Amended in Senate June 30, 2015

Amended in Assembly May 28, 2015

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, 17053.46, 17053.47, 17053.74, 17088, 17144, 17215, 18155,begin insert 19138,end insert 19141.5, 19164, 19167, 19183, 19772, 23622.7, 23622.8, 23646, 23701i, 24307, 24427, 24439, 24870, 24871, and 24990.5 of, to add Sections 17240, 17241, 17323, 19131.5, 24345.5, 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, and declaring the urgency thereof, to take effect immediately.

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, extension of time for the payment of taxes, deductions for annual fees on branded prescription pharmaceutical manufacturers and importers, and penalty amounts related tobegin insert understatements of tax orend insert 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 declare that it is to take effect immediately as an urgency statute.

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:

P3    1

17024.5.  

(a) (1) Unless otherwise specifically provided, the
2terms “Internal Revenue Code,” “Internal Revenue Code of 1954,”
3or “Internal Revenue Code of 1986,” for purposes of this part,
4mean Title 26 of the United States Code, including all amendments
5thereto as enacted on the specified date for the applicable taxable
6year as follows:


7

 

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   19

 

20(2) (A) Unless otherwise specifically provided, for federal laws
21enacted on or after January 1, 1987, and on or before the specified
22date for the taxable year, uncodified provisions that relate to
23provisions of the Internal Revenue Code that are incorporated for
24purposes of this part shall be applicable to the same taxable years
25as the incorporated provisions.

26(B) In the case where Section 901 of the Economic Growth and
27Tax Relief Act of 2001 (Public Law 107-16) applies to any
28provision of the Internal Revenue Code that is incorporated for
29purposes of this part, Section 901 of the Economic Growth and
30Tax Relief Act of 2001 shall apply for purposes of this part in the
31same manner and to the same taxable years as it applies for federal
32income tax purposes.

33(3) Subtitle G (Tax Technical Corrections) and Part I of Subtitle
34H (Repeal of Expired or Obsolete Provisions) of the Revenue
35Reconciliation Act of 1990 (Public Law 101-508) modified
36numerous provisions of the Internal Revenue Code and provisions
37of prior federal acts, some of which are incorporated by reference
38into this part. Unless otherwise provided, the provisions described
39in the preceding sentence, to the extent that they modify provisions
40that are incorporated into this part, are declaratory of existing law
P5    1and shall be applied in the same manner and for the same periods
2as specified in the Revenue Reconciliation Act of 1990.

3(b) Unless otherwise specifically provided, when applying any
4provision of the Internal Revenue Code for purposes of this part,
5a reference to any of the following is not applicable for purposes
6of this part:

7(1) Except as provided in Chapter 4.5 (commencing with Section
823800) of Part 11 of Division 2, an electing small business
9corporation, as defined in Section 1361(b) of the Internal Revenue
10Code.

11(2) Domestic international sales corporations (DISC), as defined
12in Section 992(a) of the Internal Revenue Code.

13(3) A personal holding company, as defined in Section 542 of
14the Internal Revenue Code.

15(4) A foreign personal holding company, as defined in Section
16552 of the Internal Revenue Code.

17(5) A foreign investment company, as defined in Section 1246(b)
18of the Internal Revenue Code.

19(6) A foreign trust, as defined in Section 679 of the Internal
20Revenue Code.

21(7) Foreign income taxes and foreign income tax credits.

22(8) Section 911 of the Internal Revenue Code, relating to citizens
23or residents of the United States living abroad.

24(9) A foreign corporation, except that Section 367 of the Internal
25Revenue Code shall be applicable.

26(10) Federal tax credits and carryovers of federal tax credits.

27(11) Nonresident aliens.

28(12) Deduction for personal exemptions, as provided in Section
29151 of the Internal Revenue Code.

30(13) The tax on generation-skipping transfers imposed by
31Section 2601 of the Internal Revenue Code.

32(14) The tax, relating to estates, imposed by Section 2001 or
332101 of the Internal Revenue Code.

34(c) (1) The provisions contained in Sections 41 to 44, inclusive,
35and Section 172 of the Tax Reform Act of 1984 (Public Law
3698-369), relating to treatment of debt instruments, is not applicable
37for taxable years beginning before January 1, 1987.

38(2) The provisions contained in Public Law 99-121, relating to
39the treatment of debt instruments, is not applicable for taxable
40years beginning before January 1, 1987.

P6    1(3) For each taxable year beginning on or after January 1, 1987,
2the provisions referred to by paragraphs (1) and (2) shall be
3applicable for purposes of this part in the same manner and with
4respect to the same obligations as the federal provisions, except
5as otherwise provided in this part.

6(d) When applying the Internal Revenue Code for purposes of
7this part, regulations promulgated in final form or issued as
8temporary regulations by “the secretary” shall be applicable as
9regulations under this part to the extent that they do not conflict
10with this part or with regulations issued by the Franchise Tax
11Board.

12(e) Whenever this part allows a taxpayer to make an election,
13the following rules shall apply:

14(1) A proper election filed with the Internal Revenue Service
15in accordance with the Internal Revenue Code or regulations issued
16by “the secretary” shall be deemed to be a proper election for
17purposes of this part, unless otherwise provided in this part or in
18regulations issued by the Franchise Tax Board.

19(2) A copy of that election shall be furnished to the Franchise
20Tax Board upon request.

21(3) (A) Except as provided in subparagraph (B), in order to
22obtain treatment other than that elected for federal purposes, a
23separate election shall be filed at the time and in the manner
24required by the Franchise Tax Board.

25(B) (i) If a taxpayer makes a proper election for federal income
26tax purposes prior to the time that taxpayer becomes subject to the
27tax imposed under this part or Part 11 (commencing with Section
2823001), that taxpayer is deemed to have made the same election
29for purposes of the tax imposed by this part, Part 10.2 (commencing
30with Section 18401), and Part 11 (commencing with Section
3123001), as applicable, and that taxpayer may not make a separate
32election for California tax purposes unless that separate election
33is expressly authorized by this part, Part 10.2 (commencing with
34Section 18401), or Part 11 (commencing with Section 23001), or
35by regulations issued by the Franchise Tax Board.

36(ii) If a taxpayer has not made a proper election for federal
37income tax purposes prior to the time that taxpayer becomes subject
38to tax under this part or Part 11 (commencing with Section 23001),
39that taxpayer may not make a separate California election for
40purposes of this part, Part 10.2 (commencing with Section 18401),
P7    1or Part 11 (commencing with Section 23001), unless that separate
2election is expressly authorized by this part, Part 10.2 (commencing
3with Section 18401), or Part 11 (commencing with Section 23001),
4or by regulations issued by the Franchise Tax Board.

5(iii) This subparagraph applies only to the extent that the
6provisions of the Internal Revenue Code or the regulation issued
7by “the secretary” authorizing an election for federal income tax
8purposes apply for purposes of this part, Part 10.2 (commencing
9with Section 18401) or Part 11 (commencing with Section 23001).

10(f) Whenever this part allows or requires a taxpayer to file an
11application or seek consent, the rules set forth in subdivision (e)
12shall be applicable with respect to that application or consent.

13(g) When applying the Internal Revenue Code for purposes of
14determining the statute of limitations under this part, any reference
15to a period of three years shall be modified to read four years for
16purposes of this part.

17(h) When applying, for purposes of this part, any section of the
18Internal Revenue Code or any applicable regulation thereunder,
19all of the following shall apply:

20(1) References to “adjusted gross income” shall mean the
21amount computed in accordance with Section 17072, except as
22provided in paragraph (2).

23(2) (A) Except as provided in subparagraph (B), references to
24“adjusted gross income” for purposes of computing limitations
25based upon adjusted gross income, shall mean the amount required
26to be shown as adjusted gross income on the federal tax return for
27the same taxable year.

28(B) In the case of registered domestic partners and former
29registered domestic partners, adjusted gross income, for the
30purposes of computing limitations based upon adjusted gross
31income, shall mean the adjusted gross income on a federal tax
32 return computed as if the registered domestic partner or former
33registered domestic partner was treated as a spouse or former
34spouse, respectively, for federal income tax purposes, and used
35the same filing status that was used on the state tax return for the
36same taxable year.

37(3) Any reference to “subtitle” or “chapter” shall mean this part.

38(4) The provisions of Section 7806 of the Internal Revenue
39Code, relating to construction of title, shall apply.

P8    1(5) Any provision of the Internal Revenue Code that becomes
2operative on or after the specified date for that taxable year shall
3become operative on the same date for purposes of this part.

4(6) Any provision of the Internal Revenue Code that becomes
5inoperative on or after the specified date for that taxable year shall
6become inoperative on the same date for purposes of this part.

7(7) Due account shall be made for differences in federal and
8state terminology, effective dates, substitution of “Franchise Tax
9Board” for “secretary” when appropriate, and other obvious
10differences.

11(8) Except as otherwise provided, any reference to Section 501
12of the Internal Revenue Code shall be interpreted to also refer to
13Section 23701.

14(i) Any reference to a specific provision of the Internal Revenue
15Code shall include modifications of that provision, if any, in this
16part.

17

SEC. 2.  

Section 17053.46 of the Revenue and Taxation Code
18 is amended to read:

19

17053.46.  

(a) For each taxable year beginning on or after
20January 1, 1995, there shall be allowed as a credit against the “net
21tax” (as defined in Section 17039) to a qualified taxpayer for hiring
22a qualified disadvantaged individual or a qualified displaced
23employee during the taxable year for employment in the LAMBRA.
24The credit shall be equal to the sum of each of the following:

25(1) Fifty percent of the qualified wages in the first year of
26employment.

27(2) Forty percent of the qualified wages in the second year of
28employment.

29(3) Thirty percent of the qualified wages in the third year of
30employment.

31(4) Twenty percent of the qualified wages in the fourth year of
32employment.

33(5) Ten percent of the qualified wages in the fifth year of
34employment.

35(b) For purposes of this section:

36(1) “Qualified wages” means:

37(A) That portion of wages paid or incurred by the employer
38during the taxable year to qualified disadvantaged individuals or
39qualified displaced employees that does not exceed 150 percent
40of the minimum wage.

P9    1(B) The total amount of qualified wages which may be taken
2into account for purposes of claiming the credit allowed under this
3section shall not exceed two million dollars ($2,000,000) per
4taxable year.

5(C) Wages received during the 60-month period beginning with
6the first day the individual commences employment with the
7taxpayer. Reemployment in connection with any increase, including
8a regularly occurring seasonal increase, in the trade or business
9operations of the qualified taxpayer does not constitute
10commencement of employment for purposes of this section.

11(D) Qualified wages do not include any wages paid or incurred
12by the qualified taxpayer on or after the LAMBRA expiration date.
13However, wages paid or incurred with respect to qualified
14disadvantaged individuals or qualified displaced employees who
15are employed by the qualified taxpayer within the LAMBRA within
16the 60-month period prior to the LAMBRA expiration date shall
17continue to qualify for the credit under this section after the
18LAMBRA expiration date, in accordance with all provisions of
19this section applied as if the LAMBRA designation were still in
20existence and binding.

21(2) “Minimum wage” means the wage established by the
22Industrial Welfare Commission as provided for in Chapter 1
23(commencing with Section 1171) of Part 4 of Division 2 of the
24Labor Code.

25(3) “LAMBRA” means a local agency military base recovery
26area designated in accordance with Section 7114 of the Government
27Code.

28(4) “Qualified disadvantaged individual” means an individual
29who satisfies all of the following requirements:

30(A) (i) At least 90 percent of whose services for the taxpayer
31during the taxable year are directly related to the conduct of the
32taxpayer’s trade or business located in a LAMBRA.

33(ii) Who performs at least 50 percent of his or her services for
34the taxpayer during the taxable year in the LAMBRA.

35(B) Who is hired by the employer after the designation of the
36area as a LAMBRA in which the individual’s services were
37primarily performed.

38(C) Who is any of the following immediately preceding the
39individual’s commencement of employment with the taxpayer:

P10   1(i) An individual who has been determined eligible for services
2under the federal Job Training Partnership Act (29 U.S.C. Sec.
31501 et seq.).

4(ii) Any voluntary or mandatory registrant under the Greater
5Avenues for Independence Act of 1985 as provided pursuant to
6Article 3.2 (commencing with Section 11320) of Chapter 2 of Part
73 of Division 9 of the Welfare and Institutions Code.

8(iii) An economically disadvantaged individual age 16 years or
9older.

10(iv) A dislocated worker who meets any of the following
11conditions:

12(I) Has been terminated or laid off or who has received a notice
13of termination or layoff from employment, is eligible for or has
14exhausted entitlement to unemployment insurance benefits, and
15is unlikely to return to his or her previous industry or occupation.

16(II) Has been terminated or has received a notice of termination
17of employment as a result of any permanent closure or any
18substantial layoff at a plant, facility, or enterprise, including an
19individual who has not received written notification but whose
20employer has made a public announcement of the closure or layoff.

21(III) Is long-term unemployed and has limited opportunities for
22employment or reemployment in the same or a similar occupation
23in the area in which the individual resides, including an individual
2455 years of age or older who may have substantial barriers to
25employment by reason of age.

26(IV) Was self-employed (including farmers and ranchers) and
27is unemployed as a result of general economic conditions in the
28community in which he or she resides or because of natural
29disasters.

30(V) Was a civilian employee of the Department of Defense
31employed at a military installation being closed or realigned under
32the Defense Base Closure and Realignment Act of 1990.

33(VI) Was an active member of the Armed Forces or National
34Guard as of September 30, 1990, and was either involuntarily
35separated or separated pursuant to a special benefits program.

36(VII) Experiences chronic seasonal unemployment and
37underemployment in the agriculture industry, aggravated by
38continual advancements in technology and mechanization.

P11   1(VIII) Has been terminated or laid off or has received a notice
2of termination or layoff as a consequence of compliance with the
3Clean Air Act.

4(v) An individual who is enrolled in or has completed a state
5rehabilitation plan or is a service-connected disabled veteran,
6veteran of the Vietnam era, or veteran who is recently separated
7from military service.

8(vi) An ex-offender. An individual shall be treated as convicted
9if he or she was placed on probation by a state court without a
10finding of guilty.

11(vii) A recipient of:

12(I) Federal Supplemental Security Income benefits.

13(II) Aid to Families with Dependent Children.

14(III) CalFresh benefits.

15(IV) State and local general assistance.

16(viii) Is a member of a federally recognized Indian tribe, band,
17or other group of Native American descent.

18(5) “Qualified taxpayer” means a taxpayer or partnership that
19conducts a trade or business within a LAMBRA and, for the first
20two taxable years, has a net increase in jobs (defined as 2,000 paid
21hours per employee per year) of one or more employees in the
22LAMBRA.

23(A) The net increase in the number of jobs shall be determined
24by subtracting the total number of full-time employees (defined
25as 2,000 paid hours per employee per year) the taxpayer employed
26in this state in the taxable year prior to commencing business
27operations in the LAMBRA from the total number of full-time
28employees the taxpayer employed in this state during the second
29taxable year after commencing business operations in the
30LAMBRA. For taxpayers who commence doing business in this
31state with their LAMBRA business operation, the number of
32employees for the taxable year prior to commencing business
33operations in the LAMBRA shall be zero. If the taxpayer has a net
34increase in jobs in the state, the credit shall be allowed only if one
35or more full-time employees is employed within the LAMBRA.

36(B) The total number of employees employed in the LAMBRA
37shall equal the sum of both of the following:

38(i) The total number of hours worked in the LAMBRA for the
39taxpayer by employees (not to exceed 2,000 hours per employee)
40who are paid an hourly wage divided by 2,000.

P12   1(ii) The total number of months worked in the LAMBRA for
2the taxpayer by employees who are salaried employees divided
3by 12.

4(C) In the case of a taxpayer who first commences doing
5business in the LAMBRA during the taxable year, for purposes of
6clauses (i) and (ii), respectively, of subparagraph (B), the divisors
7“2,000” and “12” shall be multiplied by a fraction, the numerator
8of which is the number of months of the taxable year that the
9taxpayer was doing business in the LAMBRA and the denominator
10of which is 12.

11(6) “Qualified displaced employee” means an individual who
12 satisfies all of the following requirements:

13(A) Any civilian or military employee of a base or former base
14who has been displaced as a result of a federal base closure act.

15(B) (i) At least 90 percent of whose services for the taxpayer
16during the taxable year are directly related to the conduct of the
17taxpayer’s trade or business located in a LAMBRA.

18(ii) Who performs at least 50 percent of his or her services for
19the taxpayer during the taxable year in a LAMBRA.

20(C) Who is hired by the employer after the designation of the
21area in which services were performed as a LAMBRA.

