ab_103_taxation_personal income and corportation taxes

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AMENDED IN SENATE MARCH 14, 2011

california legislature201112 regular session

ASSEMBLY BILL No. 103

Introduced by Committee on Budget (Blumenfeld (Chair), Alejo,Allen, Brownley, Buchanan, Butler, Cedillo, Chesbro, Dickinson,Feuer, Gordon, Huffman, Mitchell, Monning, and Swanson)

January 10, 2011

An act relating to the Budget Act of 2011. An act to amend Sections

17276.1, 17276.20, 23101, 24416.1, 24416.20, and 25128 of, to amendand repeal Sections 17053.33, 17053.34, 17053.45, 17053.46, 17053.47,17053.70, 17053.74, 17053.75, 17235, 17267.2, 17267.6, 17268,17276.2, 17276.4, 17276.5, 17276.6, 23612.2, 23622.7, 23622.8, 23633,23634, 23645, 23646, 24356.6, 24356.7, 24356.8, 24384.5, 24416.2,24416.4, 24416.5, and 24416.6 of, to amend, repeal, and add Section25136 of, to add Sections 17053.31 and 23611 to, to repeal Section25128.5 of, and to repeal and add Sections 17276.22 and 24416.22 of,the Revenue and Taxation Code, relating to taxation, to take effectimmediately, tax levy.

legislative counsels digest

AB 103, as amended, Committee on Budget. Budget Act of 2011.Taxation: personal income and corporation taxes.

(1) The Personal Income Tax Law and the Corporation Tax Lawallow for various tax credits and deductions in computing the taxesimposed by those laws, relating to enterprise zones, targeted tax areas,local agency military base recovery areas, manufacturing enhancementareas, and net operating losses.

This bill would make these provisions inoperative for taxable yearsbeginning on or after January 1, 2011, and would repeal these

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purpose, on December 6, 2010. Governor Brown issued a proclamationon January 20, 2011, declaring and reaffrming that a fscal emergencyexists and stating that his proclamation supersedes the earlierproclamation for purposes of that constitutional provision.

This bill would state that it addresses the fscal emergency declaredand reaffrmed by the Governor by proclamation issued on January

20, 2011, pursuant to the California Constitution.(5) This bill would include a change in state statute that would result

in a taxpayer paying a higher tax within the meaning of Section 3 ofArticle XIII A of the California Constitution, and thus would requirefor passage the approval of 23 of the membership of each house of theLegislature.

(6) This bill would take effect immediately as a tax levy.This bill would express the intent of the Legislature to enact statutory

changes relating to the Budget Act of 2011.Vote: majority 23. Appropriation: no. Fiscal committee: no yes.

State-mandated local program: no.

The people of the State of California do enact as follows:

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SECTION 1. Section 17053.31 is added to the Revenue andTaxation Code, to read:

17053.31. (a) Notwithstanding any other provision or formerprovision of this part to the contrary, a credit available forcarryover under former sections of this part identifed insubdivision (b) shall not be allowed to be carried over to anytaxable year beginning on or after January 1, 2011.

(b) This section shall apply to credit carryovers under thefollowing former sections of this part:

(1) Former Section 17052.15, as identifed in subparagraph(G) of paragraph (1) of subdivision (c) of Section 17039, as ineffect on the effective date of the act adding this section.

(2) Former Section 17053.10, as identifed in subparagraph(K) of paragraph (1) of subdivision (c) of Section 17039, as ineffect on the effective date of the act adding this section.

(3) Former Section 17053.17, as identifed in subparagraph(M) of paragraph (1) of subdivision (c) of Section 17039, as ineffect on the effective date of the act adding this section.

SEC. 2. Section 17053.33 of the Revenue and Taxation Codeis amended to read:

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17053.33. (a) For each taxable year beginning on or afterJanuary 1, 1998, there shall be allowed as a credit against the nettax (as defned in Section 17039) for the taxable year an amountequal to the sales or use tax paid or incurred during the taxableyear by the qualifed taxpayer in connection with the qualifedtaxpayers purchase of qualifed property.

(b) For purposes of this section:(1) Qualifed property means property that meets all of the

following requirements:(A) Is any of the following:(i) Machinery and machinery parts used for fabricating,

processing, assembling, and manufacturing.(ii) Machinery and machinery parts used for the production of

renewable energy resources.(iii) Machinery and machinery parts used for either of the

following:(I) Air pollution control mechanisms.(II) Water pollution control mechanisms.

(iv) Data processing and communications equipment, such ascomputers, computer-automated drafting systems, copy machines,telephone systems, and faxes.

(v) Motion picture manufacturing equipment central toproduction and post production, such as cameras, audio recorders,and digital image and sound processing equipment.

(B) The total cost of qualifed property purchased and placedin service in any taxable year that may be taken into account byany qualifed taxpayer for purposes of claiming this credit shallnot exceed one million dollars ($1,000,000).

(C) The qualifed property is used by the qualifed taxpayerexclusively in a targeted tax area.

(D) The qualifed property is purchased and placed in servicebefore the date the targeted tax area designation expires, is revoked,is no longer binding, or becomes inoperative.

(2) (A) Qualifed taxpayermeans a person or entity that meetsboth of the following:

(i) Is engaged in a trade or business within a targeted tax areadesignated pursuant to Chapter 12.93 (commencing with Section7097) of Division 7 of Title 1 of the Government Code.

(ii) Is engaged in those lines of business described in Codes2000 to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,

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inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive,of the Standard Industrial Classifcation (SIC) Manual publishedby the United States Offce of Management and Budget, 1987edition.

(B) In the case of any pass-through entity, the determination ofwhether a taxpayer is a qualifed taxpayer under this section shall

be made at the entity level and any credit under this section orSection 23633 shall be allowed to the pass-through entity andpassed through to the partners or shareholders in accordance withapplicable provisions of this part or Part 11 (commencing withSection 23001). For purposes of this subparagraph, the termpass-through entity means any partnership or S corporation.

(3) Targeted tax area means the area designated pursuant toChapter 12.93 (commencing with Section 7097) of Division 7 ofTitle 1 of the Government Code.

