal income tax return filed for the same taxable
13year by that individual.

14(b) Section 220(f)(4) of the Internal Revenue Code, relating to
15additional tax on distributions not used for qualified medical
16expenses, is modified by substituting “12.5 percent” in lieu of “20
17percent.”

18(c) The amendments made to this section by the act adding this
19subdivision shall apply to disbursements made during taxable years
20beginning on or after January 1, 2016.

21

begin deleteSEC. 10.end delete
22begin insertSEC. 13.end insert  

Section 17240 is added to the Revenue and Taxation
23Code
, to read:

24

17240.  

The fee imposed by Section 9008 of the Patient
25Protection and Affordable Care Act (Public Law 111-148), shall
26begin delete notend delete be considered a tax described in Section 275(a)(6) of the
27Internal Revenue Code.

28

begin deleteSEC. 11.end delete
29begin insertSEC. 14.end insert  

Section 17241 is added to the Revenue and Taxation
30Code
, to read:

31

17241.  

(a) Section 213(a) of the Internal Revenue Code,
32relating to allowance of deduction, is modified by substituting “7.5
33percent” for “10 percent.”

34(b) Section 213(f) of the Internal Revenue Code, relating to
35special rule for 2013, 2014, 2015, and 2016, shall not apply.

36

begin deleteSEC. 12.end delete
37begin insertSEC. 15.end insert  

Section 17280.1 of the Revenue and Taxation Code
38 is repealed.

P37   1

begin deleteSEC. 13.end delete
2begin insertSEC. 16.end insert  

Section 17322.1 of the Revenue and Taxation Code
3 is repealed.

4

begin deleteSEC. 14.end delete
5begin insertSEC. 17.end insert  

Section 17323 is added to the Revenue and Taxation
6Code
, to read:

7

17323.  

Section 382(n) of the Internal Revenue Code, relating
8to special rule for certain ownership changes, shall not apply.

9

begin deleteSEC. 15.end delete
10begin insertSEC. 18.end insert  

Section 18155 of the Revenue and Taxation Code is
11amended to read:

12

18155.  

A deduction shall not be allowed for capital loss
13carrybacks provided by Section 1212 of the Internal Revenue Code,
14relating to capital loss carrybacks and carryovers.

15

begin deleteSEC. 16.end delete
16begin insertSEC. 19.end insert  

Section 19131.5 is added to the Revenue and Taxation
17Code
, to read:

18

19131.5.  

(a) Section 6164 of the Internal Revenue Code,
19relating to extension of time for payment of taxes by corporations
20expecting carrybacks, shall apply, except as otherwise provided.

21(b) (1) Section 6164 of the Internal Revenue Code is modified
22by substituting the phrase “Secretary or the Franchise Tax Board”
23for the word “Secretary” in each place it appears.

24(2) Section 6164(a) of the Internal Revenue Code is modified
25by substituting the phrase “Part 11 (commencing with Section
2623001)” in lieu of the phrase “subtitle A.”

27(3) Section 6164(b) of the Internal Revenue Code, relating to
28contents of statement, is modified by substituting the phrase
29“Section 24416.20” in lieu of the phrase “Section 172(b).”

30(4) Section 6164(d)(2) of the Internal Revenue Codebegin delete is modified
31by substituting the phrase “Section 19307.5” in lieu of the phrase
32“Section 6411.”end delete
begin insert shall not apply.end insert

33(5) Section 6164(h) of the Internal Revenue Code, relating to
34jeopardy, is modified as follows:

35(A) By substituting the phrase “he or the Franchise Tax Board”
36for the word “he” in each place it appears.

37(B) By substituting the phrase “him or the Franchise Tax Board”
38for the word “him” in each place it appears.

39(6) Section 6164(i) of the Internal Revenue Code, relating to
40consolidated returns, is modified by substituting the phrase
P38   1 “combined report” in lieu of the phrase “consolidated return” in
2each place it appears.

3

begin deleteSEC. 17.end delete
4begin insertSEC. 20.end insert  

Section 19141.5 of the Revenue and Taxation Code
5 is amended to read:

6

19141.5.  

(a) (1) Section 6038A of the Internal Revenue Code,
7relating to information with respect to certain foreign-owned
8corporations, shall apply.

9(2) A penalty shall be imposed under this part for failure to
10furnish information or maintain records and that penalty shall be
11determined in accordance with Section 6038A of the Internal
12Revenue Code.

13(3) Section 11314 of Public Law 101-508, relating to application
14of amendments made by Section 7403 of the Revenue
15Reconciliation Act of 1989 to taxable years beginning on or before
16July 10, 1989, shall apply.

17(4) Section 6038A(e) of the Internal Revenue Code, relating to
18enforcement of requests for certain records, is modified as follows:

19(A) Each reference to Section 7602, 7603, or 7604 of the Internal
20Revenue Code shall instead refer to Section 19504.

21(B) Each reference to “summons” shall instead refer to
22“subpoena duces tecum.”

23(C) Section 6038A(e)(4)(C) of the Internal Revenue Code shall
24refer to “superior courts of the State of California for the Counties
25of Los Angeles, Sacramento, and San Diego, and for the City and
26County of San Francisco,” instead of “United States district court
27for the district in which the person (to whom the summons is
28issued) resides or is found.”

29(b) In the case of a corporation, each of the following shall
30apply:

31(1) Section 6038B of the Internal Revenue Code, relating to
32notice of certain transfers to foreign persons, shall apply, except
33as otherwise provided.

34(2) The information required to be filed with the Franchise Tax
35Board under this subdivision shall be a copy of the information
36required to be filed with the Internal Revenue Service.

37(3) (A) A penalty shall be imposed under this part for failure
38to furnish information and that penalty shall be determined in
39accordance with Section 6038B of the Internal Revenue Code,
40except as otherwise provided.

P39   1(B) Subparagraph (A) shall not apply to any transfer described
2in Section 6038B(a)(1)(B) of the Internal Revenue Code.

3(c) (1) Section 6038C of the Internal Revenue Code, relating
4to information with respect to foreign corporations engaged in
5United States business, shall apply.

6(2) A penalty shall be imposed under this part for failure to
7furnish information or maintain records and that penalty shall be
8determined in accordance with Section 6038C of the Internal
9Revenue Code.

10(3) Section 6038C(d) of the Internal Revenue Code, relating to
11enforcement of requests for certain records, is modified as follows:

12(A) Each reference to Section 7602, 7603, or 7604 of the Internal
13Revenue Code shall instead refer to Section 19504.

14(B) Each reference to “summons” shall instead refer to
15“subpoena duces tecum.”

16(d) (1) Section 6038D of the Internal Revenue Code, relating
17to information with respect to foreign financial assets, shall apply.

18(2) A penalty shall be imposed under this part for failure to
19furnish information and that penalty shall be determined in
20accordance with Section 6038D of the Internal Revenue Code.

21(e) For purposes of this part, the information required to be filed
22with the Franchise Tax Board pursuant to this section shall be a
23copy of the information filed with the Internal Revenue Service.

24(f) For purposes of this section, each of the following shall
25apply:

26(1) Section 7701(a)(4) of the Internal Revenue Code, relating
27to the term “domestic,” shall apply.

28(2) Section 7701(a)(5) of the Internal Revenue Code, relating
29to the term “foreign,” shall apply.

30(3) Section 7701(a)(30) of the Internal Revenue Code, relating
31to the term “United States person,” shall apply. However, the term
32“United States person” shall not include any corporation that is
33not subject to the tax imposed under Chapter 2 (commencing with
34Section 23101), Chapter 2.5 (commencing with Section 23400),
35or Chapter 3 (commencing with Section 23501), of Part 11.

36(g) The amendments made to this section by the act adding this
37subdivision shall apply to taxable years beginning on or after
38January 1, 2016.

P40   1

begin deleteSEC. 18.end delete
2begin insertSEC. 21.end insert  

Section 19164 of the Revenue and Taxation Code is
3amended to read:

4

19164.  

(a) (1) (A) An accuracy-related penalty shall be
5imposed under this part and shall be determined in accordance
6with Section 6662 of the Internal Revenue Code, relating to
7imposition of accuracy-related penalty on underpayments, except
8as otherwise provided.

9(B) (i) Except for understatements relating to reportable
10transactions to which Section 19164.5 applies, in the case of any
11proposed deficiency assessment issued after the last date of the
12amnesty period specified in Chapter 9.1 (commencing with Section
1319730) for any taxable year beginning prior to January 1, 2003,
14the penalty specified in Section 6662(a) of the Internal Revenue
15Code shall be computed by substituting “40 percent” for “20
16percent.”

17(ii) Clause (i) shall not apply to any taxable year of a taxpayer
18beginning prior to January 1, 2003, if, as of the start date of the
19amnesty program period specified in Section 19731, the taxpayer
20is then under audit by the Franchise Tax Board, or the taxpayer
21has filed a protest under Section 19041, or the taxpayer has filed
22an appeal under Section 19045, or the taxpayer is engaged in
23settlement negotiations under Section 19442, or the taxpayer has
24a pending judicial proceeding in any court of this state or in any
25federal court relating to the tax liability of the taxpayer for that
26taxable year.

27(2) With respect to corporations, this subdivision shall apply to
28all of the following:

29(A) All taxable years beginning on or after January 1, 1990.

30(B) Any other taxable year for which an assessment is made
31after July 16, 1991.

32(C) For purposes of this section, references in Section 6662(e)
33of the Internal Revenue Code and the regulations thereunder,
34relating to treatment of an affiliated group that files a consolidated
35federal return, are modified to apply to those entities required to
36be included in a combined report under Section 25101 or 25110.
37For these purposes, entities included in a combined report pursuant
38to paragraph (4) or (6) of subdivision (a) of Section 25110 shall
39be considered only to the extent required to be included in the
40combined report.

P41   1(3) Section 6662(d)(1)(B) of the Internal Revenue Code is
2modified to provide that in the case of a corporation, other than
3an “S” corporation, there is a substantial understatement of tax for
4any taxable year if the amount of the understatement for the taxable
5year exceeds the lesser of:

6(A) Ten percent of the tax required to be shown on the return
7for the taxable year (or, if greater, two thousand five hundred
8dollars ($2,500)).

9(B) Five million dollars ($5,000,000).

10(4) Section 6662(d)(2)(A) of the Internal Revenue Code is
11modified to additionally provide that the excess determined under
12Section 6662(d)(2)(A) of the Internal Revenue Code shall be
13determined without regard to items to which Section 19164.5
14applies and without regard to items with respect to which a penalty
15is imposed by Section 19774.

16(5) The provisions of Sections 6662(e)(1) and 6662(h)(2) of the
17Internal Revenue Code shall apply to returns filed on or after
18January 1, 2010.

19(b) For purposes of Section 6662(d) of the Internal Revenue
20Code, Section 6664 of the Internal Revenue Code, Section
216694(a)(1) of the Internal Revenue Code, and this part, the
22Franchise Tax Board may prescribe a list of positions for which
23the Franchise Tax Board believes there is not substantial authority
24or there is no reasonable belief that the tax treatment is more likely
25than not the proper tax treatment. That list (and any revisions
26thereof) shall be published through the use of Franchise Tax Board
27Notices or other published positions. In addition, the “listed
28transactions” identified and published pursuant to the preceding
29sentence shall be published on the Web site of the Franchise Tax
30Board.

