BILL NUMBER: SB 1073AMENDED BILL TEXT AMENDED IN SENATE MAY 3, 2010 INTRODUCED BY Senator Ashburn FEBRUARY 17, 2010 An act to amend Sections 17052.12 and 23609 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. LEGISLATIVE COUNSEL'S DIGEST SB 1073, as amended, Ashburn. Income taxes: research and development credit: renewable energy. The Personal Income Tax Law and the Corporation Tax Law, by reference to a specified federal statute, allow a credit against taxes imposed by those laws for increasing research expenses, as defined. In general, the amount of the credit under both laws is equal to 15% of the excess of the qualified research expenses, as defined, for the taxable year over the base amount, as defined, and, in addition, for purposes of the Corporation Tax Law, 24% of the basic research payments, as defined. The term "base amount" means the product of the average annual gross receipts of the taxpayer for each of the specified years preceding the taxable year and the fixed-base percentage, as defined, but in no event less than 50% of the qualified research expenses for the taxable year. This bill would, under both laws, for each taxable year beginning on or after January 1, 2010, provide that the credit for increasing research expenses shall be equal to 20% of the qualified research expenses with respect to green technology and renewable energy research and development costs, as provided. This bill would provide that new and additional credits allowable for specified taxable years would be allowed only against the taxes imposed for taxable years beginning on or after January 1, 2014, as prescribed. This bill would take effect immediately as a tax levy. Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 17052.12 of the Revenue and Taxation Code is amended to read: 17052.12. For each taxable year beginning on or after January 1, 1987, there shall be allowed as a credit against the "net tax" (as defined by Section 17039) for the taxable year an amount determined in accordance with Section 41 of the Internal Revenue Code, except as follows: (a) For each taxable year beginning before January 1, 1997, the reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "8 percent." (b) (1) For each taxable year beginning on or after January 1, 1997, and before January 1, 1999, the reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "11 percent." (2) For each taxable year beginning on or after January 1, 1999, and before January 1, 2000, the reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "12 percent." (3) For each taxable year beginning on or after January 1, 2000, the reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "15 percent." (c) Section 41(a)(2) of the Internal Revenue Code, relating to basic research payments, shall not apply. (d) "Qualified research" shall include only research conducted in California. (e) In the case where the credit allowed under this section exceeds the "net tax," the excess may be carried over to reduce the "net tax" in the following year, and succeeding years if necessary, until the credit has been exhausted. (f) (1) With respect to any expense paid or incurred after the operative date of Section 6378, Section 41(b)(1) of the Internal Revenue Code is modified to exclude from the definition of "qualified research expense" any amount paid or incurred for tangible personal property that is eligible for the exemption from sales or use tax provided by Section 6378. (2) For each taxable year beginning on or after January 1, 1998, the reference to "Section 501(a)" in Section 41(b)(3)(C) of the Internal Revenue Code, relating to contract research expenses, is modified to read "this part or Part 11 (commencing with Section 23001)." (g) (1) For each taxable year beginning on or after January 1, 2000: (A) The reference to "2.65 percent" in Section 41(c)(4)(A)(i) of the Internal Revenue Code is modified to read "one and forty-nine hundredths of one percent." (B) The reference to "3.2 percent" in Section 41(c)(4)(A)(ii) of the Internal Revenue Code is modified to read "one and ninety-eight hundredths of one percent." (C) The reference to "3.75 percent" in Section 41(c)(4)(A)(iii) of the Internal Revenue Code is modified to read "two and forty-eight hundredths of one percent." (2) Section 41(c)(4)(B) shall not apply and in lieu thereof an election under Section 41(c)(4)(A) of the Internal Revenue Code may be made for any taxable year of the taxpayer beginning on or after January 1, 1998. That election shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Franchise Tax Board. (3) Section 41(c)(6) of the Internal Revenue Code, relating to gross receipts, is modified to take into account only those gross receipts from the sale of property held primarily for sale to customers in the ordinary course of the taxpayer's trade or business that is delivered or shipped to a purchaser within this state, regardless of f.o.b. point or any other condition of the sale. (h) Section 41(h) of the Internal Revenue Code, relating to termination, shall not apply. (i) Section 41(g) of the Internal Revenue Code, relating to special rule for passthrough of credit, is modified by each of the following: (1) The last sentence shall not apply. (2) If the amount determined under Section 41(a) of the Internal Revenue Code for any taxable year exceeds the limitation of Section 41(g) of the Internal Revenue Code, that amount may be carried over to other taxable years under the rules of subdivision (e); except that the limitation of Section 41(g) of the Internal Revenue Code shall be taken into account in each subsequent taxable year.