(c) If the qualifed taxpayer is allowed a credit for qualifedproperty pursuant to this section, only one credit shall be allowedto the taxpayer under this part with respect to that qualifed

property.(d) If the qualifed taxpayer has purchased property upon which

a use tax has been paid or incurred, the credit provided by thissection shall be allowed only if qualifed property of a comparablequality and price is not timely available for purchase in this state.

(e) In the case where the credit otherwise allowed under thissection exceeds the net tax for the taxable year, that portion ofthe credit that exceeds the net tax may be carried over and addedto the credit, if any, in the following year, and succeeding years ifnecessary, until the credit is exhausted. The credit shall be appliedfrst to the earliest taxable years possible.

(f) Any qualifed taxpayer who elects to be subject to this sectionshall not be entitled to increase the basis of the qualifed propertyas otherwise required by Section 164(a) of the Internal RevenueCode with respect to sales or use tax paid or incurred in connectionwith the qualifed taxpayers purchase of qualifed property.

(g) (1) The amount of the credit otherwise allowed under thissection and Section 17053.34, including any credit carryover fromprior years, that may reduce the net tax for the taxable year shallnot exceed the amount of tax that would be imposed on thequalifed taxpayers business income attributable to the targetedtax area determined as if that attributable income represented all

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of the income of the qualifed taxpayer subject to tax under thispart.

(2) Attributable income shall be that portion of the taxpayersCalifornia source business income that is apportioned to thetargeted tax area. For that purpose, the taxpayers business incomeattributable to sources in this state frst shall be determined in

accordance with Chapter 17 (commencing with Section 25101) ofPart 11. That business income shall be further apportioned to thetargeted tax area in accordance with Article 2 (commencing withSection 25120) of Chapter 17 of Part 11, modifed for purposesof this section in accordance with paragraph (3).

(3) Business income shall be apportioned to the targeted taxarea by multiplying the total California business income of thetaxpayer by a fraction, the numerator of which is the propertyfactor plus the payroll factor, and the denominator of which is two.For purposes of this paragraph:

(A) The property factor is a fraction, the numerator of which isthe average value of the taxpayers real and tangible personal

property owned or rented and used in the targeted tax area duringthe taxable year, and the denominator of which is the average valueof all the taxpayers real and tangible personal property owned orrented and used in this state during the taxable year.

(B) The payroll factor is a fraction, the numerator of which isthe total amount paid by the taxpayer in the targeted tax area duringthe taxable year for compensation, and the denominator of whichis the total compensation paid by the taxpayer in this state duringthe taxable year.

(4) The portion of any credit remaining, if any, after applicationof this subdivision, shall be carried over to succeeding taxableyears, as if it were an amount exceeding the net tax for thetaxable year, as provided in subdivision (e).

(5) In the event that a credit carryover is allowable undersubdivision (e) for any taxable year after the targeted tax areadesignation has expired, has been revoked, is no longer binding,or has become inoperative, the targeted tax area shall be deemedto remain in existence for purposes of computing the limitationspecifed in this subdivision.

(h) The amendments made to this section by the act adding thissubdivision shall apply to taxable years beginning on or afterJanuary 1, 1998.

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(i) (1) This section shall cease to be operative for taxable yearsbeginning on or after January 1, 2011.

(2) In the case of any portion of a credit available for carryoverto a taxable year beginning on or after January 1, 2011, undersubdivision (e), as that subdivision read prior to the amendmentsmade by the act adding this subdivision, neither that subdivision

nor subdivision (d) of Section 17039 shall apply, and those unusedcredit amounts shall not be carried over to any taxable yearbeginning on or after January 1, 2011.

(j) This section shall be repealed as of December 1, 2011.SEC. 3. Section 17053.34 of the Revenue and Taxation Code

is amended to read:17053.34. (a) For each taxable year beginning on or after

January 1, 1998, there shall be allowed a credit against the nettax (as defned in Section 17039) to a qualifed taxpayer whoemploys a qualifed employee in a targeted tax area during thetaxable year. The credit shall be equal to the sum of each of thefollowing:

(1) Fifty percent of qualifed wages in the frst year ofemployment.

(2) Forty percent of qualifed wages in the second year ofemployment.

(3) Thirty percent of qualifed wages in the third year ofemployment.

(4) Twenty percent of qualifed wages in the fourth year ofemployment.

(5) Ten percent of qualifed wages in the ffth year ofemployment.

(b) For purposes of this section:(1) Qualifed wages means:(A) That portion of wages paid or incurred by the qualifed

taxpayer during the taxable year to qualifed employees that doesnot exceed 150 percent of the minimum wage.

(B) Wages received during the 60-month period beginning withthe frst day the employee commences employment with thequalifed taxpayer. Reemployment in connection with any increase,including a regularly occurring seasonal increase, in the trade orbusiness operations of the qualifed taxpayer does not constitutecommencement of employment for purposes of this section.

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(C) Qualifed wages do not include any wages paid or incurredby the qualifed taxpayer on or after the targeted tax area expirationdate. However, wages paid or incurred with respect to qualifedemployees who are employed by the qualifed taxpayer within thetargeted tax area within the 60-month period prior to the targetedtax area expiration date shall continue to qualify for the credit

under this section after the targeted tax area expiration date, inaccordance with all provisions of this section applied as if thetargeted tax area designation were still in existence and binding.

(2) Minimum wage means the wage established by theIndustrial Welfare Commission as provided for in Chapter 1(commencing with Section 1171) of Part 4 of Division 2 of theLabor Code.

(3) Targeted tax area expiration date means the date thetargeted tax area designation expires, is revoked, is no longerbinding, or becomes inoperative.

(4) (A) Qualifed employee means an individual who meetsall of the following requirements:

(i) At least 90 percent of his or her services for the qualifedtaxpayer during the taxable year are directly related to the conductof the qualifed taxpayers trade or business located in a targetedtax area.

(ii) Performs at least 50 percent of his or her services for thequalifed taxpayer during the taxable year in a targeted tax area.

(iii) Is hired by the qualifed taxpayer after the date of originaldesignation of the area in which services were performed as atargeted tax area.

(iv) Is any of the following:(I) Immediately preceding the qualifed employees

commencement of employment with the qualifed taxpayer, wasa person eligible for services under the federal Job TrainingPartnership Act (29 U.S.C. Sec. 1501 et seq.), or its successor,who is receiving, or is eligible to receive, subsidized employment,training, or services funded by the federal Job Training PartnershipAct, or its successor.

