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| 1 | + | Amended IN Assembly March 20, 2023 Amended IN Assembly March 07, 2023 CALIFORNIA LEGISLATURE 20232024 REGULAR SESSION Assembly Bill No. 1105Introduced by Assembly Member Petrie-NorrisFebruary 15, 2023An act to amend amend, repeal, and add Sections 17276 and 24416 of, and to add and repeal Sections 17137 and 24309.4 to, 24309.7 of, the Revenue and Taxation Code, relating to taxation. LEGISLATIVE COUNSEL'S DIGESTAB 1105, as amended, Petrie-Norris. Personal Income Tax Law: Corporation Tax Law: sale of net operating losses.The Personal Income Tax Law and the Corporation Tax Law, in modified conformity with federal income tax laws, allow various deductions in computing the income that is subject to the taxes imposed by those laws, including a deduction for a net operating loss, as specified. This bill would allow a startup innovator, as defined, to sell a net operating loss to an unrelated taxpayer. The bill would require the sale price of a net operating loss to be at least 80% of the value of the net operating loss being transferred, and would limit a startup innovator to selling no more than $20,000,000 worth of net operating losses in the aggregate, as provided. The bill would require the Franchise Tax Board to establish a program through which a startup innovator may apply to sell net operating losses, and would authorize the Franchise Tax Board to charge a fee for a startup innovator to participate in the program, as provided. The bill would provide that a net operating loss sold by a startup innovator would retain the attributes it had in the hands of the seller, including any carryback or carryforward attributes. The bill would allow a purchaser of a net operating loss to apply the net operating loss to closed taxable years upon appropriation by the Legislature. The bill would repeal these provisions as of January 1, 2029.The Personal Income Tax Law and the Corporation Tax Law, in conformity with federal income tax law, generally define gross income as income from whatever source derived, except as specifically excluded. Those laws also provide various exclusions from gross income. This bill would, for taxable years beginning on or after January 1, 2024, and before January 1, 2029, exclude from gross income any amount received by a startup innovator for the sale of a net operating loss.Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements. This bill would include additional information required for any bill authorizing a new tax expenditure. This bill would make findings and declarations related to a gift of public funds.Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO Bill TextThe people of the State of California do enact as follows:SECTION 1. Section 17137 is added to the Revenue and Taxation Code, to read:17137. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (h) of Section 17276, for the sale of a net operating loss.(b) (1) For purposes of complying with Section 41, as it applies to the exclusion provided by this section and Section 24309.4, the Legislature finds and declares as follows:(A) The goal, purpose, and objective of the exclusion is to promote competition and reduce oligopolistic consolidation in Californias STEM sector by enabling innovative startups to survive periods of net operating loss.(B) The performance indicators for the Legislature to use in determining whether the exclusion is achieving the stated goal shall be the number of taxpayers that have sold net operating losses and the total dollar amount of net operating losses sold.(2) (A) The Franchise Tax Board, no later than November 1, 2025, and annually thereafter, shall provide a report to the Legislature, in compliance with Section 9795 of the Government Code, detailing the number of taxpayers that have sold net operating losses, and the total dollar value of net operating losses sold.(B) The disclosure provisions of this paragraph shall be treated as an exception to Section 19542.(c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed.SEC. 2. Section 17276 of the Revenue and Taxation Code is amended to read:17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation.(f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7.(h) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator.(2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following:(A) Is primarily engaged in a science, technology, engineering, or mathematics business.(B) Owns registered trademarks, copyrights, or patents.(C) Has no more than 300 employees.(3) (A) A sale of a net operating loss pursuant to this subdivision shall be for at least 80 percent of the value of the net operating loss transferred.(B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest.(4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses.(B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program.(C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply.(D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose.(E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss.(5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. (i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(k) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.(l) This section shall remain in effect only until January 1, 2029, and as of that date is repealed.SEC. 3. Section 17276 is added to the Revenue and Taxation Code, to read:17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation.(f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7.(h) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(i) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(j) This section shall become operative on January 1, 2029.SEC. 3.Section 24309.4 is added to the Revenue and Taxation Code, to read:24309.4.SEC. 4. Section 24309.7 is added to the Revenue and Taxation Code, to read:24309.7. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (i) of Section 24416, for the sale of a net operating loss.(b) For purposes of complying with Section 41, the goal, purpose, objective, performance indicators, and data collection requirements for the exclusion allowed by this section shall be as specified in subdivision (b) of Section 17137. (c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed.SEC. 4.SEC. 5. Section 24416 of the Revenue and Taxation Code is amended to read:24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward that may be deducted in any taxable year.(i) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator.(2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following:(A) Is primarily engaged in a science, technology, engineering, or mathematics business.(B) Owns registered trademarks, copyrights, or patents.(C) Has no more than 300 employees.(3) (A) A sale of a net operating loss pursuant to this subdivision must be for at least 80 percent of the value of the net operating loss transferred.(B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest.(4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses.(B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program.(C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply.(D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose.(E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss.(5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. (j) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(k) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(l) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.(m) This section shall remain in effect only until January 1, 2029, and as of that date is repealed.SEC. 6. Section 24416 is added to the Revenue and Taxation Code, to read:24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward that may be deducted in any taxable year.(i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(k) This section shall become operative on January 1, 2029.SEC. 5.SEC. 7. The Legislature hereby finds and declares that the ability of innovative startups to transfer net operating losses for value, as provided by this act, serves the public purpose of promoting competition and reducing oligopolistic consolidation in the science, technology, engineering, and math (STEM) sector of Californias economy and does not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution. | |
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| 3 | + | Amended IN Assembly March 20, 2023 Amended IN Assembly March 07, 2023 CALIFORNIA LEGISLATURE 20232024 REGULAR SESSION Assembly Bill No. 1105Introduced by Assembly Member Petrie-NorrisFebruary 15, 2023An act to amend amend, repeal, and add Sections 17276 and 24416 of, and to add and repeal Sections 17137 and 24309.4 to, 24309.7 of, the Revenue and Taxation Code, relating to taxation. LEGISLATIVE COUNSEL'S DIGESTAB 1105, as amended, Petrie-Norris. Personal Income Tax Law: Corporation Tax Law: sale of net operating losses.The Personal Income Tax Law and the Corporation Tax Law, in modified conformity with federal income tax laws, allow various deductions in computing the income that is subject to the taxes imposed by those laws, including a deduction for a net operating loss, as specified. This bill would allow a startup innovator, as defined, to sell a net operating loss to an unrelated taxpayer. The bill would require the sale price of a net operating loss to be at least 80% of the value of the net operating loss being transferred, and would limit a startup innovator to selling no more than $20,000,000 worth of net operating losses in the aggregate, as provided. The bill would require the Franchise Tax Board to establish a program through which a startup innovator may apply to sell net operating losses, and would authorize the Franchise Tax Board to charge a fee for a startup innovator to participate in the program, as provided. The bill would provide that a net operating loss sold by a startup innovator would retain the attributes it had in the hands of the seller, including any carryback or carryforward attributes. The bill would allow a purchaser of a net operating loss to apply the net operating loss to closed taxable years upon appropriation by the Legislature. The bill would repeal these provisions as of January 1, 2029.The Personal Income Tax Law and the Corporation Tax Law, in conformity with federal income tax law, generally define gross income as income from whatever source derived, except as specifically excluded. Those laws also provide various exclusions from gross income. This bill would, for taxable years beginning on or after January 1, 2024, and before January 1, 2029, exclude from gross income any amount received by a startup innovator for the sale of a net operating loss.Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements. This bill would include additional information required for any bill authorizing a new tax expenditure. This bill would make findings and declarations related to a gift of public funds.Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO | |
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| 11 | 10 | CALIFORNIA LEGISLATURE 20232024 REGULAR SESSION | |