22(7) “Seasonal employment” means employment by a qualified
23taxpayer that has regular and predictable substantial reductions in
24trade or business operations.

25(8) “LAMBRA expiration date” means the date the LAMBRA
26designation expires, is no longer binding, becomes inoperative, or
27is repealed.

28(c) For qualified disadvantaged individuals or qualified displaced
29employees hired on or after January 1, 2001, the taxpayer shall do
30both of the following:

31(1) Obtain from the Employment Development Department, as
32permitted by federal law, the local county or city Job Training
33Partnership Act administrative entity, the local county GAIN office
34or social services agency, or the local government administering
35the LAMBRA, a certification that provides that a qualified
36disadvantaged individual or qualified displaced employee meets
37the eligibility requirements specified in subparagraph (C) of
38paragraph (4) of subdivision (b) or subparagraph (A) of paragraph
39(6) of subdivision (b). The Employment Development Department
40may provide preliminary screening and referral to a certifying
P13   1agency. The Department of Housing and Community Development
2shall develop regulations governing the issuance of certificates
3pursuant to Section 7114.2 of the Government Code and shall
4develop forms for this purpose.

5(2) Retain a copy of the certification and provide it upon request
6to the Franchise Tax Board.

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

8(A) All employees of trades or businesses that are under
9common control shall be treated as employed by a single employer.

10(B) The credit (if any) allowable by this section with respect to
11each trade or business shall be determined by reference to its
12proportionate share of the qualified wages giving rise to the credit.

13The regulations prescribed under this paragraph shall be based
14on principles similar to the principles that apply in the case of
15controlled groups of corporations as specified in subdivision (e)
16of Section 23622.

17(2) 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 (d)) 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, other than seasonal employment,
26of any employee, with respect to whom qualified wages are taken
27into account under subdivision (a), is terminated by the taxpayer
28at any time during the first 270 days of that employment (whether
29or not consecutive) or before the close of the 270th calendar day
30after the day in which that employee completes 90 days of
31employment with the taxpayer, the tax imposed by this part for
32the taxable year in which that employment is terminated shall be
33increased by an amount (determined under those regulations) equal
34to the credit allowed under subdivision (a) for that taxable year
35and all prior taxable years attributable to qualified wages paid or
36incurred with respect to that employee.

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
P14   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 subparagraph (A) of paragraph
17(1), becomes disabled to perform the services of that employment,
18unless that disability is removed before the close of that period
19and the taxpayer 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
P15   1and the qualified taxpayer fails to offer seasonal employment to
2that 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 qualified disadvantaged
8individual.

9(iv) A failure to continue seasonal employment of a qualified
10disadvantaged individual due to a substantial reduction in the
11regular seasonal trade or business operations of the qualified
12taxpayer.

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

18(C) For purposes of paragraph (1), the employment relationship
19between the taxpayer and an employee shall not be treated as
20terminated by reason of a mere change in the form of conducting
21the trade or business of the taxpayer, if the employee continues to
22be employed in that trade or business and the taxpayer retains a
23substantial interest in that trade or business.

24(3) Any increase in tax under paragraph (1) shall not be treated
25as tax imposed by this part for purposes of determining the amount
26of any credit allowable under this part.

27(4) At the close of the second taxable year, if the taxpayer has
28not increased the number of its employees as determined by
29paragraph (5) of subdivision (b), then the amount of the credit
30previously claimed shall be added to the taxpayer’s net tax for the
31taxpayer’s second taxable year.

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

33(1) The qualified wages for any taxable year shall be apportioned
34between the estate or trust and the beneficiaries on the basis of the
35income of the estate or trust allocable to each.

36(2) Any beneficiary to whom any qualified wages have been
37apportioned under paragraph (1) shall be treated (for purposes of
38this part) as the employer with respect to those wages.

39(g) The credit shall be reduced by the credit allowed under
40Section 17053.7. The credit shall also be reduced by the federal
P16   1credit allowed under Section 51 of the Internal Revenue Code, as
2amended by the Emergency Economic Stabilization Act of 2008
3(Public Law 110-343).

4In addition, any deduction otherwise allowed under this part for
5the wages or salaries paid or incurred by the taxpayer upon which
6the credit is based shall be reduced by the amount of the credit,
7prior to any reduction required by subdivision (h) or (i).

8(h) In the case where the credit otherwise allowed under this
9section exceeds the “net tax” for the taxable year, that portion of
10the credit that exceeds the “net tax” may be carried over and added
11to the credit, if any, in the succeeding 10 taxable years, if necessary,
12until the credit is exhausted. The credit shall be applied first to the
13earliest taxable years possible.

14(i) (1) The amount of credit otherwise allowed under this section
15and Section 17053.45, including prior year credit carryovers, that
16may reduce the “net tax” for the taxable year shall not exceed the
17amount of tax that would be imposed on the taxpayer’s business
18income attributed to a LAMBRA determined as if that attributed
19income represented all of the net income of the taxpayer subject
20to tax under this part.

21(2) Attributable income shall be that portion of the taxpayer’s
22California source business income that is apportioned to the
23LAMBRA. For that purpose, the taxpayer’s business income that
24is attributable to sources in this state first shall be determined in
25accordance with Chapter 17 (commencing with Section 25101) of
26Part 11. That business income shall be further apportioned to the
27LAMBRA in accordance with Article 2 (commencing with Section
2825120) of Chapter 17 of Part 11, modified for purposes of this
29section in accordance with paragraph (3).

30(3) Income shall be apportioned to a LAMBRA by multiplying
31the total California business income of the taxpayer by a fraction,
32the numerator of which is the property factor plus the payroll factor,
33and the denominator of which is two. For purposes of this
34paragraph:

35(A) The property factor is a fraction, the numerator of which is
36the average value of the taxpayer’s real and tangible personal
37property owned or rented and used in the LAMBRA during the
38taxable year, and the denominator of which is the average value
39of all the taxpayer’s real and tangible personal property owned or
40rented and used in this state during the taxable year.

P17   1(B) The payroll factor is a fraction, the numerator of which is
2the total amount paid by the taxpayer in the LAMBRA during the
3taxable year for compensation, and the denominator of which is
4the total compensation paid by the taxpayer in this state during the
5taxable year.

6(4) The portion of any credit remaining, if any, after application
7of this subdivision, shall be carried over to succeeding taxable
8years, if necessary, until the credit is exhausted, as if it were an
9amount exceeding the “net tax” for the taxable year, as provided
10in subdivision (h). However, the portion of any credit remaining
11for carryover to taxable years beginning on or after January 1,
122014, if any, after application of this subdivision, shall be carried
13over only to the succeeding 10 taxable years if necessary, until the
14credit is exhausted, as if it were an amount exceeding the “net tax”
15for the taxable year, as provided in subdivision (h).

16(j) If the taxpayer is allowed a credit pursuant to this section for
17qualified wages paid or incurred, only one credit shall be allowed
18to the taxpayer under this part with respect to any wage consisting
19in whole or in part of those qualified wages.

20(k) (1) Except as provided in paragraph (2), this section shall
21cease to be operative on January 1, 2014, and shall be repealed on
22December 1, 2019. A credit shall not be allowed under this section
23with respect to an employee who first commences employment
24with a qualified taxpayer on or after January 1, 2014.

25(2) This section shall continue to apply with respect to qualified
26disadvantaged individuals or qualified displaced employees who
27are employed by the qualified taxpayer within the LAMBRA within
28the 60-month period immediately preceding January 1, 2014, and
29qualified wages paid or incurred with respect to those qualified
30disadvantaged individuals or qualified displaced employees shall
31continue to qualify for the credit under this section for taxable
32years beginning on or after January 1, 2014, in accordance with
33this section, as amended by the act adding this subdivision.

34

SEC. 3.  

Section 17053.47 of the Revenue and Taxation Code
35 is amended to read:

36

17053.47.  

(a) For each taxable year beginning on or after
37January 1, 1998, there shall be allowed a credit against the “net
38tax” (as defined in Section 17039) to a qualified taxpayer for hiring
39a qualified disadvantaged individual during the taxable year for
P18   1employment in the manufacturing enhancement area. The credit
2shall be equal to the sum of each of the following:

3(1) Fifty percent of the qualified wages in the first year of
4employment.

5(2) Forty percent of the qualified wages in the second year of
6employment.

7(3) Thirty percent of the qualified wages in the third year of
8employment.

9(4) Twenty percent of the qualified wages in the fourth year of
10employment.

11(5) Ten percent of the qualified wages in the fifth year of
12employment.

13(b) For purposes of this section:

14(1) “Qualified wages” means:

15(A) That portion of wages paid or incurred by the qualified
16taxpayer during the taxable year to qualified disadvantaged
17individuals that does not exceed 150 percent of the minimum wage.

18(B) The total amount of qualified wages which may be taken
19into account for purposes of claiming the credit allowed under this
20section shall not exceed two million dollars ($2,000,000) per
21taxable year.

22(C) Wages received during the 60-month period beginning with
23the first day the qualified disadvantaged individual commences
24employment with the qualified taxpayer. Reemployment in
25connection with any increase, including a regularly occurring
26seasonal increase, in the trade or business operations of the taxpayer
27does not constitute commencement of employment for purposes
28of this section.

29(D) Qualified wages do not include any wages paid or incurred
30by the qualified taxpayer on or after the manufacturing
31enhancement area expiration date. However, wages paid or incurred
32with respect to qualified employees who are employed by the
33qualified taxpayer within the manufacturing enhancement area
34 within the 60-month period prior to the manufacturing enhancement
35area expiration date shall continue to qualify for the credit under
36this section after the manufacturing enhancement area expiration
37date, in accordance with all provisions of this section applied as
38if the manufacturing enhancement area designation were still in
39existence and binding.

P19   1(2) “Minimum wage” means the wage established by the
2Industrial Welfare Commission as provided for in Chapter 1
3(commencing with Section 1171) of Part 4 of Division 2 of the
4Labor Code.

5(3) “Manufacturing enhancement area” means an area designated
6pursuant to Section 7073.8 of the Government Code according to
7the procedures of Chapter 12.8 (commencing with Section 7070)
8of Division 7 of Title 1 of the Government Code.

9(4) “Manufacturing enhancement area expiration date” means
10the date the manufacturing enhancement area designation expires,
11is no longer binding, becomes inoperative, or is repealed.

12(5) “Qualified disadvantaged individual” means an individual
13who satisfies all of the following requirements:

14(A) (i) At least 90 percent of whose services for the qualified
15taxpayer during the taxable year are directly related to the conduct
16of the qualified taxpayer’s trade or business located in a
17manufacturing enhancement area.

18(ii) Who performs at least 50 percent of his or her services for
19the qualified taxpayer during the taxable year in the manufacturing
20enhancement area.

21(B) Who is hired by the qualified taxpayer after the designation
22of the area as a manufacturing enhancement area in which the
23individual’s services were primarily performed.

24(C) Who is any of the following immediately preceding the
25individual’s commencement of employment with the qualified
26taxpayer:

27(i) An individual who has been determined eligible for services
28under the federal Job Training Partnership Act (29 U.S.C. Sec.
291501 et seq.), or its successor.

30(ii) Any voluntary or mandatory registrant under the Greater
31Avenues for Independence Act of 1985, or its successor, as
32provided pursuant to Article 3.2 (commencing with Section 11320)
33of Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions
34Code.

35(iii) Any individual who has been certified eligible by the
36Employment Development Department under the federal Targeted
37Jobs Tax Credit Program, or its successor, whether or not this
38program is in effect.

39(6) “Qualified taxpayer” means any taxpayer engaged in a trade
40or business within a manufacturing enhancement area designated
P20   1pursuant to Section 7073.8 of the Government Code and who meets
2all of the following requirements:

3(A) Is engaged in those lines of business described in Codes
40211 to 0291, inclusive, Code 0723, or in Codes 2011 to 3999,
5inclusive, of the Standard Industrial Classification (SIC) Manual
6published by the United States Office of Management and Budget,
71987 edition.

8(B) At least 50 percent of the qualified taxpayer’s workforce
9hired after the designation of the manufacturing enhancement area
10is composed of individuals who, at the time of hire, are residents
11of the county in which the manufacturing enhancement area is
12located.

13(C) Of this percentage of local hires, at least 30 percent shall
14be qualified disadvantaged individuals.

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

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

19(A) All employees of trades or businesses that are under
20common control shall be treated as employed by a single qualified
21taxpayer.

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

26(C) Principles that apply in the case of controlled groups of
27corporations, as specified in subdivision (d) of Section 23622.7,
28shall apply with respect to determining employment.

29(2) If a qualified taxpayer acquires the major portion of a trade
30or business of another employer (hereinafter in this paragraph
31referred to as the “predecessor”) or the major portion of a separate
32unit of a trade or business of a predecessor, then, for purposes of
33applying this section (other than subdivision (d)) for any calendar
34year ending after that acquisition, the employment relationship
35between a qualified disadvantaged individual and a qualified
36taxpayer shall not be treated as terminated if the qualified
37disadvantaged individual continues to be employed in that trade
38or business.

39(d) (1) (A) If the employment, other than seasonal employment,
40of any qualified disadvantaged individual, with respect to whom
P21   1qualified wages are taken into account under subdivision (b) is
2terminated by the qualified taxpayer at any time during the first
3270 days of that employment (whether or not consecutive) or before
4the close of the 270th calendar day after the day in which that
5qualified disadvantaged individual completes 90 days of
6employment with the qualified taxpayer, the tax imposed by this
7part for the taxable year in which that employment is terminated
8shall be increased by an amount equal to the credit allowed under
9subdivision (a) for that taxable year and all prior taxable years
10attributable to qualified wages paid or incurred with respect to that
11qualified disadvantaged individual.

12(B) If the seasonal employment of any qualified disadvantaged
13individual, with respect to whom qualified wages are taken into
14account under subdivision (a) is not continued by the qualified
15taxpayer for a period of 270 days of employment during the
1660-month period beginning with the day the qualified
17disadvantaged individual commences seasonal employment with
18the qualified taxpayer, the tax imposed by this part, for the taxable
19year that includes the 60th month following the month in which
20the qualified disadvantaged individual commences seasonal
21employment with the qualified taxpayer, shall be increased by an
22amount equal to the credit allowed under subdivision (a) for that
23taxable year and all prior taxable years attributable to qualified
24wages paid or incurred with respect to that qualified disadvantaged
25individual.

26(2) (A) Subparagraph (A) of paragraph (1) does not apply to
27any of the following:

28(i) A termination of employment of a qualified disadvantaged
29individual who voluntarily leaves the employment of the qualified
30taxpayer.

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

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

P22   1(iv) A termination of employment of a qualified disadvantaged
2individual due to a substantial reduction in the trade or business
3operations of the qualified taxpayer.

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

8(B) Subparagraph (B) of paragraph (1) shall not apply to any
9of the following:

10(i) A failure to continue the seasonal employment of a qualified
11disadvantaged individual who voluntarily fails to return to the
12seasonal employment of the qualified taxpayer.

13(ii) A failure to continue the seasonal employment of a qualified
14disadvantaged individual who, before the close of the period
15referred to in subparagraph (B) of paragraph (1), becomes disabled
16and unable to perform the services of that seasonal employment,
17unless that disability is removed before the close of that period
18and the qualified taxpayer fails to offer seasonal employment to
19that qualified disadvantaged individual.

20(iii) A failure to continue the seasonal employment of a qualified
21disadvantaged individual, if it is determined that the failure to
22continue the seasonal employment was due to the misconduct (as
23defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
24the California Code of Regulations) of that qualified disadvantaged
25individual.

26(iv) A failure to continue seasonal employment of a qualified
27disadvantaged individual due to a substantial reduction in the
28regular seasonal trade or business operations of the qualified
29taxpayer.

30(v) A failure to continue the seasonal employment of a qualified
31disadvantaged individual, if that qualified disadvantaged individual
32is replaced by other qualified disadvantaged individuals so as to
33create a net increase in both the number of seasonal employees
34and the hours of seasonal employment.

35(C) For purposes of paragraph (1), the employment relationship
36between the qualified taxpayer and a qualified disadvantaged
37individual shall not be treated as terminated by reason of a mere
38change in the form of conducting the trade or business of the
39qualified taxpayer, if the qualified disadvantaged individual
P23   1continues to be employed in that trade or business and the qualified
2taxpayer retains a substantial interest in that trade or business.

3(3) Any increase in tax under paragraph (1) shall not be treated
4as tax imposed by this part for purposes of determining the amount
5of any credit allowable under this part.

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

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

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

13(f) The credit shall be reduced by the credit allowed under
14Section 17053.7. The credit shall also be reduced by the federal
15credit allowed under Section 51 of the Internal Revenue Code, as
16amended by the Emergency Economic Stabilization Act of 2008
17(Public Law 110-343).