(II) Immediately preceding the qualifed employeescommencement of employment with the qualifed taxpayer, wasa person eligible to be a voluntary or mandatory registrant underthe Greater Avenues for Independence Act of 1985 (GAIN)provided for pursuant to Article 3.2 (commencing with Section

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11320) of Chapter 2 of Part 3 of Division 9 of the Welfare andInstitutions Code, or its successor.

(III) Immediately preceding the qualifed employeescommencement of employment with the qualifed taxpayer, wasan economically disadvantaged individual 14 years of age or older.

(IV) Immediately preceding the qualifed employees

commencement of employment with the qualifed taxpayer, wasa dislocated worker who meets any of the following:

(aa) Has been terminated or laid off or who has received a noticeof termination or layoff from employment, is eligible for or hasexhausted entitlement to unemployment insurance benefts, andis unlikely to return to his or her previous industry or occupation.

(bb) Has been terminated or has received a notice of terminationof employment as a result of any permanent closure or anysubstantial layoff at a plant, facility, or enterprise, including anindividual who has not received written notifcation but whoseemployer has made a public announcement of the closure or layoff.

(cc) Is long-term unemployed and has limited opportunities for

employment or reemployment in the same or a similar occupationin the area in which the individual resides, including an individual55 years of age or older who may have substantial barriers toemployment by reason of age.

(dd) Was self-employed (including farmers and ranchers) andis unemployed as a result of general economic conditions in thecommunity in which he or she resides or because of naturaldisasters.

(ee) Was a civilian employee of the Department of Defenseemployed at a military installation being closed or realigned underthe Defense Base Closure and Realignment Act of 1990.

(ff) Was an active member of the Armed Forces or NationalGuard as of September 30, 1990, and was either involuntarilyseparated or separated pursuant to a special benefts program.

(gg) Is a seasonal or migrant worker who experiences chronicseasonal unemployment and underemployment in the agricultureindustry, aggravated by continual advancements in technology andmechanization.

(hh) Has been terminated or laid off, or has received a noticeof termination or layoff, as a consequence of compliance with theClean Air Act.

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(V) Immediately preceding the qualifed employeescommencement of employment with the qualifed taxpayer, wasa disabled individual who is eligible for or enrolled in, or hascompleted a state rehabilitation plan or is a service-connecteddisabled veteran, veteran of the Vietnam era, or veteran who isrecently separated from military service.

(VI) Immediately preceding the qualifed employeescommencement of employment with the qualifed taxpayer, wasan ex-offender. An individual shall be treated as convicted if heor she was placed on probation by a state court without a fndingof guilty.

(VII) Immediately preceding the qualifed employeescommencement of employment with the qualifed taxpayer, wasa person eligible for or a recipient of any of the following:

(aa) Federal Supplemental Security Income benefts.(bb) Aid to Families with Dependent Children.(cc) Food stamps.(dd) State and local general assistance.

(VIII) Immediately preceding the qualifed employeescommencement of employment with the qualifed taxpayer, wasa member of a federally recognized Indian tribe, band, or othergroup of Native American descent.

(IX) Immediately preceding the qualifed employeescommencement of employment with the qualifed taxpayer, wasa resident of a targeted tax area.

(X) Immediately preceding the qualifed employeescommencement of employment with the taxpayer, was a memberof a targeted group as defned in Section 51(d) of the InternalRevenue Code, or its successor.

(B) Priority for employment shall be provided to an individualwho is enrolled in a qualifed program under the federal JobTraining Partnership Act or the Greater Avenues for IndependenceAct of 1985 or who is eligible as a member of a targeted groupunder the Work Opportunity Tax Credit (Section 51 of the InternalRevenue Code), or its successor.

(5) (A) Qualifed taxpayermeans a person or entity that meetsboth of the following:

(i) Is engaged in a trade or business within a targeted tax areadesignated pursuant to Chapter 12.93 (commencing with Section7097) of Division 7 of Title 1 of the Government Code.

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(ii) Is engaged in those lines of business described in Codes2000 to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299,inclusive; 4500 to 4599, inclusive; and 4700 to 5199, inclusive,of the Standard Industrial Classifcation (SIC) Manual publishedby the United States Offce of Management and Budget, 1987edition.

(B) In the case of any passthrough entity, the determination ofwhether a taxpayer is a qualifed taxpayer under this section shallbe made at the entity level and any credit under this section orSection 23634 shall be allowed to the passthrough entity and passedthrough to the partners or shareholders in accordance withapplicable provisions of this part or Part 11 (commencing withSection 23001). For purposes of this subdivision, the termpassthrough entity means any partnership or S corporation.

(6) Seasonal employment means employment by a qualifedtaxpayer that has regular and predictable substantial reductions intrade or business operations.

(c) If the qualifed taxpayer is allowed a credit for qualifed

wages pursuant to this section, only one credit shall be allowed tothe taxpayer under this part with respect to those qualifed wages.

(d) The qualifed taxpayer shall do both of the following:(1) Obtain from the Employment Development Department, as

permitted by federal law, the local county or city Job TrainingPartnership Act administrative entity, the local county GAIN offceor social services agency, or the local government administeringthe targeted tax area, a certifcation that provides that a qualifedemployee meets the eligibility requirements specifed in clause(iv) of subparagraph (A) of paragraph (4) of subdivision (b). TheEmployment Development Department may provide preliminaryscreening and referral to a certifying agency. The Department ofHousing and Community Development shall develop regulationsgoverning the issuance of certifcates pursuant to subdivision (g)of Section 7097 of the Government Code, and shall develop formsfor this purpose.

(2) Retain a copy of the certifcation and provide it upon requestto the Franchise Tax Board.

(e) (1) For purposes of this section:(A) All employees of trades or businesses, which are not

incorporated, that are under common control shall be treated asemployed by a single taxpayer.

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(B) The credit, if any, allowable by this section with respect toeach trade or business shall be determined by reference to itsproportionate share of the expense of the qualifed wages givingrise to the credit, and shall be allocated in that manner.