(j) (1) Notwithstanding any other provision in this section, for each taxable year(j) (1) (A) Except as provided in subparagraph (B), for taxable years beginning on or after January 1, 2010, this section and Section 41 of the Internal Revenue Code shall be modified with respect to green technology and renewable energy research and development costs, so that the reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code shall apply. (B) Any new credits, and that portion of any additional credits, allowable by the act adding this subparagraph for a taxpayer's taxable years, beginning on or after January 1, 2010, and before January 1, 2014, shall be allowed as a credit only against the "net tax" for the taxpayers first taxable year beginning on or after January 1, 2014. (2) For purposes of this section, "green technology and renewable energy research and development" means research and development that is any of the following: (A) Consistent with meeting the goals and objectives of compliance with greenhouse gas emissions standards as set forth in Division 25.5 (commencing with Section 38500) of the Health and Safety Code. (B) Promotes the reduction of wasteful, inefficient, unnecessary, or uneconomic uses of energy. (C) Provides for the utilization of cost-effective water use efficiency practices to curtail the waste of water and ensure that water use does not exceed reasonable needs. (D) Provides for the utilization of recycled or reusable materials in the manufacturing process. (E) Provides for the application of cogeneration technology, as defined in Section 25134 of the Public Resources Code. (F) Provides for the conservation of energy or the use of solar, biomass, wind, geothermal, hydroelectricity under 30 megawatts, or any other source of energy, the efficient use of which will reduce the use of fossil and nuclear fuels. SEC. 2. Section 23609 of the Revenue and Taxation Code is amended to read: 23609. For each taxable year beginning on or after January 1, 1987, there shall be allowed as a credit against the "tax" (as defined by Section 23036) an amount determined in accordance with Section 41 of the Internal Revenue Code, except as follows: (a) For each taxable year beginning before January 1, 1997, both of the following modifications shall apply: (1) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "8 percent." (2) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "12 percent." (b) (1) For each taxable year beginning on or after January 1, 1997, and before January 1, 1999, both of the following modifications shall apply: (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "11 percent." (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (2) For each taxable year beginning on or after January 1, 1999, and before January 1, 2000, both of the following shall apply: (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "12 percent." (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (3) For each taxable year beginning on or after January 1, 2000, both of the following shall apply: (A) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "15 percent." (B) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "24 percent." (c) (1) With respect to any expense paid or incurred after the operative date of Section 6378, Section 41(b)(1) of the Internal Revenue Code is modified to exclude from the definition of "qualified research expense" any amount paid or incurred for tangible personal property that is eligible for the exemption from sales or use tax provided by Section 6378. (2) "Qualified research" and "basic research" shall include only research conducted in California. (d) The provisions of Section 41(e)(7)(A) of the Internal Revenue Code, shall be modified so that "basic research," for purposes of this section, includes any basic or applied research including scientific inquiry or original investigation for the advancement of scientific or engineering knowledge or the improved effectiveness of commercial products, except that the term does not include any of the following: (1) Basic research conducted outside California. (2) Basic research in the social sciences, arts, or humanities. (3) Basic research for the purpose of improving a commercial product if the improvements relate to style, taste, cosmetic, or seasonal design factors. (4) Any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). (e) (1) In the case of a taxpayer engaged in any biopharmaceutical research activities that are described in Codes 2833 to 2836, inclusive, or any research activities that are described in Codes 3826, 3829, or 3841 to 3845, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, or any other biotechnology research and development activities, the provisions of Section 41(e) (6) of the Internal Revenue Code shall be modified to include both of the following: (A) A qualified organization as described in Section 170(b)(1)(A) (iii) of the Internal Revenue Code and owned by an institution of higher education as described in Section 3304(f) of the Internal Revenue Code. (B) A charitable research hospital owned by an organization that is described in Section 501(c)(3) of the Internal Revenue