BILL NUMBER: SB 1074AMENDED BILL TEXT AMENDED IN SENATE MAY 3, 2010 INTRODUCED BY Senator Ashburn FEBRUARY 17, 2010 An act to add Sections 17053.49 and 23649 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. LEGISLATIVE COUNSEL'S DIGEST SB 1074, as amended, Ashburn. Manufacturer's investment credit: qualified renewable energy materials. The Personal Income Tax Law and the Corporation Tax Law authorize various credits against the taxes imposed by those laws. This bill would, for taxable years beginning on or after January 1, 2010, allow a credit against the taxes imposed by those laws in an amount equal to 6% of the amount paid or incurred by the qualified taxpayer, that is engaged in specified green technology and renewable energy resource lines of business, during the taxable year for qualified property, as defined, that is placed in service in this state. This bill would provide that 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: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 17053.49 is added to the Revenue and Taxation Code, to read: 17053.49. (a)For(1) Except as provided in paragraph (2), for taxable years beginning on or after January 1, 2010, a qualified taxpayer shall be allowed a credit against the "net tax," as defined in Section 17039, an amount equal to 6 percent of the qualified cost of qualified property that is placed in service in this state. (2) Any credit allowable for the 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 taxpayer's first taxable year beginning on or after January 1, 2014. (b) For purposes of this section, "qualified cost" means any cost that satisfies each of the following conditions: (1) Is a cost paid or incurred by the qualified taxpayer for the construction, reconstruction, or acquisition of qualified property on or after January 1, 2010. (2) Except as provided in paragraphs (3) and (4) of subdivision (d), is an amount upon which the qualified taxpayer has paid, directly or indirectly, as a separately stated contract amount or as determined from the records of the qualified taxpayer, sales or use tax under Part 1 (commencing with Section 6001). (3) Is an amount properly chargeable to the capital account of the qualified taxpayer. (c) (1) For purposes of this section, "qualified taxpayer" means any of the following: (A) A taxpayer who is primarily engaged in green technology that is either 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 or promotes the reduction of wasteful, inefficient, unnecessary, or uneconomic uses of energy. (B) A taxpayer who is primarily engaged in the production of products, systems, or management of cost-effective water use efficiency practices to curtail the waste of water and to ensure that water use does not exceed reasonable needs. (C) A taxpayer who is primarily engaged in the production of products, systems, or management of the utilization of recycled or reusable materials in the manufacturing process. (D) A taxpayer who is primarily engaged in the production or application of cogeneration technology, as defined in Section 25134 of the Public Resources Code. (E) A taxpayer who is primarily engaged in the production of products, systems, or management of the conservation of energy. (F) A taxpayer who is primarily engaged in the production of products, systems, management, 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. (2) In the case of any passthrough entity, the determination of whether a taxpayer is a qualified taxpayer under this section shall be made at the entity level and any credit under this section or Section 23649 shall be allowed to the passthrough entity and passed through to the partners or shareholders in accordance with applicable provisions of Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001). For purposes of this paragraph, the term "passthrough entity" means any partnership or "S" corporation. (3) The Franchise Tax Board may prescribe regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the effect of this section through splitups, shell corporations, partnerships, tiered ownership structures, sale-leaseback transactions, or otherwise. (d) For purposes of this section, "qualified property" means property that is described as any of the following: (1) Tangible personal property that is defined in Section 1245(a) of the Internal Revenue Code for use by a qualified taxpayer that is primarily used for any of the following: (A) For the manufacturing, processing, refining, fabricating, or recycling of property, beginning at the point at which any raw materials are received by the qualified taxpayer and introduced into the process and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling has altered tangible personal property to its completed form, including packaging, if required. (B) In research and development. (C) To maintain, repair, measure, or test any property described in this paragraph. (D) For pollution control that meets or exceeds standards established by the state or by any local or regional governmental agency within the state. (E) For recycling. (2) Computers and computer peripheral equipment, as defined in Section 168(i)(2)(B) of the Internal Revenue Code, that is tangible personal property as defined in Section 1245(a) of the Internal Revenue Code for use by a qualified taxpayer, that is primarily used to develop or manufacture cogeneration technology, technology or products for the conservation of energy, or technology or products for the use of solar, biomass,winewind , 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. (3) The value of any capitalized labor costs that are directly allocable to the construction or modification of property described in paragraph (1) or (2). (4) (A) Special purpose buildings and foundations that are constructed or modified for use by the qualified taxpayer primarily in a