(C) Principles that apply in the case of controlled groups ofcorporations, as specifed in subdivision (d) of Section 23634,

shall apply with respect to determining employment.(2) If an employer acquires the major portion of a trade or

business of another employer (hereinafter in this paragraph referredto as the predecessor) or the major portion of a separate unit ofa trade or business of a predecessor, then, for purposes of applyingthis section (other than subdivision (f)) for any calendar year endingafter that acquisition, the employment relationship between aqualifed employee and an employer shall not be treated asterminated if the employee continues to be employed in that tradeor business.

(f) (1) (A) If the employment, other than seasonal employment,of any qualifed employee, with respect to whom qualifed wages

are taken into account under subdivision (a) is terminated by thequalifed taxpayer at any time during the frst 270 days of thatemployment (whether or not consecutive) or before the close ofthe 270th calendar day after the day in which that employeecompletes 90 days of employment with the qualifed taxpayer, thetax imposed by this part for the taxable year in which thatemployment is terminated shall be increased by an amount equalto the credit allowed under subdivision (a) for that taxable yearand all prior taxable years attributable to qualifed wages paid orincurred with respect to that employee.

(B) If the seasonal employment of any qualifed employee, withrespect to whom qualifed wages are taken into account undersubdivision (a) is not continued by the qualifed taxpayer for aperiod of 270 days of employment during the 60-month periodbeginning with the day the qualifed employee commences seasonalemployment with the qualifed taxpayer, the tax imposed by thispart, for the taxable year that includes the 60th month followingthe month in which the qualifed employee commences seasonalemployment with the qualifed taxpayer, shall be increased by anamount equal to the credit allowed under subdivision (a) for thattaxable year and all prior taxable years attributable to qualifedwages paid or incurred with respect to that qualifed employee.

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(2) (A) Subparagraph (A) of paragraph (1) shall not apply toany of the following:

(i) A termination of employment of a qualifed employee whovoluntarily leaves the employment of the qualifed taxpayer.

(ii) A termination of employment of a qualifed employee who,before the close of the period referred to in subparagraph (A) of

paragraph (1), becomes disabled and unable to perform the servicesof that employment, unless that disability is removed before theclose of that period and the qualifed taxpayer fails to offerreemployment to that employee.

(iii) A termination of employment of a qualifed employee, ifit is determined that the termination was due to the misconduct (asdefned in Sections 1256-30 to 1256-43, inclusive, of Title 22 ofthe California Code of Regulations) of that employee.

(iv) A termination of employment of a qualifed employee dueto a substantial reduction in the trade or business operations of thequalifed taxpayer.

(v) A termination of employment of a qualifed employee, if

that employee is replaced by other qualifed employees so as tocreate a net increase in both the number of employees and thehours of employment.

(B) Subparagraph (B) of paragraph (1) shall not apply to anyof the following:

(i) A failure to continue the seasonal employment of a qualifedemployee who voluntarily fails to return to the seasonalemployment of the qualifed taxpayer.

(ii) A failure to continue the seasonal employment of a qualifedemployee who, before the close of the period referred to insubparagraph (B) of paragraph (1), becomes disabled and unableto perform the services of that seasonal employment, unless thatdisability is removed before the close of that period and thequalifed taxpayer fails to offer seasonal employment to thatqualifed employee.

(iii) A failure to continue the seasonal employment of a qualifedemployee, if it is determined that the failure to continue theseasonal employment was due to the misconduct (as defned inSections 1256-30 to 1256-43, inclusive, of Title 22 of the CaliforniaCode of Regulations) of that qualifed employee.

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(iv) A failure to continue seasonal employment of a qualifedemployee due to a substantial reduction in the regular seasonaltrade or business operations of the qualifed taxpayer.

(v) A failure to continue the seasonal employment of a qualifedemployee, if that qualifed employee is replaced by other qualifedemployees so as to create a net increase in both the number of

seasonal employees and the hours of seasonal employment.(C) For purposes of paragraph (1), the employment relationship

between the qualifed taxpayer and a qualifed employee shall notbe treated as terminated by reason of a mere change in the formof conducting the trade or business of the qualifed taxpayer, if thequalifed employee continues to be employed in that trade orbusiness and the qualifed taxpayer retains a substantial interestin that trade or business.

(3) Any increase in tax under paragraph (1) shall not be treatedas tax imposed by this part for purposes of determining the amountof any credit allowable under this part.

(g) In the case of an estate or trust, both of the following apply:

(1) The qualifed wages for any taxable year shall be apportionedbetween the estate or trust and the benefciaries on the basis of theincome of the estate or trust allocable to each.

(2) Any benefciary to whom any qualifed wages have beenapportioned under paragraph (1) shall be treated, for purposes ofthis part, as the employer with respect to those wages.

(h) For purposes of this section, targeted tax area means anarea designated pursuant to Chapter 12.93 (commencing withSection 7097) of Division 7 of Title 1 of the Government Code.

(i) In the case where the credit otherwise allowed under thissection exceeds the net tax for the taxable year, that portion ofthe credit that exceeds the net tax may be carried over and addedto the credit, if any, in succeeding taxable years, until the credit isexhausted. The credit shall be applied frst to the earliest taxableyears possible.

(j) (1) The amount of the credit otherwise allowed under thissection and Section 17053.33, including any credit carryover fromprior years, that may reduce the net tax for the taxable year shallnot exceed the amount of tax that would be imposed on thequalifed taxpayers business income attributable to the targetedtax area determined as if that attributable income represented all

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of the income of the qualifed taxpayer subject to tax under thispart.

(2) Attributable income shall be that portion of the taxpayersCalifornia source business income that is apportioned to thetargeted tax area. For that purpose, the taxpayers business incomeattributable to sources in this state frst shall be determined in

accordance with Chapter 17 (commencing with Section 25101) ofPart 11. That business income shall be further apportioned to thetargeted tax area in accordance with Article 2 (commencing withSection 25120) of Chapter 17 of Part 11, modifed for purposesof this section in accordance with paragraph (3).

(3) Business income shall be apportioned to the targeted taxarea by multiplying the total California business income of thetaxpayer by a fraction, the numerator of which is the propertyfactor plus the payroll factor, and the denominator of which is two.For purposes of this paragraph:

(A) The property factor is a fraction, the numerator of which isthe average value of the taxpayers real and tangible personal

property owned or rented and used in the targeted tax area duringthe taxable year, and the denominator of which is the average valueof all the taxpayers real and tangible personal property owned orrented and used in this state during the taxable year.