| 12 | 11 | ||
| 13 | 12 | Assembly Bill | |
| 14 | 13 | ||
| 15 | 14 | No. 1105 | |
| 16 | 15 | ||
| 17 | 16 | Introduced by Assembly Member Petrie-NorrisFebruary 15, 2023 | |
| 18 | 17 | ||
| 19 | 18 | Introduced by Assembly Member Petrie-Norris | |
| 20 | 19 | February 15, 2023 | |
| 21 | 20 | ||
| 22 | - | An act to amend, repeal, and add Sections 17276 and 24416 of, and to add and repeal Sections 17137 and 24309. | |
| 21 | + | An act to amend amend, repeal, and add Sections 17276 and 24416 of, and to add and repeal Sections 17137 and 24309.4 to, 24309.7 of, the Revenue and Taxation Code, relating to taxation. | |
| 23 | 22 | ||
| 24 | 23 | LEGISLATIVE COUNSEL'S DIGEST | |
| 25 | 24 | ||
| 26 | 25 | ## LEGISLATIVE COUNSEL'S DIGEST | |
| 27 | 26 | ||
| 28 | 27 | AB 1105, as amended, Petrie-Norris. Personal Income Tax Law: Corporation Tax Law: sale of net operating losses. | |
| 29 | 28 | ||
| 30 | - | The Personal Income Tax Law and the Corporation Tax Law, in modified conformity with federal income tax laws, allow various deductions in computing the income that is subject to the taxes imposed by those laws, including a deduction for a net operating loss, as specified. This bill would allow a startup innovator, as defined, to sell a net operating loss to an unrelated taxpayer | |
| 29 | + | The Personal Income Tax Law and the Corporation Tax Law, in modified conformity with federal income tax laws, allow various deductions in computing the income that is subject to the taxes imposed by those laws, including a deduction for a net operating loss, as specified. This bill would allow a startup innovator, as defined, to sell a net operating loss to an unrelated taxpayer. The bill would require the sale price of a net operating loss to be at least 80% of the value of the net operating loss being transferred, and would limit a startup innovator to selling no more than $20,000,000 worth of net operating losses in the aggregate, as provided. The bill would require the Franchise Tax Board to establish a program through which a startup innovator may apply to sell net operating losses, and would authorize the Franchise Tax Board to charge a fee for a startup innovator to participate in the program, as provided. The bill would provide that a net operating loss sold by a startup innovator would retain the attributes it had in the hands of the seller, including any carryback or carryforward attributes. The bill would allow a purchaser of a net operating loss to apply the net operating loss to closed taxable years upon appropriation by the Legislature. The bill would repeal these provisions as of January 1, 2029.The Personal Income Tax Law and the Corporation Tax Law, in conformity with federal income tax law, generally define gross income as income from whatever source derived, except as specifically excluded. Those laws also provide various exclusions from gross income. This bill would, for taxable years beginning on or after January 1, 2024, and before January 1, 2029, exclude from gross income any amount received by a startup innovator for the sale of a net operating loss.Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements. This bill would include additional information required for any bill authorizing a new tax expenditure. This bill would make findings and declarations related to a gift of public funds. | |
| 31 | 30 | ||
| 32 | 31 | The Personal Income Tax Law and the Corporation Tax Law, in modified conformity with federal income tax laws, allow various deductions in computing the income that is subject to the taxes imposed by those laws, including a deduction for a net operating loss, as specified. | |
| 33 | 32 | ||
| 34 | - | This bill would allow a startup innovator, as defined, to sell a net operating loss to an unrelated taxpayer | |
| 33 | + | This bill would allow a startup innovator, as defined, to sell a net operating loss to an unrelated taxpayer. The bill would require the sale price of a net operating loss to be at least 80% of the value of the net operating loss being transferred, and would limit a startup innovator to selling no more than $20,000,000 worth of net operating losses in the aggregate, as provided. The bill would require the Franchise Tax Board to establish a program through which a startup innovator may apply to sell net operating losses, and would authorize the Franchise Tax Board to charge a fee for a startup innovator to participate in the program, as provided. The bill would provide that a net operating loss sold by a startup innovator would retain the attributes it had in the hands of the seller, including any carryback or carryforward attributes. The bill would allow a purchaser of a net operating loss to apply the net operating loss to closed taxable years upon appropriation by the Legislature. The bill would repeal these provisions as of January 1, 2029. | |
| 35 | 34 | ||
| 36 | 35 | The Personal Income Tax Law and the Corporation Tax Law, in conformity with federal income tax law, generally define gross income as income from whatever source derived, except as specifically excluded. Those laws also provide various exclusions from gross income. | |
| 37 | 36 | ||
| 38 | 37 | This bill would, for taxable years beginning on or after January 1, 2024, and before January 1, 2029, exclude from gross income any amount received by a startup innovator for the sale of a net operating loss. | |
| 39 | 38 | ||
| 40 | 39 | Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements. | |
| 41 | 40 | ||
| 42 | 41 | This bill would include additional information required for any bill authorizing a new tax expenditure. | |
| 43 | 42 | ||
| 44 | 43 | This bill would make findings and declarations related to a gift of public funds. | |
| 45 | 44 | ||
| 46 | - | ||
| 47 | - | ||
| 48 | - | The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. | |
| 49 | - | ||
| 50 | - | This bill would provide that no reimbursement is required by this act for a specified reason. | |
| 51 | - | ||
| 52 | - | This bill would take effect immediately as a tax levy. | |
| 53 | - | ||
| 54 | 45 | ## Digest Key | |
| 55 | 46 | ||
| 56 | 47 | ## Bill Text | |
| 57 | 48 | ||
| 58 | - | The people of the State of California do enact as follows:SECTION 1. Section 17137 is added to the Revenue and Taxation Code, to read:17137. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (h) of Section 17276, for the sale of a net operating loss.(b) (1) For purposes of complying with Section 41, as it applies to the exclusion provided by this section and Section 24309.4, | |
| 49 | + | The people of the State of California do enact as follows:SECTION 1. Section 17137 is added to the Revenue and Taxation Code, to read:17137. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (h) of Section 17276, for the sale of a net operating loss.(b) (1) For purposes of complying with Section 41, as it applies to the exclusion provided by this section and Section 24309.4, the Legislature finds and declares as follows:(A) The goal, purpose, and objective of the exclusion is to promote competition and reduce oligopolistic consolidation in Californias STEM sector by enabling innovative startups to survive periods of net operating loss.(B) The performance indicators for the Legislature to use in determining whether the exclusion is achieving the stated goal shall be the number of taxpayers that have sold net operating losses and the total dollar amount of net operating losses sold.(2) (A) The Franchise Tax Board, no later than November 1, 2025, and annually thereafter, shall provide a report to the Legislature, in compliance with Section 9795 of the Government Code, detailing the number of taxpayers that have sold net operating losses, and the total dollar value of net operating losses sold.(B) The disclosure provisions of this paragraph shall be treated as an exception to Section 19542.(c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed.SEC. 2. Section 17276 of the Revenue and Taxation Code is amended to read:17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation.(f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7.(h) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator.(2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following:(A) Is primarily engaged in a science, technology, engineering, or mathematics business.(B) Owns registered trademarks, copyrights, or patents.(C) Has no more than 300 employees.(3) (A) A sale of a net operating loss pursuant to this subdivision shall be for at least 80 percent of the value of the net operating loss transferred.(B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest.(4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses.(B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program.(C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply.(D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose.(E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss.(5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. (i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(k) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.(l) This section shall remain in effect only until January 1, 2029, and as of that date is repealed.SEC. 3. Section 17276 is added to the Revenue and Taxation Code, to read:17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation.(f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7.(h) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(i) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(j) This section shall become operative on January 1, 2029.SEC. 3.Section 24309.4 is added to the Revenue and Taxation Code, to read:24309.4.SEC. 4. Section 24309.7 is added to the Revenue and Taxation Code, to read:24309.7. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (i) of Section 24416, for the sale of a net operating loss.(b) For purposes of complying with Section 41, the goal, purpose, objective, performance indicators, and data collection requirements for the exclusion allowed by this section shall be as specified in subdivision (b) of Section 17137. (c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed.SEC. 4.SEC. 5. Section 24416 of the Revenue and Taxation Code is amended to read:24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward that may be deducted in any taxable year.(i) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator.(2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following:(A) Is primarily engaged in a science, technology, engineering, or mathematics business.(B) Owns registered trademarks, copyrights, or patents.(C) Has no more than 300 employees.(3) (A) A sale of a net operating loss pursuant to this subdivision must be for at least 80 percent of the value of the net operating loss transferred.(B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest.(4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses.(B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program.(C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply.(D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose.(E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss.(5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. (j) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(k) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(l) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.(m) This section shall remain in effect only until January 1, 2029, and as of that date is repealed.SEC. 6. Section 24416 is added to the Revenue and Taxation Code, to read:24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward that may be deducted in any taxable year.(i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(k) This section shall become operative on January 1, 2029.SEC. 5.SEC. 7. The Legislature hereby finds and declares that the ability of innovative startups to transfer net operating losses for value, as provided by this act, serves the public purpose of promoting competition and reducing oligopolistic consolidation in the science, technology, engineering, and math (STEM) sector of Californias economy and does not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution. | |