manufacturing, processing, refining, or fabricating process, or as a research or storage facility primarily used in connection with a manufacturing process. (B) The value of any capitalized labor costs that are directly allocable to the construction or modification of special purpose buildings and foundations that are used primarily in the manufacturing, processing, refining, or fabricating process, or as a research or storage facility primarily used in connection with a manufacturing process. (C) (i) For purposes of this paragraph, "special purpose building and foundation" means only a building and the foundation immediately underlying the building that is specifically designed and constructed or reconstructed for the installation, operation, and use of specific machinery and equipment with a special purpose, which machinery and equipment, after installation, will become affixed to or a fixture of the real property, and the construction or reconstruction of which is specifically designed and used exclusively for the specified purposes as set forth in subparagraph (A) (" qualified purpose"). (ii) A building is specifically designed and constructed or modified for a qualified purpose if it is not economical to design and construct the building for the intended purpose and then use the structure for a different purpose. (iii) For purposes of clause (i) and clause (vi), a building is used exclusively for a qualified purpose only if its use does not include a use for which it was not specifically designed and constructed or modified. Incidental use of a building for nonqualified purposes does not preclude the building from being a special purpose building. "Incidental use" means a use that is both related and subordinate to the qualified purpose. It will be conclusively presumed that a use is not subordinate if more than one-third of the total usable volume of the building is devoted to a use that is not a qualified purpose. (iv) In the event an entire building does not qualify as a special purpose building, a qualified taxpayer may establish that a portion of a building, and the foundation immediately underlying the portion, qualifies for treatment as a special purpose building and foundation if the portion satisfies all of the definitional provisions in this subparagraph. (v) To the extent that a building is not a special purpose building as defined above, but a portion of the building qualifies for treatment as a special purpose building, then all equipment that exclusively supports the qualified purpose occurring within that portion and that would qualify as Internal Revenue Code Section 1245 property if it were not a fixture or affixed to the building shall be treated as a cost of the portion of the building that qualifies for treatment as a special purpose building. (vi) Buildings and foundations that do not meet the definition of a special purpose building and foundation set forth above include, but are not limited to: buildings designed and constructed or reconstructed principally to function as a general purpose manufacturing, industrial, or commercial building; research facilities that are used primarily prior to or after, or prior to and after, the manufacturing process; or storage facilities that are used primarily prior to or after, or prior to and after, completion of the manufacturing process. (5) Subject to the provisions in paragraph (2) of subdivision (b), qualified property also includes computer software that is primarily used for those purposes set forth in paragraph (1) or (2) of this subdivision. (6) Qualified property does not include any of the following: (A) Furniture. (B) Facilities used for warehousing purposes after completion of the manufacturing process. (C) Inventory. (D) Equipment used in the extraction process. (E) Equipment used to store finished products that have completed the manufacturing process. (F) Any tangible personal property that is used in administration, general management, or marketing. (e) For purposes of this section: (1) "Fabricating" means to make, build, create, produce, or assemble components or property to work in a new or different manner. (2) "Manufacturing" means the activity of converting or conditioning property by changing the form, composition, quality, or character of the property for ultimate sale at retail or use in the manufacturing of a product to be ultimately sold at retail. Manufacturing includes any improvements to tangible personal property that result in a greater service life or greater functionality than that of the original property. (3) "Primarily" means tangible personal property used 50 percent or more of the time in an activity described in subdivision (d). (4) "Process" means the period beginning at the point at which any raw materials are received by the qualified taxpayer and introduced into the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer has altered tangible personal property to its completed form, including packaging, if required. Raw materials are considered to have been introduced into the process when the raw materials are stored on the same premises where the qualified taxpayer's manufacturing, processing, refining, or recycling activity is conducted. Raw materials that are stored on premises other than where the qualified taxpayer's manufacturing, processing, refining, fabricating, or recycling activity is conducted, are not considered to have been introduced into the manufacturing, processing, refining, fabricating, or recycling process. (5) "Processing" means the physical application of the materials and labor necessary to modify or change the characteristics of property. (6) "Refining" means the process of converting a natural resource to an intermediate or finished product. (7) "Research and development" means those activities that are described in Section 174 of the