31(c) A fraud penalty shall be imposed under this part and shall
32be determined in accordance with Section 6663 of the Internal
33Revenue Code, relating to imposition of fraud penalty, except as
34otherwise provided.

35(d) (1) Section 6664 of the Internal Revenue Code, relating to
36definitions and special rules, shall apply, except as otherwise
37provided.

38(2) Section 6664(c)(3) of the Internal Revenue Code shall apply
39to returns filed on or after January 1, 2010.

P42   1(3) Section 6664(c)(4) of the Internal Revenue Code shall apply
2to appraisals prepared with respect to returns or submissions filed
3on or after January 1, 2010.

4(e) Except for purposes of subdivision (e) of Section 19774,
5Section 6662(b)(6) of the Internal Revenue Code shall not apply.

6(f) Except for purposes of subdivision (e) of Section 19774,
7Section 6662(i) of the Internal Revenue Code, relating to increase
8in penalty in case of nondisclosed noneconomic substance
9transactions, shall not apply.

10(g) Section 6665 of the Internal Revenue Code, relating to
11applicable rules, shall apply, except as otherwise provided.

12(h) The amendments made to this section by Chapter 14 of the
13Statutes of 2011 shall apply to notices mailed on or after January
141, 2012.

15

begin deleteSEC. 19.end delete
16begin insertSEC. 22.end insert  

Section 19167 of the Revenue and Taxation Code is
17amended to read:

18

19167.  

A penalty shall be imposed under this section for any
19of the following:

20(a) In accordance with Section 6695(a) of the Internal Revenue
21Code, relating to failure to furnish a copy to taxpayer, as required
22by Section 18625, except as otherwise provided.

23(b) In accordance with Section 6695(c) of the Internal Revenue
24Code, relating to failure to furnish identifying number, as required
25by Section 18624, except as otherwise provided.

26(c) In accordance with Section 6695(d) of the Internal Revenue
27Code, relating to failure to retainbegin delete aend delete copy or list, as required by
28 Section 18625 or for failure to retain an electronic filing
29declaration, as required by Section 18621.5, except as otherwise
30provided.

31(d) Section 6695(h) of the Internal Revenue Code, relating to
32adjustment for inflation, shall not apply.

33(e) Failure to register as a tax preparer with the California Tax
34Education Council, as required by Section 22253 of the Business
35and Professions Code, unless it is shown that the failure was due
36to reasonable cause and not due to willful neglect.

37(1) The amount of the penalty under this subdivision for the
38first failure to register is two thousand five hundred dollars
39($2,500). This penalty shall be waived if proof of registration is
P43   1provided to the Franchise Tax Board within 90 days from the date
2notice of the penalty is mailed to the tax preparer.

3(2) The amount of the penalty under this subdivision for a failure
4to register, other than the first failure to register, is five thousand
5dollars ($5,000).

6(f) The Franchise Tax Board shall not impose the penalties
7authorized by subdivision (e) until either one of the following has
8occurred:

9(1) Commencing January 1, 2006, and continuing each year
10thereafter, there is an appropriation in the Franchise Tax Board’s
11annual budget to fund the costs associated with the penalty
12authorized by subdivision (e).

13(2) (A) An agreement has been executed between the California
14Tax Education Council and the Franchise Tax Board that provides
15that an amount equal to all first year costs associated with the
16penalty authorized by subdivision (e) shall be received by the
17Franchise Tax Board. For purposes of this subparagraph, first year
18costs include, but are not limited to, costs associated with the
19development of processes or systems changes, if necessary, and
20labor.

21(B) An agreement has been executed between the California
22Tax Education Council and the Franchise Tax Board that provides
23that the annual costs incurred by the Franchise Tax Board
24associated with the penalty authorized by subdivision (e) shall be
25reimbursed by the California Tax Education Council to the
26Franchise Tax Board.

27(C) Pursuant to the agreement described in subparagraph (A),
28the Franchise Tax Board has received an amount equal to the first
29year costs described in that subparagraph.

begin delete
30

SEC. 20.  

Section 19172 of the Revenue and Taxation Code is
31amended to read:

32

19172.  

(a) In addition to the penalty imposed by Section 19706
33(relating to willful failure to file return, supply information, or pay
34tax), if any partnership required to file a return under Section 18633
35or 18633.5 for any taxable year does either of the following:

36(1) Fails to file the return at the time prescribed therefor
37(determined with regard to any extension of time for filing).

38(2) Files a return which fails to show the information required
39under Section 18633 or 18633.5, that partnership shall be liable
40for a penalty determined under subdivision (b) for each month (or
P44   1fraction thereof) during which that failure continues (but not to
2exceed 12 months), unless it is shown that the failure is due to
3reasonable cause.

4(b) For purposes of subdivision (a), the amount determined
5under this subdivision for any month is the product of the
6following:

7(1) Thirty-nine dollars ($39), multiplied by

8(2) The number of persons who were partners in the partnership
9during any part of the taxable year.

10(c) The penalty imposed by subdivision (a) shall be assessed
11against the partnership.

12(d) Article 3 (commencing with Section 19031) of this chapter
13(relating to deficiency assessments) shall not apply with respect
14to the assessment or collection of any penalty imposed by
15subdivision (a).

16(e) The amendments made to this section by Chapter 14 of the
17Statutes of 2010 shall apply to returns required to be filed after
18January 1, 2011.

19(f) The amendments made to this section by the act adding this
20subdivision shall apply for taxable years beginning on or after
21January 1, 2016.

22

SEC. 21.  

Section 19172.5 of the Revenue and Taxation Code
23 is amended to read:

24

19172.5.  

(a) In addition to the penalty imposed by Section
2519706, if any “S” corporation required to file a return under Section
2618601 for any taxable year fails to file the return at the time
27prescribed therefor (determined with regard to any extension of
28time for filing), or files a return that fails to show the information
29required under Section 18601, then that “S” corporation shall be
30liable for a penalty determined under subdivision (b) for each
31month (or fraction thereof) during which that failure continues
32(but not to exceed 12 months), unless that failure is due to
33reasonable cause.

34(b) (1) For purposes of subdivision (a), the amount determined
35under this subdivision for any month is the product of the
36following:

37(2) Thirty-nine dollars ($39), multiplied by the number of
38persons who were shareholders in the “S” corporation during any
39part of the taxable year.

P45   1(c) The penalty imposed by subdivision (a) shall be assessed
2against the “S” corporation.

3(d) Article 3 (commencing with Section 19031), relating to
4deficiency assessments, shall not apply with respect to the
5assessment or collection of any penalty imposed by subdivision
6(a).

7(e) This section shall apply to returns required to be filed after
8January 1, 2011.

9(f) The amendments made to this section by the act adding this
10subdivision shall apply to returns for taxable years beginning on
11or after January 1, 2016.

end delete
12

begin deleteSEC. 22.end delete
13begin insertSEC. 23.end insert  

Section 19183 of the Revenue and Taxation Code is
14amended to read:

15

19183.  

(a) (1) A penalty shall be imposed for failure to file
16correct information returns, as required by this part, and that
17penalty shall be determined in accordance with Section 6721 of
18the Internal Revenue Code, relating to failure to file correct
19information returns.

20(2) Section 6721(e) of the Internal Revenue Code, relating to
21penalty in case of intentional disregard, is modified to the extent
22that the reference to Section 6041A(b) of the Internal Revenue
23Code, relating to direct sales of $5,000 or more, shall not apply.

24(3) Section 6721(f)(1) of the Internal Revenue Code is modified
25to substitute the phrase “For each fifth calendar year beginning
26after 2014” for the phrase “In the case of any failure relating to a
27return required to be filed in a calendar year beginning after 2014.”

28(b) (1) A penalty shall be imposed for failure to furnish correct
29payee statements as required by this part, and that penalty shall be
30determined in accordance with Section 6722 of the Internal
31Revenue Code, relating to failure to furnish correct payee
32statements.

33(2) Section 6722(c) of the Internal Revenue Code, relating to
34exception for de minimus failures, is modified to the extent that
35the references to Sections 6041A(b) and 6041A(e) of the Internal
36Revenue Code, relating to direct sales of $5,000 or more, and
37statements to be furnished to persons with respect to whom
38information is required to be furnished, shall not apply.

39(3) Section 6722(f)(1) of the Internal Revenue Code is modified
40to substitute the phrase “For each fifth calendar year beginning
P46   1after 2014” for the phrase “In the case of any failure relating to a
2return required to be filed in a calendar year beginning after 2014.”

3(c) A penalty shall be imposed for failure to comply with other
4information reporting requirements under this part, and that penalty
5shall be determined in accordance with Section 6723 of the Internal
6Revenue Code, relating to failure to comply with other information
7reporting requirements.

8(d) (1) The provisions of Section 6724 of the Internal Revenue
9Code, relating to waiver; definitions, and special rules, shall apply,
10except as otherwise provided.

11(2) Section 6724(d)(1) of the Internal Revenue Code, relating
12to information return, is modified as follows:

13(A) The following references are substituted:

14(i) Subdivision (a) of Section 18640, in lieu of Section
156044(a)(1) of the Internal Revenue Code.

16(ii) Subdivision (a) of Section 18644, in lieu of Section 6050A(a)
17of the Internal Revenue Code, relating to reports.

18(B) References to Sections 4101(d), 6041(b), 6041A(b), 6045(d),
196051(d), and 6053(c)(1) of the Internal Revenue Code shall not
20apply.

21(C) The term “information return” shall also include both of the
22following:

23(i) The return required by paragraph (1) of subdivision (i) of
24Section 18662.

25(ii) The return required by subdivision (a) of Section 18631.7.

26(3) Section 6724(d)(2) of the Internal Revenue Code, relating
27to payee statement, is modified as follows:

28(A) The following references are substituted:

29(i) Subdivision (b) of Section 18640, in lieu of Section 6044(e)
30of the Internal Revenue Code, relating to statements to be furnished
31to persons with respect to whom information is required.

32(ii) Subdivision (b) of Section 18644, in lieu of Section
336050A(b) of the Internal Revenue Code, relating to written
34statement.

35(B) References to Sections 6031(b), 6037(b), 6041A(e), 6045(d),
366051(d), 6053(b), and 6053(c) of the Internal Revenue Code shall
37not apply.

38(C) The term “payee statement” shall also include the statement
39required by paragraph (2) of subdivision (i) of Section 18662.

P47   1(e) In the case of each failure to provide a written explanation
2as required by Section 402(f) of the Internal Revenue Code, relating
3to written explanation to recipients of distributions eligible for
4rollover treatment, at the time prescribed therefor, unless it is
5shown that the failure is due to reasonable cause and not to willful
6neglect, there shall be paid, on notice and demand of the Franchise
7Tax Board and in the same manner as tax, by the person failing to
8 provide that written explanation, an amount equal to ten dollars
9($10) for each failure, but the total amount imposed on that person
10for all those failures during any calendar year shall not exceed five
11thousand dollars ($5,000).

12(f) Any penalty imposed by this part shall be paid on notice and
13demand by the Franchise Tax Board and in the same manner as
14tax.