| 59 | 50 | ||
| 60 | 51 | The people of the State of California do enact as follows: | |
| 61 | 52 | ||
| 62 | 53 | ## The people of the State of California do enact as follows: | |
| 63 | 54 | ||
| 64 | - | SECTION 1. Section 17137 is added to the Revenue and Taxation Code, to read:17137. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (h) of Section 17276, for the sale of a net operating loss.(b) (1) For purposes of complying with Section 41, as it applies to the exclusion provided by this section and Section 24309.4 | |
| 55 | + | SECTION 1. Section 17137 is added to the Revenue and Taxation Code, to read:17137. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (h) of Section 17276, for the sale of a net operating loss.(b) (1) For purposes of complying with Section 41, as it applies to the exclusion provided by this section and Section 24309.4, the Legislature finds and declares as follows:(A) The goal, purpose, and objective of the exclusion is to promote competition and reduce oligopolistic consolidation in Californias STEM sector by enabling innovative startups to survive periods of net operating loss.(B) The performance indicators for the Legislature to use in determining whether the exclusion is achieving the stated goal shall be the number of taxpayers that have sold net operating losses and the total dollar amount of net operating losses sold.(2) (A) The Franchise Tax Board, no later than November 1, 2025, and annually thereafter, shall provide a report to the Legislature, in compliance with Section 9795 of the Government Code, detailing the number of taxpayers that have sold net operating losses, and the total dollar value of net operating losses sold.(B) The disclosure provisions of this paragraph shall be treated as an exception to Section 19542.(c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed. | |
| 65 | 56 | ||
| 66 | 57 | SECTION 1. Section 17137 is added to the Revenue and Taxation Code, to read: | |
| 67 | 58 | ||
| 68 | 59 | ### SECTION 1. | |
| 69 | 60 | ||
| 70 | - | 17137. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (h) of Section 17276, for the sale of a net operating loss.(b) (1) For purposes of complying with Section 41, as it applies to the exclusion provided by this section and Section 24309.4 | |
| 61 | + | 17137. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (h) of Section 17276, for the sale of a net operating loss.(b) (1) For purposes of complying with Section 41, as it applies to the exclusion provided by this section and Section 24309.4, the Legislature finds and declares as follows:(A) The goal, purpose, and objective of the exclusion is to promote competition and reduce oligopolistic consolidation in Californias STEM sector by enabling innovative startups to survive periods of net operating loss.(B) The performance indicators for the Legislature to use in determining whether the exclusion is achieving the stated goal shall be the number of taxpayers that have sold net operating losses and the total dollar amount of net operating losses sold.(2) (A) The Franchise Tax Board, no later than November 1, 2025, and annually thereafter, shall provide a report to the Legislature, in compliance with Section 9795 of the Government Code, detailing the number of taxpayers that have sold net operating losses, and the total dollar value of net operating losses sold.(B) The disclosure provisions of this paragraph shall be treated as an exception to Section 19542.(c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed. | |
| 71 | 62 | ||
| 72 | - | 17137. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (h) of Section 17276, for the sale of a net operating loss.(b) (1) For purposes of complying with Section 41, as it applies to the exclusion provided by this section and Section 24309.4 | |
| 63 | + | 17137. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (h) of Section 17276, for the sale of a net operating loss.(b) (1) For purposes of complying with Section 41, as it applies to the exclusion provided by this section and Section 24309.4, the Legislature finds and declares as follows:(A) The goal, purpose, and objective of the exclusion is to promote competition and reduce oligopolistic consolidation in Californias STEM sector by enabling innovative startups to survive periods of net operating loss.(B) The performance indicators for the Legislature to use in determining whether the exclusion is achieving the stated goal shall be the number of taxpayers that have sold net operating losses and the total dollar amount of net operating losses sold.(2) (A) The Franchise Tax Board, no later than November 1, 2025, and annually thereafter, shall provide a report to the Legislature, in compliance with Section 9795 of the Government Code, detailing the number of taxpayers that have sold net operating losses, and the total dollar value of net operating losses sold.(B) The disclosure provisions of this paragraph shall be treated as an exception to Section 19542.(c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed. | |
| 73 | 64 | ||
| 74 | - | 17137. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (h) of Section 17276, for the sale of a net operating loss.(b) (1) For purposes of complying with Section 41, as it applies to the exclusion provided by this section and Section 24309.4 | |
| 65 | + | 17137. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (h) of Section 17276, for the sale of a net operating loss.(b) (1) For purposes of complying with Section 41, as it applies to the exclusion provided by this section and Section 24309.4, the Legislature finds and declares as follows:(A) The goal, purpose, and objective of the exclusion is to promote competition and reduce oligopolistic consolidation in Californias STEM sector by enabling innovative startups to survive periods of net operating loss.(B) The performance indicators for the Legislature to use in determining whether the exclusion is achieving the stated goal shall be the number of taxpayers that have sold net operating losses and the total dollar amount of net operating losses sold.(2) (A) The Franchise Tax Board, no later than November 1, 2025, and annually thereafter, shall provide a report to the Legislature, in compliance with Section 9795 of the Government Code, detailing the number of taxpayers that have sold net operating losses, and the total dollar value of net operating losses sold.(B) The disclosure provisions of this paragraph shall be treated as an exception to Section 19542.(c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed. | |
| 75 | 66 | ||
| 76 | 67 | ||
| 77 | 68 | ||
| 78 | 69 | 17137. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (h) of Section 17276, for the sale of a net operating loss. | |
| 79 | 70 | ||
| 80 | - | (b) (1) For purposes of complying with Section 41, as it applies to the exclusion provided by this section and Section 24309.4, | |
| 71 | + | (b) (1) For purposes of complying with Section 41, as it applies to the exclusion provided by this section and Section 24309.4, the Legislature finds and declares as follows: | |
| 81 | 72 | ||
| 82 | 73 | (A) The goal, purpose, and objective of the exclusion is to promote competition and reduce oligopolistic consolidation in Californias STEM sector by enabling innovative startups to survive periods of net operating loss. | |
| 83 | 74 | ||
| 84 | 75 | (B) The performance indicators for the Legislature to use in determining whether the exclusion is achieving the stated goal shall be the number of taxpayers that have sold net operating losses and the total dollar amount of net operating losses sold. | |
| 85 | 76 | ||
| 86 | - | (2) (A) The Franchise Tax Board, no later than November 1, 2025 | |
| 77 | + | (2) (A) The Franchise Tax Board, no later than November 1, 2025, and annually thereafter, shall provide a report to the Legislature, in compliance with Section 9795 of the Government Code, detailing the number of taxpayers that have sold net operating losses, and the total dollar value of net operating losses sold. | |
| 87 | 78 | ||
| 88 | 79 | (B) The disclosure provisions of this paragraph shall be treated as an exception to Section 19542. | |
| 89 | 80 | ||
| 90 | 81 | (c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed. | |
| 91 | 82 | ||
| 92 | - | SEC. 2. Section 17276 of the Revenue and Taxation Code is amended to read:17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation | |
| 83 | + | SEC. 2. Section 17276 of the Revenue and Taxation Code is amended to read:17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation.(f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7.(h) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator.(2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following:(A) Is primarily engaged in a science, technology, engineering, or mathematics business.(B) Owns registered trademarks, copyrights, or patents.(C) Has no more than 300 employees.(3) (A) A sale of a net operating loss pursuant to this subdivision shall be for at least 80 percent of the value of the net operating loss transferred.(B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest.(4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses.(B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program.(C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply.(D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose.(E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss.(5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. (i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(k) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.(l) This section shall remain in effect only until January 1, 2029, and as of that date is repealed. | |
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| 94 | 85 | SEC. 2. Section 17276 of the Revenue and Taxation Code is amended to read: | |