Internal Revenue Code or in any regulations thereunder. (8) "Small business" means a qualified taxpayer that meets any of the following requirements during the taxable year for which the credit is allowed: (A) Has gross receipts of less than fifty million dollars ($50,000,000). (B) Has net assets of less than fifty million dollars ($50,000,000). (C) Has a total credit of less than one million dollars ($1,000,000). (f) The credit allowed under subdivision (a) shall apply to qualified property that is acquired by or subject to lease by a qualified taxpayer, subject to the following special rules: (1) A lessor of qualified property, irrespective of whether the lessor is a qualified taxpayer, is not allowed the credit provided under subdivision (a) with respect to any qualified property leased to another qualified taxpayer. (2) (A) For purposes of determining the qualified cost paid or incurred by a lessee in any leasing transaction that is not treated as a sale under Part 1 (commencing with Section 6001), the following rules apply: (i) Except as provided by subparagraph (C) of this paragraph, paragraphs (1) and (3) of subdivision (b) do not apply. (ii) Except as provided in subparagraph (B) and clause (iii), the "qualified cost" upon which the lessee shall compute the credit provided under this section shall be equal to the original cost to the lessor (within the meaning of Section 18031) of the qualified property that is the subject of the lease. (iii) The requirement of paragraph (2) of subdivision (b) shall be treated as satisfied only if the lessor has made a timely election under either Section 6094.1 or subdivision (d) of Section 6244 and has paid sales tax reimbursement or use tax measured by the purchase price of the qualified property (within the meaning of paragraph (5) of subdivision (g) of Section 6006). For purposes of this subdivision, the amount of original cost to the lessor that may be taken into account under clause (ii) may not exceed the purchase price upon which sales tax reimbursement or use tax has been paid under the preceding sentence. (B) For purposes of applying subparagraph (A) only, the following special rules shall apply: (i) The original cost to the lessor of the qualified property shall be reduced by the amount of any original cost of that property that was taken into account by any predecessor lessee in computing the credit allowable under this section. (ii) Clause (i) does not apply in any case where the predecessor lessee was required to recapture the credit provided under this section pursuant to subdivision (g). (iii) For purposes of this section only, in any case where a successor lessor has acquired qualified property from a predecessor lessor in a transaction not treated as a sale under Part 1 (commencing with Section 6001), the original cost to the successor lessor of the qualified property shall be reduced by the amount of the original cost of the qualified property that was taken into account by any lessee of the predecessor lessor in computing the credit allowable under this section. (C) In determining the original cost of any qualified property under this paragraph, only amounts paid or incurred by the lessor on or after January 1, 2010, shall be taken into account. (D) Notwithstanding subparagraph (A), in the case of any leasing transaction for which the lessee is allowed the credit under this section and thereafter the lessee (or any party related to the lessee within the meaning of Section 267 or 318 of the Internal Revenue Code) acquires the qualified property from the lessor (or any successor lessor) within one year from the date the qualified property is first used by the lessee under the terms of the lease, the lessee's (or related party's) acquisition of the qualified property from the lessor (or successor lessor) shall be treated as a disposition by the lessee of the qualified property that was subject to the lease under subdivision (g). (3) For purposes of determining the qualified cost paid or incurred by a lessee in any leasing transaction that is treated as a sale under Part 1 (commencing with Section 6001), the following rules apply: (A) Paragraph (1) of subdivision (b) is applied by substituting the term "purchase" for the term "construction, reconstruction, or acquisition." (B) Paragraph (3) of subdivision (b) applies. (C) The requirement of paragraph (2) of subdivision (b)areis treated as satisfied at the time that either the lessor or the qualified taxpayer pays sales or use tax under Part 1 (commencing with Section 6001). (4) (A) In the case of any leasing transaction described in paragraph (2), the lessor shall provide a statement to the lessee specifying the amount of the lessor's original cost of the qualified property and the amount of that cost upon which a sales or use tax was paid within 45 days after the close of the lessee's taxable year in which the credit is allowable to the lessee under this section. (B) The statement required under subparagraph (A) shall be made available to the Franchise Tax Board upon request. (g) No credit is allowed if the qualified property is removed from the state, is disposed of to an unrelated party, or is used for any purpose not qualifying for the credit provided in this section in the same taxable year in which the qualified property is first placed in service in this state. If any qualified property for which a credit is allowed pursuant to this section is thereafter removed from this state, disposed of to an unrelated party, or used for any purpose not qualifying for the credit provided in this section within one year from the date the qualified property is first placed in service in this state, the amount of the credit allowed by this section for that qualified property shall be recaptured by adding that credit amount to the net tax of the qualified taxpayer