15(g) The amendments made to this section by the act adding this
16subdivision shall apply to information returns required to be filed
17on or after January 1, 2016.

18

begin deleteSEC. 23.end delete
19begin insertSEC. 24.end insert  

Section 19772 of the Revenue and Taxation Code is
20amended to read:

21

19772.  

(a) Section 6707A of the Internal Revenue Code,
22relating to penalty for failure to include reportable transactions
23information with a return, shall apply, except as otherwise
24provided.

25(b) (1) Section 6707A(b)(1) of the Internal Revenue Code
26relating to amount of penalty is modified by substituting the phrase
27“or which would have resulted from such transaction if such
28transaction were respected for state tax purposes” for the phrase
29“or which would have resulted from such transaction if such
30transaction were respected for Federal tax purposes.”

31(2) The penalty amounts in Section 6707A(b)(2)(A) of the
32Internal Revenue Code are modified by substituting “$30,000
33($15,000” for “$200,000 ($100,000.”

34(3) The penalty amounts in Section 6707A(b)(2)(B) of the
35Internal Revenue Code are modified by substituting “$15,000
36($5,000” for “$50,000 ($10,000.”

37(4) The penalty amounts in Section 6707A(b)(3) of the Internal
38Revenue Code relating to minimum penalty are modified by
39substituting “$2,500 ($1,250” for “$10,000 ($5,000.”

P48   1(c) (1) Section 6707A(c)(1) of the Internal Revenue Code
2 relating to reportable transaction is modified to include reportable
3transactions within the meaning of paragraph (3) of subdivision
4(a) of Section 18407.

5(2) Section 6707A(c)(2) of the Internal Revenue Code relating
6to listed transaction is modified to include listed transactions within
7the meaning of paragraph (4) of subdivision (a) of Section 18407.

8(d) The penalty under this section only applies to taxpayers with
9taxable income greater than two hundred thousand dollars
10($200,000).

11(e) Section 6707A(e) of the Internal Revenue Code, relating to
12a penalty reported to the Securities and Exchange Commission,
13shall not apply.

14(f) Section 6707A(d) of the Internal Revenue Code, relating to
15authority to rescind penalty, shall not apply, and in lieu thereof,
16the following shall apply:

17(1) The Chief Counsel of the Franchise Tax Board may rescind
18all or any portion of any penalty imposed by this section with
19respect to any violation if all of the following apply:

20(A) The violation is with respect to a reportable transaction
21other than a listed transaction.

22(B) The person on whom the penalty is imposed has a history
23of complying with the requirements of this part and Part 10
24(commencing with Section 17001) or Part 11 (commencing with
25Section 23001).

26(C) It is shown that the violation is due to an unintentional
27mistake of fact.

28(D) Imposing the penalty would be against equity and good
29conscience.

30(E) Rescinding the penalty would promote compliance with the
31requirements of this part and Part 10 (commencing with Section
3217001) or Part 11 (commencing with Section 23001) and effective
33tax administration.

34(2) The exercise of authority under paragraph (1) shall be at the
35sole discretion of the Chief Counsel of the Franchise Tax Board
36and may not be delegated.

37(3) Notwithstanding any other law or rule of law, any
38determination under this subdivision may not be reviewed in any
39administrative or judicial proceeding.

P49   1(g) Article 3 (commencing with Section 19031) of Chapter 4
2(relating to deficiency assessments) shall not apply with respect
3to the assessment or collection of any penalty imposed under this
4section.

5(h) The penalty imposed by this section is in addition to any
6penalty imposed under Part 10 (commencing with Section 17001),
7Part 11 (commencing with Section 23001), or this part.

8(i) The amendments made to this section by the act adding this
9subdivision shall apply to penalties assessed on or after January
101, 2016.

11begin insert

begin insertSEC. 25.end insert  

end insert

begin insertSection 23622.7 of the end insertbegin insertRevenue and Taxation Codeend insert
12begin insert is amended to read:end insert

13

23622.7.  

(a) There shall be allowed a credit against the “tax”
14(as defined by Section 23036) to a taxpayer who employs a
15qualified employee in an enterprise zone during the taxable year.
16The credit shall be equal to the sum of each of the following:

17(1) Fifty percent of qualified wages in the first year of
18employment.

19(2) Forty percent of qualified wages in the second year of
20employment.

21(3) Thirty percent of qualified wages in the third year of
22employment.

23(4) Twenty percent of qualified wages in the fourth year of
24employment.

25(5) Ten percent of qualified wages in the fifth year of
26employment.

27(b) For purposes of this section:

28(1) “Qualified wages” means:

29(A) (i) Except as provided in clause (ii), that portion of wages
30paid or incurred by the taxpayer during the taxable year to qualified
31employees that does not exceed 150 percent of the minimum wage.

32(ii) For up to 1,350 qualified employees who are employed by
33the taxpayer in the Long Beach Enterprise Zone in aircraft
34manufacturing activities described in Codes 3721 to 3728,
35inclusive, and Code 3812 of the Standard Industrial Classification
36(SIC) Manual published by the United States Office of
37Management and Budget, 1987 edition, “qualified wages” means
38that portion of hourly wages that does not exceed 202 percent of
39the minimum wage.

P50   1(B) Wages received during the 60-month period beginning with
2the first day the employee commences employment with the
3taxpayer. Reemployment in connection with any increase, including
4a regularly occurring seasonal increase, in the trade or business
5operations of the taxpayer does not constitute commencement of
6employment for purposes of this section.

7(C) Qualified wages do not include any wages paid or incurred
8by the taxpayer on or after the zone expiration date. However,
9wages paid or incurred with respect to qualified employees who
10are employed by the taxpayer within the enterprise zone within
11the 60-month period prior to the zone expiration date shall continue
12to qualify for the credit under this section after the zone expiration
13date, in accordance with all provisions of this section applied as
14if the enterprise zone designation were still in existence and
15binding.

16(2) “Minimum wage” means the wage established by the
17Industrial Welfare Commission as provided for in Chapter 1
18(commencing with Section 1171) of Part 4 of Division 2 of the
19Labor Code.

20(3) “Zone expiration date” means the date the enterprise zone
21designation expires, is no longer binding, becomes inoperative, or
22is repealed.

23(4) (A) “Qualified employee” means an individual who meets
24all of the following requirements:

25(i) At least 90 percent of whose services for the taxpayer during
26the taxable year are directly related to the conduct of the taxpayer’s
27trade or business located in an enterprise zone.

28(ii) Performs at least 50 percent of his or her services for the
29taxpayer during the taxable year in an enterprise zone.

30(iii) Is hired by the taxpayer after the date of original designation
31of the area in which services were performed as an enterprise zone.

32(iv) Is any of the following:

33(I) Immediately preceding the qualified employee’s
34commencement of employment with the taxpayer, was a person
35eligible for services under the federal Job Training Partnership
36Act (29 U.S.C. Sec. 1501 et seq.), or its successor, who is receiving,
37or is eligible to receive, subsidized employment, training, or
38services funded by the federal Job Training Partnership Act, or its
39successor.

P51   1(II) Immediately preceding the qualified employee’s
2commencement of employment with the taxpayer, was a person
3eligible to be a voluntary or mandatory registrant under the Greater
4Avenues for Independence Act of 1985 (GAIN) provided for
5pursuant to Article 3.2 (commencing with Section 11320) of
6Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions
7Code, or its successor.

8(III) Immediately preceding the qualified employee’s
9commencement of employment with the taxpayer, was an
10economically disadvantaged individual 14 years of age or older.

11(IV) Immediately preceding the qualified employee’s
12commencement of employment with the taxpayer, was a dislocated
13worker who meets any of the following:

14(aa) Has been terminated or laid off or who has received a notice
15of termination or layoff from employment, is eligible for or has
16exhausted entitlement to unemployment insurance benefits, and
17is unlikely to return to his or her previous industry or occupation.

18(bb) Has been terminated or has received a notice of termination
19of employment as a result of any permanent closure or any
20substantial layoff at a plant, facility, or enterprise, including an
21individual who has not received written notification but whose
22employer has made a public announcement of the closure or layoff.

23(cc) Is long-term unemployed and has limited opportunities for
24employment or reemployment in the same or a similar occupation
25in the area in which the individual resides, including an individual
2655 years of age or older who may have substantial barriers to
27employment by reason of age.

28(dd) Was self-employed (including farmers and ranchers) and
29is unemployed as a result of general economic conditions in the
30community in which he or she resides or because of natural
31disasters.

32(ee) Was a civilian employee of the Department of Defense
33employed at a military installation being closed or realigned under
34the Defense Base Closure and Realignment Act of 1990.

35(ff) Was an active member of the armed forces or National
36Guard as of September 30, 1990, and was either involuntarily
37separated or separated pursuant to a special benefits program.

38(gg) Is a seasonal or migrant worker who experiences chronic
39seasonal unemployment and underemployment in the agriculture
P52   1industry, aggravated by continual advancements in technology and
2mechanization.

3(hh) Has been terminated or laid off, or has received a notice
4of termination or layoff, as a consequence of compliance with the
5Clean Air Act.

6(V) Immediately preceding the qualified employee’s
7commencement of employment with the taxpayer, was a disabled
8individual who is eligible for or enrolled in, or has completed a
9state rehabilitation plan or is a service-connected disabled veteran,
10veteran of the Vietnam era, or veteran who is recently separated
11from military service.

12(VI) Immediately preceding the qualified employee’s
13commencement of employment with the taxpayer, was an
14ex-offender. An individual shall be treated as convicted if he or
15she was placed on probation by a state court without a finding of
16guilt.

17(VII) Immediately preceding the qualified employee’s
18commencement of employment with the taxpayer, was a person
19eligible for or a recipient of any of the following:

20(aa) Federal Supplemental Security Income benefits.

21(bb) Aid to Families with Dependent Children.

22(cc) CalFresh benefits.

23(dd) State and local general assistance.

24(VIII) Immediately preceding the qualified employee’s
25commencement of employment with the taxpayer, was a member
26of a federally recognized Indian tribe, band, or other group of
27Native American descent.

28(IX) Immediately preceding the qualified employee’s
29commencement of employment with the taxpayer, was a resident
30of a targeted employment area (as defined in Section 7072 of the
31Government Code).

32(X) An employee who qualified the taxpayer for the enterprise
33zone hiring credit under former Section 23622 or the program area
34hiring credit under former Section 23623.

35(XI) Immediately preceding the qualified employee’s
36commencement of employment with the taxpayer, was a member
37of a targeted group, as defined in Section 51(d) of the Internal
38Revenue Code, or its successor.

39(B) Priority for employment shall be provided to an individual
40who is enrolled in a qualified program under the federal Job
P53   1Training Partnership Act or the Greater Avenues for Independence
2Act of 1985 or who is eligible as a member of a targeted group
3under the Work Opportunity Tax Credit (Section 51 of the Internal
4Revenue Code), or its successor.

5(5) “Taxpayer” means a corporation engaged in a trade or
6business within an enterprise zone designated pursuant to Chapter
712.8 (commencing with Section 7070) of Division 7 of Title 1 of
8the Government Code.