(B) The payroll factor is a fraction, the numerator of which isthe total amount paid by the taxpayer in the targeted tax area duringthe taxable year for compensation, and the denominator of whichis the total compensation paid by the taxpayer in this state duringthe taxable year.

(4) The portion of any credit remaining, if any, after applicationof this subdivision, shall be carried over to succeeding taxableyears, as if it were an amount exceeding the net tax for thetaxable year, as provided in subdivision (h).

(5) In the event that a credit carryover is allowable undersubdivision (h) for any taxable year after the targeted tax areaexpiration date, the targeted tax area shall be deemed to remain inexistence for purposes of computing the limitation specifed inthis subdivision.

(k) (1) This section shall cease to be operative for taxable yearsbeginning on or after January 1, 2011.

(2) In the case of any portion of a credit available for carryoverto a taxable year beginning on or after January 1, 2011, under

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subdivision (i), as that subdivision read prior to the amendmentsmade by the act adding this subdivision, neither that subdivisionnor subdivision (d) of Section 17039 shall apply, and those unusedcredit amounts shall not be carried over to any taxable yearbeginning on or after January 1, 2011.

(l) This section shall be repealed as of December 1, 2011.

SEC. 4. Section 17053.45 of the Revenue and Taxation Codeis amended to read:

17053.45. (a) For each taxable year beginning on or afterJanuary 1, 1995, there shall be allowed as a credit against the nettax (as defned by Section 17039) an amount equal to the salesor use tax paid or incurred by the taxpayer in connection with thepurchase of qualifed property to the extent that the qualifedproperty does not exceed a value of one million dollars($1,000,000).

(b) For purposes of this section:(1) LAMBRA means a local agency military base recovery

area designated in accordance with Section 7114 of the Government

Code.(2) Taxpayer means a taxpayer that conducts a trade or

business within a LAMBRA and, for the frst two taxable years,has a net increase in jobs (defned as 2,000 paid hours per employeeper year) of one or more employees in the LAMBRA.

(A) The net increase in the number of jobs shall be determinedby subtracting the total number of full-time employees (defnedas 2,000 paid hours per employee per year) the taxpayer employedin this state in the taxable year prior to commencing businessoperations in the LAMBRA from the total number of full-timeemployees the taxpayer employed in this state during the secondtaxable year after commencing business operations in theLAMBRA. For taxpayers who commence doing business in thisstate with their LAMBRA business operation, the number ofemployees for the taxable year prior to commencing businessoperations in the LAMBRA shall be zero. If the taxpayer has a netincrease in jobs in the state, the credit shall be allowed only if oneor more full-time employees is employed within the LAMBRA.

(B) The total number of employees employed in the LAMBRAshall equal the sum of both of the following:

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(i) The total number of hours worked in the LAMBRA for thetaxpayer by employees (not to exceed 2,000 hours per employee)who are paid an hourly wage divided by 2,000.

(ii) The total number of months worked in the LAMBRA forthe taxpayer by employees who are salaried employees dividedby 12.

(C) In the case of a taxpayer who frst commences doingbusiness in the LAMBRA during the taxable year, for purposes ofclauses (i) and (ii), respectively, of subparagraph (B), the divisors2,000 and 12 shall be multiplied by a fraction, the numeratorof which is the number of months of the taxable year that thetaxpayer was doing business in the LAMBRA and the denominatorof which is 12.

(3) Qualifed property means property that is each of thefollowing:

(A) Purchased by the taxpayer for exclusive use in a trade orbusiness conducted within a LAMBRA.

(B) Purchased before the date the LAMBRA designation expires,

is no longer binding, or becomes inoperative.(C) Any of the following:(i) High technology equipment, including, but not limited to,

computers and electronic processing equipment.(ii) Aircraft maintenance equipment, including, but not limited

to, engine stands, hydraulic mules, power carts, test equipment,handtools, aircraft start carts, and tugs.

(iii) Aircraft components, including, but not limited to, engines,fuel control units, hydraulic pumps, avionics, starts, wheels, andtires.

(iv) Section 1245 property, as defned in Section 1245(a)(3) ofthe Internal Revenue Code.

(c) The credit provided under subdivision (a) shall be allowedonly for qualifed property manufactured in California unlessqualifed property of a comparable quality and price is not availablefor timely purchase and delivery from a California manufacturer.

(d) In the case where the credit otherwise allowed under thissection exceeds the net tax for the taxable year, that portion ofthe credit which exceeds the net tax may be carried over andadded to the credit, if any, in succeeding years, until the credit isexhausted. The credit shall be applied frst to the earliest taxableyears possible.

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(e) Any taxpayer who elects to be subject to this section shallnot be entitled to increase the basis of the property as otherwiserequired by Section 164(a) of the Internal Revenue Code withrespect to sales or use tax paid or incurred in connection with thepurchase of qualifed property.

(f) (1) The amount of credit otherwise allowed under this

section and Section 17053.46, including any credit carryover fromprior years, that may reduce the net tax for the taxable year shallnot exceed the amount of tax that would be imposed on thetaxpayers business income attributed to a LAMBRA determinedas if that attributable income represented all the income of thetaxpayer subject to tax under this part.

(2) Attributable income is that portion of the taxpayersCalifornia source business income that is apportioned to theLAMBRA. For that purpose, the taxpayers business income thatis attributable to sources in this state shall frst be determined inaccordance with Chapter 17 (commencing with Section 25101) ofPart 11. That business income shall be further apportioned to the

LAMBRA in accordance with Article 2 (commencing with Section25120) of Chapter 17 of Part 11, as modifed for purposes of thissection in accordance with paragraph (3).

(3) Income shall be apportioned to a LAMBRA by multiplyingthe total California business income of the taxpayer by a fraction,the numerator of which is the property factor, plus the payrollfactor, and the denominator of which is two. For purposes of thisparagraph:

(A) The property factor is a fraction, the numerator of which isthe average value of the taxpayers real and tangible personalproperty owned or rented and used in the LAMBRA during thetaxable year, and the denominator of which is the average valueof all the taxpayers real and tangible personal property owned orrented and used in this state during the taxable year.