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| 96 | 87 | ### SEC. 2. | |
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| 98 | - | 17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation | |
| 89 | + | 17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation.(f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7.(h) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator.(2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following:(A) Is primarily engaged in a science, technology, engineering, or mathematics business.(B) Owns registered trademarks, copyrights, or patents.(C) Has no more than 300 employees.(3) (A) A sale of a net operating loss pursuant to this subdivision shall be for at least 80 percent of the value of the net operating loss transferred.(B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest.(4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses.(B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program.(C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply.(D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose.(E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss.(5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. (i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(k) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.(l) This section shall remain in effect only until January 1, 2029, and as of that date is repealed. | |
| 99 | 90 | ||
| 100 | - | 17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation | |
| 91 | + | 17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation.(f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7.(h) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator.(2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following:(A) Is primarily engaged in a science, technology, engineering, or mathematics business.(B) Owns registered trademarks, copyrights, or patents.(C) Has no more than 300 employees.(3) (A) A sale of a net operating loss pursuant to this subdivision shall be for at least 80 percent of the value of the net operating loss transferred.(B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest.(4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses.(B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program.(C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply.(D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose.(E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss.(5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. (i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(k) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.(l) This section shall remain in effect only until January 1, 2029, and as of that date is repealed. | |
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| 102 | - | 17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation | |
| 93 | + | 17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation.(f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7.(h) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator.(2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following:(A) Is primarily engaged in a science, technology, engineering, or mathematics business.(B) Owns registered trademarks, copyrights, or patents.(C) Has no more than 300 employees.(3) (A) A sale of a net operating loss pursuant to this subdivision shall be for at least 80 percent of the value of the net operating loss transferred.(B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest.(4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses.(B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program.(C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply.(D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose.(E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss.(5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. (i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(k) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.(l) This section shall remain in effect only until January 1, 2029, and as of that date is repealed. | |
| 103 | 94 | ||
| 104 | 95 | ||
| 105 | 96 | ||
| 106 | 97 | 17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows: | |
| 107 | 98 | ||
| 108 | 99 | (a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed. | |
| 109 | 100 | ||
| 110 | 101 | (2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987. | |
| 111 | 102 | ||
| 112 | 103 | (b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be: | |
| 113 | 104 | ||
| 114 | 105 | (A) Fifty percent for any taxable year beginning before January 1, 2000. | |
| 115 | 106 | ||
| 116 | 107 | (B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002. | |
| 117 | 108 | ||
| 118 | 109 | (C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004. | |
| 119 | 110 | ||
| 120 | 111 | (D) One hundred percent for any taxable year beginning on or after January 1, 2004. | |
| 121 | 112 | ||
| 122 | 113 | (2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business: | |
| 123 | 114 | ||
| 124 | 115 | (A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d). | |
| 125 | 116 | ||
| 126 | 117 | (B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows: | |
| 127 | 118 | ||
| 128 | 119 | (i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d). | |
| 129 | 120 | ||
| 130 | 121 | (ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d). | |
| 131 | 122 | ||
| 132 | 123 | (C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B). | |
| 133 | 124 | ||
| 134 | 125 | (3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply: | |
| 135 | 126 | ||
| 136 | 127 | (A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d). | |
| 137 | 128 | ||
| 138 | 129 | (B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows: | |
| 139 | 130 | ||
| 140 | 131 | (i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d). | |
| 141 | 132 | ||
| 142 | 133 | (ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d). | |
| 143 | 134 | ||
| 144 | 135 | (C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B). | |
| 145 | 136 | ||
| 146 | 137 | (4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business. | |
| 147 | 138 | ||
| 148 | 139 | (5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss. | |
| 149 | 140 | ||
| 150 | 141 | (6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code. | |
| 151 | 142 | ||
| 152 | 143 | (c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows: | |
| 153 | 144 | ||
| 154 | 145 | (1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013. | |
| 155 | 146 | ||
| 156 | 147 | (2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein. | |
| 157 | 148 | ||
| 158 | 149 | (A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss. | |
| 159 | 150 | ||
| 160 | 151 | (B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss. | |
| 161 | 152 | ||
| 162 | 153 | (C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss. | |
| 163 | 154 | ||
| 164 | 155 | (3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011. | |
| 165 | 156 | ||
| 166 | 157 | (d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3). | |
| 167 | 158 | ||
| 168 | 159 | (B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years. | |
| 169 | 160 | ||
| 170 | 161 | (2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows: | |
| 171 | 162 | ||
| 172 | 163 | (A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business. | |
| 173 | 164 | ||
| 174 | 165 | (B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business. | |
| 175 | 166 | ||
| 176 | 167 | (C) Six taxable years for a net operating loss attributable to the third taxable year of that new business. | |
| 177 | 168 | ||
| 178 | 169 | (3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows: | |
| 179 | 170 | ||
| 180 | 171 | (A) By one year for a net operating loss attributable to taxable years beginning in 1991. | |
| 181 | 172 | ||
| 182 | 173 | (B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991. | |
| 183 | 174 | ||
| 184 | 175 | (4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case. | |
| 185 | 176 | ||
| 186 | 177 | (e) For purposes of this section: | |
| 187 | 178 | ||
| 188 | 179 | (1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year. | |
| 189 | 180 | ||
| 190 | 181 | (2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994. | |
| 191 | 182 | ||
| 192 | 183 | (3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code. | |
| 193 | 184 | ||
| 194 | - | (4) In the case of any trade or business activity conducted by a partnership or S corporation | |
| 185 | + | (4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation. | |
| 195 | 186 | ||
| 196 | 187 | (f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply: | |
| 197 | 188 | ||
| 198 | 189 | (1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply: | |
| 199 | 190 | ||
| 200 | 191 | (A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity. | |
| 201 | 192 | ||
| 202 | 193 | (B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person). | |
| 203 | 194 | ||
| 204 | 195 | (2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities. | |
| 205 | 196 | ||
| 206 | 197 | (3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e). | |
| 207 | 198 | ||
| 208 | 199 | (4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1). | |
| 209 | 200 | ||
| 210 | 201 | (5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code. | |
| 211 | 202 | ||
| 212 | 203 | (6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration. | |
| 213 | 204 | ||
| 214 | 205 | (7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration. | |
| 215 | 206 | ||
| 216 | 207 | (B) For purposes of this paragraph: | |
| 217 | 208 | ||
| 218 | 209 | (i) Biopharmaceutical 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. | |
| 219 | 210 | ||
| 220 | 211 | (ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery. | |
| 221 | 212 | ||
| 222 | 213 | (g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7. | |
| 223 | 214 | ||
| 224 | - | (h) (1) (A) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator. | |
| 225 | - | ||
| 226 | - | (B) Notwithstanding subparagraph (A), a net operating loss that is purchased pursuant to this subdivision may not be transferred by the purchaser. | |
| 215 | + | (h) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator. | |
| 227 | 216 | ||
| 228 | 217 | (2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following: | |
| 229 | 218 | ||
| 230 | - | (A) Is primarily engaged in a science, technology, engineering, or mathematics business. | |
| 219 | + | (A) Is primarily engaged in a science, technology, engineering, or mathematics business. | |
| 231 | 220 | ||
| 232 | 221 | (B) Owns registered trademarks, copyrights, or patents. | |
| 233 | 222 | ||
| 234 | 223 | (C) Has no more than 300 employees. | |
| 235 | - | ||
| 236 | - | (D) Has not existed for longer than 10 years. | |
| 237 | - | ||
| 238 | - | (E) Is not a member of a combined reporting group. | |
| 239 | - | ||
| 240 | - | (F) Is headquartered in California. | |
| 241 | 224 | ||
| 242 | 225 | (3) (A) A sale of a net operating loss pursuant to this subdivision shall be for at least 80 percent of the value of the net operating loss transferred. | |