9(6) “Seasonal employment” means employment by a taxpayer
10that has regular and predictable substantial reductions in trade or
11business operations.

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

13(1) Obtain from the Employment Development Department, as
14permitted by federal law, the local county or city Job Training
15Partnership Act administrative entity, the local county GAIN office
16or social services agency, or the local government administering
17the enterprise zone, a certification that provides that a qualified
18employee meets the eligibility requirements specified in clause
19(iv) of subparagraph (A) of paragraph (4) of subdivision (b). The
20Employment Development Department may provide preliminary
21screening and referral to a certifying agency. The Employment
22Development Department shall develop a form for this purpose.
23The Department of Housing and Community Development shall
24develop regulations governing the issuance of certificates by local
25governments pursuant to subdivision (a) of Section 7086 of the
26Government Code.

27(2) Retain a copy of the certification and provide it upon request
28to the Franchise Tax Board.

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

30(A) All employees of all corporations which are members of
31the same controlled group of corporations shall be treated as
32employed by a single taxpayer.

33(B) The credit, if any, allowable by this section to each member
34shall be determined by reference to its proportionate share of the
35expense of the qualified wages giving rise to the credit, and shall
36be allocated in that manner.

37(C) For purposes of this subdivision, “controlled group of
38corporations” means “controlled group of corporations” as defined
39in Section 1563(a) of the Internal Revenue Code, except that:

P54   1(i) “More than 50 percent” shall be substituted for “at least 80
2percent” each place it appears in Section 1563(a)(1) of the Internal
3Revenue Code.

4(ii) The determination shall be made without regard to
5subsections (a)(4) and (e)(3)(C) of Section 1563 of the Internal
6Revenue Code.

7(2) If an employer acquires the major portion of a trade or
8business of another employer (hereinafter in this paragraph referred
9to as the “predecessor”) or the major portion of a separate unit of
10a trade or business of a predecessor, then, for purposes of applying
11this section (other than subdivision (e)) for any calendar year
12ending after that acquisition, the employment relationship between
13a qualified employee and an employer shall not be treated as
14terminated if the employee continues to be employed in that trade
15or business.

16(e) (1) (A) If the employment, other than seasonal employment,
17of any qualified employee with respect to whom qualified wages
18are taken into account under subdivision (a) is terminated by the
19taxpayer at any time during the first 270 days of that employment,
20whether or not consecutive, or before the close of the 270th
21calendar day after the day in which that employee completes 90
22days of employment with the taxpayer, the tax imposed by this
23part for the taxable year in which that employment is terminated
24shall be increased by an amount equal to the credit allowed under
25 subdivision (a) for that taxable year and all prior taxable years
26attributable to qualified wages paid or incurred with respect to that
27employee.

28(B) If the seasonal employment of any qualified employee, with
29respect to whom qualified wages are taken into account under
30subdivision (a) is not continued by the taxpayer for a period of
31270 days of employment during the 60-month period beginning
32with the day the qualified employee commences seasonal
33employment with the taxpayer, the tax imposed by this part, for
34the taxable year that includes the 60th month following the month
35in which the qualified employee commences seasonal employment
36with the taxpayer, shall be increased by an amount equal to the
37credit allowed under subdivision (a) for that taxable year and all
38prior taxable years attributable to qualified wages paid or incurred
39with respect to that qualified employee.

P55   1(2) (A) Subparagraph (A) of paragraph (1) shall not apply to
2any of the following:

3(i) A termination of employment of a qualified employee who
4voluntarily leaves the employment of the taxpayer.

5(ii) A termination of employment of a qualified employee who,
6before the close of the period referred to in subparagraph (A) of
7paragraph (1), becomes disabled and unable to perform the services
8of that employment, unless that disability is removed before the
9close of that period and the taxpayer fails to offer reemployment
10to that employee.

11(iii) A termination of employment of a qualified employee, if
12it is determined that the termination was due to the misconduct (as
13defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
14the California Code of Regulations) of that employee.

15(iv) A termination of employment of a qualified employee due
16to a substantial reduction in the trade or business operations of the
17taxpayer.

18(v) A termination of employment of a qualified employee, if
19that employee is replaced by other qualified employees so as to
20create a net increase in both the number of employees and the
21hours of employment.

22(B) Subparagraph (B) of paragraph (1) shall not apply to any
23of the following:

24(i) A failure to continue the seasonal employment of a qualified
25employee who voluntarily fails to return to the seasonal
26employment of the taxpayer.

27(ii) A failure to continue the seasonal employment of a qualified
28employee who, before the close of the period referred to in
29subparagraph (B) of paragraph (1), becomes disabled and unable
30to perform the services of that seasonal employment, unless that
31disability is removed before the close of that period and the
32taxpayer fails to offer seasonal employment to that qualified
33employee.

34(iii) A failure to continue the seasonal employment of a qualified
35employee, if it is determined that the failure to continue the
36seasonal employment was due to the misconduct (as defined in
37Sections 1256-30 to 1256-43, inclusive, of Title 22 of the California
38Code of Regulations) of that qualified employee.

P56   1(iv) A failure to continue seasonal employment of a qualified
2employee due to a substantial reduction in the regular seasonal
3trade or business operations of the taxpayer.

4(v) A failure to continue the seasonal employment of a qualified
5employee, if that qualified employee is replaced by other qualified
6employees so as to create a net increase in both the number of
7seasonal employees and the hours of seasonal employment.

8(C) For purposes of paragraph (1), the employment relationship
9between the taxpayer and a qualified employee shall not be treated
10as terminated by either of the following:

11(i) By a transaction to which Section 381(a) of the Internal
12Revenue Code applies, if the qualified employee continues to be
13employed by the acquiring corporation.

14(ii) By reason of a mere change in the form of conducting the
15trade or business of the taxpayer, if the qualified employee
16continues to be employed in that trade or business and the taxpayer
17retains a substantial interest in 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(f) Rules similar to the rules provided in Section 46(e) and (h)
22of the Internal Revenue Code shall apply to both of the following:

23(1) An organization to which Section 593 of the Internal
24Revenue Code applies.

25(2) A regulated investment company or a real estate investment
26trust subject to taxation under this part.

27(g) For purposes of this section, “enterprise zone” means an
28area designated as an enterprise zone pursuant to Chapter 12.8
29(commencing with Section 7070) of Division 7 of Title 1 of the
30Government Code.

31(h) The credit allowable under this section shall be reduced by
32the credit allowed under Sections 23623.5, 23625, and 23646
33claimed for the same employee. The credit shall also be reduced
34by the federal credit allowed under Section 51 of the Internal
35Revenuebegin delete Code.end deletebegin insert Code, as amended by the Emergency Economic
36Stabilization Act of 2008 (Public Law 110-343).end insert

37In addition, any deduction otherwise allowed under this part for
38the wages or salaries paid or incurred by the taxpayer upon which
39the credit is based shall be reduced by the amount of the credit,
40prior to any reduction required by subdivision (i) or (j).

P57   1(i) 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 the succeeding 10 taxable years, if necessary, until
5the credit is exhausted. The credit shall be applied first to the
6earliest taxable years possible.

7(j) (1) The amount of the credit otherwise allowed under this
8section and Section 23612.2, including any credit carryover from
9prior years, that may reduce the “tax” for the taxable year shall
10not exceed the amount of tax which would be imposed on the
11taxpayer’s business income attributable to the enterprise zone
12determined as if that attributable income represented all of the
13income of the taxpayer subject to tax under this part.

14(2) Attributable income shall be that portion of the taxpayer’s
15California source business income that is apportioned to the
16enterprise zone. For that purpose, the taxpayer’s business
17attributable to sources in this state first shall be determined in
18accordance with Chapter 17 (commencing with Section 25101).
19That business income shall be further apportioned to the enterprise
20zone in accordance with Article 2 (commencing with Section
2125120) of Chapter 17, modified for purposes of this section in
22accordance with paragraph (3).

23(3) Business income shall be apportioned to the enterprise zone
24by multiplying the total California business income of the taxpayer
25by a fraction, the numerator of which is the property factor plus
26the payroll factor, and the denominator of which is two. For
27purposes of this paragraph:

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

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

39(4) The portion of any credit remaining, if any, after application
40of this subdivision, shall be carried over to succeeding taxable
P58   1years, if necessary, until the credit is exhausted, as if it were an
2amount exceeding the “tax” for the taxable year, as provided in
3subdivision (i). However, the portion of any credit remaining for
4carryover to taxable years beginning on or after January 1, 2014,
5if any, after application of this subdivision, shall be carried over
6only to the succeeding 10 taxable years if necessary, until the credit
7is exhausted, as if it were an amount exceeding the “tax” for the
8taxable year, as provided in subdivision (i).

9(k) The changes made to this section by the act adding this
10subdivision shall apply to taxable years on or after January 1, 1997.

11(l) (1) Except as provided in paragraph (2), this section shall
12cease to be operative on January 1, 2014, and shall be repealed on
13December 1, 2019. A credit shall not be allowed under this section
14with respect to an employee who first commences employment
15with a taxpayer on or after January 1, 2014.

16(2) This section shall continue to apply with respect to qualified
17employees who are employed by the taxpayer within the enterprise
18zone within the 60-month period immediately preceding January
191, 2014, and qualified wages paid or incurred with respect to those
20qualified employees shall continue to qualify for the credit under
21this section for taxable years beginning on or after January 1, 2014,
22in accordance with this section, as amended by the act adding this
23subdivision.

24begin insert

begin insertSEC. 26.end insert  

end insert

begin insertSection 23622.8 of the end insertbegin insertRevenue and Taxation Codeend insert
25begin insert is amended to read:end insert

26

23622.8.  

(a) For each taxable year beginning on or after
27January 1, 1998, there shall be allowed a credit against the “tax”
28(as defined in Section 23036) to a qualified taxpayer for hiring a
29qualified disadvantaged individual during the taxable year for
30employment in the manufacturing enhancement area. The credit
31shall be equal to the sum of each of the following:

32(1) Fifty percent of the qualified wages in the first year of
33employment.

34(2) Forty percent of the qualified wages in the second year of
35employment.

36(3) Thirty percent of the qualified wages in the third year of
37employment.

38(4) Twenty percent of the qualified wages in the fourth year of
39employment.

P59   1(5) Ten percent of the 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 disadvantaged
7individuals that does not exceed 150 percent of the minimum wage.

8(B) The total amount of qualified wages which may be taken
9into account for purposes of claiming the credit allowed under this
10section shall not exceed two million dollars ($2,000,000) per
11taxable year.

12(C) Wages received during the 60-month period beginning with
13the first day the qualified disadvantaged individual commences
14employment with the qualified taxpayer. Reemployment in
15connection with any increase, including a regularly occurring
16seasonal increase, in the trade or business operations of the
17qualified taxpayer does not constitute commencement of
18employment for purposes of this section.

19(D) Qualified wages do not include any wages paid or incurred
20by the qualified taxpayer on or after the manufacturing
21enhancement area expiration date. However, wages paid or incurred
22with respect to qualified employees who are employed by the
23qualified taxpayer within the manufacturing enhancement area
24within the 60-month period prior to the manufacturing enhancement
25area expiration date shall continue to qualify for the credit under
26this section after the manufacturing enhancement area expiration
27date, in accordance with all provisions of this section applied as
28if the manufacturing enhancement area designation were still in
29existence and binding.