(B) The payroll factor is a fraction, the numerator of which isthe total amount paid by the taxpayer in the LAMBRA during thetaxable year for compensation, and the denominator of which isthe total compensation paid by the taxpayer in this state during thetaxable year.

(4) The portion of any credit remaining, if any, after applicationof this subdivision, shall be carried over to succeeding taxable

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years, as if it were an amount exceeding the net tax for thetaxable year, as provided in subdivision (d).

(g) (1) If the qualifed property is disposed of or no longer usedby the taxpayer in the LAMBRA, at any time before the close ofthe second taxable year after the property is placed in service, theamount of the credit previously claimed, with respect to that

property, shall be added to the taxpayers tax liability in the taxableyear of that disposition or nonuse.

(2) At the close of the second taxable year, if the taxpayer hasnot increased the number of its employees as determined byparagraph (2) of subdivision (b), then the amount of the creditpreviously claimed shall be added to the taxpayers net tax for thetaxpayers second taxable year.

(h) If the taxpayer is allowed a credit for qualifed propertypursuant to this section, only one credit shall be allowed to thetaxpayer under this part with respect to that qualifed property.

(i) The amendments made to this section by the act adding thissubdivision shall apply to taxable years beginning on or after

January 1, 1998.(j) (1) This section shall cease to be operative for taxable years

beginning on or after January 1, 2011.(2) In the case of any portion of a credit available for carryover

to a taxable year beginning on or after January 1, 2011, undersubdivision (d), as that subdivision read prior to the amendmentsmade by the act adding this subdivision, neither that subdivisionnor subdivision (d) of Section 17039 shall apply, and those unusedcredit amounts shall not be carried over to any taxable yearbeginning on or after January 1, 2011.

(k) This section shall be repealed as of December 1, 2011.SEC. 5. Section 17053.46 of the Revenue and Taxation Code


January 1, 1995, there shall be allowed as a credit against the nettax (as defned in Section 17039) to a qualifed taxpayer for hiringa qualifed disadvantaged individual or a qualifed displacedemployee during the taxable year for employment in the LAMBRA.The credit shall be equal to the sum of each of the following:

(1) Fifty percent of the qualifed wages in the frst year ofemployment.

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(2) Forty percent of the qualifed wages in the second year ofemployment.

(3) Thirty percent of the qualifed wages in the third year ofemployment.

(4) Twenty percent of the qualifed wages in the fourth year ofemployment.

(5) Ten percent of the qualifed wages in the ffth year ofemployment.

(b) For purposes of this section:(1) Qualifed wages means:(A) That portion of wages paid or incurred by the employer

during the taxable year to qualifed disadvantaged individuals orqualifed displaced employees that does not exceed 150 percentof the minimum wage.

(B) The total amount of qualifed wages which may be takeninto account for purposes of claiming the credit allowed under thissection shall not exceed two million dollars ($2,000,000) pertaxable year.

(C) Wages received during the 60-month period beginning withthe frst day the individual commences employment with thetaxpayer. Reemployment in connection with any increase, includinga regularly occurring seasonal increase, in the trade or businessoperations of the qualifed taxpayer does not constitutecommencement of employment for purposes of this section.

(D) Qualifed wages do not include any wages paid or incurredby the qualifed taxpayer on or after the LAMBRA expiration date.However, wages paid or incurred with respect to qualifeddisadvantaged individuals or qualifed displaced employees whoare employed by the qualifed taxpayer within the LAMBRA withinthe 60-month period prior to the LAMBRA expiration date shallcontinue to qualify for the credit under this section after theLAMBRA expiration date, in accordance with all provisions ofthis section applied as if the LAMBRA designation were still inexistence and binding.


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(3) LAMBRA means a local agency military base recoveryarea designated in accordance with Section 7114 of the GovernmentCode.

(4) Qualifed disadvantaged individual means an individualwho satisfes all of the following requirements:

(A) (i) At least 90 percent of whose services for the taxpayer

during the taxable year are directly related to the conduct of thetaxpayers trade or business located in a LAMBRA.

(ii) Who performs at least 50 percent of his or her services forthe taxpayer during the taxable year in the LAMBRA.

(B) Who is hired by the employer after the designation of thearea as a LAMBRA in which the individuals services wereprimarily performed.

(C) Who is any of the following immediately preceding theindividuals commencement of employment with the taxpayer:

(i) An individual who has been determined eligible for servicesunder the federal Job Training Partnership Act (29 U.S.C. Sec.1501 et seq.).

(ii) Any voluntary or mandatory registrant under the GreaterAvenues for Independence Act of 1985 as provided pursuant toArticle 3.2 (commencing with Section 11320) of Chapter 2 of Part3 of Division 9 of the Welfare and Institutions Code.

(iii) An economically disadvantaged individual age 16 years orolder.

(iv) A dislocated worker who meets any of the followingconditions:

(I) Has been terminated or laid off or who has received a noticeof termination or layoff from employment, is eligible for or hasexhausted entitlement to unemployment insurance benefts, andis unlikely to return to his or her previous industry or occupation.

(II) Has been terminated or has received a notice of terminationof employment as a result of any permanent closure or anysubstantial layoff at a plant, facility, or enterprise, including anindividual who has not received written notifcation but whoseemployer has made a public announcement of the closure or layoff.

(III) Is long-term unemployed and has limited opportunities foremployment or reemployment in the same or a similar occupationin the area in which the individual resides, including an individual55 years of age or older who may have substantial barriers toemployment by reason of age.

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(IV) Was self-employed (including farmers and ranchers) andis unemployed as a result of general economic conditions in thecommunity in which he or she resides or because of naturaldisasters.

(V) Was a civilian employee of the Department of Defenseemployed at a military installation being closed or realigned under

the Defense Base Closure and Realignment Act of 1990.(VI) Was an active member of the Armed Forces or National

Guard as of September 30, 1990, and was either involuntarilyseparated or separated pursuant to a special benefts program.

(VII) Experiences chronic seasonal unemployment andunderemployment in the agriculture industry, aggravated bycontinual advancements in technology and mechanization.

(VIII) Has been terminated or laid off or has received a noticeof termination or layoff as a consequence of compliance with theClean Air Act.