18In addition, any deduction otherwise allowed under this part for
19the wages or salaries paid or incurred by the qualified taxpayer
20upon which the credit is based shall be reduced by the amount of
21the credit, prior to any reduction required by subdivision (g) or
22(h).

23(g) In the case where the credit otherwise allowed under this
24section exceeds the “net tax” for the taxable year, that portion of
25the credit that exceeds the “net tax” may be carried over and added
26to the credit, if any, in the succeeding 10 taxable years, if necessary,
27until the credit is exhausted. The credit shall be applied first to the
28earliest taxable years possible.

29(h) (1) The amount of credit otherwise allowed under this
30section, including prior year credit carryovers, that may reduce
31the “net tax” for the taxable year shall not exceed the amount of
32tax that would be imposed on the qualified taxpayer’s business
33income attributed to a manufacturing enhancement area determined
34 as if that attributed income represented all of the net income of the
35qualified taxpayer subject to tax under this part.

36(2) Attributable income shall be that portion of the taxpayer’s
37California source business income that is apportioned to the
38manufacturing enhancement area. For that purpose, the taxpayer’s
39business income that is attributable to sources in this state first
40shall be determined in accordance with Chapter 17 (commencing
P24   1with Section 25101) of Part 11. That business income shall be
2further apportioned to the manufacturing enhancement area in
3accordance with Article 2 (commencing with Section 25120) of
4Chapter 17 of Part 11, modified for purposes of this section in
5accordance with paragraph (3).

6(3) Income shall be apportioned to a manufacturing enhancement
7area by multiplying the total California business income of the
8taxpayer by a fraction, the numerator of which is the property
9factor plus the payroll factor, and the denominator of which is two.
10For purposes of this paragraph:

11(A) The property factor is a fraction, the numerator of which is
12the average value of the taxpayer’s real and tangible personal
13property owned or rented and used in the manufacturing
14enhancement area during the taxable year, and the denominator
15of which is the average value of all the taxpayer’s real and tangible
16personal property owned or rented and used in this state during
17the taxable year.

18(B) The payroll factor is a fraction, the numerator of which is
19the total amount paid by the taxpayer in the manufacturing
20enhancement area during the taxable year for compensation, and
21the denominator of which is the total compensation paid by the
22taxpayer in this state during the taxable year.

23(4) The portion of any credit remaining, if any, after application
24of this subdivision, shall be carried over to succeeding taxable
25years, if necessary, until the credit is exhausted, as if it were an
26amount exceeding the “net tax” for the taxable year, as provided
27in subdivision (g). However, the portion of any credit remaining
28for carryover to taxable years beginning on or after January 1,
292014, if any, after application of this subdivision, shall be carried
30over only to the succeeding 10 taxable years if necessary, until the
31credit is exhausted, as if it were an amount exceeding the “net tax”
32for the taxable year, as provided in subdivision (g).

33(i) If the taxpayer is allowed a credit pursuant to this section for
34qualified wages paid or incurred, only one credit shall be allowed
35to the taxpayer under this part with respect to any wage consisting
36in whole or in part of those qualified wages.

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

38(1) Obtain from the Employment Development Department, as
39permitted by federal law, the local county or city Job Training
40Partnership Act administrative entity, the local county GAIN office
P25   1or social services agency, or the local government administering
2the manufacturing enhancement area, a certification that provides
3that a qualified disadvantaged individual meets the eligibility
4requirements specified in paragraph (5) of subdivision (b). The
5Employment Development Department may provide preliminary
6screening and referral to a certifying agency. The Department of
7Housing and Community Development shall develop regulations
8governing the issuance of certificates pursuant to subdivision (d)
9of Section 7086 of the Government Code and shall develop forms
10for this purpose.

11(2) Retain a copy of the certification and provide it upon request
12to the Franchise Tax Board.

13(k) (1) Except as provided in paragraph (2), this section shall
14cease to be operative for taxable years beginning on or after January
151, 2014, and shall be repealed on December 1, 2019.

16(2) The section shall continue to apply with respect to qualified
17employees who are employed by the qualified taxpayer within the
18manufacturing enhancement area within the 60-month period
19immediately preceding January 1, 2014, and qualified wages paid
20or incurred with respect to those qualified employees shall continue
21to qualify for the credit under this section for taxable years
22beginning on or after January 1, 2014, in accordance with the
23provisions of this section, as amended by the act adding this
24subdivision.

25

SEC. 4.  

Section 17053.74 of the Revenue and Taxation Code
26 is amended to read:

27

17053.74.  

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

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

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

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

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

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

P26   1(b) For purposes of this section:

2(1) “Qualified wages” means:

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

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

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

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

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

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

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

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

P27   1(ii) Performs at least 50 percent of his or her services for the
2taxpayer during the taxable year in an enterprise zone.

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

5(iv) Is any of the following:

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

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

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

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

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

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

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

P28   1(dd) Was self-employed (including farmers and ranchers) and
2is unemployed as a result of general economic conditions in the
3community in which he or she resides or because of natural
4disasters.

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

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

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

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

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

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

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

32(aa) Federal Supplemental Security Income benefits.

33(bb) Aid to Families with Dependent Children.

34(cc) CalFresh benefits.

35(dd) State and local general assistance.

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

P29   1(IX) Immediately preceding the qualified employee’s
2commencement of employment with the taxpayer, was a resident
3of a targeted employment area, as defined in Section 7072 of the
4Government Code.

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

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

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

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

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

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

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

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

P30   1(d) (1) For purposes of this section:

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

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

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

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

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

33(B) If the seasonal employment of any qualified employee, with
34respect to whom qualified wages are taken into account under
35subdivision (a), is not continued by the taxpayer for a period of
36270 days of employment during the 60-month period beginning
37with the day the qualified employee commences seasonal
38employment with the taxpayer, the tax imposed by this part, for
39the taxable year that includes the 60th month following the month
40in which the qualified employee commences seasonal employment
P31   1with the taxpayer, shall be increased by an amount equal to the
2credit allowed under subdivision (a) for that taxable year and all
3prior taxable years attributable to qualified wages paid or incurred
4with respect to that qualified employee.

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

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

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

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

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

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

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

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

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

37(iii) A failure to continue the seasonal employment of a qualified
38employee, if it is determined that the failure to continue the
39seasonal employment was due to the misconduct (as defined in
P32   1Sections 1256-30 to 1256-43, inclusive, of Title 22 of the California
2Code of Regulations) of that qualified employee.

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

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

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

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

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

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

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

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

30(h) The credit allowable under this section shall be reduced by
31the credit allowed under Sections 17053.10, 17053.17, and
3217053.46 claimed for the same employee. The credit shall also be
33reduced by the federal credit allowed under Section 51 of the
34Internal Revenue Code, as amended by the Economic Stabilization
35Act of 2008 (Public Law 110-343).

36In addition, any deduction otherwise allowed under this part for
37the wages or salaries paid or incurred by the taxpayer upon which
38the credit is based shall be reduced by the amount of the credit,
39prior to any reduction required by subdivision (i) or (j).

P33   1(i) In the case where the credit otherwise allowed under this
2section exceeds the “net tax” for the taxable year, that portion of
3the credit that exceeds the “net tax” may be carried over and added
4to the credit, if any, in the succeeding 10 taxable years, if necessary,
5until the 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 17053.70, including any credit carryover from
9prior years, that may reduce the “net 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 income
17attributable to sources in this state first shall be determined in
18accordance with Chapter 17 (commencing with Section 25101) of
19Part 11. That business income shall be further apportioned to the
20enterprise zone in accordance with Article 2 (commencing with
21Section 25120) of Chapter 17 of Part 11, modified for purposes
22of this section in accordance 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 taxable 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 taxable 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 taxable year for compensation, and the denominator of which
37is the total compensation paid by the taxpayer in this state during
38the taxable year.

39(4) The portion of any credit remaining, if any, after application
40of this subdivision, shall be carried over to succeeding taxable
P34   1years, if necessary, until the credit is exhausted, as if it were an
2amount exceeding the “net tax” for the taxable year, as provided
3in subdivision (i). However, the portion of any credit remaining
4for carryover to taxable years beginning on or after January 1,
52014, if any, after application of this subdivision, shall be carried
6over only to the succeeding 10 taxable years if necessary, until the
7credit is exhausted, as if it were an amount exceeding the “net tax”
8for the taxable 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 beginning on or after
11January 1, 1997.

12(l) (1) Except as provided in paragraph (2), this section shall
13cease to be operative on January 1, 2014, and shall be repealed on
14December 1, 2019. A credit shall not be allowed under this section
15with respect to an employee who first commences employment
16with a taxpayer on or after January 1, 2014.

17(2) This section shall continue to apply with respect to qualified
18employees who are employed by the taxpayer within the enterprise
19zone within the 60-month period immediately preceding January
201, 2014, and qualified wages paid or incurred with respect to those
21qualified employees shall continue to qualify for the credit under
22this section for taxable years beginning on or after January 1, 2014,
23 in accordance with this section, as amended by the act adding this
24subdivision.

25

SEC. 5.  

Section 17088 of the Revenue and Taxation Code is
26amended to read:

27

17088.  

(a) Subchapter M of Chapter 1 of Subtitle A of the
28Internal Revenue Code, relating to regulated investment companies
29and real estate investment trusts, shall apply, except as otherwise
30provided.

31(b) Section 17145 shall apply in lieu of Section 852(b)(5) of the
32Internal Revenue Code, relating to exempt-interest dividends.

33(c) (1) Section 852(b)(3)(D) of the Internal Revenue Code,
34relating to treatment by shareholders of undistributed capital gains,
35shall not apply.

36(2) Section 852(g)(1)(A) of the Internal Revenue Code is
37modified by substituting the phrase “subdivision (a) of Section
3817145” for the phrase “the first sentence of subsection (b)(5)”
39contained therein.

P35   1

SEC. 6.  

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

3

SEC. 7.  

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

5

SEC. 8.  

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

7

SEC. 9.  

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

9

SEC. 10.  

Section 17144 of the Revenue and Taxation Code is
10amended to read:

11

17144.  

(a) Section 108(b)(2)(B) of the Internal Revenue Code,
12relating to general business credit, is modified by substituting “this
13part” in lieu of “Section 38 (relating to general business credit).”

14(b) Section 108(b)(2)(G) of the Internal Revenue Code, relating
15to foreign tax credit carryovers, shall not apply.

16(c) Section 108(b)(3)(B) of the Internal Revenue Code, relating
17to credit carryover reduction, is modified by substituting “11.1
18cents” in lieu of “3313 cents” in each place in which it appears. In
19the case where more than one credit is allowable under this part,
20the credits shall be reduced on a pro rata basis.

21(d) Section 108(g)(3)(B) of the Internal Revenue Code, relating
22to adjusted tax attributes, is modified by substituting “($9)” in lieu
23of “($3).”

24(e) (1) If a taxpayer makes an election for federal income tax
25purposes under Section 108(c) of the Internal Revenue Code,
26relating to treatment of discharge of qualified real property business
27indebtedness, a separate election shall not be allowed under
28paragraph (3) of subdivision (e) of Section 17024.5 and the federal
29election shall be binding for purposes of this part.

30(2) If a taxpayer has not made an election for federal income
31tax purposes under Section 108(c) of the Internal Revenue Code,
32relating to treatment of discharge of qualified real property business
33indebtedness, then the taxpayer shall not be allowed to make that
34election for purposes of this part.

35(f) Section 108(i) of the Internal Revenue Code, relating to
36deferral and ratable inclusion of income arising from business
37indebtedness discharged by the reacquisition of a debt instrument,
38shall not apply.

39

SEC. 11.  

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

P36   1

SEC. 12.  

Section 17215 of the Revenue and Taxation Code is
2amended to read:

3

17215.  

(a) Section 220(a) of the Internal Revenue Code,
4relating to deduction allowed, is modified to provide that the
5amount allowed as a deduction shall be an amount equal to the
6amount allowed to that individual as a deduction under Section
7220 of the Internal Revenue Code, relating to medical savings
8accounts, on the federal income tax return filed for the same taxable
9year by that individual.

10(b) Section 220(f)(4) of the Internal Revenue Code, relating to
11additional tax on distributions not used for qualified medical
12expenses, is modified by substituting “12.5 percent” in lieu of “20
13percent.”

14(c) The amendments made to this section by the act adding this
15subdivision shall apply to disbursements made during taxable years
16beginning on or after January 1, 2016.

17

SEC. 13.  

Section 17240 is added to the Revenue and Taxation
18Code
, to read:

19

17240.  

The fee imposed by Section 9008 of the Patient
20Protection and Affordable Care Act (Public Law 111-148), shall
21be considered a tax described in Section 275(a)(6) of the Internal
22Revenue Code.

23

SEC. 14.  

Section 17241 is added to the Revenue and Taxation
24Code
, to read:

25

17241.  

(a) Section 213(a) of the Internal Revenue Code,
26relating to allowance of deduction, is modified by substituting “7.5
27percent” for “10 percent.”

28(b) Section 213(f) of the Internal Revenue Code, relating to
29special rule for 2013, 2014, 2015, and 2016, shall not apply.

30

SEC. 15.  

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

32

SEC. 16.  

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

34

SEC. 17.  

Section 17323 is added to the Revenue and Taxation
35Code
, to read:

36

17323.  

Section 382(n) of the Internal Revenue Code, relating
37to special rule for certain ownership changes, shall not apply.

38

SEC. 18.  

Section 18155 of the Revenue and Taxation Code is
39amended to read:

P37   1

18155.  

A deduction shall not be allowed for capital loss
2carrybacks provided by Section 1212 of the Internal Revenue Code,
3relating to capital loss carrybacks and carryovers.

4

SEC. 19.  

Section 19131.5 is added to the Revenue and Taxation
5Code
, to read:

6

19131.5.  

(a) Section 6164 of the Internal Revenue Code,
7relating to extension of time for payment of taxes by corporations
8expecting carrybacks, shall apply, except as otherwise provided.

9(b) (1) Section 6164 of the Internal Revenue Code is modified
10by substituting the phrase “Secretary or the Franchise Tax Board”
11for the word “Secretary” in each place it appears.

12(2) Section 6164(a) of the Internal Revenue Code is modified
13by substituting the phrase “Part 11 (commencing with Section
1423001)” in lieu of the phrase “subtitle A.”

15(3) Section 6164(b) of the Internal Revenue Code, relating to
16contents of statement, is modified by substituting the phrase
17“Section 24416.20” in lieu of the phrase “Section 172(b).”

18(4) Section 6164(d)(2) of the Internal Revenue Code shall not
19apply.

20(5) Section 6164(h) of the Internal Revenue Code, relating to
21jeopardy, is modified as follows:

22(A) By substituting the phrase “he or the Franchise Tax Board”
23for the word “he” in each place it appears.

24(B) By substituting the phrase “him or the Franchise Tax Board”
25for the word “him” in each place it appears.

26(6) Section 6164(i) of the Internal Revenue Code, relating to
27consolidated returns, is modified by substituting the phrase
28 “combined report” in lieu of the phrase “consolidated return” in
29each place it appears.

30begin insert

begin insertSEC. 20.end insert  

end insert

begin insertSection 19138 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
31amended to read:end insert

32

19138.  

(a) (1) A taxpayer subject to the tax imposed under
33Part 11 (commencing with Section 23001) with an understatement
34of tax for any taxable year shall be subject to the penalty imposed
35under this section if that understatement exceeds the greater of the
36following:

37(A) One million dollars ($1,000,000).

38(B) Twenty percent of the tax shown on an original return or
39shown on an amended return filed on or before the original or
40extended due date of the return for the taxable year.

P38   1(2) For taxpayers that are required to be included in a combined
2report under Section 25101 or authorized to be included in a
3combined report under Section 25101.15, the threshold amount
4prescribed in subparagraph (A) or subparagraph (B) of paragraph
5(1) shall apply to the aggregate amount of tax liability under Part
611 (commencing with Section 23001) for all taxpayers that are
7required to be or authorized to be included in a combined report.

8(b) begin insert(1)end insertbegin insertend insert The penalty under this section shall be an amount equal
9to 20 percent of any understatement of tax. For purposes of this
10section, “understatement of tax” means the amount by which the
11tax imposed by Part 11 (commencing with Section 23001) exceeds
12the amount of tax shown on an original return or shown on an
13amended return filed on or before the original or extended due
14date of the return for the taxable year.begin delete For any taxable year
15beginning before January 1, 2008, the amount of tax paid on or
16before May 31, 2009, and shown on an amended return filed on
17or before May 31, 2009, shall be treated as the amount of tax shown
18on an original return for purposes of this section.end delete

begin insert

19(2) For any taxable year beginning before January 1, 2008, the
20amount of tax paid on or before May 31, 2009, and shown on an
21amended return filed on or before May 31, 2009, shall be treated
22as the amount of tax shown on an original return for purposes of
23this section.

end insert
begin insert

24(3) The amount of additional tax shown on the first amended
25return reflecting a proper election under Section 338 of the Internal
26Revenue Code, relating to certain stock purchases treated as asset
27acquisitions, shall be treated as if that amount was included in the
28amount of tax shown on an original return for purposes of this
29section.

end insert

30(c) The penalty imposed by this section shall be in addition to
31any other penalty imposed under Part 11 (commencing with Section
3223001) or this part.