| 243 | 226 | ||
| 244 | 227 | (B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest. | |
| 245 | 228 | ||
| 246 | 229 | (4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses. | |
| 247 | 230 | ||
| 248 | - | ||
| 249 | - | ||
| 250 | 231 | (B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program. | |
| 251 | 232 | ||
| 233 | + | (C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply. | |
| 252 | 234 | ||
| 235 | + | (D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose. | |
| 253 | 236 | ||
| 254 | - | ( | |
| 237 | + | (E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss. | |
| 255 | 238 | ||
| 256 | - | (C) | |
| 257 | - | ||
| 258 | - | ||
| 259 | - | ||
| 260 | - | (5) (A) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply. | |
| 261 | - | ||
| 262 | - | (D) | |
| 263 | - | ||
| 264 | - | ||
| 265 | - | ||
| 266 | - | (B) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose. a taxable year beginning on or after January 1, 2024. | |
| 267 | - | ||
| 268 | - | (E) | |
| 269 | - | ||
| 270 | - | ||
| 271 | - | ||
| 272 | - | (C) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss. | |
| 273 | - | ||
| 274 | - | (5) | |
| 275 | - | ||
| 276 | - | ||
| 277 | - | ||
| 278 | - | (6) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. | |
| 239 | + | (5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. | |
| 279 | 240 | ||
| 280 | 241 | (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. | |
| 281 | 242 | ||
| 282 | 243 | (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. | |
| 283 | - | ||
| 284 | - | (7) The provisions of this subdivision are severable. If any provision of this subdivision or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application. | |
| 285 | 244 | ||
| 286 | 245 | (i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise. | |
| 287 | 246 | ||
| 288 | 247 | (j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section. | |
| 289 | 248 | ||
| 290 | 249 | (k) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000. | |
| 291 | 250 | ||
| 292 | 251 | (l) This section shall remain in effect only until January 1, 2029, and as of that date is repealed. | |
| 293 | 252 | ||
| 294 | 253 | SEC. 3. Section 17276 is added to the Revenue and Taxation Code, to read:17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation.(f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7.(h) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(i) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(j) This section shall become operative on January 1, 2029. | |
| 295 | 254 | ||
| 296 | 255 | SEC. 3. Section 17276 is added to the Revenue and Taxation Code, to read: | |
| 297 | 256 | ||
| 298 | 257 | ### SEC. 3. | |
| 299 | 258 | ||
| 300 | 259 | 17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation.(f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7.(h) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(i) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(j) This section shall become operative on January 1, 2029. | |
| 301 | 260 | ||
| 302 | 261 | 17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation.(f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7.(h) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(i) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(j) This section shall become operative on January 1, 2029. | |
| 303 | 262 | ||
| 304 | 263 | 17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3).(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.(e) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.(2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation.(f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7.(h) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(i) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(j) This section shall become operative on January 1, 2029. | |
| 305 | 264 | ||
| 306 | 265 | ||
| 307 | 266 | ||
| 308 | 267 | 17276. Except as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows: | |
| 309 | 268 | ||
| 310 | 269 | (a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed. | |
| 311 | 270 | ||
| 312 | 271 | (2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987. | |
| 313 | 272 | ||
| 314 | 273 | (b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be: | |
| 315 | 274 | ||
| 316 | 275 | (A) Fifty percent for any taxable year beginning before January 1, 2000. | |
| 317 | 276 | ||
| 318 | 277 | (B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002. | |
| 319 | 278 | ||
| 320 | 279 | (C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004. | |
| 321 | 280 | ||
| 322 | 281 | (D) One hundred percent for any taxable year beginning on or after January 1, 2004. | |
| 323 | 282 | ||
| 324 | 283 | (2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business: | |
| 325 | 284 | ||
| 326 | 285 | (A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d). | |
| 327 | 286 | ||
| 328 | 287 | (B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows: | |
| 329 | 288 | ||
| 330 | 289 | (i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d). | |
| 331 | 290 | ||
| 332 | 291 | (ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d). | |
| 333 | 292 | ||
| 334 | 293 | (C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B). | |
| 335 | 294 | ||
| 336 | 295 | (3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply: | |
| 337 | 296 | ||
| 338 | 297 | (A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d). | |
| 339 | 298 | ||
| 340 | 299 | (B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows: | |
| 341 | 300 | ||
| 342 | 301 | (i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d). | |
| 343 | 302 | ||
| 344 | 303 | (ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d). | |
| 345 | 304 | ||
| 346 | 305 | (C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B). | |
| 347 | 306 | ||
| 348 | 307 | (4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business. | |
| 349 | 308 | ||
| 350 | 309 | (5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss. | |
| 351 | 310 | ||
| 352 | 311 | (6) For purposes of this section, the term net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code. | |
| 353 | 312 | ||
| 354 | 313 | (c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows: | |
| 355 | 314 | ||
| 356 | 315 | (1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013. | |
| 357 | 316 | ||
| 358 | 317 | (2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein. | |
| 359 | 318 | ||
| 360 | 319 | (A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss. | |
| 361 | 320 | ||
| 362 | 321 | (B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss. | |
| 363 | 322 | ||
| 364 | 323 | (C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss. | |
| 365 | 324 | ||
| 366 | 325 | (3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011. | |
| 367 | 326 | ||
| 368 | 327 | (d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 taxable years except as otherwise provided in paragraphs (2) and (3). | |
| 369 | 328 | ||
| 370 | 329 | (B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years. | |
| 371 | 330 | ||
| 372 | 331 | (2) For any taxable year beginning before January 1, 2000, in the case of a new business, the five taxable years in paragraph (1) shall be modified to read as follows: | |
| 373 | 332 | ||
| 374 | 333 | (A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business. | |
| 375 | 334 | ||
| 376 | 335 | (B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business. | |
| 377 | 336 | ||
| 378 | 337 | (C) Six taxable years for a net operating loss attributable to the third taxable year of that new business. | |
| 379 | 338 | ||
| 380 | 339 | (3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows: | |
| 381 | 340 | ||
| 382 | 341 | (A) By one year for a net operating loss attributable to taxable years beginning in 1991. | |
| 383 | 342 | ||
| 384 | 343 | (B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991. | |
| 385 | 344 | ||
| 386 | 345 | (4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case. | |
| 387 | 346 | ||
| 388 | 347 | (e) For purposes of this section: | |
| 389 | 348 | ||
| 390 | 349 | (1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year. | |
| 391 | 350 | ||
| 392 | 351 | (2) Except as provided in subdivision (f), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994. | |
| 393 | 352 | ||
| 394 | 353 | (3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code. | |
| 395 | 354 | ||
| 396 | 355 | (4) In the case of any trade or business activity conducted by a partnership or S corporation paragraphs (1) and (2) shall be applied to the partnership or S corporation. | |
| 397 | 356 | ||
| 398 | 357 | (f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply: | |
| 399 | 358 | ||
| 400 | 359 | (1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply: | |
| 401 | 360 | ||
| 402 | 361 | (A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity. | |
| 403 | 362 | ||
| 404 | 363 | (B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person). | |
| 405 | 364 | ||
| 406 | 365 | (2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities. | |
| 407 | 366 | ||
| 408 | 367 | (3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e). | |
| 409 | 368 | ||
| 410 | 369 | (4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1). | |
| 411 | 370 | ||
| 412 | 371 | (5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code. | |
| 413 | 372 | ||
| 414 | 373 | (6) Acquire shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration. | |
| 415 | 374 | ||
| 416 | 375 | (7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration. | |
| 417 | 376 | ||
| 418 | 377 | (B) For purposes of this paragraph: | |
| 419 | 378 | ||
| 420 | 379 | (i) Biopharmaceutical 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. | |
| 421 | 380 | ||
| 422 | 381 | (ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery. | |
| 423 | 382 | ||
| 424 | 383 | (g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a qualified taxpayer as provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and 17276.7. | |
| 425 | 384 | ||
| 426 | 385 | (h) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise. | |
| 427 | 386 | ||
| 428 | 387 | (i) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section. | |
| 429 | 388 | ||
| 430 | 389 | (j) This section shall become operative on January 1, 2029. | |
| 431 | 390 | ||
| 432 | 391 | ||
| 433 | 392 | ||
| 434 | 393 | ||
| 435 | 394 | ||
| 436 | - | SEC. 4. Section 24309. | |
| 395 | + | SEC. 4. Section 24309.7 is added to the Revenue and Taxation Code, to read:24309.7. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (i) of Section 24416, for the sale of a net operating loss.(b) For purposes of complying with Section 41, the goal, purpose, objective, performance indicators, and data collection requirements for the exclusion allowed by this section shall be as specified in subdivision (b) of Section 17137. (c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed. | |