for the taxable year in which the qualified property is disposed of, removed, or put to an ineligible use. (h) In the case where the credit allowed by this section exceeds the "net tax," the excess may be carried over to reduce the "net tax" in the following year, and succeeding years as follows: (1) Except as provided in paragraph (2), for the seven succeeding years if necessary, until the credit is exhausted. (2) In the case of a small business, for the nine succeeding years, if necessary, until the credit is exhausted. SEC. 2. Section 23649 is added to the Revenue and Taxation Code, to read: 23649. (a)For(1) Except as provided in paragraph (2), for taxable years beginning on or after January 1, 2010, a qualified taxpayer shall be allowed a credit against the "tax," as defined in Section 23036, an amount equal to 6 percent of the qualified cost of qualified property that is placed in service in this state. (2) Any credit allowable for the 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 taxpayer' s first taxable year beginning on or after January 1, 2014. (b) For purposes of this section, "qualified cost" means any cost that satisfies each of the following conditions: (1) Is a cost paid or incurred by the qualified taxpayer for the construction, reconstruction, or acquisition of qualified property on or after January 1, 2010. (2) Except as provided in paragraphs (3) and (4) of subdivision (d), is an amount upon which the qualified taxpayer has paid, directly or indirectly, as a separately stated contract amount or as determined from the records of the qualified taxpayer, sales or use tax under Part 1 (commencing with Section 6001). (3) Is an amount properly chargeable to the capital account of the qualified taxpayer. (c) (1) For purposes of this section, "qualified taxpayer" means any of the following: (A) A taxpayer who is primarily engaged in green technology that is either 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 or promotes the reduction of wasteful, inefficient, unnecessary, or uneconomic uses of energy. (B) A taxpayer who is primarily engaged in the production of products, systems, or management of cost-effective water use efficiency practices to curtail the waste of water and to ensure that water use does not exceed reasonable needs. (C) A taxpayer who is primarily engaged in the production of products, systems, or management of the utilization of recycled or reusable materials in the manufacturing process. (D) A taxpayer who is primarily engaged in the production or application of cogeneration technology, as defined in Section 25134 of the Public Resources Code. (E) A taxpayer who is primarily engaged in the production of products, systems, or management of the conservation of energy. (F) A taxpayer who is primarily engaged in the production of products, systems, management, 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. (2) In the case of any passthrough entity, the determination of whether a taxpayer is a qualified taxpayer under this section shall be made at the entity level and any credit under this section or Section 17053.49 shall be allowed to the passthrough entity and passed through to the partners or shareholders in accordance with applicable provisions of Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001). For purposes of this paragraph, the term "passthrough entity" means any partnership or "S" corporation. (3) The Franchise Tax Board may prescribe regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the effect of this section through splitups, shell corporations, partnerships, tiered ownership structures, sale-leaseback transactions, or otherwise. (d) For purposes of this section, "qualified property" means property that is described as any of the following: (1) Tangible personal property that is defined in Section 1245(a) of the Internal Revenue Code for use by a qualified taxpayer that is primarily used for any of the following: (A) For the manufacturing, processing, refining, fabricating, or recycling of property, beginning at the point at which any raw materials are received by the qualified taxpayer and introduced into the process and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling has altered tangible personal property to its completed form, including packaging, if required. (B) In research and development. (C) To maintain, repair, measure, or test any property described in this paragraph. (D) For pollution control that meets or exceeds standards established by the state or by any local or regional governmental agency within the state. (E) For recycling. (2) Computers and computer peripheral equipment, as defined in Section 168(i)(2)(B) of the Internal Revenue Code, that is tangible personal property as defined in Section 1245(a) of the Internal Revenue Code for use by a qualified taxpayer, that is primarily used to develop or manufacture cogeneration technology, technology or products for the conservation of energy, or technology or products for the use of solar, biomass,winewind , 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. (3) The value of any capitalized labor costs that are directly allocable to the construction or modification of property described in paragraph (1) or (2). (4) (A) Special purpose buildings and foundations that are constructed or modified for use by the qualified taxpayer primarily in a manufacturing, processing, refining, or fabricating process, or as a research or storage facility primarily used in connection with a manufacturing process. (B) The value of any capitalized labor costs that are directly allocable to the construction or modification of special purpose buildings and foundations that are used primarily in the manufacturing, processing, refining, or fabricating process, or as a research or storage facility primarily used in connection with a