33(d) Article 3 (commencing with Section 19031), relating to
34deficiency assessments, shall not apply with respect to the
35assessment or collection of any penalty imposed by subdivision
36(a).

37(e) A refund or credit for any amounts paid to satisfy a penalty
38imposed under this section may be allowed only on the grounds
39that the amount of the penalty was not properly computed by the
40Franchise Tax Board.

P39   1(f) begin delete(1)end deletebegin deleteend deleteNo penalty shall be imposed under this section on any
2understatement to the extent that the understatement is attributable
3tobegin delete a change in law that is enacted, promulgated, issued, or becomes
4final after the earlier of either of the following dates:end delete
begin insert any of the
5following:end insert

begin insert

6(1) (A) A change in law that is enacted, promulgated, issued,
7or becomes final after the earlier of either of the following dates:

end insert
begin delete

8(A)

end delete

9begin insert(i)end insert The date the taxpayer files the return for the taxable year for
10which the change is operative.

begin delete

11(B)

end delete

12begin insert(ii)end insert The extended due date for the return of the taxpayer for the
13taxable year for which the change is operative.

begin delete

14(2)

end delete

15begin insert(B)end insert For purposes of thisbegin delete subdivision,end deletebegin insert paragraph,end insert a “change of
16law” means a statutory change or an interpretation of law or rule
17of law by regulation, legal ruling of counsel, within the meaning
18of subdivision (b) of Section 11340.9 of the Government Code,
19or a published federal or California court decision.

begin delete

20(3)

end delete

21begin insert(C)end insert The Franchise Tax Board shall implement thisbegin delete subdivisionend delete
22begin insert paragraphend insert in a reasonable manner.

begin insert

23(2) The imposition of an alternative apportionment or allocation
24method by the Franchise Tax Board under the authority of Section
25 25137 because the standard allocation and apportionment
26provisions of Article 2 (commencing with Section 25120) and the
27regulations thereunder do not fairly represent the extent of the
28taxpayer’s business activity in this state.

end insert
begin insert

29(3) A change to the taxpayer’s federal accounting method
30pursuant to Section 446 of the Internal Revenue Code, relating to
31general rule for methods of accounting, that is applicable for
32purposes of Part 11 (commencing with Section 23001), but only
33to the extent of understatements for taxable years where the due
34date of the return, without regard to any extension of time for filing
35the return, is before the date on consent of the secretary to that
36change of accounting method.

end insert

37(g) No penalty shall be imposed under this section to the extent
38that a taxpayer’s understatement is attributable to the taxpayer’s
39reasonable reliance on written advice of the Franchise Tax Board,
40but only if the written advice was a legal ruling by the Chief
P40   1Counsel, within the meaning of paragraph (1) of subdivision (a)
2of Section 21012.

3(h) (1) This section shall apply to each taxable year beginning
4on or after January 1, 2003, for which the statute of limitations on
5assessment has not expired.

6(2) The amendments made to this section bybegin delete the act adding this
7paragraphend delete
begin insert Chapter 721 of the Statutes of 2010end insert shall apply to each
8taxable year beginning on or after January 1, 2010.

begin insert

9(3) (A) Except as otherwise provided, the amendments made
10to this section by the act adding this paragraph shall apply to each
11taxable year beginning on or after January 1, 2015.

end insert
begin insert

12(B) The provisions of paragraph (2) of subdivision (f), as added
13by the act adding this paragraph, shall apply to understatements
14for any taxable year for which the statute of limitations on
15assessments has not expired as of the effective date of the act
16adding this paragraph.

end insert
17

begin deleteSEC. 20.end delete
18begin insertSEC. 21.end insert  

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

20

19141.5.  

(a) (1) Section 6038A of the Internal Revenue Code,
21relating to information with respect to certain foreign-owned
22corporations, shall apply.

23(2) A penalty shall be imposed under this part for failure to
24furnish information or maintain records and that penalty shall be
25determined in accordance with Section 6038A of the Internal
26Revenue Code.

27(3) Section 11314 of Public Law 101-508, relating to application
28of amendments made by Section 7403 of the Revenue
29Reconciliation Act of 1989 to taxable years beginning on or before
30July 10, 1989, shall apply.

31(4) Section 6038A(e) of the Internal Revenue Code, relating to
32enforcement of requests for certain records, is modified as follows:

33(A) Each reference to Section 7602, 7603, or 7604 of the Internal
34Revenue Code shall instead refer to Section 19504.

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

37(C) Section 6038A(e)(4)(C) of the Internal Revenue Code shall
38refer to “superior courts of the State of California for the Counties
39of Los Angeles, Sacramento, and San Diego, and for the City and
40County of San Francisco,” instead of “United States district court
P41   1for the district in which the person (to whom the summons is
2issued) resides or is found.”

3(b) In the case of a corporation, each of the following shall
4apply:

5(1) Section 6038B of the Internal Revenue Code, relating to
6notice of certain transfers to foreign persons, shall apply, except
7as otherwise provided.

8(2) The information required to be filed with the Franchise Tax
9Board under this subdivision shall be a copy of the information
10required to be filed with the Internal Revenue Service.

11(3) (A) A penalty shall be imposed under this part for failure
12to furnish information and that penalty shall be determined in
13accordance with Section 6038B of the Internal Revenue Code,
14except as otherwise provided.

15(B) Subparagraph (A) shall not apply to any transfer described
16in Section 6038B(a)(1)(B) of the Internal Revenue Code.

17(c) (1) Section 6038C of the Internal Revenue Code, relating
18to information with respect to foreign corporations engaged in
19United States business, shall apply.

20(2) A penalty shall be imposed under this part for failure to
21furnish information or maintain records and that penalty shall be
22determined in accordance with Section 6038C of the Internal
23Revenue Code.

24(3) Section 6038C(d) of the Internal Revenue Code, relating to
25enforcement of requests for certain records, is modified as follows:

26(A) Each reference to Section 7602, 7603, or 7604 of the Internal
27Revenue Code shall instead refer to Section 19504.

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

30(d) (1) Section 6038D of the Internal Revenue Code, relating
31to information with respect to foreign financial assets, shall apply.

32(2) A penalty shall be imposed under this part for failure to
33furnish information and that penalty shall be determined in
34accordance with Section 6038D of the Internal Revenue Code.

35(e) For purposes of this part, the information required to be filed
36with the Franchise Tax Board pursuant to this section shall be a
37copy of the information filed with the Internal Revenue Service.

38(f) For purposes of this section, each of the following shall
39apply:

P42   1(1) Section 7701(a)(4) of the Internal Revenue Code, relating
2to the term “domestic,” shall apply.

3(2) Section 7701(a)(5) of the Internal Revenue Code, relating
4to the term “foreign,” shall apply.

5(3) Section 7701(a)(30) of the Internal Revenue Code, relating
6to the term “United States person,” shall apply. However, the term
7“United States person” shall not include any corporation that is
8not subject to the tax imposed under Chapter 2 (commencing with
9Section 23101), Chapter 2.5 (commencing with Section 23400),
10or Chapter 3 (commencing with Section 23501), of Part 11.

11(g) The amendments made to this section by the act adding this
12subdivision shall apply to taxable years beginning on or after
13January 1, 2016.

14

begin deleteSEC. 21.end delete
15begin insertSEC. 22.end insert  

Section 19164 of the Revenue and Taxation Code is
16amended to read:

17

19164.  

(a) (1) (A) An accuracy-related penalty shall be
18imposed under this part and shall be determined in accordance
19with Section 6662 of the Internal Revenue Code, relating to
20imposition of accuracy-related penalty on underpayments, except
21as otherwise provided.

22(B) (i) Except for understatements relating to reportable
23transactions to which Section 19164.5 applies, in the case of any
24proposed deficiency assessment issued after the last date of the
25amnesty period specified in Chapter 9.1 (commencing with Section
2619730) for any taxable year beginning prior to January 1, 2003,
27the penalty specified in Section 6662(a) of the Internal Revenue
28Code shall be computed by substituting “40 percent” for “20
29percent.”

30(ii) Clause (i) shall not apply to any taxable year of a taxpayer
31beginning prior to January 1, 2003, if, as of the start date of the
32amnesty program period specified in Section 19731, the taxpayer
33is then under audit by the Franchise Tax Board, or the taxpayer
34has filed a protest under Section 19041, or the taxpayer has filed
35an appeal under Section 19045, or the taxpayer is engaged in
36settlement negotiations under Section 19442, or the taxpayer has
37a pending judicial proceeding in any court of this state or in any
38federal court relating to the tax liability of the taxpayer for that
39taxable year.

P43   1(2) With respect to corporations, this subdivision shall apply to
2all of the following:

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

4(B) Any other taxable year for which an assessment is made
5after July 16, 1991.

6(C) For purposes of this section, references in Section 6662(e)
7of the Internal Revenue Code and the regulations thereunder,
8relating to treatment of an affiliated group that files a consolidated
9federal return, are modified to apply to those entities required to
10be included in a combined report under Section 25101 or 25110.
11For these purposes, entities included in a combined report pursuant
12to paragraph (4) or (6) of subdivision (a) of Section 25110 shall
13be considered only to the extent required to be included in the
14combined report.

15(3) Section 6662(d)(1)(B) of the Internal Revenue Code is
16modified to provide that in the case of a corporation, other than
17an “S” corporation, there is a substantial understatement of tax for
18any taxable year if the amount of the understatement for the taxable
19year exceeds the lesser of:

20(A) Ten percent of the tax required to be shown on the return
21for the taxable year (or, if greater, two thousand five hundred
22dollars ($2,500)).

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

24(4) Section 6662(d)(2)(A) of the Internal Revenue Code is
25modified to additionally provide that the excess determined under
26Section 6662(d)(2)(A) of the Internal Revenue Code shall be
27determined without regard to items to which Section 19164.5
28applies and without regard to items with respect to which a penalty
29is imposed by Section 19774.

30(5) The provisions of Sections 6662(e)(1) and 6662(h)(2) of the
31Internal Revenue Code shall apply to returns filed on or after
32January 1, 2010.

33(b) For purposes of Section 6662(d) of the Internal Revenue
34Code, Section 6664 of the Internal Revenue Code, Section
356694(a)(1) of the Internal Revenue Code, and this part, the
36Franchise Tax Board may prescribe a list of positions for which
37the Franchise Tax Board believes there is not substantial authority
38or there is no reasonable belief that the tax treatment is more likely
39than not the proper tax treatment. That list (and any revisions
40thereof) shall be published through the use of Franchise Tax Board
P44   1Notices or other published positions. In addition, the “listed
2transactions” identified and published pursuant to the preceding
3sentence shall be published on the Web site of the Franchise Tax
4Board.

5(c) A fraud penalty shall be imposed under this part and shall
6be determined in accordance with Section 6663 of the Internal
7Revenue Code, relating to imposition of fraud penalty, except as
8otherwise provided.

9(d) (1) Section 6664 of the Internal Revenue Code, relating to
10definitions and special rules, shall apply, except as otherwise
11provided.

12(2) Section 6664(c)(3) of the Internal Revenue Code shall apply
13to returns filed on or after January 1, 2010.

14(3) Section 6664(c)(4) of the Internal Revenue Code shall apply
15to appraisals prepared with respect to returns or submissions filed
16on or after January 1, 2010.

17(e) Except for purposes of subdivision (e) of Section 19774,
18Section 6662(b)(6) of the Internal Revenue Code shall not apply.

19(f) Except for purposes of subdivision (e) of Section 19774,
20Section 6662(i) of the Internal Revenue Code, relating to increase
21in penalty in case of nondisclosed noneconomic substance
22transactions, shall not apply.

23(g) Section 6665 of the Internal Revenue Code, relating to
24applicable rules, shall apply, except as otherwise provided.

25(h) The amendments made to this section by Chapter 14 of the
26Statutes of 2011 shall apply to notices mailed on or after January
271, 2012.

begin delete
28

SEC. 22.  

Section 19167 of the Revenue and Taxation Code is
29amended to read:

30

19167.  

A penalty shall be imposed under this section for any
31of the following:

32(a) In accordance with Section 6695(a) of the Internal Revenue
33Code, relating to failure to furnish a copy to taxpayer, as required
34by Section 18625, except as otherwise provided.

35(b) In accordance with Section 6695(c) of the Internal Revenue
36Code, relating to failure to furnish identifying number, as required
37by Section 18624, except as otherwise provided.

38(c) In accordance with Section 6695(d) of the Internal Revenue
39Code, relating to failure to retain copy or list, as required by Section
P45   118625 or for failure to retain an electronic filing declaration, as
2required by Section 18621.5, except as otherwise provided.

3(d) Section 6695(h) of the Internal Revenue Code, relating to
4adjustment for inflation, shall not apply.

5(e) Failure to register as a tax preparer with the California Tax
6Education Council, as required by Section 22253 of the Business
7and Professions Code, unless it is shown that the failure was due
8to reasonable cause and not due to willful neglect.

9(1) The amount of the penalty under this subdivision for the
10first failure to register is two thousand five hundred dollars
11($2,500). This penalty shall be waived if proof of registration is
12provided to the Franchise Tax Board within 90 days from the date
13notice of the penalty is mailed to the tax preparer.

14(2) The amount of the penalty under this subdivision for a failure
15to register, other than the first failure to register, is five thousand
16dollars ($5,000).

17(f) The Franchise Tax Board shall not impose the penalties
18authorized by subdivision (e) until either one of the following has
19occurred:

20(1) Commencing January 1, 2006, and continuing each year
21thereafter, there is an appropriation in the Franchise Tax Board’s
22annual budget to fund the costs associated with the penalty
23authorized by subdivision (e).

24(2) (A) An agreement has been executed between the California
25Tax Education Council and the Franchise Tax Board that provides
26that an amount equal to all first year costs associated with the
27penalty authorized by subdivision (e) shall be received by the
28Franchise Tax Board. For purposes of this subparagraph, first year
29costs include, but are not limited to, costs associated with the
30development of processes or systems changes, if necessary, and
31labor.

32(B) An agreement has been executed between the California
33Tax Education Council and the Franchise Tax Board that provides
34that the annual costs incurred by the Franchise Tax Board
35associated with the penalty authorized by subdivision (e) shall be
36reimbursed by the California Tax Education Council to the
37Franchise Tax Board.

38(C) Pursuant to the agreement described in subparagraph (A),
39the Franchise Tax Board has received an amount equal to the first
40year costs described in that subparagraph.

end delete
P46   1begin insert

begin insertSEC. 23.end insert  

end insert

begin insertSection 19167 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
2amended to read:end insert

3

19167.  

A penalty shall be imposed under this section for any
4of the following:

5(a) In accordance with Section 6695(a) of the Internal Revenue
6Code,begin delete forend deletebegin insert relating toend insert failure to furnish a copybegin delete of the return to theend delete
7begin insert toend insert taxpayer, as required by Sectionbegin delete 18625.end deletebegin insert 18625, except as
8otherwise provided.end insert

9(b) In accordance with Section 6695(c) of the Internal Revenue
10Code,begin delete forend deletebegin insert relating toend insert failure to furnishbegin delete anend delete identifying number, as
11required by Sectionbegin delete 18624.end deletebegin insert 18624, except as otherwise provided.end insert

12(c) In accordance with Section 6695(d) of the Internal Revenue
13Code,begin delete forend deletebegin insert relating toend insert failure to retainbegin delete aend delete copy or list, as required by
14Section 18625 or for failure to retain an electronic filing
15declaration, as required by Sectionbegin delete 18621.5.end deletebegin insert 18521.5, except as
16otherwise provided.end insert

17(d) Failure to register as a tax preparer with the California Tax
18Education Council, as required by Section 22253 of the Business
19and Professions Code, unless it is shown that the failure was due
20to reasonable cause and not due to willful neglect.

21(1) The amount of the penalty under this subdivision for the
22first failure to register is two thousand five hundred dollars
23($2,500). This penalty shall be waived if proof of registration is
24provided to the Franchise Tax Board within 90 days from the date
25notice of the penalty is mailed to the tax preparer.

26(2) The amount of the penalty under this subdivision for a failure
27to register, other than the first failure to register, is five thousand
28dollars ($5,000).