| 437 | 396 | ||
| 438 | - | SEC. 4. Section 24309. | |
| 397 | + | SEC. 4. Section 24309.7 is added to the Revenue and Taxation Code, to read: | |
| 439 | 398 | ||
| 440 | 399 | ### SEC. 4. | |
| 441 | 400 | ||
| 442 | - | 24309. | |
| 401 | + | 24309.7. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (i) of Section 24416, for the sale of a net operating loss.(b) For purposes of complying with Section 41, the goal, purpose, objective, performance indicators, and data collection requirements for the exclusion allowed by this section shall be as specified in subdivision (b) of Section 17137. (c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed. | |
| 443 | 402 | ||
| 444 | - | 24309. | |
| 403 | + | 24309.7. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (i) of Section 24416, for the sale of a net operating loss.(b) For purposes of complying with Section 41, the goal, purpose, objective, performance indicators, and data collection requirements for the exclusion allowed by this section shall be as specified in subdivision (b) of Section 17137. (c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed. | |
| 445 | 404 | ||
| 446 | - | 24309. | |
| 405 | + | 24309.7. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (i) of Section 24416, for the sale of a net operating loss.(b) For purposes of complying with Section 41, the goal, purpose, objective, performance indicators, and data collection requirements for the exclusion allowed by this section shall be as specified in subdivision (b) of Section 17137. (c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed. | |
| 447 | 406 | ||
| 448 | 407 | ||
| 449 | 408 | ||
| 450 | - | 24309. | |
| 409 | + | 24309.7. (a) For taxable years beginning on or after January 1, 2024, and before January 1, 2029, gross income does not include any amount received by a startup innovator, as that term is defined in paragraph (2) of subdivision (i) of Section 24416, for the sale of a net operating loss. | |
| 451 | 410 | ||
| 452 | 411 | (b) For purposes of complying with Section 41, the goal, purpose, objective, performance indicators, and data collection requirements for the exclusion allowed by this section shall be as specified in subdivision (b) of Section 17137. | |
| 453 | 412 | ||
| 454 | 413 | (c) This section shall remain in effect only until December 1, 2029, and as of that date is repealed. | |
| 455 | 414 | ||
| 456 | - | SEC. 5. Section 24416 of the Revenue and Taxation Code is amended to read:24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward | |
| 415 | + | SEC. 4.SEC. 5. Section 24416 of the Revenue and Taxation Code is amended to read:24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward that may be deducted in any taxable year.(i) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator.(2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following:(A) Is primarily engaged in a science, technology, engineering, or mathematics business.(B) Owns registered trademarks, copyrights, or patents.(C) Has no more than 300 employees.(3) (A) A sale of a net operating loss pursuant to this subdivision must be for at least 80 percent of the value of the net operating loss transferred.(B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest.(4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses.(B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program.(C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply.(D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose.(E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss.(5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. (j) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(k) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(l) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.(m) This section shall remain in effect only until January 1, 2029, and as of that date is repealed. | |
| 457 | 416 | ||
| 458 | - | SEC. 5. Section 24416 of the Revenue and Taxation Code is amended to read: | |
| 417 | + | SEC. 4.SEC. 5. Section 24416 of the Revenue and Taxation Code is amended to read: | |
| 459 | 418 | ||
| 460 | - | ### SEC. 5. | |
| 419 | + | ### SEC. 4.SEC. 5. | |
| 461 | 420 | ||
| 462 | - | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward | |
| 421 | + | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward that may be deducted in any taxable year.(i) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator.(2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following:(A) Is primarily engaged in a science, technology, engineering, or mathematics business.(B) Owns registered trademarks, copyrights, or patents.(C) Has no more than 300 employees.(3) (A) A sale of a net operating loss pursuant to this subdivision must be for at least 80 percent of the value of the net operating loss transferred.(B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest.(4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses.(B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program.(C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply.(D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose.(E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss.(5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. (j) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(k) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(l) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.(m) This section shall remain in effect only until January 1, 2029, and as of that date is repealed. | |
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| 464 | - | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward | |
| 423 | + | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward that may be deducted in any taxable year.(i) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator.(2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following:(A) Is primarily engaged in a science, technology, engineering, or mathematics business.(B) Owns registered trademarks, copyrights, or patents.(C) Has no more than 300 employees.(3) (A) A sale of a net operating loss pursuant to this subdivision must be for at least 80 percent of the value of the net operating loss transferred.(B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest.(4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses.(B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program.(C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply.(D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose.(E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss.(5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. (j) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(k) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(l) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.(m) This section shall remain in effect only until January 1, 2029, and as of that date is repealed. | |
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| 466 | - | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward | |
| 425 | + | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward that may be deducted in any taxable year.(i) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator.(2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following:(A) Is primarily engaged in a science, technology, engineering, or mathematics business.(B) Owns registered trademarks, copyrights, or patents.(C) Has no more than 300 employees.(3) (A) A sale of a net operating loss pursuant to this subdivision must be for at least 80 percent of the value of the net operating loss transferred.(B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest.(4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses.(B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program.(C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply.(D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose.(E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss.(5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. (j) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(k) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(l) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.(m) This section shall remain in effect only until January 1, 2029, and as of that date is repealed. | |
| 467 | 426 | ||
| 468 | 427 | ||
| 469 | 428 | ||
| 470 | 429 | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided. | |
| 471 | 430 | ||
| 472 | 431 | (a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed. | |
| 473 | 432 | ||
| 474 | 433 | (2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987. | |
| 475 | 434 | ||
| 476 | 435 | (b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be: | |
| 477 | 436 | ||
| 478 | 437 | (A) Fifty percent for any taxable year beginning before January 1, 2000. | |
| 479 | 438 | ||
| 480 | 439 | (B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002. | |
| 481 | 440 | ||
| 482 | 441 | (C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004. | |
| 483 | 442 | ||
| 484 | 443 | (D) One hundred percent for any taxable year beginning on or after January 1, 2004. | |
| 485 | 444 | ||
| 486 | 445 | (2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business: | |
| 487 | 446 | ||
| 488 | 447 | (A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e). | |
| 489 | 448 | ||
| 490 | 449 | (B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows: | |
| 491 | 450 | ||
| 492 | 451 | (i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e). | |
| 493 | 452 | ||
| 494 | 453 | (ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d). | |
| 495 | 454 | ||
| 496 | 455 | (C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B). | |
| 497 | 456 | ||
| 498 | 457 | (3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply: | |
| 499 | 458 | ||
| 500 | 459 | (A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e). | |
| 501 | 460 | ||
| 502 | 461 | (B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows: | |
| 503 | 462 | ||
| 504 | 463 | (i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e). | |
| 505 | 464 | ||
| 506 | 465 | (ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e). | |
| 507 | 466 | ||
| 508 | 467 | (C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B). | |
| 509 | 468 | ||
| 510 | 469 | (4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business. | |
| 511 | 470 | ||
| 512 | 471 | (5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss. | |
| 513 | 472 | ||
| 514 | 473 | (6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code. | |
| 515 | 474 | ||
| 516 | 475 | (c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred. | |
| 517 | 476 | ||
| 518 | 477 | (d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows: | |
| 519 | 478 | ||
| 520 | 479 | (1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013. | |
| 521 | 480 | ||
| 522 | 481 | (2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein. | |
| 523 | 482 | ||
| 524 | 483 | (A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss. | |
| 525 | 484 | ||
| 526 | 485 | (B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss. | |