Code, is exempt from taxation under Section 501(a) of the Internal Revenue Code, is not a private foundation, is designated a "specialized laboratory cancer center," and has received Clinical Cancer Research Center status from the National Cancer Institute. (2) For purposes of this subdivision: (A) "Biopharmaceutical research activities" means those activities that use organisms or materials derived from organisms, and their cellular, subcellular, or molecular components, in order to provide pharmaceutical products for human or animal therapeutics and diagnostics. Biopharmaceutical activities make use of living organisms to make commercial products, as opposed to pharmaceutical activities that make use of chemical compounds to produce commercial products. (B) "Other biotechnology research and development activities" means research and development activities consisting of the application of recombinant DNA technology to produce commercial products, as well as research and development activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery. (f) In the case where the credit allowed by this section exceeds the "tax," the excess may be carried over to reduce the "tax" in the following year, and succeeding years if necessary, until the credit has been exhausted. (g) For each taxable year beginning on or after January 1, 1998, the reference to "Section 501(a)" in Section 41(b)(3)(C) of the Internal Revenue Code, relating to contract research expenses, is modified to read "this part or Part 10 (commencing with Section 17001)." (h) (1) For each taxable year beginning on or after January 1, 2000: (A) The reference to "2.65 percent" in Section 41(c)(4)(A)(i) of the Internal Revenue Code is modified to read "one and forty-nine hundredths of one percent." (B) The reference to "3.2 percent" in Section 41(c)(4)(A)(ii) of the Internal Revenue Code is modified to read "one and ninety-eight hundredths of one percent." (C) The reference to "3.75 percent" in Section 41(c)(4)(A)(iii) of the Internal Revenue Code is modified to read "two and forty-eight hundredths of one percent." (2) Section 41(c)(4)(B) shall not apply and in lieu thereof an election under Section 41(c)(4)(A) of the Internal Revenue Code may be made for any taxable year of the taxpayer beginning on or after January 1, 1998. That election shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Franchise Tax Board. (3) Section 41(c)(6) of the Internal Revenue Code, relating to gross receipts, is modified to take into account only those gross receipts from the sale of property held primarily for sale to customers in the ordinary course of the taxpayer's trade or business that is delivered or shipped to a purchaser within this state, regardless of f.o.b. point or any other condition of the sale. (i) Section 41(h) of the Internal Revenue Code, relating to termination, shall not apply. (j) Section 41(g) of the Internal Revenue Code, relating to special rule for passthrough of credit, is modified by each of the following: (1) The last sentence shall not apply. (2) If the amount determined under Section 41(a) of the Internal Revenue Code for any taxable year exceeds the limitation of Section 41(g) of the Internal Revenue Code, that amount may be carried over to other taxable years under the rules of subdivision (f), except that the limitation of Section 41(g) of the Internal Revenue Code shall be taken into account in each subsequent taxable year.(k) (1) Notwithstanding any other provision in this section, for each taxable year(k) (1) (A) Except as provided in paragraph (2), for taxable years beginning on or after January 1, 2010, this section and Section 41 of the Internal Revenue Code shall be modified with respect to green technology and renewable energy research and development costs, so that the reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code shall apply. (B) Any new credits, and that portion of any additional credits, allowable by the act adding this subparagraph for a taxpayer's taxable years, beginning on or after January 1, 2010, and before January 1, 2014, shall be allowed as a credit only against the "tax" for the taxpayers first taxable year beginning on or after January 1, 2014. (2) For purposes of this section, "green technology and renewable energy research and development" means research and development that is any of the following: (A) Consistent with meeting the goals and objectives of compliance with greenhouse gas emissions standards as set forth in Division 25.5 (commencing with Section 38500) of the Health and Safety Code. (B) Promotes the reduction of wasteful, inefficient, unnecessary, or uneconomic uses of energy. (C) Provides for the utilization of cost-effective water use efficiency practices to curtail the waste of water and ensure that water use does not exceed reasonable needs. (D) Provides for the utilization of recycled or reusable materials in the manufacturing process. (E) Provides for the application of cogeneration technology, as defined in Section 25134 of the Public Resources Code. (F) Provides for the conservation of energy or the use of solar, biomass, wind, geothermal, hydroelectricity under 30 megawatts, or any other source of energy, the efficient use of which will reduce the use of fossil and nuclear fuels. SEC. 3. This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect. ____ CORRECTIONS Text--Page 8. ____