29(e) The Franchise Tax Board shall not impose the penalties
30authorized by subdivision (d) until either one of the following has
31occurred:

32(1) Commencing January 1, 2006, and continuing each year
33thereafter, there is an appropriation in the Franchise Tax Board’s
34annual budget to fund the costs associated with the penalty
35authorized by subdivision (d).

36(2) (A) An agreement has been executed between the California
37Tax Education Council and the Franchise Tax Board that provides
38that an amount equal to all first year costs associated with the
39penalty authorized by subdivision (d) shall be received by the
40Franchise Tax Board. For purposes of this subparagraph, first year
P47   1costs include, but are not limited to, costs associated with the
2development of processes or systems changes, if necessary, and
3labor.

4(B) An agreement has been executed between the California
5Tax Education Council and the Franchise Tax Board that provides
6that the annual costs incurred by the Franchise Tax Board
7associated with the penalty authorized by subdivision (d) shall be
8reimbursed by the California Tax Education Council to the
9Franchise Tax Board.

10(C) Pursuant to the agreement described in subparagraph (A),
11the Franchise Tax Board has received an amount equal to the first
12year costs described in that subparagraph.

13(f) In accordance with Section 6695(g) of the Internal Revenue
14Code, for failure to be diligent in determining eligibility for earned
15income credit for returns required to be filed on or afterbegin delete the
16effective date of the act adding this subdivision.end delete
begin insert June 24, 2015.end insert

begin insert

17(g) Section 6695(h) of the Internal Revenue Code, relating to
18adjustment for inflation, shall not apply.

end insert
19

begin deleteSEC. 23.end delete
20begin insertSEC. 24.end insert  

Section 19183 of the Revenue and Taxation Code is
21amended to read:

22

19183.  

(a) (1) A penalty shall be imposed for failure to file
23correct information returns, as required by this part, and that
24penalty shall be determined in accordance with Section 6721 of
25the Internal Revenue Code, relating to failure to file correct
26information returns.

27(2) Section 6721(e) of the Internal Revenue Code, relating to
28penalty in case of intentional disregard, is modified to the extent
29that the reference to Section 6041A(b) of the Internal Revenue
30Code, relating to direct sales of $5,000 or more, shall not apply.

31(3) Section 6721(f)(1) of the Internal Revenue Code is modified
32to substitute the phrase “For each fifth calendar year beginning
33after 2014” for the phrase “In the case of any failure relating to a
34return required to be filed in a calendar year beginning after 2014.”

35(b) (1) A penalty shall be imposed for failure to furnish correct
36payee statements as required by this part, and that penalty shall be
37determined in accordance with Section 6722 of the Internal
38Revenue Code, relating to failure to furnish correct payee
39statements.

P48   1(2) Section 6722(c) of the Internal Revenue Code, relating to
2exception for de minimus failures, is modified to the extent that
3the references to Sections 6041A(b) and 6041A(e) of the Internal
4Revenue Code, relating to direct sales of $5,000 or more, and
5statements to be furnished to persons with respect to whom
6information is required to be furnished, shall not apply.

7(3) Section 6722(f)(1) of the Internal Revenue Code is modified
8to substitute the phrase “For each fifth calendar year beginning
9after 2014” for the phrase “In the case of any failure relating to a
10return required to be filed in a calendar year beginning after 2014.”

11(c) A penalty shall be imposed for failure to comply with other
12information reporting requirements under this part, and that penalty
13shall be determined in accordance with Section 6723 of the Internal
14Revenue Code, relating to failure to comply with other information
15reporting requirements.

16(d) (1) The provisions of Section 6724 of the Internal Revenue
17Code, relating to waiver; definitions, and special rules, shall apply,
18except as otherwise provided.

19(2) Section 6724(d)(1) of the Internal Revenue Code, relating
20to information return, is modified as follows:

21(A) The following references are substituted:

22(i) Subdivision (a) of Section 18640, in lieu of Section
236044(a)(1) of the Internal Revenue Code.

24(ii) Subdivision (a) of Section 18644, in lieu of Section 6050A(a)
25of the Internal Revenue Code, relating to reports.

26(B) References to Sections 4101(d), 6041(b), 6041A(b), 6045(d),
276051(d), and 6053(c)(1) of the Internal Revenue Code shall not
28apply.

29(C) The term “information return” shall also include both of the
30following:

31(i) The return required by paragraph (1) of subdivision (i) of
32Section 18662.

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

34(3) Section 6724(d)(2) of the Internal Revenue Code, relating
35to payee statement, is modified as follows:

36(A) The following references are substituted:

37(i) Subdivision (b) of Section 18640, in lieu of Section 6044(e)
38of the Internal Revenue Code, relating to statements to be furnished
39to persons with respect to whom information is required.

P49   1(ii) Subdivision (b) of Section 18644, in lieu of Section
26050A(b) of the Internal Revenue Code, relating to written
3statement.

4(B) References to Sections 6031(b), 6037(b), 6041A(e), 6045(d),
56051(d), 6053(b), and 6053(c) of the Internal Revenue Code shall
6not apply.

7(C) The term “payee statement” shall also include the statement
8required by paragraph (2) of subdivision (i) of Section 18662.

9(e) In the case of each failure to provide a written explanation
10as required by Section 402(f) of the Internal Revenue Code, relating
11to written explanation to recipients of distributions eligible for
12rollover treatment, at the time prescribed therefor, unless it is
13shown that the failure is due to reasonable cause and not to willful
14neglect, there shall be paid, on notice and demand of the Franchise
15Tax Board and in the same manner as tax, by the person failing to
16 provide that written explanation, an amount equal to ten dollars
17($10) for each failure, but the total amount imposed on that person
18for all those failures during any calendar year shall not exceed five
19thousand dollars ($5,000).

20(f) Any penalty imposed by this part shall be paid on notice and
21demand by the Franchise Tax Board and in the same manner as
22tax.

23(g) The amendments made to this section by the act adding this
24subdivision shall apply to information returns required to be filed
25on or after January 1, 2016.

26

begin deleteSEC. 24.end delete
27begin insertSEC. 25.end insert  

Section 19772 of the Revenue and Taxation Code is
28amended to read:

29

19772.  

(a) Section 6707A of the Internal Revenue Code,
30relating to penalty for failure to include reportable transactions
31information with a return, shall apply, except as otherwise
32provided.

33(b) (1) Section 6707A(b)(1) of the Internal Revenue Code
34relating to amount of penalty is modified by substituting the phrase
35“or which would have resulted from such transaction if such
36transaction were respected for state tax purposes” for the phrase
37“or which would have resulted from such transaction if such
38transaction were respected for Federal tax purposes.”

P50   1(2) The penalty amounts in Section 6707A(b)(2)(A) of the
2Internal Revenue Code are modified by substituting “$30,000
3($15,000” for “$200,000 ($100,000.”

4(3) The penalty amounts in Section 6707A(b)(2)(B) of the
5Internal Revenue Code are modified by substituting “$15,000
6($5,000” for “$50,000 ($10,000.”

7(4) The penalty amounts in Section 6707A(b)(3) of the Internal
8Revenue Code relating to minimum penalty are modified by
9substituting “$2,500 ($1,250” for “$10,000 ($5,000.”

10(c) (1) Section 6707A(c)(1) of the Internal Revenue Code
11 relating to reportable transaction is modified to include reportable
12transactions within the meaning of paragraph (3) of subdivision
13(a) of Section 18407.

14(2) Section 6707A(c)(2) of the Internal Revenue Code relating
15to listed transaction is modified to include listed transactions within
16the meaning of paragraph (4) of subdivision (a) of Section 18407.

17(d) The penalty under this section only applies to taxpayers with
18taxable income greater than two hundred thousand dollars
19($200,000).

20(e) Section 6707A(e) of the Internal Revenue Code, relating to
21a penalty reported to the Securities and Exchange Commission,
22shall not apply.

23(f) Section 6707A(d) of the Internal Revenue Code, relating to
24authority to rescind penalty, shall not apply, and in lieu thereof,
25the following shall apply:

26(1) The Chief Counsel of the Franchise Tax Board may rescind
27all or any portion of any penalty imposed by this section with
28respect to any violation if all of the following apply:

29(A) The violation is with respect to a reportable transaction
30other than a listed transaction.

31(B) The person on whom the penalty is imposed has a history
32of complying with the requirements of this part and Part 10
33(commencing with Section 17001) or Part 11 (commencing with
34Section 23001).

35(C) It is shown that the violation is due to an unintentional
36mistake of fact.

37(D) Imposing the penalty would be against equity and good
38conscience.

39(E) Rescinding the penalty would promote compliance with the
40requirements of this part and Part 10 (commencing with Section
P51   117001) or Part 11 (commencing with Section 23001) and effective
2tax administration.

3(2) The exercise of authority under paragraph (1) shall be at the
4sole discretion of the Chief Counsel of the Franchise Tax Board
5and may not be delegated.

6(3) Notwithstanding any other law or rule of law, any
7determination under this subdivision may not be reviewed in any
8administrative or judicial proceeding.

9(g) Article 3 (commencing with Section 19031) of Chapter 4
10(relating to deficiency assessments) shall not apply with respect
11to the assessment or collection of any penalty imposed under this
12section.

13(h) The penalty imposed by this section is in addition to any
14penalty imposed under Part 10 (commencing with Section 17001),
15Part 11 (commencing with Section 23001), or this part.

16(i) The amendments made to this section by the act adding this
17subdivision shall apply to penalties assessed on or after January
181, 2016.

19

begin deleteSEC. 25.end delete
20begin insertSEC. 26.end insert  

Section 23622.7 of the Revenue and Taxation Code
21 is amended to read:

22

23622.7.  

(a) There shall be allowed a credit against the “tax”
23(as defined by Section 23036) to a taxpayer who employs a
24qualified employee in an enterprise zone during the taxable year.
25The credit shall be equal to the sum of each of the following:

26(1) Fifty percent of qualified wages in the first year of
27employment.

28(2) Forty percent of qualified wages in the second year of
29employment.

30(3) Thirty percent of qualified wages in the third year of
31employment.

32(4) Twenty percent of qualified wages in the fourth year of
33employment.

34(5) Ten percent of qualified wages in the fifth year of
35employment.

36(b) For purposes of this section:

37(1) “Qualified wages” means:

38(A) (i) Except as provided in clause (ii), that portion of wages
39paid or incurred by the taxpayer during the taxable year to qualified
40employees that does not exceed 150 percent of the minimum wage.

P52   1(ii) For up to 1,350 qualified employees who are employed by
2the taxpayer in the Long Beach Enterprise Zone in aircraft
3manufacturing activities described in Codes 3721 to 3728,
4inclusive, and Code 3812 of the Standard Industrial Classification
5(SIC) Manual published by the United States Office of
6Management and Budget, 1987 edition, “qualified wages” means
7that portion of hourly wages that does not exceed 202 percent of
8the minimum wage.

9(B) Wages received during the 60-month period beginning with
10the first day the employee commences employment with the
11taxpayer. Reemployment in connection with any increase, including
12a regularly occurring seasonal increase, in the trade or business
13operations of the taxpayer does not constitute commencement of
14employment for purposes of this section.

15(C) Qualified wages do not include any wages paid or incurred
16by the taxpayer on or after the zone expiration date. However,
17wages paid or incurred with respect to qualified employees who
18are employed by the taxpayer within the enterprise zone within
19the 60-month period prior to the zone expiration date shall continue
20to qualify for the credit under this section after the zone expiration
21date, in accordance with all provisions of this section applied as
22if the enterprise zone designation were still in existence and
23binding.

24(2) “Minimum wage” means the wage established by the
25Industrial Welfare Commission as provided for in Chapter 1
26(commencing with Section 1171) of Part 4 of Division 2 of the
27Labor Code.

28(3) “Zone expiration date” means the date the enterprise zone
29designation expires, is no longer binding, becomes inoperative, or
30is repealed.

31(4) (A) “Qualified employee” means an individual who meets
32all of the following requirements:

33(i) At least 90 percent of whose services for the taxpayer during
34the taxable year are directly related to the conduct of the taxpayer’s
35trade or business located in an enterprise zone.

36(ii) Performs at least 50 percent of his or her services for the
37taxpayer during the taxable year in an enterprise zone.

38(iii) Is hired by the taxpayer after the date of original designation
39of the area in which services were performed as an enterprise zone.

40(iv) Is any of the following:

P53   1(I) Immediately preceding the qualified employee’s
2commencement of employment with the taxpayer, was a person
3eligible for services under the federal Job Training Partnership
4Act (29 U.S.C. Sec. 1501 et seq.), or its successor, who is receiving,
5or is eligible to receive, subsidized employment, training, or
6services funded by the federal Job Training Partnership Act, or its
7successor.

8(II) Immediately preceding the qualified employee’s
9commencement of employment with the taxpayer, was a person
10eligible to be a voluntary or mandatory registrant under the Greater
11Avenues for Independence Act of 1985 (GAIN) provided for
12pursuant to Article 3.2 (commencing with Section 11320) of
13Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions
14Code, or its successor.

15(III) Immediately preceding the qualified employee’s
16commencement of employment with the taxpayer, was an
17economically disadvantaged individual 14 years of age or older.

18(IV) Immediately preceding the qualified employee’s
19commencement of employment with the taxpayer, was a dislocated
20worker who meets any of the following:

21(aa) Has been terminated or laid off or who has received a notice
22of termination or layoff from employment, is eligible for or has
23exhausted entitlement to unemployment insurance benefits, and
24is unlikely to return to his or her previous industry or occupation.

25(bb) Has been terminated or has received a notice of termination
26of employment as a result of any permanent closure or any
27substantial layoff at a plant, facility, or enterprise, including an
28individual who has not received written notification but whose
29employer has made a public announcement of the closure or layoff.

30(cc) Is long-term unemployed and has limited opportunities for
31employment or reemployment in the same or a similar occupation
32in the area in which the individual resides, including an individual
3355 years of age or older who may have substantial barriers to
34employment by reason of age.

35(dd) Was self-employed (including farmers and ranchers) and
36is unemployed as a result of general economic conditions in the
37community in which he or she resides or because of natural
38disasters.

P54   1(ee) Was a civilian employee of the Department of Defense
2employed at a military installation being closed or realigned under
3the Defense Base Closure and Realignment Act of 1990.

4(ff) Was an active member of the armed forces or National
5Guard as of September 30, 1990, and was either involuntarily
6separated or separated pursuant to a special benefits program.

7(gg) Is a seasonal or migrant worker who experiences chronic
8seasonal unemployment and underemployment in the agriculture
9industry, aggravated by continual advancements in technology and
10mechanization.

11(hh) Has been terminated or laid off, or has received a notice
12of termination or layoff, as a consequence of compliance with the
13Clean Air Act.

14(V) Immediately preceding the qualified employee’s
15commencement of employment with the taxpayer, was a disabled
16individual who is eligible for or enrolled in, or has completed a
17state rehabilitation plan or is a service-connected disabled veteran,
18veteran of the Vietnam era, or veteran who is recently separated
19from military service.

20(VI) Immediately preceding the qualified employee’s
21commencement of employment with the taxpayer, was an
22ex-offender. An individual shall be treated as convicted if he or
23she was placed on probation by a state court without a finding of
24guilt.

25(VII) Immediately preceding the qualified employee’s
26commencement of employment with the taxpayer, was a person
27eligible for or a recipient of any of the following:

28(aa) Federal Supplemental Security Income benefits.

29(bb) Aid to Families with Dependent Children.

30(cc) CalFresh benefits.

31(dd) State and local general assistance.

32(VIII) Immediately preceding the qualified employee’s
33commencement of employment with the taxpayer, was a member
34of a federally recognized Indian tribe, band, or other group of
35Native American descent.

36(IX) Immediately preceding the qualified employee’s
37commencement of employment with the taxpayer, was a resident
38of a targeted employment area (as defined in Section 7072 of the
39Government Code).

P55   1(X) An employee who qualified the taxpayer for the enterprise
2zone hiring credit under former Section 23622 or the program area
3hiring credit under former Section 23623.

4(XI) Immediately preceding the qualified employee’s
5commencement of employment with the taxpayer, was a member
6of a targeted group, as defined in Section 51(d) of the Internal
7Revenue Code, or its successor.

8(B) Priority for employment shall be provided to an individual
9who is enrolled in a qualified program under the federal Job
10Training Partnership Act or the Greater Avenues for Independence
11Act of 1985 or who is eligible as a member of a targeted group
12under the Work Opportunity Tax Credit (Section 51 of the Internal
13Revenue Code), or its successor.

14(5) “Taxpayer” means a corporation engaged in a trade or
15business within an enterprise zone designated pursuant to Chapter
1612.8 (commencing with Section 7070) of Division 7 of Title 1 of
17the Government Code.