(v) An individual who is enrolled in or has completed a staterehabilitation plan or is a service-connected disabled veteran,

veteran of the Vietnam era, or veteran who is recently separatedfrom military service.

(vi) An ex-offender. An individual shall be treated as convictedif he or she was placed on probation by a state court without afnding of guilty.

(vii) A recipient of:(I) Federal Supplemental Security Income benefts.(II) Aid to Families with Dependent Children.(III) Food stamps.(IV) State and local general assistance.(viii) Is a member of a federally recognized Indian tribe, band,

or other group of Native American descent.(5) Qualifed taxpayer means a taxpayer or partnership that

conducts a trade or business within a LAMBRA and, for the frsttwo taxable years, has a net increase in jobs (defned as 2,000 paidhours per employee per year) of one or more employees in theLAMBRA.

(A) The net increase in the number of jobs shall be determinedby subtracting the total number of full-time employees (defnedas 2,000 paid hours per employee per year) the taxpayer employedin this state in the taxable year prior to commencing businessoperations in the LAMBRA from the total number of full-time

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employees the taxpayer employed in this state during the secondtaxable year after commencing business operations in theLAMBRA. For taxpayers who commence doing business in thisstate with their LAMBRA business operation, the number ofemployees for the taxable year prior to commencing businessoperations in the LAMBRA shall be zero. If the taxpayer has a net

increase in jobs in the state, the credit shall be allowed only if oneor more full-time employees is employed within the LAMBRA.

(B) The total number of employees employed in the LAMBRAshall equal the sum of both of the following:

(i) The total number of hours worked in the LAMBRA for thetaxpayer by employees (not to exceed 2,000 hours per employee)who are paid an hourly wage divided by 2,000.

(ii) The total number of months worked in the LAMBRA forthe taxpayer by employees who are salaried employees dividedby 12.

(C) In the case of a taxpayer who frst commences doingbusiness in the LAMBRA during the taxable year, for purposes of

clauses (i) and (ii), respectively, of subparagraph (B), the divisors2,000 and 12 shall be multiplied by a fraction, the numeratorof which is the number of months of the taxable year that thetaxpayer was doing business in the LAMBRA and the denominatorof which is 12.

(6) Qualifed displaced employee means an individual whosatisfes all of the following requirements:

(A) Any civilian or military employee of a base or former basewho has been displaced as a result of a federal base closure act.

(B) (i) At least 90 percent of whose services for the taxpayerduring the taxable year are directly related to the conduct of thetaxpayers trade or business located in a LAMBRA.

(ii) Who performs at least 50 percent of his or her services forthe taxpayer during the taxable year in a LAMBRA.

(C) Who is hired by the employer after the designation of thearea in which services were performed as a LAMBRA.

(7) Seasonal employment means employment by a qualifedtaxpayer that has regular and predictable substantial reductions intrade or business operations.

(8) LAMBRA expiration date means the date the LAMBRAdesignation expires, is no longer binding, or becomes inoperative.

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(c) For qualifed disadvantaged individuals or qualifed displacedemployees hired on or after January 1, 2001, the taxpayer shall doboth of the following:

(1) Obtain from the Employment Development Department, aspermitted by federal law, the local county or city Job TrainingPartnership Act administrative entity, the local county GAIN offce

or social services agency, or the local government administeringthe LAMBRA, a certifcation that provides that a qualifeddisadvantaged individual or qualifed displaced employee meetsthe eligibility requirements specifed in subparagraph (C) ofparagraph (4) of subdivision (b) or subparagraph (A) of paragraph(6) of subdivision (b). The Employment Development Departmentmay provide preliminary screening and referral to a certifyingagency. The Department of Housing and Community Developmentshall develop regulations governing the issuance of certifcatespursuant to Section 7114.2 of the Government Code and shalldevelop forms for this purpose.

(2) Retain a copy of the certifcation and provide it upon request

to the Franchise Tax Board.(d) (1) For purposes of this section, both of the following apply:(A) All employees of trades or businesses that are under

common control shall be treated as employed by a single employer.(B) The credit (if any) allowable by this section with respect to

each trade or business shall be determined by reference to itsproportionate share of the qualifed wages giving rise to the credit.

The regulations prescribed under this paragraph shall be basedon principles similar to the principles that apply in the case ofcontrolled groups of corporations specifed in subdivision (e) (d)of Section 23622 23622.7.

(2) If an employer acquires the major portion of a trade orbusiness of another employer (hereinafter in this paragraph referredto as the predecessor) or the major portion of a separate unit ofa trade or business of a predecessor, then, for purposes of applyingthis section (other than subdivision (d)) for any calendar yearending after that acquisition, the employment relationship betweenan employee and an employer shall not be treated as terminated ifthe employee continues to be employed in that trade or business.

(e) (1) (A) If the employment, other than seasonal employment,of any employee, with respect to whom qualifed wages are takeninto account under subdivision (a) is terminated by the taxpayer

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at any time during the frst 270 days of that employment (whetheror not consecutive) or before the close of the 270th calendar dayafter the day in which that employee completes 90 days ofemployment with the taxpayer, the tax imposed by this part forthe taxable year in which that employment is terminated shall beincreased by an amount (determined under those regulations) equal

to the credit allowed under subdivision (a) for that taxable yearand all prior taxable years attributable to qualifed wages paid orincurred with respect to that employee.

(B) If the seasonal employment of any qualifed disadvantagedindividual, with respect to whom qualifed wages are taken intoaccount under subdivision (a) is not continued by the qualifedtaxpayer for a period of 270 days of employment during the60-month period beginning with the day the qualifeddisadvantaged individual commences seasonal employment withthe qualifed taxpayer, the tax imposed by this part, for the taxableyear that includes the 60th month following the month in whichthe qualifed disadvantaged individual commences seasonal

employment with the qualifed taxpayer, shall be increased by anamount equal to the credit allowed under subdivision (a) for thattaxable year and all prior taxable years attributable to qualifedwages paid or incurred with respect to that qualifed disadvantagedindividual.

(2) (A) Subparagraph (A) of paragraph (1) shall not apply toany of the following:

(i) A termination of employment of an employee who voluntarilyleaves the employment of the taxpayer.

(ii) A termination of employment of an individual who, beforethe close of the period referred to in subparagraph (A) of paragraph(1), becomes disabled to perform the services of that employment,unless that disability is removed before the close of that periodand the taxpayer fails to offer reemployment to that individual.

