California Assembly Bill AB2045 Amended / Bill

 BILL NUMBER: AB 2045AMENDED BILL TEXT AMENDED IN ASSEMBLY APRIL 16, 2012 AMENDED IN ASSEMBLY APRIL 9, 2012 INTRODUCED BY Assembly Member Perea FEBRUARY 23, 2012 An act to add Chapter 4.5 (commencing with Section 13996) to Part 4.7 of Division 3 of Title 2 of the Government Code, relating to economic development. LEGISLATIVE COUNSEL'S DIGEST AB 2045, as amended, Perea. Emerging technology and biotechnology company: income taxes: net operating losses: transfers. The Personal Income Tax Law and Corporation Tax Law impose taxes measured by income, and allow individual and corporate taxpayers to utilize net operating losses as carryovers and carrybacks of those losses for purposes of offsetting their individual and corporate tax liabilities. This bill would require the  Department of ____   Treasurer , in cooperation with the Franchise Tax Board, to establish a corporation business tax benefit certificate transfer program to allow a new or expanding emerging technology and biotechnology company in this state with unused net operating losses to surrender those net operating losses for use by a taxpayer subject to the Corporation Tax Law in this state in exchange for private financial assistance to be provided by that taxpayer to assist in the funding of costs incurred by the new or expanding emerging technology and biotechnology company, as provided. This bill would provide that any net operating losses that are transferred pursuant to a corporation business tax benefit transfer certificate issued to a taxpayer is allowed beginning on or after the first day of the 4th taxable year after the date of issue of that certificate. 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. Chapter 4.5 (commencing with Section 13996) is added to Part 4.7 of Division 3 of Title 2 of the Government Code, to read: CHAPTER 4.5. EMERGING TECHNOLOGY AND BIOTECHNOLOGY COMPANIES TAX LOSS TRANSFER PROGRAM 13996. (a) The  Department of ____   Treasurer  , in cooperation with the Franchise Tax Board, shall establish a corporation business tax benefit certificate transfer program to allow new or expanding emerging technology and biotechnology companies in this state with unused net operating losses, as described in Section 17276.20 or Section 24416.20 of the Revenue and Taxation Code, to surrender those net operating losses for use by other taxpayers in this state. (b) The tax benefits of those net operating losses may be used on a tax return required to be filed pursuant to Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code by a taxpayer subject to the Corporation Tax Law (Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code) in exchange for private financial assistance to be provided by the taxpayer that is the recipient of the corporation business tax benefit certificate to assist in the funding of costs incurred by the new or expanding emerging technology and biotechnology company. (c) (1) The  department   Treasurer , in cooperation with the Franchise Tax Board, shall review and approve applications by new or expanding emerging technology and biotechnology companies in this state with unused but otherwise allowable net operating losses to surrender those net operating losses in exchange for private financial assistance to be made by the taxpayer that is the recipient of the corporation business tax benefit certificate in an amount equal to at least 80 percent of the amount of the surrendered tax net operating losses. (2) For purposes of this section, "amount of surrendered net operating losses" means the amount of the net operating loss multiplied by the new or expanding emerging technology or biotechnology company's anticipated apportionment factor, as determined pursuant to Section 25128 or Section 25128.5 of the Revenue and Taxation Code, for the taxable year in which the net operating loss is transferred and subsequently multiplied by the rate of tax imposed by Section 23151 or Section 23501 of the Revenue and Taxation Code. (d) The  department   Treasurer  shall not approve the transfer of more than sixty million dollars ($60,000,000) of transferable net operating losses in a fiscal year. If the total amount of transferable net operating losses requested to be surrendered by approved applicants exceeds sixty million dollars ($60,000,000) in a fiscal year, the  department   Treasurer  , in cooperation with the Franchise Tax Board, shall allocate the transfer of surrendered net operating losses as follows: (1) An eligible applicant with two hundred fifty thousand dollars ($250,000) or less of transferable net operating losses shall be authorized to surrender the entire amount of its transferable net operating losses. (2) An eligible applicant with more than two hundred fifty thousand dollars ($250,000) of transferable net operating losses shall be authorized to surrender a minimum of two hundred fifty thousand dollars ($250,000) of its transferable net operating losses. (3) An eligible applicant with more than two hundred fifty thousand dollars ($250,000) of transferable net operating losses shall be authorized to surrender additional transferable net operating losses determined by multiplying the applicant's transferable net operating losses less the minimum transferable net operating losses that company is authorized to surrender under paragraph (2) by a fraction, the numerator of which is the total amount of transferable net operating losses that the department is authorized to