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

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

22(1) Obtain from the Employment Development Department, as
23permitted by federal law, the local county or city Job Training
24Partnership Act administrative entity, the local county GAIN office
25or social services agency, or the local government administering
26the enterprise zone, a certification that provides that a qualified
27employee meets the eligibility requirements specified in clause
28(iv) of subparagraph (A) of paragraph (4) of subdivision (b). The
29Employment Development Department may provide preliminary
30screening and referral to a certifying agency. The Employment
31Development Department shall develop a form for this purpose.
32The Department of Housing and Community Development shall
33develop regulations governing the issuance of certificates by local
34governments pursuant to subdivision (a) of Section 7086 of the
35Government Code.

36(2) Retain a copy of the certification and provide it upon request
37to the Franchise Tax Board.

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

P56   1(A) All employees of all corporations which are members of
2the same controlled group of corporations shall be treated as
3employed by a single taxpayer.

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

8(C) For purposes of this subdivision, “controlled group of
9corporations” means “controlled group of corporations” as defined
10in Section 1563(a) of the Internal Revenue Code, except that:

11(i) “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(ii) The determination shall be made without regard to
15subsections (a)(4) and (e)(3)(C) of Section 1563 of the Internal
16Revenue Code.

17(2) 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
23a qualified employee and an employer shall not be treated as
24terminated if the employee continues to be employed in that trade
25or business.

26(e) (1) (A) If the employment, other than seasonal employment,
27of any qualified employee with respect to whom qualified wages
28are taken into account under subdivision (a) is terminated by the
29taxpayer at any time during the first 270 days of that employment,
30whether or not consecutive, or before the close of the 270th
31calendar day after the day in which that employee completes 90
32days of employment with the taxpayer, the tax imposed by this
33part for the taxable year in which that employment is terminated
34shall be increased by an amount equal to the credit allowed under
35 subdivision (a) for that taxable year and all prior taxable years
36attributable to qualified wages paid or incurred with respect to that
37employee.

38(B) If the seasonal employment of any qualified employee, with
39respect to whom qualified wages are taken into account under
40subdivision (a) is not continued by the taxpayer for a period of
P57   1270 days of employment during the 60-month period beginning
2with the day the qualified employee commences seasonal
3employment with the taxpayer, the tax imposed by this part, for
4the taxable year that includes the 60th month following the month
5in which the qualified employee commences seasonal employment
6with the taxpayer, shall be increased by an amount equal to the
7credit allowed under subdivision (a) for that taxable year and all
8prior taxable years attributable to qualified wages paid or incurred
9with respect to that qualified employee.

10(2) (A) Subparagraph (A) of paragraph (1) shall not apply to
11any of the following:

12(i) A termination of employment of a qualified employee who
13voluntarily leaves the employment of the taxpayer.

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

20(iii) A termination of employment of a qualified employee, if
21it is determined 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 employee.

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

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

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
34employee who voluntarily fails to return to the seasonal
35employment of the taxpayer.

36(ii) A failure to continue the seasonal employment of a qualified
37employee who, before the close of the period referred to in
38subparagraph (B) of paragraph (1), becomes disabled and unable
39to perform the services of that seasonal employment, unless that
40disability is removed before the close of that period and the
P58   1taxpayer fails to offer seasonal employment to that qualified
2employee.

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

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

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

15(C) For purposes of paragraph (1), the employment relationship
16between the taxpayer and a qualified employee shall not be treated
17as terminated by either of the following:

18(i) By a transaction to which Section 381(a) of the Internal
19Revenue Code applies, if the qualified employee continues to be
20employed by the acquiring corporation.

21(ii) By reason of a mere change in the form of conducting the
22trade or business of the taxpayer, if the qualified employee
23continues to be employed in that trade or business and the taxpayer
24retains a substantial interest in that trade or business.

25(3) Any increase in tax under paragraph (1) shall not be treated
26as tax imposed by this part for purposes of determining the amount
27of any credit allowable under this part.

28(f) Rules similar to the rules provided in Section 46(e) and (h)
29of the Internal Revenue Code shall apply to both of the following:

30(1) An organization to which Section 593 of the Internal
31Revenue Code applies.

32(2) A regulated investment company or a real estate investment
33trust subject to taxation under this part.

34(g) For purposes of this section, “enterprise zone” means an
35area designated as an enterprise zone pursuant to Chapter 12.8
36(commencing with Section 7070) of Division 7 of Title 1 of the
37Government Code.

38(h) The credit allowable under this section shall be reduced by
39the credit allowed under Sections 23623.5, 23625, and 23646
40claimed for the same employee. The credit shall also be reduced
P59   1by the federal credit allowed under Section 51 of the Internal
2Revenue Code, as amended by the Emergency Economic
3Stabilization Act of 2008 (Public Law 110-343).

4In addition, any deduction otherwise allowed under this part for
5the wages or salaries paid or incurred by the taxpayer upon which
6the credit is based shall be reduced by the amount of the credit,
7prior to any reduction required by subdivision (i) or (j).

8(i) In the case where the credit otherwise allowed under this
9section exceeds the “tax” for the taxable year, that portion of the
10credit that exceeds the “tax” may be carried over and added to the
11credit, if any, in the succeeding 10 taxable years, if necessary, until
12the credit is exhausted. The credit shall be applied first to the
13earliest taxable years possible.

14(j) (1) The amount of the credit otherwise allowed under this
15section and Section 23612.2, including any credit carryover from
16prior years, that may reduce the “tax” for the taxable year shall
17not exceed the amount of tax which would be imposed on the
18taxpayer’s business income attributable to the enterprise zone
19determined as if that attributable income represented all of the
20income of the taxpayer subject to tax under this part.

21(2) Attributable income shall be that portion of the taxpayer’s
22California source business income that is apportioned to the
23enterprise zone. For that purpose, the taxpayer’s business
24attributable to sources in this state first shall be determined in
25accordance with Chapter 17 (commencing with Section 25101).
26That business income shall be further apportioned to the enterprise
27zone in accordance with Article 2 (commencing with Section
2825120) of Chapter 17, modified for purposes of this section in
29accordance with paragraph (3).

30(3) Business income shall be apportioned to the enterprise zone
31by multiplying the total California business income of the taxpayer
32by a fraction, the numerator of which is the property factor plus
33the payroll factor, and the denominator of which is two. For
34purposes of this paragraph:

35(A) The property factor is a fraction, the numerator of which is
36the average value of the taxpayer’s real and tangible personal
37property owned or rented and used in the enterprise zone during
38the income year, and the denominator of which is the average value
39of all the taxpayer’s real and tangible personal property owned or
40rented and used in this state during the income year.

P60   1(B) The payroll factor is a fraction, the numerator of which is
2the total amount paid by the taxpayer in the enterprise zone during
3the income year for compensation, and the denominator of which
4is the total compensation paid by the taxpayer in this state during
5the income year.

6(4) The portion of any credit remaining, if any, after application
7of this subdivision, shall be carried over to succeeding taxable
8years, if necessary, until the credit is exhausted, as if it were an
9amount exceeding the “tax” for the taxable year, as provided in
10subdivision (i). However, the portion of any credit remaining for
11carryover to taxable years beginning on or after January 1, 2014,
12if any, after application of this subdivision, shall be carried over
13only to the succeeding 10 taxable years if necessary, until the credit
14is exhausted, as if it were an amount exceeding the “tax” for the
15taxable year, as provided in subdivision (i).

16(k) The changes made to this section by the act adding this
17subdivision shall apply to taxable years on or after January 1, 1997.

18(l) (1) Except as provided in paragraph (2), this section shall
19cease to be operative on January 1, 2014, and shall be repealed on
20December 1, 2019. A credit shall not be allowed under this section
21with respect to an employee who first commences employment
22with a taxpayer on or after January 1, 2014.

23(2) This section shall continue to apply with respect to qualified
24employees who are employed by the taxpayer within the enterprise
25zone within the 60-month period immediately preceding January
261, 2014, and qualified wages paid or incurred with respect to those
27qualified employees shall continue to qualify for the credit under
28this section for taxable years beginning on or after January 1, 2014,
29in accordance with this section, as amended by the act adding this
30subdivision.

31

begin deleteSEC. 26.end delete
32begin insertSEC. 27.end insert  

Section 23622.8 of the Revenue and Taxation Code
33 is amended to read:

34

23622.8.  

(a) For each taxable year beginning on or after
35January 1, 1998, there shall be allowed a credit against the “tax”
36(as defined in Section 23036) to a qualified taxpayer for hiring a
37qualified disadvantaged individual during the taxable year for
38employment in the manufacturing enhancement area. The credit
39shall be equal to the sum of each of the following:

P61   1(1) Fifty percent of the qualified wages in the first year of
2employment.

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

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

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

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

11(b) For purposes of this section:

12(1) “Qualified wages” means:

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

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

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

27(D) Qualified wages do not include any wages paid or incurred
28by the qualified taxpayer on or after the manufacturing
29enhancement area expiration date. However, wages paid or incurred
30with respect to qualified employees who are employed by the
31qualified taxpayer within the manufacturing enhancement area
32within the 60-month period prior to the manufacturing enhancement
33area expiration date shall continue to qualify for the credit under
34this section after the manufacturing enhancement area expiration
35date, in accordance with all provisions of this section applied as
36if the manufacturing enhancement area designation were still in
37existence and binding.

38(2) “Minimum wage” means the wage established by the
39Industrial Welfare Commission as provided for in Chapter 1
P62   1(commencing with Section 1171) of Part 4 of Division 2 of the
2Labor Code.

3(3) “Manufacturing enhancement area” means an area designated
4pursuant to Section 7073.8 of the Government Code according to
5the procedures of Chapter 12.8 (commencing with Section 7070)
6of Division 7 of Title 1 of the Government Code.

7(4) “Manufacturing enhancement area expiration date” means
8the date the manufacturing enhancement area designation expires,
9is no longer binding, becomes inoperative, or is repealed.

10(5) “Qualified disadvantaged individual” means an individual
11who satisfies all of the following requirements:

12(A) (i) At least 90 percent of whose services for the qualified
13taxpayer during the taxable year are directly related to the conduct
14of the qualified taxpayer’s trade or business located in a
15manufacturing enhancement area.

16(ii) Who performs at least 50 percent of his or her services for
17the qualified taxpayer during the taxable year in the manufacturing
18enhancement area.

19(B) Who is hired by the qualified taxpayer after the designation
20of the area as a manufacturing enhancement area in which the
21individual’s services were primarily performed.

22(C) Who is any of the following immediately preceding the
23individual’s commencement of employment with the qualified
24taxpayer:

25(i) An individual who has been determined eligible for services
26under the federal Job Training Partnership Act (29 U.S.C. Sec.
271501 et seq.) or its successor.

28(ii) Any voluntary or mandatory registrant under the Greater
29Avenues for Independence Act of 1985, or its successor, as
30provided pursuant to Article 3.2 (commencing with Section 11320)
31of Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions
32Code.

33(iii) Any individual who has been certified eligible by the
34Employment Development Department under the federal Targeted
35Jobs Tax Credit Program, or its successor, whether or not this
36program is in effect.

37(6) “Qualified taxpayer” means any corporation engaged in a
38trade or business within a manufacturing enhancement area
39designated pursuant to Section 7073.8 of the Government Code
40and that meets all of the following requirements:

P63   1(A) Is engaged in those lines of business described in Codes
20211 to 0291, inclusive, Code 0723, or in Codes 2011 to 3999,
3inclusive, of the Standard Industrial Classification (SIC) Manual
4published by the United States Office of Management and Budget,
51987 edition.

6(B) At least 50 percent of the qualified taxpayer’s workforce
7hired after the designation of the manufacturing enhancement area
8is composed of individuals who, at the time of hire, are residents
9of the county in which the manufacturing enhancement area is
10located.

11(C) Of this percentage of local hires, at least 30 percent shall
12be qualified disadvantaged individuals.

13(7) “Seasonal employment” means employment by a qualified
14taxpayer that has regular and predictable substantial reductions in
15trade or business operations.

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

17(A) All employees of all corporations that are members of the
18same controlled group of corporations shall be treated as employed
19by a single qualified taxpayer.

20(B) The credit (if any) allowable by this section with respect to
21each member shall be determined by reference to its proportionate
22share of the expenses of the qualified wages giving rise to the
23credit and shall be allocated in that manner.

24(C) Principles that apply in the case of controlled groups of
25corporations, as specified in subdivision (d) of Section 23622.7,
26shall apply with respect to determining employment.

27(2) If a qualified taxpayer acquires the major portion of a trade
28or business of another employer (hereinafter in this paragraph
29referred to as the “predecessor”) or the major portion of a separate
30unit of a trade or business of a predecessor, then, for purposes of
31applying this section (other than subdivision (d)) for any calendar
32year ending after that acquisition, the employment relationship
33between a qualified disadvantaged individual and a qualified
34taxpayer shall not be treated as terminated if the qualified
35disadvantaged individual continues to be employed in that trade
36or business.

37(d) (1) (A) If the employment, other than seasonal employment,
38of any qualified disadvantaged individual, with respect to whom
39qualified wages are taken into account under subdivision (b) is
40terminated by the qualified taxpayer at any time during the first
P64   1270 days of that employment (whether or not consecutive) or before
2the close of the 270th calendar day after the day in which that
3qualified disadvantaged individual completes 90 days of
4employment with the qualified taxpayer, the tax imposed by this
5part for the taxable year in which that employment is terminated
6shall be increased by an amount equal to the credit allowed under
7subdivision (a) for that taxable year and all prior taxable years
8attributable to qualified wages paid or incurred with respect to that
9qualified disadvantaged individual.

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

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

26(i) A termination of employment of a qualified disadvantaged
27individual who voluntarily leaves the employment of the qualified
28taxpayer.

29(ii) A termination of employment of a qualified disadvantaged
30individual who, before the close of the period referred to in
31subparagraph (A) of paragraph (1), becomes disabled to perform
32the services of that employment, unless that disability is removed
33before the close of that period and the qualified taxpayer fails to
34offer reemployment to that individual.

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

P65   1(iv) A termination of employment of a qualified disadvantaged
2individual due to a substantial reduction in the trade or business
3operations of the qualified taxpayer.

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

8(B) Subparagraph (B) of paragraph (1) shall not apply to any
9of the following:

10(i) A failure to continue the seasonal employment of a qualified
11disadvantaged individual who voluntarily fails to return to the
12seasonal employment of the qualified taxpayer.

13(ii) A failure to continue the seasonal employment of a qualified
14disadvantaged individual who, before the close of the period
15referred to in subparagraph (B) of paragraph (1), becomes disabled
16and unable to perform the services of that seasonal employment,
17unless that disability is removed before the close of that period
18and the qualified taxpayer fails to offer seasonal employment to
19that qualified disadvantaged individual.

20(iii) A failure to continue the seasonal employment of a qualified
21disadvantaged individual, if it is determined that the failure to
22continue the seasonal employment was due to the misconduct (as
23defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
24the California Code of Regulations) of that qualified disadvantaged
25individual.

26(iv) A failure to continue seasonal employment of a qualified
27disadvantaged individual due to a substantial reduction in the
28regular seasonal trade or business operations of the qualified
29taxpayer.

30(v) A failure to continue the seasonal employment of a qualified
31disadvantaged individual, if that qualified disadvantaged individual
32is replaced by other qualified disadvantaged individuals so as to
33create a net increase in both the number of seasonal employees
34and the hours of seasonal employment.

35(C) For purposes of paragraph (1), the employment relationship
36between the qualified taxpayer and a qualified disadvantaged
37individual shall not be treated as terminated by either of the
38following:

P66   1(i) By a transaction to which Section 381(a) of the Internal
2Revenue Code applies, if the qualified disadvantaged individual
3continues to be employed by the acquiring corporation.

4(ii) By reason of a mere change in the form of conducting the
5trade or business of the qualified taxpayer, if the qualified
6disadvantaged individual continues to be employed in that trade
7or business and the qualified taxpayer retains a substantial interest
8in that trade or business.

9(3) Any increase in tax under paragraph (1) shall not be treated
10as tax imposed by this part for purposes of determining the amount
11of any credit allowable under this part.

12(e) The credit shall be reduced by the credit allowed under
13Section 23621. The credit shall also be reduced by the federal
14credit allowed under Section 51 of the Internal Revenue Code, as
15amended by the Emergency Economic Stabilization Act of 2008
16 (Public Law 110-343).

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

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

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

34(2) Attributable income is 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 attributable to sources in this state first shall be
38determined in accordance with Chapter 17 (commencing with
39Section 25101). That business income shall be further apportioned
40to the manufacturing enhancement area in accordance with Article
P67   12 (commencing with Section 25120) of Chapter 17, modified for
2purposes of this section in accordance with paragraph (3).