manufacturing process. (C) (i) For purposes of this paragraph, "special purpose building and foundation" means only a building and the foundation immediately underlying the building that is specifically designed and constructed or reconstructed for the installation, operation, and use of specific machinery and equipment with a special purpose, which machinery and equipment, after installation, will become affixed to or a fixture of the real property, and the construction or reconstruction of which is specifically designed and used exclusively for the specified purposes as set forth in subparagraph (A) (" qualified purpose"). (ii) A building is specifically designed and constructed or modified for a qualified purpose if it is not economical to design and construct the building for the intended purpose and then use the structure for a different purpose. (iii) For purposes of clause (i) and clause (vi), a building is used exclusively for a qualified purpose only if its use does not include a use for which it was not specifically designed and constructed or modified. Incidental use of a building for nonqualified purposes does not preclude the building from being a special purpose building. "Incidental use" means a use that is both related and subordinate to the qualified purpose. It will be conclusively presumed that a use is not subordinate if more than one-third of the total usable volume of the building is devoted to a use that is not a qualified purpose. (iv) In the event an entire building does not qualify as a special purpose building, a qualified taxpayer may establish that a portion of a building, and the foundation immediately underlying the portion, qualifies for treatment as a special purpose building and foundation if the portion satisfies all of the definitional provisions in this subparagraph. (v) To the extent that a building is not a special purpose building as defined above, but a portion of the building qualifies for treatment as a special purpose building, then all equipment that exclusively supports the qualified purpose occurring within that portion and that would qualify as Internal Revenue Code Section 1245 property if it were not a fixture or affixed to the building shall be treated as a cost of the portion of the building that qualifies for treatment as a special purpose building. (vi) Buildings and foundations that do not meet the definition of a special purpose building and foundation set forth above include, but are not limited to: buildings designed and constructed or reconstructed principally to function as a general purpose manufacturing, industrial, or commercial building; research facilities that are used primarily prior to or after, or prior to and after, the manufacturing process; or storage facilities that are used primarily prior to or after, or prior to and after, completion of the manufacturing process. (5) Subject to the provisions in paragraph (2) of subdivision (b), qualified property also includes computer software that is primarily used for those purposes set forth in paragraph (1) or (2) of this subdivision. (6) Qualified property does not include any of the following: (A) Furniture. (B) Facilities used for warehousing purposes after completion of the manufacturing process. (C) Inventory. (D) Equipment used in the extraction process. (E) Equipment used to store finished products that have completed the manufacturing process. (F) Any tangible personal property that is used in administration, general management, or marketing. (e) For purposes of this section: (1) "Fabricating" means to make, build, create, produce, or assemble components or property to work in a new or different manner. (2) "Manufacturing" means the activity of converting or conditioning property by changing the form, composition, quality, or character of the property for ultimate sale at retail or use in the manufacturing of a product to be ultimately sold at retail. Manufacturing includes any improvements to tangible personal property that result in a greater service life or greater functionality than that of the original property. (3) "Primarily" means tangible personal property used 50 percent or more of the time in an activity described in subdivision (d). (4) "Process" means the period beginning at the point at which any raw materials are received by the qualified taxpayer and introduced into the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer has altered tangible personal property to its completed form, including packaging, if required. Raw materials are considered to have been introduced into the process when the raw materials are stored on the same premises where the qualified taxpayer's manufacturing, processing, refining, or recycling activity is conducted. Raw materials that are stored on premises other than where the qualified taxpayer's manufacturing, processing, refining, fabricating, or recycling activity is conducted, are not considered to have been introduced into the manufacturing, processing, refining, fabricating, or recycling process. (5) "Processing" means the physical application of the materials and labor necessary to modify or change the characteristics of property. (6) "Refining" means the process of converting a natural resource to an intermediate or finished product. (7) "Research and development" means those activities that are described in Section 174 of the Internal Revenue Code or in any regulations thereunder. (8) "Small business" means a qualified taxpayer that meets any of the following requirements during the taxable year for which the credit is allowed: (A) Has gross receipts of less than fifty million dollars ($50,000,000). (B) Has net assets of less than fifty million dollars ($50,000,000). (C) Has a total credit of less than one million dollars ($1,000,000). (f) The credit allowed under subdivision (a) shall apply