approve less the total amount of transferable tax benefit approved under paragraphs (1) and (2), and the denominator of which is the total amount of transferable net operating losses requested to be surrendered by all eligible applicants less the total amount of transferable net operating losses approved under paragraphs (1) and (2). (e) If the total amount of transferable net operating losses that would be authorized using the method in subdivision (d) exceeds sixty million dollars ($60,000,000) in a fiscal year, then the  department   Treasurer  , in cooperation with the Franchise Tax Board, shall limit the total amount of net operating losses authorized to be transferred to sixty million dollars ($60,000,000) by applying the method in subdivision (d) on an apportioned basis. (f) For purposes of this section, "transferable tax benefits" include an eligible applicant's unused but otherwise allowable net operating losses multiplied by the applicant's anticipated apportionment factor as determined pursuant to Section 25128 or Section 25128.5 of the Revenue and Taxation Code for the taxable year in which the net operating loss is transferred and subsequently multiplied by the tax imposed by Section 23151 or Section 23501 of the Revenue and Taxation Code. An eligible applicant's transferable net operating losses shall be limited to net operating losses that the applicant requests to surrender in its application to the department and shall not, in total, exceed the maximum amount of net operating losses that the applicant is eligible to surrender. 13996.1. No application for a corporation business tax benefit transfer certificate shall be approved for a new or expanding emerging technology or biotechnology company that meets either of the following: (a) Has demonstrated positive net operating income in any of the two previous full years of ongoing operations as determined on its financial statements issued according to generally accepted accounting standards endorsed by the Financial Accounting Standards Board. (b) Is directly or indirectly at least 50 percent owned or controlled by another corporation that has demonstrated positive net operating income in any of the two previous full years of ongoing operations as determined on its financial statements issued according to generally accepted accounting standards endorsed by the Financial Accounting Standards Board or is part of a consolidated group of affiliated corporations, as filed for federal income tax purposes, that in the aggregate has demonstrated positive net operating income in any of the two previous full years of ongoing operations as determined on its combined financial statements issued according to generally accepted accounting standards endorsed by the Financial Accounting Standards Board. 13996.2. (a) The maximum lifetime value of surrendered net operating losses that a corporation shall be permitted to surrender pursuant to this chapter is fifteen million dollars ($15,000,000). (b) Applications must be received on or before June 30 of each fiscal year. 13996.3. The  department   Treasurer  , in consultation with the Franchise Tax Board, shall establish rules for the recapture of all, or a portion of, the amount of a grant of a corporation business tax benefit certificate from the new or expanding emerging technology and biotechnology company having surrendered tax benefits pursuant to this chapter in the event the company fails to use the private financial assistance received for the surrender of tax benefits as required by this chapter or fails to maintain a headquarters or a base of operation in this state during the five years following receipt of the private financial assistance; except if the failure to maintain a headquarters or a base of operation in this state is due to the liquidation of the new or expanding emerging technology and biotechnology company. 13996.4. (a) The  department   Treasurer  , in cooperation with the Franchise Tax Board, shall review and approve applications by taxpayers subject to the Corporation Tax Law (Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code) to acquire surrendered tax net operating losses approved pursuant to this chapter, which shall be issued in the form of corporation business tax benefit transfer certificates, in exchange for private financial assistance to be made by the taxpayer in an amount equal to at least 80 percent of the amount of the surrendered net operating loss of an emerging technology or biotechnology company in the state. (b) A corporation business tax benefit transfer certificate shall not be issued unless the applicant certifies that as of the date of the exchange of the corporation business tax benefit certificate it is operating as a new or expanding emerging technology or biotechnology company and has no current intention to cease operating as a new or expanding emerging technology or biotechnology company. (c) The private financial assistance shall assist in funding expenses incurred in connection with the operation of the new or expanding emerging technology or biotechnology company in the state, including, but not limited to, the expenses of fixed assets, such as the construction and acquisition and development of real estate, materials, startup, tenant fitout, working capital, salaries, research and development expenditures, and any other similar expenses. (d) The  department   Treasurer  shall require a taxpayer that acquires a corporation business tax benefit certificate to enter into a written agreement with the new or expanding emerging technology or biotechnology company concerning the terms and conditions of the private financial assistance made in exchange for the certificate. The written agreement may contain terms concerning the maintenance by the new or expanding emerging technology or biotechnology company of a headquarters or a base of operation in this state. 