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

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

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

20(4) The portion of any credit remaining, if any, after application
21of this subdivision, shall be carried over to succeeding taxable
22years, if necessary, until the credit is exhausted, as if it were an
23amount exceeding the “tax” for the taxable year, as provided in
24subdivision (g). However, the portion of any credit remaining for
25carryover to taxable years beginning on or after January 1, 2014,
26if any, after application of this subdivision, shall be carried over
27only to the succeeding 10 taxable years if necessary, until the credit
28is exhausted, as if it were an amount exceeding the “tax” for the
29taxable year, as provided in subdivision (g).

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

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

35(1) Obtain from the Employment Development Department, as
36permitted by federal law, the local county or city Job Training
37Partnership Act administrative entity, the local county GAIN office
38or social services agency, or the local government administering
39the manufacturing enhancement area, a certification that provides
40that a qualified disadvantaged individual meets the eligibility
P68   1requirements specified in paragraph (5) of subdivision (b). The
2Employment Development Department may provide preliminary
3screening and referral to a certifying agency. The Department of
4Housing and Community Development shall develop regulations
5governing the issuance of certificates pursuant to subdivision (d)
6of Section 7086 of the Government Code and shall develop forms
7for this purpose.

8(2) Retain a copy of the certification and provide it upon request
9to the Franchise Tax Board.

10(j) (1) Except as provided in paragraph (2), this section shall
11cease to be operative for taxable years beginning on or after January
121, 2014, and shall be repealed on December 1, 2019.

13(2) The section shall continue to apply with respect to qualified
14employees who are employed by the qualified taxpayer within the
15manufacturing enhancement area within the 60-month period
16immediately preceding January 1, 2014, and qualified wages paid
17or incurred with respect to those qualified employees shall continue
18to qualify for the credit under this section for taxable years
19beginning on or after January 1, 2014, in accordance with this
20section, as amended by the act adding this subdivision.

21

begin deleteSEC. 27.end delete
22begin insertSEC. 28.end insert  

Section 23646 of the Revenue and Taxation Code is
23amended to read:

24

23646.  

(a) For each taxable year beginning on or after January
251, 1995, there shall be allowed as a credit against the “tax” (as
26defined in Section 23036) to a qualified taxpayer for hiring a
27qualified disadvantaged individual or a qualified displaced
28employee during the taxable year for employment in the LAMBRA.
29The credit shall be equal to the sum of each of the following:

30(1) Fifty percent of the qualified wages in the first year of
31employment.

32(2) Forty percent of the qualified wages in the second year of
33employment.

34(3) Thirty percent of the qualified wages in the third year of
35employment.

36(4) Twenty percent of the qualified wages in the fourth year of
37employment.

38(5) Ten percent of the qualified wages in the fifth year of
39employment.

40(b) For purposes of this section:

P69   1(1) “Qualified wages” means:

2(A) That portion of wages paid or incurred by the employer
3during the taxable year to qualified disadvantaged individuals or
4qualified displaced employees that does not exceed 150 percent
5of the minimum wage.

6(B) The total amount of qualified wages which may be taken
7into account for purposes of claiming the credit allowed under this
8section shall not exceed two million dollars ($2,000,000) per
9taxable year.

10(C) Wages received during the 60-month period beginning with
11the first day the individual commences employment with the
12taxpayer. Reemployment in connection with any increase, including
13a regularly occurring seasonal increase, in the trade or business
14operation of the qualified taxpayer does not constitute
15commencement of employment for purposes of this section.

16(D) Qualified wages do not include any wages paid or incurred
17by the qualified taxpayer on or after the LAMBRA expiration date.
18However, wages paid or incurred with respect to qualified
19disadvantaged individuals or qualified displaced employees who
20are employed by the qualified taxpayer within the LAMBRA within
21the 60-month period prior to the LAMBRA expiration date shall
22continue to qualify for the credit under this section after the
23LAMBRA expiration date, in accordance with all provisions of
24this section applied as if the LAMBRA designation were still in
25existence and binding.

26(2) “Minimum wage” means the wage established by the
27Industrial Welfare Commission as provided for in Chapter 1
28(commencing with Section 1171) of Part 4 of Division 2 of the
29Labor Code.

30(3) “LAMBRA” means a local agency military base recovery
31area designated in accordance with the provisions of Section 7114
32of the Government Code.

33(4) “Qualified disadvantaged individual” means an individual
34who satisfies all of the following requirements:

35(A) (i) At least 90 percent of whose services for the taxpayer
36during the taxable year are directly related to the conduct of the
37taxpayer’s trade or business located in a LAMBRA.

38(ii) Who performs at least 50 percent of his or her services for
39the taxpayer during the taxable year in the LAMBRA.

P70   1(B) Who is hired by the employer after the designation of the
2area as a LAMBRA in which the individual’s services were
3primarily performed.

4(C) Who is any of the following immediately preceding the
5individual’s commencement of employment with the taxpayer:

6(i) An individual who has been determined eligible for services
7under the federal Job Training Partnership Act (29 U.S.C. Sec.
81501 et seq.), or its successor.

9(ii) Any voluntary or mandatory registrant under the Greater
10Avenues for Independence Act of 1985 provided for pursuant to
11Article 3.2 (commencing with Section 11320) of Chapter 2 of Part
123 of Division 9 of the Welfare and Institutions Code.

13(iii) An economically disadvantaged individual 16 years of age
14or older.

15(iv) A dislocated worker who meets any of the following
16conditions:

17(I) Has been terminated or laid off or who has received a notice
18of termination or layoff from employment, is eligible for or has
19exhausted entitlement to unemployment insurance benefits, and
20is unlikely to return to his or her previous industry or occupation.

21(II) Has been terminated or has received a notice of termination
22of employment as a result of any permanent closure or any
23substantial layoff at a plant, facility, or enterprise, including an
24individual who has not received written notification but whose
25employer has made a public announcement of the closure or layoff.

26(III) Is long-term unemployed and has limited opportunities for
27employment or reemployment in the same or a similar occupation
28in the area in which the individual resides, including an individual
2955 years of age or older who may have substantial barriers to
30employment by reason of age.

31(IV) Was self-employed (including farmers and ranchers) and
32is unemployed as a result of general economic conditions in the
33community in which he or she resides or because of natural
34disasters.

35(V) Was a civilian employee of the Department of Defense
36employed at a military installation being closed or realigned under
37the Defense Base Closure and Realignment Act of 1990.

38(VI) Was an active member of the Armed Forces or National
39Guard as of September 30, 1990, and was either involuntarily
40separated or separated pursuant to a special benefits program.

P71   1(VII) Experiences chronic seasonal unemployment and
2underemployment in the agriculture industry, aggravated by
3continual advancements in technology and mechanization.

4(VIII) Has been terminated or laid off or has received a notice
5of termination or layoff as a consequence of compliance with the
6Clean Air Act.

7(v) An individual who is enrolled in or has completed a state
8rehabilitation plan or is a service-connected disabled veteran,
9veteran of the Vietnam era, or veteran who is recently separated
10from military service.

11(vi) An ex-offender. An individual shall be treated as convicted
12if he or she was placed on probation by a state court without a
13finding of guilty.

14(vii) A recipient of:

15(I) Federal Supplemental Security Income benefits.

16(II) Aid to Families with Dependent Children.

17(III) CalFresh benefits.

18(IV) State and local general assistance.

19(viii) Is a member of a federally recognized Indian tribe, band,
20or other group of Native American descent.

21(5) “Qualified taxpayer” means a corporation that conducts a
22trade or business within a LAMBRA and, for the first two taxable
23years, has a net increase in jobs (defined as 2,000 paid hours per
24employee per year) of one or more employees as determined below
25in the LAMBRA.

26(A) The net increase in the number of jobs shall be determined
27by subtracting the total number of full-time employees (defined
28as 2,000 paid hours per employee per year) the taxpayer employed
29in this state in the taxable year prior to commencing business
30operations in the LAMBRA from the total number of full-time
31employees the taxpayer employed in this state during the second
32taxable year after commencing business operations in the
33LAMBRA. For taxpayers who commence doing business in this
34state with their LAMBRA business operation, the number of
35employees for the taxable year prior to commencing business
36operations in the LAMBRA shall be zero. If the taxpayer has a net
37increase in jobs in the state, the credit shall be allowed only if one
38or more full-time employees is employed within the LAMBRA.

39(B) The total number of employees employed in the LAMBRA
40shall equal the sum of both of the following:

P72   1(i) The total number of hours worked in the LAMBRA for the
2taxpayer by employees (not to exceed 2,000 hours per employee)
3who are paid an hourly wage divided by 2,000.

4(ii) The total number of months worked in the LAMBRA for
5the taxpayer by employees who are salaried employees divided
6by 12.

7(C) In the case of a qualified taxpayer that first commences
8doing business in the LAMBRA during the taxable year, for
9purposes of clauses (i) and (ii), respectively, of subparagraph (B)
10the divisors “2,000” and “12” shall be multiplied by a fraction, the
11numerator of which is the number of months of the taxable year
12that the taxpayer was doing business in the LAMBRA and the
13denominator of which is 12.

14(6) “Qualified displaced employee” means an individual who
15satisfies all of the following requirements:

16(A) Any civilian or military employee of a base or former base
17that has been displaced as a result of a federal base closure act.

18(B) (i) At least 90 percent of whose services for the taxpayer
19during the taxable year are directly related to the conduct of the
20taxpayer’s trade or business located in a LAMBRA.

21(ii) Who performs at least 50 percent of his or her services for
22the taxpayer during the taxable year in a LAMBRA.

23(C) Who is hired by the employer after the designation of the
24area in which services were performed as a LAMBRA.

25(7) “Seasonal employment” means employment by a qualified
26taxpayer that has regular and predictable substantial reductions in
27trade or business operations.

28(8) “LAMBRA expiration date” means the date the LAMBRA
29designation expires, is no longer binding, becomes inoperative, or
30is repealed.

31(c) For qualified disadvantaged individuals or qualified displaced
32employees hired on or after January 1, 2001, the taxpayer shall do
33both of the following:

34(1) Obtain from the Employment Development Department, as
35permitted by federal law, the administrative entity of the local
36county or city for the federal Job Training Partnership Act, or its
37successor, the local county GAIN office or social services agency,
38or the local government administering the LAMBRA, a
39certification that provides that a qualified disadvantaged individual
40or qualified displaced employee meets the eligibility requirements
P73   1specified in subparagraph (C) of paragraph (4) of subdivision (b)
2or subparagraph (A) of paragraph (6) 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 Section 7114.2
7of the Government Code and shall develop forms for this purpose.

8(2) Retain a copy of the certification and provide it upon request
9to the Franchise Tax Board.

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

11(A) All employees of all corporations that are members of the
12same controlled group of corporations shall be treated as employed
13by a single employer.

14(B) The credit (if any) allowable by this section to each member
15shall be determined by reference to its proportionate share of the
16qualified wages giving rise to the credit.

17(2) For purposes of this subdivision, “controlled group of
18corporations” has the meaning given to that term by Section
191563(a) of the Internal Revenue Code, except that both of the
20following apply:

21(A) “More than 50 percent” shall be substituted for “at least 80
22percent” each place it appears in Section 1563(a)(1) of the Internal
23Revenue Code.

24(B) The determination shall be made without regard to Section
251563(a)(4) and Section 1563(e)(3)(C) of the Internal Revenue
26Code.

27(3) If an employer acquires the major portion of a trade or
28business of another employer (hereinafter in this paragraph referred
29to as the “predecessor”) or the major portion of a separate unit of
30a trade or business of a predecessor, then, for purposes of applying
31this section (other than subdivision (e)) for any calendar year
32ending after that acquisition, the employment relationship between
33an employee and an employer shall not be treated as terminated if
34the employee continues to be employed in that trade or business.

35(e) (1) (A) If the employment of any employee, other than
36seasonal employment, with respect to whom qualified wages are
37taken into account under subdivision (a) is terminated by the
38taxpayer at any time during the first 270 days of that employment
39(whether or not consecutive) or before the close of the 270th
40calendar day after the day in which that employee completes 90
P74   1days of employment with the taxpayer, the tax imposed by this
2part for the taxable year in which that employment is terminated
3shall be increased by an amount equal to the credit allowed under
4subdivision (a) for that taxable year and all prior income years
5attributable to qualified wages paid or incurred with respect to that
6employee.

7(B) If the seasonal employment of any qualified disadvantaged
8individual, with respect to whom qualified wages are taken into
9account under subdivision (a) is not continued by the qualified
10taxpayer for a period of 270 days of employment during the
1160-month period beginning with the day the qualified
12disadvantaged individual commences seasonal employment with
13the qualified taxpayer, the tax imposed by this part, for the taxable
14year that includes the 60th month following the month in which
15the qualified disadvantaged individual commences seasonal
16employment with the qualified taxpayer, shall be increased by an
17amount equal to the credit allowed under subdivision (a) for that
18taxable year and all prior taxable years attributable to qualified
19wages paid or incurred with respect to that qualified disadvantaged
20individual.

21(2) (A) Subparagraph (A) of paragraph (1) shall not apply to
22any of the following:

23(i) A termination of employment of an employee who voluntarily
24leaves the employment of the taxpayer.

25(ii) A termination of employment of an individual who, before
26the close of the period referred to in paragraph (1), becomes
27disabled to perform the services of that employment, unless that
28disability is removed before the close of that period and the
29taxpayer fails to offer reemployment to that individual.

30(iii) A termination of employment of an individual, if it is
31determined that the termination was due to the misconduct (as
32defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of
33the California Code of Regulations) of that individual.

34(iv) A termination of employment of an individual due to a
35substantial reduction in the trade or business operations of the
36taxpayer.

37(v) A termination of employment of an individual, if that
38individual is replaced by other qualified employees so as to create
39a net increase in both the number of employees and the hours of
40employment.

P75   1(B) Subparagraph (B) of paragraph (1) shall not apply to any
2of the following:

3(i) A failure to continue the seasonal employment of a qualified
4disadvantaged individual who voluntarily fails to return to the
5seasonal employment of the qualified taxpayer.

6(ii) A failure to continue the seasonal employment of a qualified
7disadvantaged individual who, before the close of the period
8referred to in subparagraph (B) of paragraph (1), becomes disabled
9and unable to perform the services of that seasonal employment,
10unless that disability is removed before the close of that period
11and the qualified taxpayer fails to offer seasonal employment to
12that qualified disadvantaged individual.

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

18(iv) A failure to continue seasonal employment of a qualified
19disadvantaged individual due to a substantial reduction in the
20regular seasonal trade or business operations of the qualified
21taxpayer.

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

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

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

33(ii) A mere change in the form of conducting the trade or
34business of the taxpayer, if the employee continues to be employed
35in that trade or business and the taxpayer retains a substantial
36interest in that trade or business.

37(3) Any increase in tax under paragraph (1) shall not be treated
38as tax imposed by this part for purposes of determining the amount
39of any credit allowable under this part.

P76   1(4) At the close of the second taxable year, if the taxpayer has
2not increased the number of its employees as determined by
3paragraph (5) of subdivision (b), then the amount of the credit
4previously claimed shall be added to the taxpayer’s tax for the
5taxpayer’s second taxable year.

6(f) In the case of an organization to which Section 593 of the
7Internal Revenue Code applies, and a regulated investment
8company or a real estate investment trust subject to taxation under
9this part, rules similar to the rules provided in Section 46(e) and
10Section 46(h) of the Internal Revenue Code shall apply.

11(g) The credit shall be reduced by the credit allowed under
12Section 23621. The credit shall also be reduced by the federal
13credit allowed under Section 51 of the Internal Revenue Code, as
14amended by the Emergency Stabilization Act of 2008 (Public Law
15110-343).

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

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

26(i) (1) The amount of credit otherwise allowed under this section
27and Section 23645, including any prior year carryovers, that may
28reduce the “tax” for the taxable year shall not exceed the amount
29of tax that would be imposed on the taxpayer’s business income
30attributed to a LAMBRA determined as if that attributed income
31represented all of the income of the taxpayer subject to tax under
32this part.

33(2) Attributable income shall be that portion of the taxpayer’s
34California source business income that is apportioned to the
35LAMBRA. For that purpose, the taxpayer’s business income that
36is attributable to sources in this state first shall be determined in
37accordance with Chapter 17 (commencing with Section 25101).
38That business income shall be further apportioned to the LAMBRA
39in accordance with Article 2 (commencing with Section 25120)
P77   1of Chapter 17, modified for purposes of this section in accordance
2with paragraph (3).

