California Assembly Bill AB1369 Introduced / Bill

 BILL NUMBER: AB 1369INTRODUCED BILL TEXT INTRODUCED BY Assembly Member Gatto FEBRUARY 18, 2011 An act to amend Sections 17282 and 24436.1 of, and to repeal Sections 17281 and 24436 of, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. LEGISLATIVE COUNSEL'S DIGEST AB 1369, as introduced, Gatto. Personal and corporate income taxes: deductions: illegal activities. The Personal Income Tax Law and the Corporation Tax Law allow various deductions in computing the income that is subject to the taxes imposed by those laws. Those laws, in modified conformity to federal income tax laws, disallow any deduction from gross income if that income is directly derived from, or directly tends to promote or further, illegal activities relating to lotteries, gaming, or horse racing, and other specified illegal activities. This bill would instead disallow a deduction for expenses attributable to income derived by a taxpayer from any criminal profiteering activity, specified illegal activities relating to drug trafficking, and insurance fraud, as provided. This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature. This bill would take effect immediately as a tax levy. Vote: 2/3. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 17281 of the Revenue and Taxation Code is repealed.  17281. In computing taxable income, no deductions shall be allowed to any taxpayer on any of his or her gross income directly derived from illegal activities as defined in Chapter 9 (commencing with Section 319), 10 (commencing with Section 330), or 10.5 (commencing with Section 337.1) of Title 9 of Part 1 of the Penal Code; nor shall any deductions be allowed to any taxpayer on any of his or her gross income derived from any other activities which directly tend to promote or to further, or are directly connected or associated with, those illegal activities. A prior, final determination by a court of competent jurisdiction of the state in any criminal proceeding or any proceeding in which the state, county, city and county, city, or other political subdivision was a party thereto on the merits of the legality of the activities of a taxpayer or predecessor in interest of a taxpayer shall be binding upon the Franchise Tax Board and State Board of Equalization.  SEC. 2. Section 17282 of the Revenue and Taxation Code is amended to read: 17282. (a) In computing taxable income,  no deductions (including   deductions, including  deductions for cost of goods  sold)  sold,  shall  not  be allowed to any taxpayer  on   from  any of his or her gross income directly derived from  illegal activities as defined in Sections 266h or 266i of, or in Chapter 4 (commencing with Section 211) of Title 8 of, Chapter 7.5 (commencing with Section 311) of Title 9 of, Chapter 8 (commencing with Section 314) of Title 9 of, or Chapter 2 (commencing with Section 459), Chapter 5 (commencing with Section 484), or Chapter 6 (commencing with Section 503) of Title 13 of, Part 1 of the Penal Code,   any act or omission of criminal profiteering activity, as defined in Section 186.2 of the Penal Code   ,  or as defined in Chapter 6 (commencing with Section 11350) of Division 10 of the Health and Safety Code  , or Article 5 (commencing with Section 750) of Chapter 1 of Part 2 of Division 1 of the Insurance Code  ;  nor shall any   and  deductions  shall not  be allowed to any taxpayer  on   from any of his or her gross income derived from any other activities which directly tend to promote or to further, or are directly connected or associated with, those  illegal activities   acts or omissions  . (b) A prior, final determination by a court of competent jurisdiction of this state in any criminal proceedings or any proceeding in which the state, county, city and county, city, or other political subdivision was a party thereto on the merits of the legality of the activities of a  taxpayer   taxpayer,  or predecessor in interest of a taxpayer  , shall be required in order for subdivision (a) to apply and shall be binding upon the Franchise Tax Board and the State Board of Equalization. (c) This section  ,   including amendments made by the act amending this subdivision,  shall be applied with respect to taxable years which have not been closed by a statute of limitations, res judicata, or otherwise. SEC. 3. Section 24436 of the Revenue and Taxation Code is repealed.  24436. In computing net income, no deductions shall be allowed to any taxpayer on any of its gross income directly derived from illegal activities as defined in Chapters 9, 10 or 10.5 of Title 9 of Part 1 of the Penal Code of California; nor shall any deduction be allowed to any taxpayer on any of its gross income derived from any other activities which directly tend to promote or to further, or are directly connected or associated with, such illegal activities. A prior, final determination by a court of competent jurisdiction of this state in any criminal proceedings or any proceeding in which the state, county, city and county, city or other political subdivision was a party thereto on the merits of the legality of the activities of a taxpayer or predecessor in interest of a taxpayer shall be binding upon the Franchise Tax Board and State Board of Equalization.  SEC. 4. Section 24436.1 of the Revenue and Taxation Code is amended to read: 24436.1. (a) In computing net income,  no deductions (including   deductions, including deductions for cost of goods  sold)   sold,  shall  not  be allowed to any taxpayer  on   from  any of its gross income directly derived from  illegal activities as defined in Sections 266h or 266i of, or in Chapter 4 (commencing with Section 211) of Title 8 of, Chapter 7.5 (commencing with Section 311) of Title 9 of, Chapter 8 (commencing with Section 314) of Title 9 of, or Chapter 2 (commencing with Section 459), Chapter 5 (commencing with Section 484), or Chapter 6 (commencing with Section 503) of Title 13 of, Part 1 of the Penal Code,   any act or omission of criminal profiteering activity, as defined in Section 186.2 of the Penal Code,  or as defined in Chapter 6 (commencing with Section 11350) of Division 10 of the Health and Safety Code  , or Article 5 (commencing with Section 750) of Chapter 1 of Part 2 of Division 1 of the Insurance Code  ;  nor shall any   and  deductions  shall not  be allowed to any taxpayer on any of its gross income derived from any other activities which directly tend to promote or to further, or are directly connected or associated with, those  illegal activities   acts or omissions  . (b) A prior, final determination by a court of competent jurisdiction of this state in any criminal proceedings or any proceeding in which the state, county, city and county, city, or other political subdivision was a party thereto on the merits of the legality of the activities of a  taxpayer   taxpayer,  or predecessor in interest of a taxpayer  , shall be required in order for subdivision (a) to apply and  shall be binding upon the Franchise Tax Board and the State Board of Equalization. (c) This section  ,   including amendments made by the act amending this subdivision,  shall be applied with respect to taxable years which have not been closed by a statute of limitations, res judicata, or otherwise. SEC. 5. This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.