30(2) “Minimum wage” means the wage established by the
31Industrial Welfare Commission as provided for in Chapter 1
32(commencing with Section 1171) of Part 4 of Division 2 of the
33Labor Code.

34(3) “Manufacturing enhancement area” means an area designated
35pursuant to Section 7073.8 of the Government Code according to
36the procedures of Chapter 12.8 (commencing with Section 7070)
37of Division 7 of Title 1 of the Government Code.

38(4) “Manufacturing enhancement area expiration date” means
39the date the manufacturing enhancement area designation expires,
40is no longer binding, becomes inoperative, or is repealed.

P60   1(5) “Qualified disadvantaged individual” means an individual
2who satisfies all of the following requirements:

3(A) (i) At least 90 percent of whose services for the qualified
4taxpayer during the taxable year are directly related to the conduct
5of the qualified taxpayer’s trade or business located in a
6manufacturing enhancement area.

7(ii) Who performs at least 50 percent of his or her services for
8the qualified taxpayer during the taxable year in the manufacturing
9enhancement area.

10(B) Who is hired by the qualified taxpayer after the designation
11of the area as a manufacturing enhancement area in which the
12individual’s services were primarily performed.

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

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.) or its successor.

19(ii) Any voluntary or mandatory registrant under the Greater
20Avenues for Independence Act of 1985, or its successor, as
21provided pursuant to Article 3.2 (commencing with Section 11320)
22of Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions
23Code.

24(iii) Any individual who has been certified eligible by the
25Employment Development Department under the federal Targeted
26Jobs Tax Credit Program, or its successor, whether or not this
27program is in effect.

28(6) “Qualified taxpayer” means any corporation engaged in a
29trade or business within a manufacturing enhancement area
30designated pursuant to Section 7073.8 of the Government Code
31and that meets all of the following requirements:

32(A) Is engaged in those lines of business described in Codes
330211 to 0291, inclusive, Code 0723, or in Codes 2011 to 3999,
34inclusive, of the Standard Industrial Classification (SIC) Manual
35published by the United States Office of Management and Budget,
361987 edition.

37(B) At least 50 percent of the qualified taxpayer’s workforce
38hired after the designation of the manufacturing enhancement area
39is composed of individuals who, at the time of hire, are residents
P61   1of the county in which the manufacturing enhancement area is
2located.

3(C) Of this percentage of local hires, at least 30 percent shall
4be qualified disadvantaged individuals.

5(7) “Seasonal employment” means employment by a qualified
6taxpayer that has regular and predictable substantial reductions in
7trade or business operations.

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

9(A) All employees of all corporations that are members of the
10same controlled group of corporations shall be treated as employed
11by a single qualified taxpayer.

12(B) The credit (if any) allowable by this section with respect to
13each member shall be determined by reference to its proportionate
14share of the expenses of the qualified wages giving rise to the
15credit and shall be allocated in that manner.

16(C) Principles that apply in the case of controlled groups of
17corporations, as specified in subdivision (d) of Section 23622.7,
18shall apply with respect to determining employment.

19(2) If a qualified taxpayer acquires the major portion of a trade
20or business of another employer (hereinafter in this paragraph
21referred to as the “predecessor”) or the major portion of a separate
22unit of a trade or business of a predecessor, then, for purposes of
23applying this section (other than subdivision (d)) for any calendar
24year ending after that acquisition, the employment relationship
25between a qualified disadvantaged individual and a qualified
26taxpayer shall not be treated as terminated if the qualified
27disadvantaged individual continues to be employed in that trade
28or business.

29(d) (1) (A) If the employment, other than seasonal employment,
30of any qualified disadvantaged individual, with respect to whom
31qualified wages are taken into account under subdivision (b) is
32terminated by the qualified taxpayer at any time during the first
33270 days of that employment (whether or not consecutive) or before
34the close of the 270th calendar day after the day in which that
35qualified disadvantaged individual completes 90 days of
36employment with the qualified taxpayer, the tax imposed by this
37part for the taxable year in which that employment is terminated
38shall be increased by an amount equal to the credit allowed under
39subdivision (a) for that taxable year and all prior taxable years
P62   1attributable to qualified wages paid or incurred with respect to that
2qualified disadvantaged individual.

3(B) If the seasonal employment of any qualified disadvantaged
4individual, with respect to whom qualified wages are taken into
5account under subdivision (a) is not continued by the qualified
6taxpayer for a period of 270 days of employment during the
760-month period beginning with the day the qualified
8disadvantaged individual commences seasonal employment with
9the qualified taxpayer, the tax imposed by this part, for the income
10year that includes the 60th month following the month in which
11the qualified disadvantaged individual commences seasonal
12employment with the qualified taxpayer, shall be increased by an
13amount equal to the credit allowed under subdivision (a) for that
14taxable year and all prior taxable years attributable to qualified
15wages paid or incurred with respect to that qualified disadvantaged
16individual.

17(2) (A) Subparagraph (A) of paragraph (1) does not apply to
18any of the following:

19(i) A termination of employment of a qualified disadvantaged
20individual who voluntarily leaves the employment of the qualified
21taxpayer.

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

28(iii) A termination of employment of a qualified disadvantaged
29individual, if it is determined that the termination was due to the
30misconduct (as defined in Sections 1256-30 to 1256-43, inclusive,
31of Title 22 of the California Code of Regulations) of that individual.

32(iv) A termination of employment of a qualified disadvantaged
33individual due to a substantial reduction in the trade or business
34operations of the qualified taxpayer.

35(v) A termination of employment of a qualified disadvantaged
36individual, if that individual is replaced by other qualified
37disadvantaged individuals so as to create a net increase in both the
38number of employees and the hours of employment.

39(B) Subparagraph (B) of paragraph (1) shall not apply to any
40of the following:

P63   1(i) A failure to continue the seasonal employment of a qualified
2disadvantaged individual who voluntarily fails to return to the
3seasonal employment of the qualified taxpayer.

4(ii) A failure to continue the seasonal employment of a qualified
5disadvantaged individual who, before the close of the period
6referred to in subparagraph (B) of paragraph (1), becomes disabled
7and unable to perform the services of that seasonal employment,
8unless that disability is removed before the close of that period
9and the qualified taxpayer fails to offer seasonal employment to
10that qualified disadvantaged individual.

11(iii) A failure to continue the seasonal employment of a qualified
12disadvantaged individual, if it is determined that the failure to
13continue the seasonal employment was due to the misconduct (as
14defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
15the California Code of Regulations) of that qualified disadvantaged
16individual.

17(iv) A failure to continue seasonal employment of a qualified
18disadvantaged individual due to a substantial reduction in the
19regular seasonal trade or business operations of the qualified
20taxpayer.

21(v) A failure to continue the seasonal employment of a qualified
22disadvantaged individual, if that qualified disadvantaged individual
23is replaced by other qualified disadvantaged individuals so as to
24create a net increase in both the number of seasonal employees
25and the hours of seasonal employment.

26(C) For purposes of paragraph (1), the employment relationship
27between the qualified taxpayer and a qualified disadvantaged
28individual shall not be treated as terminated by either of the
29following:

30(i) By a transaction to which Section 381(a) of the Internal
31Revenue Code applies, if the qualified disadvantaged individual
32continues to be employed by the acquiring corporation.

33(ii) By reason of a mere change in the form of conducting the
34trade or business of the qualified taxpayer, if the qualified
35disadvantaged individual continues to be employed in that trade
36or business and the qualified taxpayer retains a substantial interest
37in 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.

P64   1(e) The credit shall be reduced by the credit allowed under
2Section 23621. The credit shall also be reduced by the federal
3credit allowed under Section 51 of the Internal Revenuebegin delete Code.end delete
4begin insert Code, as amended by the Emergency Economic Stabilization Act
5of 2008 (Public Law 110-343).end insert

6In addition, any deduction otherwise allowed under this part for
7the wages or salaries paid or incurred by the qualified taxpayer
8upon which the credit is based shall be reduced by the amount of
9the credit, prior to any reduction required by subdivision (f) or (g).

10(f) In the case where the credit otherwise allowed under this
11section exceeds the “tax” for the taxable year, that portion of the
12credit that exceeds the “tax” may be carried over and added to the
13credit, if any, in the succeeding 10 taxable years, if necessary, until
14the credit is exhausted. The credit shall be applied first to the
15earliest taxable years possible.

16(g) (1) The amount of credit otherwise allowed under this
17section, including prior year credit carryovers, that may reduce
18the “tax” for the taxable year shall not exceed the amount of tax
19that would be imposed on the qualified taxpayer’s business income
20attributed to a manufacturing enhancement area determined as if
21that attributed income represented all of the net income of the
22qualified taxpayer subject to tax under this part.

23(2) Attributable income is that portion of the taxpayer’s
24California source business income that is apportioned to the
25manufacturing enhancement area. For that purpose, the taxpayer’s
26business income attributable to sources in this state first shall be
27determined in accordance with Chapter 17 (commencing with
28Section 25101). That business income shall be further apportioned
29to the manufacturing enhancement area in accordance with Article
302 (commencing with Section 25120) of Chapter 17, modified for
31purposes of this section in accordance with paragraph (3).

32(3) Income shall be apportioned to a manufacturing enhancement
33area 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 the purposes of this paragraph:

37(A) The property factor is a fraction, the numerator of which is
38the average value of the taxpayer’s real and tangible personal
39 property owned or rented and used in the manufacturing
40enhancement area during the taxable year, and the denominator
P65   1of which is the average value of all the taxpayer’s real and tangible
2personal property owned or rented and used in this state during
3the taxable year.

4(B) The payroll factor is a fraction, the numerator of which is
5the total amount paid by the taxpayer in the manufacturing
6enhancement area during the taxable year for compensation, and
7the denominator of which is the total compensation paid by the
8taxpayer in this state during the taxable year.

9(4) The portion of any credit remaining, if any, after application
10of this subdivision, shall be carried over to succeeding taxable
11years, if necessary, until the credit is exhausted, as if it were an
12amount exceeding the “tax” for the taxable year, as provided in
13subdivision (g). However, the portion of any credit remaining for
14carryover to taxable years beginning on or after January 1, 2014,
15if any, after application of this subdivision, shall be carried over
16only to the succeeding 10 taxable years if necessary, until the credit
17is exhausted, as if it were an amount exceeding the “tax” for the
18taxable year, as provided in subdivision (g).

19(h) If the taxpayer is allowed a credit pursuant to this section
20for qualified wages paid or incurred, only one credit shall be
21allowed to the taxpayer under this part with respect to any wage
22consisting in whole or in part of those qualified wages.

23(i) The qualified taxpayer shall do both of the following:

24(1) Obtain from the Employment Development Department, as
25permitted by federal law, the local county or city Job Training
26Partnership Act administrative entity, the local county GAIN office
27or social services agency, or the local government administering
28the manufacturing enhancement area, a certification that provides
29that a qualified disadvantaged individual meets the eligibility
30requirements specified in paragraph (5) of subdivision (b). The
31Employment Development Department may provide preliminary
32screening and referral to a certifying agency. The Department of
33Housing and Community Development shall develop regulations
34governing the issuance of certificates pursuant to subdivision (d)
35of Section 7086 of the Government Code and shall develop forms
36for this purpose.