| 527 | 486 | ||
| 528 | 487 | (C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss. | |
| 529 | 488 | ||
| 530 | 489 | (3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011. | |
| 531 | 490 | ||
| 532 | 491 | (e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4). | |
| 533 | 492 | ||
| 534 | 493 | (B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years. | |
| 535 | 494 | ||
| 536 | 495 | (2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows: | |
| 537 | 496 | ||
| 538 | 497 | (A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business. | |
| 539 | 498 | ||
| 540 | 499 | (B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business. | |
| 541 | 500 | ||
| 542 | 501 | (C) Six taxable years for a net operating loss attributable to the third taxable year of that new business. | |
| 543 | 502 | ||
| 544 | 503 | (3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows: | |
| 545 | 504 | ||
| 546 | 505 | (A) By one year for a net operating loss attributable to taxable years beginning in 1991. | |
| 547 | 506 | ||
| 548 | 507 | (B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991. | |
| 549 | 508 | ||
| 550 | 509 | (4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following: | |
| 551 | 510 | ||
| 552 | 511 | (A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case. | |
| 553 | 512 | ||
| 554 | 513 | (B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code. | |
| 555 | 514 | ||
| 556 | 515 | (f) For purposes of this section: | |
| 557 | 516 | ||
| 558 | 517 | (1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year. | |
| 559 | 518 | ||
| 560 | 519 | (2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994. | |
| 561 | 520 | ||
| 562 | 521 | (3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code. | |
| 563 | 522 | ||
| 564 | 523 | (4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation. | |
| 565 | 524 | ||
| 566 | 525 | (g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply: | |
| 567 | 526 | ||
| 568 | 527 | (1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply: | |
| 569 | 528 | ||
| 570 | 529 | (A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity. | |
| 571 | 530 | ||
| 572 | 531 | (B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person). | |
| 573 | 532 | ||
| 574 | 533 | (2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities. | |
| 575 | 534 | ||
| 576 | 535 | (3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e). | |
| 577 | 536 | ||
| 578 | 537 | (4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1). | |
| 579 | 538 | ||
| 580 | 539 | (5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code. | |
| 581 | 540 | ||
| 582 | 541 | (6) Acquire shall include any transfer, whether or not for consideration. | |
| 583 | 542 | ||
| 584 | 543 | (7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration. | |
| 585 | 544 | ||
| 586 | 545 | (B) For purposes of this paragraph: | |
| 587 | 546 | ||
| 588 | 547 | (i) Biopharmaceutical 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. | |
| 589 | 548 | ||
| 590 | 549 | (ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery. | |
| 591 | 550 | ||
| 592 | 551 | (h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following: | |
| 593 | 552 | ||
| 594 | 553 | (1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year. | |
| 595 | 554 | ||
| 596 | - | (2) The amount of any loss carry forward | |
| 555 | + | (2) The amount of any loss carry forward that may be deducted in any taxable year. | |
| 597 | 556 | ||
| 598 | - | (i) (1) (A) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator. | |
| 599 | - | ||
| 600 | - | (B) Notwithstanding subparagraph (A), a net operating loss that is purchased pursuant to this subdivision may not be transferred by the purchaser. | |
| 557 | + | (i) (1) A startup innovator may sell a net operating loss to a taxpayer that is not related to the startup innovator. | |
| 601 | 558 | ||
| 602 | 559 | (2) For purposes of this subdivision, startup innovator means a taxpayer that satisfies all of the following: | |
| 603 | 560 | ||
| 604 | - | (A) Is primarily engaged in a science, technology, engineering, or mathematics business. | |
| 561 | + | (A) Is primarily engaged in a science, technology, engineering, or mathematics business. | |
| 605 | 562 | ||
| 606 | 563 | (B) Owns registered trademarks, copyrights, or patents. | |
| 607 | 564 | ||
| 608 | 565 | (C) Has no more than 300 employees. | |
| 609 | - | ||
| 610 | - | (D) Has not existed for longer than 10 years. | |
| 611 | - | ||
| 612 | - | (E) Is not a member of a combined reporting group. | |
| 613 | - | ||
| 614 | - | (F) Is headquartered in California. | |
| 615 | 566 | ||
| 616 | 567 | (3) (A) A sale of a net operating loss pursuant to this subdivision must be for at least 80 percent of the value of the net operating loss transferred. | |
| 617 | 568 | ||
| 618 | 569 | (B) A startup innovator may not sell more than twenty million dollars ($20,000,000) worth of net operating losses during the lifetime of the business. For purposes of this subparagraph, the sale of net operating losses by a predecessor in interest shall be included in the lifetime sales of a successor in interest. | |
| 619 | 570 | ||
| 620 | 571 | (4) (A) The Franchise Tax Board shall establish a program for startup innovators to apply for the ability to sell net operating losses. | |
| 621 | 572 | ||
| 622 | - | ||
| 623 | - | ||
| 624 | 573 | (B) The Franchise Tax Board may require a startup innovator to pay a fee to participate in the program established under subparagraph (A), not to exceed the estimated costs of administering the program. | |
| 625 | 574 | ||
| 575 | + | (C) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply. | |
| 626 | 576 | ||
| 577 | + | (D) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose. | |
| 627 | 578 | ||
| 628 | - | ( | |
| 579 | + | (E) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss. | |
| 629 | 580 | ||
| 630 | - | (C) | |
| 631 | - | ||
| 632 | - | ||
| 633 | - | ||
| 634 | - | (5) (A) A net operating loss that is sold by a startup innovator in accordance with this section shall retain the same characteristics in the hands of the purchaser as though it were generated by the purchaser in the same taxable year as it was generated by the startup innovator, including, but not limited to, carryback and carryforward provisions that may apply. | |
| 635 | - | ||
| 636 | - | (D) | |
| 637 | - | ||
| 638 | - | ||
| 639 | - | ||
| 640 | - | (B) A purchaser of a net operating loss may utilize the net operating loss in a closed taxable year only upon appropriation by the Legislature for this purpose. a taxable year beginning on or after January 1, 2024. | |
| 641 | - | ||
| 642 | - | (E) | |
| 643 | - | ||
| 644 | - | ||
| 645 | - | ||
| 646 | - | (C) Notwithstanding any other law, a purchaser of a net operating loss may not claim a deduction, either as an ordinary and necessary business expense or otherwise, for the cost paid to purchase the net operating loss. | |
| 647 | - | ||
| 648 | - | (5) | |
| 649 | - | ||
| 650 | - | ||
| 651 | - | ||
| 652 | - | (6) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. | |
| 581 | + | (5) (A) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this subdivision. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section. | |
| 653 | 582 | ||
| 654 | 583 | (B) (i) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this subdivision. | |
| 655 | 584 | ||
| 656 | 585 | (ii) The adoption of any regulations pursuant to clause (i) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board. | |
| 657 | - | ||
| 658 | - | (7) The provisions of this subdivision are severable. If any provision of this subdivision or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application. | |
| 659 | 586 | ||
| 660 | 587 | (j) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise. | |
| 661 | 588 | ||
| 662 | 589 | (k) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section. | |
| 663 | 590 | ||
| 664 | 591 | (l) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000. | |
| 665 | 592 | ||
| 666 | 593 | (m) This section shall remain in effect only until January 1, 2029, and as of that date is repealed. | |
| 667 | 594 | ||
| 668 | - | SEC. 6. Section 24416 is added to the Revenue and Taxation Code, to read:24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward | |
| 595 | + | SEC. 6. Section 24416 is added to the Revenue and Taxation Code, to read:24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward that may be deducted in any taxable year.(i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(k) This section shall become operative on January 1, 2029. | |
| 669 | 596 | ||
| 670 | 597 | SEC. 6. Section 24416 is added to the Revenue and Taxation Code, to read: | |
| 671 | 598 | ||
| 672 | 599 | ### SEC. 6. | |
| 673 | 600 | ||
| 674 | - | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward | |
| 601 | + | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward that may be deducted in any taxable year.(i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(k) This section shall become operative on January 1, 2029. | |
| 675 | 602 | ||
| 676 | - | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward | |
| 603 | + | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward that may be deducted in any taxable year.(i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(k) This section shall become operative on January 1, 2029. | |
| 677 | 604 | ||
| 678 | - | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward | |
| 605 | + | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.(b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:(A) Fifty percent for any taxable year beginning before January 1, 2000.(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(D) One hundred percent for any taxable year beginning on or after January 1, 2004.(2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).(4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.(6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.(c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4).(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years.(2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows:(A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business.(B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business.(C) Six taxable years for a net operating loss attributable to the third taxable year of that new business.(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:(A) By one year for a net operating loss attributable to taxable years beginning in 1991.(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.(f) For purposes of this section:(1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.(2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994.(3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.(4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation.(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities.(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).(5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.(6) Acquire shall include any transfer, whether or not for consideration.(7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.(B) For purposes of this paragraph:(i) Biopharmaceutical 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.(ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.(2) The amount of any loss carry forward that may be deducted in any taxable year.(i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.(j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.(k) This section shall become operative on January 1, 2029. | |