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

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

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

19(4) The portion of any credit remaining, if any, after application
20of this subdivision, shall be carried over to succeeding taxable
21years, if necessary, until the credit is exhausted, as if it were an
22amount exceeding the “tax” for the taxable year, as provided in
23subdivision (h). However, the portion of any credit remaining for
24carryover to taxable years beginning on or after January 1, 2014,
25if any, after application of this subdivision, shall be carried over
26only to the succeeding 10 taxable years, if necessary, until the
27credit is exhausted, as if it were an amount exceeding the “tax”
28for the taxable year, as provided in subdivision (h).

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

33(k) (1) Except as provided in paragraph (2), this section shall
34cease to be operative on January 1, 2014, and shall be repealed on
35December 1, 2019. A credit shall not be allowed under this section
36with respect to an employee who first commences employment
37with a qualified taxpayer on or after January 1, 2014.

38(2) This section shall continue to apply with respect to qualified
39disadvantaged individuals or qualified displaced employees who
40are employed by the qualified taxpayer within the LAMBRA within
P78   1the 60-month period immediately preceding January 1, 2014, and
2qualified wages paid or incurred with respect to those qualified
3disadvantaged individuals or qualified displaced employees shall
4continue to qualify for the credit under this section for taxable
5years beginning on or after January 1, 2014, in accordance with
6this section, as amended by the act adding this subdivision.

7

begin deleteSEC. 28.end delete
8begin insertSEC. 29.end insert  

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

10

23701i.  

A voluntary employees’ beneficiary association
11described in Section 501(c)(9) of the Internal Revenue Code.

12

begin deleteSEC. 29.end delete
13begin insertSEC. 30.end insert  

Section 24307 of the Revenue and Taxation Code is
14amended to read:

15

24307.  

(a) Section 108 of the Internal Revenue Code, relating
16to income from discharge of indebtedness, shall apply, except as
17otherwise provided.

18(b) Section 108(b)(2)(B) of the Internal Revenue Code, relating
19to general business credit, is modified by substituting “this part”
20in lieu of “Section 38 (relating to general business credit).”

21(c) Section 108(b)(2)(G) of the Internal Revenue Code, relating
22to foreign tax credit carryovers, shall not apply.

23(d) Section 108(b)(3)(B) of the Internal Revenue Code, relating
24to credit carryover reduction, is modified by substituting “11.1
25cents” in lieu of “3313 cents” in each place in which it appears. In
26the case where more than one credit is allowable under this part,
27the credits shall be reduced on a pro rata basis.

28(e) Section 108(g)(3)(B) of the Internal Revenue Code, relating
29to adjusted tax attributes, is modified by substituting “$9” in lieu
30of “$3.”

31(f) (1) The amendments to Section 108 of the Internal Revenue
32Code made by Section 13150 of the Revenue Reconciliation Act
33of 1993 (Public Law 103-66), relating to exclusion from gross
34income for income from discharge of qualified real property
35business indebtedness, shall apply to discharges occurring on or
36after January 1, 1996, in taxable years beginning on or after January
371, 1996.

38(2) If a taxpayer makes an election for federal income tax
39purposes under Section 108(c) of the Internal Revenue Code,
40relating to treatment of discharge of qualified real property business
P79   1indebtedness, a separate election shall not be allowed under
2paragraph (3) of subdivision (e) of Section 23051.5 and the federal
3election shall be binding for purposes of this part.

4(3) If a taxpayer has not made an election for federal income
5tax purposes under Section 108(c) of the Internal Revenue Code,
6relating to treatment of discharge of qualified real property business
7indebtedness, then the taxpayer shall not be allowed to make that
8election for purposes of this part.

9(g) The amendments to Section 108 of the Internal Revenue
10Code made by Section 13226 of the Revenue Reconciliation Act
11of 1993 (Public Law 103-66), relating to modifications of discharge
12of indebtedness provisions, shall apply to discharges occurring on
13or after January 1, 1996, in taxable years beginning on or after
14January 1, 1996.

15(h) The amendments made to Section 108(d)(7)(A) of the
16Internal Revenue Code, relating to certain provisions to be applied
17at the corporate level by Section 402 of the Job Creation and
18Worker Assistance Act of 2002 (Public Law 107-147), shall apply
19to discharges of indebtedness after December 31, 2001, in taxable
20years ending after that date. This subdivision shall not apply to
21any discharge of indebtedness made before March 1, 2002, pursuant
22to a plan of reorganization filed with a bankruptcy court on or
23before October 11, 2001.

24(i) Section 108(i) of the Internal Revenue Code, relating to
25deferral and ratable inclusion of income arising from business
26indebtedness discharged by the reacquisition of a debt instrument,
27shall not apply.

28

begin deleteSEC. 30.end delete
29begin insertSEC. 31.end insert  

Section 24345.5 is added to the Revenue and Taxation
30Code
, to read:

31

24345.5.  

A deduction shall not be allowed for the fee imposed
32by subsection (a) of Section 9008 of the Patient Protection and
33Affordable Care Act (Public Law 111-148).

34

begin deleteSEC. 31.end delete
35begin insertSEC. 32.end insert  

Section 24427 of the Revenue and Taxation Code is
36amended to read:

37

24427.  

Section 267 of the Internal Revenue Code, relating to
38losses, expenses, and interest with respect to transactions between
39related taxpayers, shall apply, except as otherwise provided.

P80   1

begin deleteSEC. 32.end delete
2begin insertSEC. 33.end insert  

Section 24439 of the Revenue and Taxation Code is
3amended to read:

4

24439.  

(a) No deduction shall be allowed to the issuing
5corporation for any premium paid or incurred upon the repurchase
6of a bond, debenture, note, or certificate or other evidence of
7indebtedness which is convertible into the stock of the issuing
8corporation, or a corporation in the same parent-subsidiary
9controlled group, within the meaning of Section 1563(a)(1) of the
10Internal Revenue Code, relating to parent-subsidiary controlled
11group, as the issuing corporation, to the extent the repurchase price
12exceeds an amount equal to the adjusted issue price plus a normal
13call premium on bonds or other evidences of indebtedness which
14are not convertible. The preceding sentence shall not apply to the
15extent that the corporation can demonstrate to the satisfaction of
16the Franchise Tax Board that such excess is attributable to the cost
17of borrowing and is not attributable to the conversion feature.

18 (b) For purposes of subdivision (a), the adjusted issue price is
19the issue price, as defined in Sections 1273(b) and 1274 of the
20Internal Revenue Code, increased by any amount of discount
21deducted before repurchase, or, in the case of bonds or other
22evidences of indebtedness issued after February 28, 1913,
23decreased by any amount of premium included in gross income
24before repurchase by the issuing corporation.

25(c) The provisions of this section shall not apply to a convertible
26bond or other convertible evidence of indebtedness repurchased
27pursuant to a binding obligation incurred on or before April 22,
281969, to repurchase such bond or other evidence of indebtedness
29at a specified call premium, but no inference shall be drawn from
30the fact that this section does not apply to the repurchase of such
31convertible bond or other convertible evidence of indebtedness.

32(d) The amendments made to this section by the act adding this
33subdivision shall apply to repurchases on or after January 1, 2015.

34

begin deleteSEC. 33.end delete
35begin insertSEC. 34.end insert  

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

37

begin deleteSEC. 34.end delete
38begin insertSEC. 35.end insert  

Section 24454 is added to the Revenue and Taxation
39Code
, to read:

P81   1

24454.  

Section 304(b)(5)(B) of the Internal Revenue Code,
2relating to special rule in case of foreign acquiring corporation,
3shall apply to acquisitions on or after January 1, 2015.

4

begin deleteSEC. 35.end delete
5begin insertSEC. 36.end insert  

Section 24459 is added to the Revenue and Taxation
6Code
, to read:

7

24459.  

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

9

begin deleteSEC. 36.end delete
10begin insertSEC. 37.end insert  

Section 24870 of the Revenue and Taxation Code is
11amended to read:

12

24870.  

Subchapter M of Chapter 1 of Subtitle A of the Internal
13Revenue Code, relating to regulated investment companies and
14real estate investment trusts, shall apply, except as otherwise
15provided in this part.

16

begin deleteSEC. 37.end delete
17begin insertSEC. 38.end insert  

Section 24871 of the Revenue and Taxation Code is
18amended to read:

19

24871.  

(a) (1) Section 852(b)(1) of the Internal Revenue Code,
20relating to imposition of tax on regulated investment companies,
21shall not apply.

22(2) Every regulated investment company shall be subject to the
23taxes imposed under Chapter 2 (commencing with Section 23101)
24and Chapter 3 (commencing with Section 23501), except that its
25“net income” shall be equal to its “investment company income,”
26as defined in subdivision (b).

27(3) (A) Section 851(d)(2)(C)(i)(I) of the Internal Revenue Code
28is modified by substituting “$12,500” for “$50,000.”

29(B) Section 851(d)(2)(C)(i)(II) of the Internal Revenue Code is
30modified by substituting the phrase “the rate of tax specified in
31Section 23151” for the phrase “the highest rate of tax specified in
32section 11” contained therein.

33(C) Section 851(d)(2)(C)(iii) of the Internal Revenue Code,
34relating to administrative provisions, is modified by substituting
35the phrase “Article 3 of Part 10.2 (commencing with Section
3619031), a tax imposed by this subparagraph shall be treated as a
37tax with respect to which the deficiency procedures of such article
38apply” for the phrase “subtitle F, a tax imposed by this
39subparagraph shall be treated as an excise tax with respect to which
40the deficiency procedures of such subtitle apply” contained therein.

P82   1(D) Section 851(i)(2) of the Internal Revenue Code, relating to
2imposition of tax on failures, shall not apply.

3(b) “Investment company income” means investment company
4taxable income, as defined in Section 852(b)(2) of the Internal
5Revenue Code, modified as follows:

6(1) Section 852(b)(2)(A) of the Internal Revenue Code, relating
7to an exclusion for net capital gain, does not apply.

8(2) Section 852(b)(2)(B) of the Internal Revenue Code, relating
9to net operating losses, is modified to deny the deduction allowed
10under Sections 24416 and 24416.1, in lieu of denying the deduction
11allowed by Section 172 of the Internal Revenue Code.

12(3) In lieu of the provision of Section 852(b)(2)(C) of the
13Internal Revenue Code, relating to special deductions for
14corporations, no deduction shall be allowed under Sections 24402,
1524406, 24410, and 25106.

16(4) The deduction for dividends paid, under Section
17852(b)(2)(D) of the Internal Revenue Code, is modified to allow
18capital gain dividends and exempt interest dividends (to the extent
19that interest is included in gross income under this part) to be
20included in the computation of the deduction.

21(c) Section 852(b)(3)(A) of the Internal Revenue Code, relating
22to imposition of tax, shall not apply.

23(d) (1) Section 852(b)(5) of the Internal Revenue Code, relating
24to exempt-interest dividends, is modified by substituting the phrase
25“that, when held by an individual, the interest therefrom is exempt
26from taxation by this state” for the phrase “described in section
27103(a)” contained therein.

28(2) Section 852(b)(5)(A)(iv)(V) of the Internal Revenue Code,
29relating to exempt interest, is modified by substituting the phrase
30“on obligations that, if held by an individual, is exempt from
31taxation by this state, over the amounts disallowed as deductions
32under subdivision (b) of Section 24360 or Section 24425” for the
33phrase “excludable from gross income under section 103(a) over
34the amounts disallowed as deductions under sections 265 and
35171(a)(2)” contained therein.

36(3) Section 852(b)(5)(B) of the Internal Revenue Code, relating
37to treatment of exempt-interest dividends by shareholders, shall
38not apply.

39(e) Section 854 of the Internal Revenue Code, relating to
40limitations applicable to dividends received from regulated
P83   1investment companies, is modified to refer to Sections 24402,
224406, 24410, and 25106, in lieu of Section 243 of the Internal
3Revenue Code.

4(f) Section 852(g)(1)(A) of the Internal Revenue Code is
5modified by substituting the phrase “subdivision (a) of Section
617145” for the phrase “the first sentence of subsection (b)(5)”
7contained therein.

8

begin deleteSEC. 38.end delete
9begin insertSEC. 39.end insert  

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

11

begin deleteSEC. 39.end delete
12begin insertSEC. 40.end insert  

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

14

24990.5.  

(a) Section 1201 of the Internal Revenue Code,
15relating to alternative tax for corporations, shall not be applicable.

16(b)  The provisions of Section 1212 of the Internal Revenue
17Code, relating to capital loss carrybacks and carryovers, are
18modified as follows:

19(1) Section 1212(a)(1)(A) of the Internal Revenue Code, relating
20to capital loss carrybacks, shall not apply.

21(2) Section 1212(a)(4) of the Internal Revenue Code, relating
22to special rules on carrybacks, shall not apply.

23(3) Sections 1212(b) and 1212(c) of the Internal Revenue Code,
24relating to other taxpayers and carryback of losses from Section
251256 contracts to offset prior gains from such contracts,
26respectively, shall not apply.

27

begin deleteSEC. 40.end delete
28begin insertSEC. 41.end insert  

(a) Except as otherwise provided, the provisions of
29this act shall apply to taxable years beginning on or after January
301, 2015.

31(b) Sections 201 to 221, inclusive, of the Tax Technical
32Corrections Act of 2014 (Title II of Division A of Public Law
33113-295), enacted numerous technical corrections and clarifications
34to provisions of the Internal Revenue Code, including technical
35corrections and clarifications relating to the American Taxpayer
36 Relief Act of 2012 (Public Law 112-240), the Middle Class Tax
37Relief and Job Creation Act of 2012 (Public Law 112-96), the
38FAA Modernization and Reform Act of 2012 (Title IX of Public
39Law 112-95), the Regulated Investment Company Modernization
40Act of 2010 (Public Law 111-325), the Tax Relief, Unemployment
P84   1Insurance Reauthorization, and Job Creation Act of 2010 (Public
2Law 111-312), the Creating Small Business Jobs Act of 2010 (Title
3II of Public Law 111-240), the Hiring Incentives to Restore
4Employment Act (Public Law 111-147), the American Recovery
5and Reinvestment Tax Act of 2009 (Public Law 111-5), the
6Economic Stimulus Act of 2008 (Division A of Public Law
7110-343), the Energy Improvement and Extension Act of 2008
8(Division B of Public Law 110-343), the Tax Extenders and
9Alternative Minimum Tax Relief Act of 2008 (Division C of Public
10Law 110-343), the Housing Assistance Tax Act of 2008 (Division
11C of Public Law 110-289), the Heroes Earnings Assistance and
12Relief Tax Act of 2008 (Public Law 110-245), the Tax Technical
13Corrections Act of 2007 (Public Law 110-172), the Tax Relief and
14Health Care Act of 2006 (Public Law 109-432), the Safe,
15Accountable, Flexible, Efficient Transportation Equity Act of
162005: A Legacy for Users (Public Law 109-59), the Energy Tax
17Incentives Act of 2005 (Title XIII of Public Law 109-58), and the
18American Jobs Creation Act of 2004 (Public Law 108-357), some
19of which are incorporated by reference into Part 10 (commencing
20with Section 17001), Part 10.2 (commencing with Section 18401),
21and Part 11 (commencing with Section 23001) of Division 2 of
22the Revenue and Taxation Code. Unless otherwise provided, the
23technical corrections described in the preceding sentence, to the
24extent that they correct provisions that are incorporated by
25reference into the Revenue and Taxation Code, are declaratory of
26existing law and shall be applied in the same manner and for the
27same periods as specified for federal purposes, or if later, the
28specified date of incorporation.

29

begin deleteSEC. 41.end delete
30begin insertSEC. 42.end insert  

It is the intent of the Legislature to confirm the
31validity and ongoing effect of Senate Bill No. 401 of the 2009-10
32Regular Session.

33begin insert

begin insertSEC. 43.end insert  

end insert

begin insertThe Legislature finds and declares that the application
34of paragraph (2) of subdivision (f) of Section 19138 of the Revenue
35and Taxation Code to taxable years for which the statute of
36limitations on assessments has not expired as of the effective date
37of this act serves a public purpose by ensuring fair and consistent
38application of California law in cases where the Franchise Tax
39Board imposes on a taxpayer an alternative allocation or
P85   1apportionment method under the authority of Section 25137 of the
2Revenue and Taxation Code.end insert

3

begin deleteSEC. 42.end delete
4begin insertSEC. 44.end insert  

This act is an urgency statute necessary for the
5immediate preservation of the public peace, health, or safety within
6the meaning of Article IV of the Constitution and shall go into
7immediate effect. The facts constituting the necessity are:

8In order to provide much needed tax relief to taxpayers in
9conformity with federal tax relief enacted in the last four years
10and to alleviate administrative burdens on state tax agencies, it is
11necessary that this act go into immediate effect.



O

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