37(2) Retain a copy of the certification and provide it upon request
38to the Franchise Tax Board.

P66   1(j) (1) Except as provided in paragraph (2), this section shall
2cease to be operative for taxable years beginning on or after January
31, 2014, and shall be repealed on December 1, 2019.

4(2) The section shall continue to apply with respect to qualified
5employees who are employed by the qualified taxpayer within the
6manufacturing enhancement area within the 60-month period
7immediately preceding January 1, 2014, and qualified wages paid
8or incurred with respect to those qualified employees shall continue
9to qualify for the credit under this section for taxable years
10beginning on or after January 1, 2014, in accordance with this
11section, as amended by the act adding this subdivision.

12begin insert

begin insertSEC. 27.end insert  

end insert

begin insertSection 23646 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
13amended to read:end insert

14

23646.  

(a) For each taxable year beginning on or after January
151, 1995, there shall be allowed as a credit against the “tax” (as
16defined in Section 23036) to a qualified taxpayer for hiring a
17qualified disadvantaged individual or a qualified displaced
18employee during the taxable year for employment in the LAMBRA.
19The credit shall be equal to the sum of each of the following:

20(1) Fifty percent of the qualified wages in the first year of
21employment.

22(2) Forty percent of the qualified wages in the second year of
23employment.

24(3) Thirty percent of the qualified wages in the third year of
25employment.

26(4) Twenty percent of the qualified wages in the fourth year of
27employment.

28(5) Ten percent of the qualified wages in the fifth year of
29employment.

30(b) For purposes of this section:

31(1) “Qualified wages” means:

32(A) That portion of wages paid or incurred by the employer
33during the taxable year to qualified disadvantaged individuals or
34qualified displaced employees that does not exceed 150 percent
35of the minimum wage.

36(B) The total amount of qualified wages which may be taken
37into account for purposes of claiming the credit allowed under this
38section shall not exceed two million dollars ($2,000,000) per
39taxable year.

P67   1(C) Wages received during the 60-month period beginning with
2the first day the individual commences employment with the
3taxpayer. Reemployment in connection with any increase, including
4a regularly occurring seasonal increase, in the trade or business
5operation of the qualified taxpayer does not constitute
6commencement of employment for purposes of this section.

7(D) Qualified wages do not include any wages paid or incurred
8by the qualified taxpayer on or after the LAMBRA expiration date.
9However, wages paid or incurred with respect to qualified
10disadvantaged individuals or qualified displaced employees who
11are employed by the qualified taxpayer within the LAMBRA within
12the 60-month period prior to the LAMBRA expiration date shall
13continue to qualify for the credit under this section after the
14LAMBRA expiration date, in accordance with all provisions of
15this section applied as if the LAMBRA designation were still in
16existence and binding.

17(2) “Minimum wage” means the wage established by the
18Industrial Welfare Commission as provided for in Chapter 1
19(commencing with Section 1171) of Part 4 of Division 2 of the
20Labor Code.

21(3) “LAMBRA” means a local agency military base recovery
22area designated in accordance with the provisions of Section 7114
23of the Government Code.

24(4) “Qualified disadvantaged individual” means an individual
25who satisfies all of the following requirements:

26(A) (i) At least 90 percent of whose services for the taxpayer
27during the taxable year are directly related to the conduct of the
28taxpayer’s trade or business located in a LAMBRA.

29(ii) Who performs at least 50 percent of his or her services for
30the taxpayer during the taxable year in the LAMBRA.

31(B) Who is hired by the employer after the designation of the
32area as a LAMBRA in which the individual’s services were
33primarily performed.

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

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 provided for pursuant to
P68   1Article 3.2 (commencing with Section 11320) of Chapter 2 of Part
23 of Division 9 of the Welfare and Institutions Code.

3(iii) An economically disadvantaged individual 16 years of age
4or older.

5(iv) A dislocated worker who meets any of the following
6conditions:

7(I) Has been terminated or laid off or who has received a notice
8of termination or layoff from employment, is eligible for or has
9exhausted entitlement to unemployment insurance benefits, and
10is unlikely to return to his or her previous industry or occupation.

11(II) Has been terminated or has received a notice of termination
12of employment as a result of any permanent closure or any
13substantial layoff at a plant, facility, or enterprise, including an
14individual who has not received written notification but whose
15employer has made a public announcement of the closure or layoff.

16(III) Is long-term unemployed and has limited opportunities for
17employment or reemployment in the same or a similar occupation
18in the area in which the individual resides, including an individual
1955 years of age or older who may have substantial barriers to
20employment by reason of age.

21(IV) Was self-employed (including farmers and ranchers) and
22is unemployed as a result of general economic conditions in the
23community in which he or she resides or because of natural
24disasters.

25(V) Was a civilian employee of the Department of Defense
26employed at a military installation being closed or realigned under
27the Defense Base Closure and Realignment Act of 1990.

28(VI) Was an active member of the Armed Forces or National
29Guard as of September 30, 1990, and was either involuntarily
30separated or separated pursuant to a special benefits program.

31(VII) Experiences chronic seasonal unemployment and
32underemployment in the agriculture industry, aggravated by
33continual advancements in technology and mechanization.

34(VIII) Has been terminated or laid off or has received a notice
35of termination or layoff as a consequence of compliance with the
36Clean Air Act.

37(v) An individual who is enrolled in or has completed a state
38rehabilitation plan or is a service-connected disabled veteran,
39veteran of the Vietnam era, or veteran who is recently separated
40from military service.

P69   1(vi) An ex-offender. An individual shall be treated as convicted
2if he or she was placed on probation by a state court without a
3finding of guilty.

4(vii) A recipient of:

5(I) Federal Supplemental Security Income benefits.

6(II) Aid to Families with Dependent Children.

7(III) CalFresh benefits.

8(IV) State and local general assistance.

9(viii) Is a member of a federally recognized Indian tribe, band,
10or other group of Native American descent.

11(5) “Qualified taxpayer” means a corporation that conducts a
12trade or business within a LAMBRA and, for the first two taxable
13years, has a net increase in jobs (defined as 2,000 paid hours per
14employee per year) of one or more employees as determined below
15in the LAMBRA.

16(A) The net increase in the number of jobs shall be determined
17by subtracting the total number of full-time employees (defined
18as 2,000 paid hours per employee per year) the taxpayer employed
19in this state in the taxable year prior to commencing business
20operations in the LAMBRA from the total number of full-time
21employees the taxpayer employed in this state during the second
22taxable year after commencing business operations in the
23LAMBRA. For taxpayers who commence doing business in this
24state with their LAMBRA business operation, the number of
25employees for the taxable year prior to commencing business
26operations in the LAMBRA shall be zero. If the taxpayer has a net
27increase in jobs in the state, the credit shall be allowed only if one
28or more full-time employees is employed within the LAMBRA.

29(B) The total number of employees employed in the LAMBRA
30shall equal the sum of both of the following:

31(i) The total number of hours worked in the LAMBRA for the
32taxpayer by employees (not to exceed 2,000 hours per employee)
33who are paid an hourly wage divided by 2,000.

34(ii) The total number of months worked in the LAMBRA for
35the taxpayer by employees who are salaried employees divided
36by 12.

37(C) In the case of a qualified taxpayer that first commences
38doing business in the LAMBRA during the taxable year, for
39purposes of clauses (i) and (ii), respectively, of subparagraph (B)
40the divisors “2,000” and “12” shall be multiplied by a fraction, the
P70   1numerator of which is the number of months of the taxable year
2that the taxpayer was doing business in the LAMBRA and the
3denominator of which is 12.

4(6) “Qualified displaced employee” means an individual who
5satisfies all of the following requirements:

6(A) Any civilian or military employee of a base or former base
7that has been displaced as a result of a federal base closure act.

8(B) (i) At least 90 percent of whose services for the taxpayer
9during the taxable year are directly related to the conduct of the
10taxpayer’s trade or business located in a LAMBRA.

11(ii) Who performs at least 50 percent of his or her services for
12the taxpayer during the taxable year in a LAMBRA.

13(C) Who is hired by the employer after the designation of the
14area in which services were performed as a LAMBRA.

15(7) “Seasonal employment” means employment by a qualified
16taxpayer that has regular and predictable substantial reductions in
17trade or business operations.

18(8) “LAMBRA expiration date” means the date the LAMBRA
19designation expires, is no longer binding, becomes inoperative, or
20is repealed.

21(c) For qualified disadvantaged individuals or qualified displaced
22employees hired on or after January 1, 2001, the taxpayer shall do
23both of the following:

24(1) Obtain from the Employment Development Department, as
25permitted by federal law, the administrative entity of the local
26county or city for the federal Job Training Partnership Act, or its
27successor, the local county GAIN office or social services agency,
28or the local government administering the LAMBRA, a
29certification that provides that a qualified disadvantaged individual
30or qualified displaced employee meets the eligibility requirements
31specified in subparagraph (C) of paragraph (4) of subdivision (b)
32or subparagraph (A) of paragraph (6) of subdivision (b). The
33Employment Development Department may provide preliminary
34screening and referral to a certifying agency. The Department of
35Housing and Community Development shall develop regulations
36governing the issuance of certificates pursuant to Section 7114.2
37of the Government Code and shall develop forms for this purpose.

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

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

P71   1(A) All employees of all corporations that are members of the
2same controlled group of corporations shall be treated as employed
3by a single employer.

4(B) The credit (if any) allowable by this section to each member
5shall be determined by reference to its proportionate share of the
6qualified wages giving rise to the credit.

7(2) For purposes of this subdivision, “controlled group of
8corporations” has the meaning given to that term by Section
91563(a) of the Internal Revenue Code, except that both of the
10following apply:

11(A) “More than 50 percent” shall be substituted for “at least 80
12percent” each place it appears in Section 1563(a)(1) of the Internal
13Revenue Code.

14(B) The determination shall be made without regard to Section
151563(a)(4) and Section 1563(e)(3)(C) of the Internal Revenue
16Code.

17(3) If an employer acquires the major portion of a trade or
18business of another employer (hereinafter in this paragraph referred
19to as the “predecessor”) or the major portion of a separate unit of
20a trade or business of a predecessor, then, for purposes of applying
21this section (other than subdivision (e)) for any calendar year
22ending after that acquisition, the employment relationship between
23an employee and an employer shall not be treated as terminated if
24the employee continues to be employed in that trade or business.

25(e) (1) (A) If the employment of any employee, other than
26seasonal employment, with respect to whom qualified wages are
27taken into account under subdivision (a) is terminated by the
28taxpayer at any time during the first 270 days of that employment
29(whether or not consecutive) or before the close of the 270th
30calendar day after the day in which that employee completes 90
31days of employment with the taxpayer, the tax imposed by this
32part for the taxable year in which that employment is terminated
33shall be increased by an amount equal to the credit allowed under
34subdivision (a) for that taxable year and all prior income years
35attributable to qualified wages paid or incurred with respect to that
36employee.