13996.5.  (a)    Any net operating losses that are transferred pursuant to a corporation business tax benefit transfer certificate issued to a taxpayer under this chapter shall only be allowed beginning on or after the first day of the fourth taxable year after the date of issue of that certificate.  (b) Any net operating losses that are transferred and have reached the first day of the fourth taxable year after the date of issue of that certificate can only be used if the company that transferred the net operating losses is still in business or has been acquired. If the company is no longer in business or has not been acquired by another company, the net operating loss that was transferred no longer has any value.  13996.6. For purposes of this chapter: (a) "Biotechnology" means the continually expanding body of fundamental knowledge about the functioning of biological systems from the macro level to the molecular and subatomic levels, as well as novel products, services, technologies, and subtechnologies developed as a result of insights gained from research advances that add to that body of fundamental knowledge. (b) "Biotechnology company" means an emerging corporation that has its headquarters or base of operations in this state; that owns, has filed for, or has a valid license to use protected, proprietary intellectual property; and that is engaged in the research, development, production, or provision of biotechnology for the purpose of developing or providing products or processes for specific commercial or public purposes, including, but not limited to, medical, pharmaceutical, nutritional, and other health-related purposes, agricultural purposes, and environmental purposes, or a person whose headquarters or base of operations is located in this state, engaged in providing services or products necessary for such research, development, production, or provision. (c) "Full-time employee" means a person employed by a new or expanding emerging technology or biotechnology company for consideration for at least 35 hours a week, or who renders any other standard of service generally accepted by custom or practice as full-time employment and whose wages are subject to withholding as required by Division 6 (commencing with Section 13000) of the Unemployment Insurance Code, or who is a partner of a new or expanding emerging technology or biotechnology company who works for the partnership other than as an employee for at least 35 hours a week, or who renders any other standard of service generally accepted by custom or practice as full-time employment, and whose distributive share of income, gain, loss, or deduction, or whose guaranteed payments, or any combination thereof, is subject to the payment of estimated taxes, as required under the Revenue and Taxation Code. To qualify as a "full-time employee," an employee shall also receive from the new or expanding emerging technology or biotechnology company health benefits under a group health plan, a health benefits plan, or a policy or contract of health insurance covering more than one person issued pursuant to the Insurance Code. "Full-time employee" shall not include any person who works as an independent contractor or on a consulting basis for the new or expanding emerging technology or biotechnology company. (d) "Group health plan" means an employee welfare benefit plan, as defined in Title 1 of Section 3 of the Employee Retirement Income Security Act of 1974 (Public Law 93-406; 29 U.S.C. Sec.1002(1)), to the extent that the plan provides medical care and including items and services paid for as medical care to employees or their dependents, as defined under the terms of the plan, directly or through insurance, reimbursement or otherwise. (e) "New or expanding" means a technology or biotechnology company that at the end of the calendar year prior to the year in which the company files an application for surrender of unused but otherwise allowable tax benefits, on the date on which the application is submitted, and on the date on which the company receives the corporation business tax benefit certificate, has fewer than 225 employees in the United States, that has at least one full-time employee working in this state if the company has been incorporated for less than three years, that has at least five full-time employees working in this state if the company has been incorporated for more than three years but less than five years, and that has at least 10 full-time employees working in this state if the company has been incorporated for more than five years. (f) "Technology company" means an emerging corporation that has its headquarters or base of operations in this state; that owns, has filed for, or has a valid license to use protected, proprietary intellectual property; and that employs some combination of the following: highly educated or trained managers and workers, or both, employed in this state who use sophisticated scientific research service or production equipment, processes or knowledge to discover, develop, test, transfer, or manufacture a product or service.