| 679 | 606 | ||
| 680 | 607 | ||
| 681 | 608 | ||
| 682 | 609 | 24416. Except as provided in Sections 24416.1, 24416.2, 24416.4, 24416.5, 24416.6, and 24416.7, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided. | |
| 683 | 610 | ||
| 684 | 611 | (a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed. | |
| 685 | 612 | ||
| 686 | 613 | (2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987. | |
| 687 | 614 | ||
| 688 | 615 | (b) (1) Except as provided in paragraphs (2) and (3), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be: | |
| 689 | 616 | ||
| 690 | 617 | (A) Fifty percent for any taxable year beginning before January 1, 2000. | |
| 691 | 618 | ||
| 692 | 619 | (B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002. | |
| 693 | 620 | ||
| 694 | 621 | (C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004. | |
| 695 | 622 | ||
| 696 | 623 | (D) One hundred percent for any taxable year beginning on or after January 1, 2004. | |
| 697 | 624 | ||
| 698 | 625 | (2) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business: | |
| 699 | 626 | ||
| 700 | 627 | (A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e). | |
| 701 | 628 | ||
| 702 | 629 | (B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows: | |
| 703 | 630 | ||
| 704 | 631 | (i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e). | |
| 705 | 632 | ||
| 706 | 633 | (ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d). | |
| 707 | 634 | ||
| 708 | 635 | (C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B). | |
| 709 | 636 | ||
| 710 | 637 | (3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply: | |
| 711 | 638 | ||
| 712 | 639 | (A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e). | |
| 713 | 640 | ||
| 714 | 641 | (B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows: | |
| 715 | 642 | ||
| 716 | 643 | (i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e). | |
| 717 | 644 | ||
| 718 | 645 | (ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e). | |
| 719 | 646 | ||
| 720 | 647 | (C) For purposes of Section 172(b)(2) of the Internal Revenue Code, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B). | |
| 721 | 648 | ||
| 722 | 649 | (4) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business. | |
| 723 | 650 | ||
| 724 | 651 | (5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss. | |
| 725 | 652 | ||
| 726 | 653 | (6) For purposes of this section, net loss means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code. | |
| 727 | 654 | ||
| 728 | 655 | (c) For any taxable year in which the taxpayer has in effect a waters-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a waters-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred. | |
| 729 | 656 | ||
| 730 | 657 | (d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows: | |
| 731 | 658 | ||
| 732 | 659 | (1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013. | |
| 733 | 660 | ||
| 734 | 661 | (2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein. | |
| 735 | 662 | ||
| 736 | 663 | (A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss. | |
| 737 | 664 | ||
| 738 | 665 | (B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss. | |
| 739 | 666 | ||
| 740 | 667 | (C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss. | |
| 741 | 668 | ||
| 742 | 669 | (3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011. | |
| 743 | 670 | ||
| 744 | 671 | (e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute five taxable years in lieu of 20 years except as otherwise provided in paragraphs (2), (3), and (4). | |
| 745 | 672 | ||
| 746 | 673 | (B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to substitute 10 taxable years in lieu of 20 taxable years. | |
| 747 | 674 | ||
| 748 | 675 | (2) For any income year beginning before January 1, 2000, in the case of a new business, the five taxable years referred to in paragraph (1) shall be modified to read as follows: | |
| 749 | 676 | ||
| 750 | 677 | (A) Eight taxable years for a net operating loss attributable to the first taxable year of that new business. | |
| 751 | 678 | ||
| 752 | 679 | (B) Seven taxable years for a net operating loss attributable to the second taxable year of that new business. | |
| 753 | 680 | ||
| 754 | 681 | (C) Six taxable years for a net operating loss attributable to the third taxable year of that new business. | |
| 755 | 682 | ||
| 756 | 683 | (3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows: | |
| 757 | 684 | ||
| 758 | 685 | (A) By one year for a net operating loss attributable to taxable years beginning in 1991. | |
| 759 | 686 | ||
| 760 | 687 | (B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991. | |
| 761 | 688 | ||
| 762 | 689 | (4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following: | |
| 763 | 690 | ||
| 764 | 691 | (A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case. | |
| 765 | 692 | ||
| 766 | 693 | (B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code. | |
| 767 | 694 | ||
| 768 | 695 | (f) For purposes of this section: | |
| 769 | 696 | ||
| 770 | 697 | (1) Eligible small business means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year. | |
| 771 | 698 | ||
| 772 | 699 | (2) Except as provided in subdivision (g), new business means any trade or business activity that is first commenced in this state on or after January 1, 1994. | |
| 773 | 700 | ||
| 774 | 701 | (3) Title 11 or similar case shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code. | |
| 775 | 702 | ||
| 776 | 703 | (4) In the case of any trade or business activity conducted by a partnership or an S corporation, paragraphs (1) and (2) shall be applied to the partnership or S corporation. | |
| 777 | 704 | ||
| 778 | 705 | (g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply: | |
| 779 | 706 | ||
| 780 | 707 | (1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply: | |
| 781 | 708 | ||
| 782 | 709 | (A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity. | |
| 783 | 710 | ||
| 784 | 711 | (B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person). | |
| 785 | 712 | ||
| 786 | 713 | (2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (prior trade or business activity), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayers (or any related persons) current or prior trade or business activities. | |
| 787 | 714 | ||
| 788 | 715 | (3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e). | |
| 789 | 716 | ||
| 790 | 717 | (4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1). | |
| 791 | 718 | ||
| 792 | 719 | (5) Related person shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code. | |
| 793 | 720 | ||
| 794 | 721 | (6) Acquire shall include any transfer, whether or not for consideration. | |
| 795 | 722 | ||
| 796 | 723 | (7) (A) For taxable years beginning on or after January 1, 1997, the term new business shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration. | |
| 797 | 724 | ||
| 798 | 725 | (B) For purposes of this paragraph: | |
| 799 | 726 | ||
| 800 | 727 | (i) Biopharmaceutical 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. | |
| 801 | 728 | ||
| 802 | 729 | (ii) Other biotechnology activities means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery. | |
| 803 | 730 | ||
| 804 | 731 | (h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following: | |
| 805 | 732 | ||
| 806 | 733 | (1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year. | |
| 807 | 734 | ||
| 808 | - | (2) The amount of any loss carry forward | |
| 735 | + | (2) The amount of any loss carry forward that may be deducted in any taxable year. | |
| 809 | 736 | ||
| 810 | 737 | (i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise. | |
| 811 | 738 | ||
| 812 | 739 | (j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section. | |
| 813 | 740 | ||
| 814 | 741 | (k) This section shall become operative on January 1, 2029. | |
| 815 | 742 | ||
| 743 | + | SEC. 5.SEC. 7. The Legislature hereby finds and declares that the ability of innovative startups to transfer net operating losses for value, as provided by this act, serves the public purpose of promoting competition and reducing oligopolistic consolidation in the science, technology, engineering, and math (STEM) sector of Californias economy and does not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution. | |
| 816 | 744 | ||
| 745 | + | SEC. 5.SEC. 7. The Legislature hereby finds and declares that the ability of innovative startups to transfer net operating losses for value, as provided by this act, serves the public purpose of promoting competition and reducing oligopolistic consolidation in the science, technology, engineering, and math (STEM) sector of Californias economy and does not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution. | |
| 817 | 746 | ||
| 818 | - | The Legislature hereby finds and declares that the ability of innovative startups to transfer net operating losses for value, as provided by this act, serves the public purpose of promoting competition and reducing oligopolistic consolidation in the science, technology, engineering, and math (STEM) sector of Californias economy and does not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution. | |
| 747 | + | SEC. 5.SEC. 7. The Legislature hereby finds and declares that the ability of innovative startups to transfer net operating losses for value, as provided by this act, serves the public purpose of promoting competition and reducing oligopolistic consolidation in the science, technology, engineering, and math (STEM) sector of Californias economy and does not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution. | |
| 819 | 748 | ||
| 820 | - | ||
| 821 | - | ||
| 822 | - | SEC. 7. No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution. | |
| 823 | - | ||
| 824 | - | SEC. 7. No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution. | |
| 825 | - | ||
| 826 | - | SEC. 7. No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution. | |
| 827 | - | ||
| 828 | - | ### SEC. 7. | |
| 829 | - | ||
| 830 | - | SEC. 8. This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect. | |
| 831 | - | ||
| 832 | - | SEC. 8. This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect. | |
| 833 | - | ||
| 834 | - | SEC. 8. This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect. | |
| 835 | - | ||
| 836 | - | ### SEC. 8. | |
| 749 | + | ### SEC. 5.SEC. 7. |