37(B) If the seasonal employment of any qualified disadvantaged
38individual, with respect to whom qualified wages are taken into
39account under subdivision (a) is not continued by the qualified
40taxpayer for a period of 270 days of employment during the
P72   160-month period beginning with the day the qualified
2disadvantaged individual commences seasonal employment with
3the qualified taxpayer, the tax imposed by this part, for the taxable
4year that includes the 60th month following the month in which
5the qualified disadvantaged individual commences seasonal
6employment with the qualified taxpayer, shall be increased by an
7amount equal to the credit allowed under subdivision (a) for that
8taxable year and all prior taxable years attributable to qualified
9wages paid or incurred with respect to that qualified disadvantaged
10individual.

11(2) (A) Subparagraph (A) of paragraph (1) shall not apply to
12any of the following:

13(i) A termination of employment of an employee who voluntarily
14leaves the employment of the taxpayer.

15(ii) A termination of employment of an individual who, before
16the close of the period referred to in paragraph (1), becomes
17disabled to perform the services of that employment, unless that
18disability is removed before the close of that period and the
19taxpayer fails to offer reemployment to that individual.

20(iii) A termination of employment of an individual, if it is
21determined that the termination was due to the misconduct (as
22defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
23the California Code of Regulations) of that individual.

24(iv) A termination of employment of an individual due to a
25substantial reduction in the trade or business operations of the
26taxpayer.

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

31(B) Subparagraph (B) of paragraph (1) shall not apply to any
32of the following:

33(i) A failure to continue the seasonal employment of a qualified
34disadvantaged individual who voluntarily fails to return to the
35seasonal employment of the qualified taxpayer.

36(ii) A failure to continue the seasonal employment of a qualified
37disadvantaged individual who, before the close of the period
38referred to in subparagraph (B) of paragraph (1), becomes disabled
39and unable to perform the services of that seasonal employment,
40unless that disability is removed before the close of that period
P73   1and the qualified taxpayer fails to offer seasonal employment to
2that qualified disadvantaged individual.

3(iii) A failure to continue the seasonal employment of a qualified
4disadvantaged individual, if it is determined that the failure to
5continue the seasonal employment was due to the misconduct (as
6defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
7the California Code of Regulations) of that individual.

8(iv) A failure to continue seasonal employment of a qualified
9disadvantaged individual due to a substantial reduction in the
10regular seasonal trade or business operations of the qualified
11taxpayer.

12(v) A failure to continue the seasonal employment of a qualified
13disadvantaged individual, if that individual is replaced by other
14qualified disadvantaged individuals so as to create a net increase
15in both the number of seasonal employees and the hours of seasonal
16employment.

17(C) For purposes of paragraph (1), the employment relationship
18between the taxpayer and an employee shall not be treated as
19terminated by either of the following:

20(i) A transaction to which Section 381(a) of the Internal Revenue
21Code applies, if the employee continues to be employed by the
22acquiring corporation.

23(ii) A mere change in the form of conducting the trade or
24business of the taxpayer, if the employee continues to be employed
25in that trade or business and the taxpayer retains a substantial
26interest in that trade or business.

27(3) Any increase in tax under paragraph (1) shall not be treated
28as tax imposed by this part for purposes of determining the amount
29of any credit allowable under this part.

30(4) At the close of the second taxable year, if the taxpayer has
31not increased the number of its employees as determined by
32paragraph (5) of subdivision (b), then the amount of the credit
33previously claimed shall be added to the taxpayer’s tax for the
34taxpayer’s second taxable year.

35(f) In the case of an organization to which Section 593 of the
36Internal Revenue Code applies, and a regulated investment
37company or a real estate investment trust subject to taxation under
38this part, rules similar to the rules provided in Section 46(e) and
39Section 46(h) of the Internal Revenue Code shall apply.

P74   1(g) The credit shall be reduced by the credit allowed under
2Section 23621. The credit shall also be reduced by the federal
3credit allowed under Section 51 of the Internal Revenuebegin delete Code.end delete
4begin insert Code, as amended by the Emergency Stabilization Act of 2008
5(Public Law 110-343).end insert

6In addition, any deduction otherwise allowed under this part for
7the wages or salaries paid or incurred by the taxpayer upon which
8the credit is based shall be reduced by the amount of the credit,
9prior to any reduction required by subdivision (h) or (i).

10(h) In the case where the credit otherwise allowed under this
11 section exceeds the “tax” for the taxable year, that portion of the
12credit that exceeds the “tax” may be carried over and added to the
13credit, if any, in the succeeding 10 taxable years, if necessary, until
14the credit is exhausted. The credit shall be applied first to the
15earliest taxable years possible.

16(i) (1) The amount of credit otherwise allowed under this section
17and Section 23645, including any prior year carryovers, that may
18reduce the “tax” for the taxable year shall not exceed the amount
19of tax that would be imposed on the taxpayer’s business income
20attributed to a LAMBRA determined as if that attributed income
21represented all of the income of the taxpayer subject to tax under
22this part.

23(2) Attributable income shall be that portion of the taxpayer’s
24California source business income that is apportioned to the
25LAMBRA. For that purpose, the taxpayer’s business income that
26is attributable 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 LAMBRA
29in accordance with Article 2 (commencing with Section 25120)
30of Chapter 17, modified for purposes of this section in accordance
31with paragraph (3).

32(3) Income shall be apportioned to a LAMBRA by multiplying
33the total California business income of the taxpayer by a fraction,
34the numerator of which is the property factor plus the payroll factor,
35and the denominator of which is two. For purposes of this
36paragraph:

37(A) 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 LAMBRA during the
40taxable year, and the denominator of which is the average value
P75   1 of 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 LAMBRA during the
5taxable year for compensation, and the denominator of which is
6the total compensation paid by the taxpayer in this state during the
7taxable year.

8(4) The portion of any credit remaining, if any, after application
9of this subdivision, shall be carried over to succeeding taxable
10years, if necessary, until the credit is exhausted, as if it were an
11amount exceeding the “tax” for the taxable year, as provided in
12subdivision (h). However, the portion of any credit remaining for
13carryover to taxable years beginning on or after January 1, 2014,
14if any, after application of this subdivision, shall be carried over
15only to the succeeding 10 taxable years, if necessary, until the
16credit is exhausted, as if it were an amount exceeding the “tax”
17for the taxable year, as provided in subdivision (h).

18(j) If the taxpayer is allowed a credit pursuant to this section for
19qualified wages paid or incurred, only one credit shall be allowed
20to the taxpayer under this part with respect to any wage consisting
21in whole or in part of those qualified wages.

22(k) (1) Except as provided in paragraph (2), this section shall
23cease to be operative on January 1, 2014, and shall be repealed on
24December 1, 2019. A credit shall not be allowed under this section
25with respect to an employee who first commences employment
26with a qualified taxpayer on or after January 1, 2014.

27(2) This section shall continue to apply with respect to qualified
28disadvantaged individuals or qualified displaced employees who
29are employed by the qualified taxpayer within the LAMBRA within
30the 60-month period immediately preceding January 1, 2014, and
31qualified wages paid or incurred with respect to those qualified
32disadvantaged individuals or qualified displaced employees shall
33continue to qualify for the credit under this section for taxable
34years beginning on or after January 1, 2014, in accordance with
35this section, as amended by the act adding this subdivision.

36

begin deleteSEC. 24.end delete
37begin insertSEC. 28.end insert  

Section 23701i of the Revenue and Taxation Code
38 is amended to read:

39

23701i.  

A voluntary employees’ beneficiary association
40described in Section 501(c)(9) of the Internal Revenue Code.

P76   1

begin deleteSEC. 25.end delete
2begin insertSEC. 29.end insert  

Section 24307 of the Revenue and Taxation Code is
3amended to read:

4

24307.  

(a) Section 108 of the Internal Revenue Code, relating
5to income from discharge of indebtedness, shall apply, except as
6otherwise provided.

7(b) Section 108(b)(2)(B) of the Internal Revenue Code, relating
8to general business credit, is modified by substituting “this part”
9in lieu of “Section 38 (relating to general business credit).”

10(c) Section 108(b)(2)(G) of the Internal Revenue Code, relating
11to foreign tax credit carryovers, shall not apply.

12(d) Section 108(b)(3)(B) of the Internal Revenue Code, relating
13to credit carryover reduction, is modified by substituting “11.1
14cents” in lieu of “3313 cents” in each place in which it appears. In
15the case where more than one credit is allowable under this part,
16the credits shall be reduced on a pro rata basis.

17(e) Section 108(g)(3)(B) of the Internal Revenue Code, relating
18to adjusted tax attributes, is modified by substituting “$9” in lieu
19of “$3.”

20(f) (1) The amendments to Section 108 of the Internal Revenue
21Code made by Section 13150 of the Revenue Reconciliation Act
22of 1993 (Public Law 103-66), relating to exclusion from gross
23income for income from discharge of qualified real property
24business indebtedness, shall apply to discharges occurring on or
25after January 1, 1996, in taxable years beginning on or after January
261, 1996.

27(2) If a taxpayer makes an election for federal income tax
28purposes under Section 108(c) of the Internal Revenue Code,
29relating to treatment of discharge of qualified real property business
30indebtedness, a separate election shall not be allowed under
31paragraph (3) of subdivision (e) of Section 23051.5 and the federal
32election shall be binding for purposes of this part.

33(3) If a taxpayer has not made an election for federal income
34tax purposes under Section 108(c) of the Internal Revenue Code,
35relating to treatment of discharge of qualified real property business
36indebtedness, then the taxpayer shall not be allowed to make that
37election for purposes of this part.

38(g) The amendments to Section 108 of the Internal Revenue
39Code made by Section 13226 of the Revenue Reconciliation Act
40of 1993 (Public Law 103-66), relating to modifications of discharge
P77   1of indebtedness provisions, shall apply to discharges occurring on
2or after January 1, 1996, in taxable years beginning on or after
3January 1, 1996.

4(h) The amendments made to Section 108(d)(7)(A) of the
5Internal Revenue Code, relating to certain provisions to be applied
6at the corporate level by Section 402 of the Job Creation and
7Worker Assistance Act of 2002 (Public Law 107-147), shall apply
8to discharges of indebtedness after December 31, 2001, in taxable
9years ending after that date. This subdivision shall not apply to
10any discharge of indebtedness made before March 1, 2002, pursuant
11to a plan of reorganization filed with a bankruptcy court on or
12before October 11, 2001.

13(i) Section 108(i) of the Internal Revenue Code, relating to
14deferral and ratable inclusion of income arising from business
15indebtedness discharged by the reacquisition of a debt instrument,
16shall not apply.

17begin insert

begin insertSEC. 30.end insert  

end insert

begin insertSection 24345.5 is added to the end insertbegin insertRevenue and Taxation
18Code
end insert
begin insert, to read:end insert

begin insert
19

begin insert24345.5.end insert  

A deduction shall not be allowed for the fee imposed
20by subsection (a) of Section 9008 of the Patient Protection and
21Affordable Care Act (Public Law 111-148).

end insert
22

begin deleteSEC. 26.end delete
23begin insertSEC. 31.end insert  

Section 24427 of the Revenue and Taxation Code is
24amended to read:

25

24427.  