to qualified property that is acquired by or subject to lease by a qualified taxpayer, subject to the following special rules: (1) A lessor of qualified property, irrespective of whether the lessor is a qualified taxpayer, is not allowed the credit provided under subdivision (a) with respect to any qualified property leased to another qualified taxpayer. (2) (A) For purposes of determining the qualified cost paid or incurred by a lessee in any leasing transaction that is not treated as a sale under Part 1 (commencing with Section 6001), the following rules apply: (i) Except as provided by subparagraph (C) of this paragraph, paragraphs (1) and (3) of subdivision (b) do not apply. (ii) Except as provided in subparagraph (B) and clause (iii), the "qualified cost" upon which the lessee shall compute the credit provided under this section shall be equal to the original cost to the lessor (within the meaning of Section 24912) of the qualified property that is the subject of the lease. (iii) The requirement of paragraph (2) of subdivision (b) shall be treated as satisfied only if the lessor has made a timely election under either Section 6094.1 or subdivision (d) of Section 6244 and has paid sales tax reimbursement or use tax measured by the purchase price of the qualified property (within the meaning of paragraph (5) of subdivision (g) of Section 6006). For purposes of this subdivision, the amount of original cost to the lessor that may be taken into account under clause (ii) may not exceed the purchase price upon which sales tax reimbursement or use tax has been paid under the preceding sentence. (B) For purposes of applying subparagraph (A) only, the following special rules shall apply: (i) The original cost to the lessor of the qualified property shall be reduced by the amount of any original cost of that property that was taken into account by any predecessor lessee in computing the credit allowable under this section. (ii) Clause (i) does not apply in any case where the predecessor lessee was required to recapture the credit provided under this section pursuant to subdivision (g). (iii) For purposes of this section only, in any case where a successor lessor has acquired qualified property from a predecessor lessor in a transaction not treated as a sale under Part 1 (commencing with Section 6001), the original cost to the successor lessor of the qualified property shall be reduced by the amount of the original cost of the qualified property that was taken into account by any lessee of the predecessor lessor in computing the credit allowable under this section. (C) In determining the original cost of any qualified property under this paragraph, only amounts paid or incurred by the lessor on or after January 1, 2010, shall be taken into account. (D) Notwithstanding subparagraph (A), in the case of any leasing transaction for which the lessee is allowed the credit under this section and thereafter the lessee (or any party related to the lessee within the meaning of Section 267 or 318 of the Internal Revenue Code) acquires the qualified property from the lessor (or any successor lessor) within one year from the date the qualified property is first used by the lessee under the terms of the lease, the lessee's (or related party's) acquisition of the qualified property from the lessor (or successor lessor) shall be treated as a disposition by the lessee of the qualified property that was subject to the lease under subdivision (g). (3) For purposes of determining the qualified cost paid or incurred by a lessee in any leasing transaction that is treated as a sale under Part 1 (commencing with Section 6001), the following rules apply: (A) Paragraph (1) of subdivision (b) is applied by substituting the term "purchase" for the term "construction, reconstruction, or acquisition." (B) Paragraph (3) of subdivision (b) applies. (C) The requirement of paragraph (2) of subdivision (b)areis treated as satisfied at the time that either the lessor or the qualified taxpayer pays sales or use tax under Part 1 (commencing with Section 6001). (4) (A) In the case of any leasing transaction described in paragraph (2), the lessor shall provide a statement to the lessee specifying the amount of the lessor's original cost of the qualified property and the amount of that cost upon which a sales or use tax was paid within 45 days after the close of the lessee's taxable year in which the credit is allowable to the lessee under this section. (B) The statement required under subparagraph (A) shall be made available to the Franchise Tax Board upon request. (g) No credit is allowed if the qualified property is removed from the state, is disposed of to an unrelated party, or is used for any purpose not qualifying for the credit provided in this section in the same taxable year in which the qualified property is first placed in service in this state. If any qualified property for which a credit is allowed pursuant to this section is thereafter removed from this state, disposed of to an unrelated party, or used for any purpose not qualifying for the credit provided in this section within one year from the date the qualified property is first placed in service in this state, the amount of the credit allowed by this section for that qualified property shall be recaptured by adding that credit amount to the net tax of the qualified taxpayer for the taxable year in which the qualified property is disposed of, removed, or put to an ineligible use. (h) 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 as follows: (1) Except as provided in paragraph (2), for the seven succeeding years if necessary, until the credit is exhausted. (2) In the case of a small business, for the nine succeeding years, if necessary, until the credit is exhausted. SEC. 3. This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.