Section 267 of the Internal Revenue Code, relating to
26losses, expenses, and interest with respect to transactions between
27related taxpayers, shall apply, except as otherwise provided.

28

begin deleteSEC. 27.end delete
29begin insertSEC. 32.end insert  

Section 24439 of the Revenue and Taxation Code is
30amended to read:

31

24439.  

(a) No deduction shall be allowed to the issuing
32corporation for any premium paid or incurred upon the repurchase
33of a bond, debenture, note, or certificate or other evidence of
34indebtedness which is convertible into the stock of the issuing
35corporation, or a corporation in the same parent-subsidiary
36controlled group, within the meaning of Section 1563(a)(1) of the
37Internal Revenue Code, relating to parent-subsidiary controlled
38group, as the issuing corporation, to the extent the repurchase price
39exceeds an amount equal to the adjusted issue price plus a normal
40call premium on bonds or other evidences of indebtedness which
P78   1are not convertible. The preceding sentence shall not apply to the
2extent that the corporation can demonstrate to the satisfaction of
3the Franchise Tax Board that such excess is attributable to the cost
4of borrowing and is not attributable to the conversion feature.

5 (b) For purposes of subdivision (a), the adjusted issue price is
6the issue price, as defined in Sections 1273(b) and 1274 of the
7Internal Revenue Code, increased by any amount of discount
8deducted before repurchase, or, in the case of bonds or other
9evidences of indebtedness issued after February 28, 1913,
10decreased by any amount of premium included in gross income
11before repurchase by the issuing corporation.

12(c) The provisions of this section shall not apply to a convertible
13bond or other convertible evidence of indebtedness repurchased
14pursuant to a binding obligation incurred on or before April 22,
151969, to repurchase such bond or other evidence of indebtedness
16at a specified call premium, but no inference shall be drawn from
17the fact that this section does not apply to the repurchase of such
18convertible bond or other convertible evidence of indebtedness.

19(d) The amendments made to this section by the act adding this
20subdivision shall apply to repurchases on or after January 1, 2015.

21

begin deleteSEC. 28.end delete
22begin insertSEC. 33.end insert  

Section 24452.1 of the Revenue and Taxation Code
23 is repealed.

24

begin deleteSEC. 29.end delete
25begin insertSEC. 34.end insert  

Section 24454 is added to the Revenue and Taxation
26Code
, to read:

27

24454.  

Section 304(b)(5)(B) of the Internal Revenue Code,
28relating to special rule in case of foreign acquiring corporation,
29shall apply to acquisitions on or after January 1, 2015.

30

begin deleteSEC. 30.end delete
31begin insertSEC. 35.end insert  

Section 24459 is added to the Revenue and Taxation
32Code
, to read:

33

24459.  

Section 382(n) of the Internal Revenue Code, relating
34to special rule for certain ownership changes, shall not apply.

35

begin deleteSEC. 31.end delete
36begin insertSEC. 36.end insert  

Section 24870 of the Revenue and Taxation Code is
37amended to read:

38

24870.  

Subchapter M of Chapter 1 of Subtitle A of the Internal
39Revenue Code, relating to regulated investment companies and
P79   1real estate investment trusts, shall apply, except as otherwise
2provided in this part.

3

begin deleteSEC. 32.end delete
4begin insertSEC. 37.end insert  

Section 24871 of the Revenue and Taxation Code is
5amended to read:

6

24871.  

(a) (1) Section 852(b)(1) of the Internal Revenue Code,
7relating to imposition of tax on regulated investment companies,
8shall not apply.

9(2) Every regulated investment company shall be subject to the
10taxes imposed under Chapter 2 (commencing with Section 23101)
11and Chapter 3 (commencing with Section 23501), except that its
12“net income” shall be equal to its “investment company income,”
13as defined in subdivision (b).

14(3) (A) Section 851(d)(2)(C)(i)(I) of the Internal Revenue Code
15is modified by substituting “$12,500” for “$50,000.”

16(B) Section 851(d)(2)(C)(i)(II) of the Internal Revenue Code is
17modified by substituting the phrase “the rate of tax specified in
18Section 23151” for the phrase “the highest rate of tax specified in
19section 11” contained therein.

20(C) Section 851(d)(2)(C)(iii) of the Internal Revenue Code,
21relating to administrative provisions, is modified by substituting
22the phrase “Article 3 of Part 10.2 (commencing with Section
2319031), a tax imposed by this subparagraph shall be treated as a
24tax with respect to which the deficiency procedures of such article
25apply” for the phrase “subtitle F, a tax imposed by this
26subparagraph shall be treated as an excise tax with respect to which
27the deficiency procedures of such subtitle apply” contained therein.

28(D) Section 851(i)(2) of the Internal Revenue Code, relating to
29imposition of tax on failures, shall not apply.

30(b) “Investment company income” means investment company
31taxable income, as defined in Section 852(b)(2) of the Internal
32Revenue Code, modified as follows:

33(1) Section 852(b)(2)(A) of the Internal Revenue Code, relating
34to an exclusion for net capital gain, does not apply.

35(2) Section 852(b)(2)(B) of the Internal Revenue Code, relating
36to net operating losses, is modified to deny the deduction allowed
37under Sections 24416 and 24416.1, in lieu of denying the deduction
38allowed by Section 172 of the Internal Revenue Code.

39(3) In lieu of the provision of Section 852(b)(2)(C) of the
40Internal Revenue Code, relating to special deductions for
P80   1corporations, no deduction shall be allowed under Sections 24402,
224406, 24410, and 25106.

3(4) The deduction for dividends paid, under Section
4852(b)(2)(D) of the Internal Revenue Code, is modified to allow
5capital gain dividends and exempt interest dividends (to the extent
6that interest is included in gross income under this part) to be
7included in the computation of the deduction.

8(c) Section 852(b)(3)(A) of the Internal Revenue Code, relating
9to imposition of tax, shall not apply.

10(d) (1) Section 852(b)(5) of the Internal Revenue Code, relating
11to exempt-interest dividends, is modified by substituting the phrase
12“that, when held by an individual, the interest therefrom is exempt
13from taxation by this state” for the phrase “described in section
14103(a)” contained therein.

15(2) Section 852(b)(5)(A)(iv)(V) of the Internal Revenue Code,
16relating to exempt interest, is modified by substituting the phrase
17“on obligations that, if held by an individual, is exempt from
18taxation by this state, over the amounts disallowed as deductions
19under subdivision (b) of Section 24360 or Section 24425” for the
20phrase “excludable from gross income under section 103(a) over
21the amounts disallowed as deductions under sections 265 and
22171(a)(2)” contained therein.

23(3) Section 852(b)(5)(B) of the Internal Revenue Code, relating
24to treatment of exempt-interest dividends by shareholders, shall
25not apply.

26(e) Section 854 of the Internal Revenue Code, relating to
27limitations applicable to dividends received from regulated
28investment companies, is modified to refer to Sections 24402,
2924406, 24410, and 25106, in lieu of Section 243 of the Internal
30Revenue Code.

31(f) Section 852(g)(1)(A) of the Internal Revenue Code is
32modified by substituting the phrase “subdivision (a) of Section
3317145” for the phrase “the first sentence of subsection (b)(5)”
34contained therein.

35

begin deleteSEC. 33.end delete
36begin insertSEC. 38.end insert  

Section 24871.1 of the Revenue and Taxation Code
37 is repealed.

38

begin deleteSEC. 34.end delete
39begin insertSEC. 39.end insert  

Section 24990.5 of the Revenue and Taxation Code
40 is amended to read:

P81   1

24990.5.  

(a) Section 1201 of the Internal Revenue Code,
2relating to alternative tax for corporations, shall not be applicable.

3(b)  The provisions of Section 1212 of the Internal Revenue
4Code, relating to capital loss carrybacks and carryovers, are
5modified as follows:

6(1) Section 1212(a)(1)(A) of the Internal Revenue Code, relating
7to capital loss carrybacks, shall not apply.

8(2) Section 1212(a)(4) of the Internal Revenue Code, relating
9to special rules on carrybacks, shall not apply.

10(3) Sections 1212(b) and 1212(c) of the Internal Revenue Code,
11relating to other taxpayers and carryback of losses from Section
121256 contracts to offset prior gains from such contracts,
13respectively, shall not apply.

14

begin deleteSEC. 35.end delete
15begin insertSEC. 40.end insert  

(a) Except as otherwise provided, the provisions of
16this act shall apply to taxable years beginning on or after January
171, 2015.

18(b) Sections 201 to 221, inclusive, of the Tax Technical
19Corrections Act of 2014 (Title II of Division A of Public Law
20113-295), enacted numerous technical corrections and clarifications
21to provisions of the Internal Revenue Code, including technical
22corrections and clarifications relating to the American Taxpayer
23 Relief Act of 2012 (Public Law 112-240), the Middle Class Tax
24Relief and Job Creation Act of 2012 (Public Law 112-96), the
25FAA Modernization and Reform Act of 2012 (Title IX of Public
26Law 112-95), the Regulated Investment Company Modernization
27Act of 2010 (Public Law 111-325), the Tax Relief, Unemployment
28Insurance Reauthorization, and Job Creation Act of 2010 (Public
29Law 111-312), the Creating Small Business Jobs Act of 2010 (Title
30II of Public Law 111-240), the Hiring Incentives to Restore
31Employment Act (Public Law 111-147), the American Recovery
32and Reinvestment Tax Act of 2009 (Public Law 111-5), the
33Economic Stimulus Act of 2008 (Division A of Public Law
34110-343), the Energy Improvement and Extension Act of 2008
35(Division B of Public Law 110-343), the Tax Extenders and
36Alternative Minimum Tax Relief Act of 2008 (Division C of Public
37Law 110-343), the Housing Assistance Tax Act of 2008 (Division
38C of Public Law 110-289), the Heroes Earnings Assistance and
39Relief Tax Act of 2008 (Public Law 110-245), the Tax Technical
40Corrections Act of 2007 (Public Law 110-172), the Tax Relief and
P82   1Health Care Act of 2006 (Public Law 109-432), the Safe,
2Accountable, Flexible, Efficient Transportation Equity Act of
32005: A Legacy for Users (Public Law 109-59), the Energy Tax
4Incentives Act of 2005 (Title XIII of Public Law 109-58), and the
5American Jobs Creation Act of 2004 (Public Law 108-357), some
6of which are incorporated by reference into Part 10 (commencing
7with Section 17001), Part 10.2 (commencing with Section 18401),
8and Part 11 (commencing with Section 23001) of Division 2 of
9the Revenue and Taxation Code. Unless otherwise provided, the
10technical corrections described in the preceding sentence, to the
11extent that they correct provisions that are incorporated by
12reference into the Revenue and Taxation Code, are declaratory of
13existing law and shall be applied in the same manner and for the
14same periods as specified for federal purposes, or if later, the
15specified date of incorporation.

16

begin deleteSEC. 36.end delete
17begin insertSEC. 41.end insert  

It is the intent of the Legislature to confirm the
18validity and ongoing effect of Senate Bill No. 401 of the 2009-10
19Regular Session.

20

begin deleteSEC. 37.end delete
21begin insertSEC. 42.end insert  

This act provides for a tax levy within the meaning
22of Article IV of the Constitution and shall go into immediate effect.



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