(iii) A termination of employment of an individual, if it isdetermined that the termination was due to the misconduct (asdefned in Sections 1256-30 to 1256-43, inclusive, of Title 22 ofthe California Code of Regulations) of that individual.

(iv) A termination of employment of an individual due to asubstantial reduction in the trade or business operations of thetaxpayer.

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(4) At the close of the second taxable year, if the taxpayer hasnot increased the number of its employees as determined byparagraph (5) of subdivision (b), then the amount of the creditpreviously claimed shall be added to the taxpayers net tax for thetaxpayers second taxable year.

(f) In the case of an estate or trust, both of the following apply:

(1) The qualifed wages for any taxable year shall be apportionedbetween the estate or trust and the benefciaries on the basis of theincome of the estate or trust allocable to each.

(2) Any benefciary to whom any qualifed wages have beenapportioned under paragraph (1) shall be treated (for purposes ofthis part) as the employer with respect to those wages.

(g) The credit shall be reduced by the credit allowed underSection 17053.7. The credit shall also be reduced by the federalcredit allowed under Section 51 of the Internal Revenue Code.

In addition, any deduction otherwise allowed under this part forthe wages or salaries paid or incurred by the taxpayer upon whichthe credit is based shall be reduced by the amount of the credit,

prior to any reduction required by subdivision (h) or (i).(h) In the case where the credit otherwise allowed under this

section exceeds the net tax for the taxable year, that portion ofthe credit that exceeds the net tax may be carried over and addedto the credit, if any, in succeeding years, until the credit isexhausted. The credit shall be applied frst to the earliest taxableyears possible.

(i) (1) The amount of credit otherwise allowed under this sectionand Section 17053.45, including prior year credit carryovers, thatmay reduce the net tax for the taxable year shall not exceed theamount of tax that would be imposed on the taxpayers businessincome attributed to a LAMBRA determined as if that attributedincome represented all of the net income of the taxpayer subjectto tax under this part.

(2) Attributable income shall be that portion of the taxpayersCalifornia source business income that is apportioned to theLAMBRA. For that purpose, the taxpayers business income thatis attributable to sources in this state frst shall be determined inaccordance with Chapter 17 (commencing with Section 25101) ofPart 11. That business income shall be further apportioned to theLAMBRA in accordance with Article 2 (commencing with Section

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25120) of Chapter 17 of Part 11, modifed for purposes of thissection in accordance with paragraph (3).

(3) Income shall be apportioned to a LAMBRA by multiplyingthe total California business income of the taxpayer by a fraction,the numerator of which is the property factor plus the payroll factor,and the denominator of which is two. For purposes of this

paragraph:(A) The property factor is a fraction, the numerator of which is

the average value of the taxpayers real and tangible personalproperty owned or rented and used in the LAMBRA during thetaxable year, and the denominator of which is the average valueof all the taxpayers real and tangible personal property owned orrented and used in this state during the taxable year.

(B) The payroll factor is a fraction, the numerator of which isthe total amount paid by the taxpayer in the LAMBRA during thetaxable year for compensation, and the denominator of which isthe total compensation paid by the taxpayer in this state during thetaxable year.

(4) The portion of any credit remaining, if any, after applicationof this subdivision, shall be carried over to succeeding taxableyears, as if it were an amount exceeding the net tax for thetaxable year, as provided in subdivision (h).

(j) If the taxpayer is allowed a credit pursuant to this section forqualifed wages paid or incurred, only one credit shall be allowedto the taxpayer under this part with respect to any wage consistingin whole or in part of those qualifed wages.

(k) (1) This section shall cease to be operative for taxable yearsbeginning on or after January 1, 2011.

(2) In the case of any portion of a credit available for carryoverto a taxable year beginning on or after January 1, 2011, undersubdivision (h), as that subdivision read prior to the amendmentsmade by the act adding this subdivision, neither that subdivisionnor subdivision (d) of Section 17039 shall apply, and those unusedcredit amounts shall not be carried over to any taxable yearbeginning on or after January 1, 2011.

(l) This section shall be repealed as of December 1, 2011.SEC. 6. Section 17053.47 of the Revenue and Taxation Code


January 1, 1998, there shall be allowed a credit against the net

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tax (as defned in Section 17039) to a qualifed taxpayer for hiringa qualifed disadvantaged individual during the taxable year foremployment in the manufacturing enhancement area. The creditshall be equal to the sum of each of the following:

(1) Fifty percent of the qualifed wages in the frst year ofemployment.

(2) Forty percent of the qualifed wages in the second year ofemployment.

(3) Thirty percent of the qualifed wages in the third year ofemployment.

(4) Twenty percent of the qualifed wages in the fourth year ofemployment.

(5) Ten percent of the qualifed wages in the ffth year ofemployment.

(b) For purposes of this section:(1) Qualifed wages means:(A) That portion of wages paid or incurred by the qualifed

taxpayer during the taxable year to qualifed disadvantaged

individuals that does not exceed 150 percent of the minimum wage.(B) The total amount of qualifed wages which may be taken

into account for purposes of claiming the credit allowed under thissection shall not exceed two million dollars ($2,000,000) pertaxable year.

(C) Wages received during the 60-month period beginning withthe frst day the qualifed disadvantaged individual commencesemployment with the qualifed taxpayer. Reemployment inconnection with any increase, including a regularly occurringseasonal increase, in the trade or business operations of the taxpayerdoes not constitute commencement of employment for purposesof this section.

(D) Qualifed wages do not include any wages paid or incurredby the qualifed taxpayer on or after the manufacturingenhancement area expiration date. However, wages paid or incurredwith respect to qualifed employees who are employed by thequalifed taxpayer within the manufacturing enhancement areawithin the 60-month period prior to the manufacturing enhancementarea expiration date shall continue to qualify for the credit underthis section after the manufacturing enhancement area expirationdate, in accordance with all provisions of this section applied as

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if the manufacturing enhancement area designation were still inexistence and binding.


(3) Manufacturing enhancement areameans an area designatedpursuant to Section 7073.8 of the Government Code according tothe procedures of Chapter 12.8 (commencing with Section 7070)of Division 7 of Title 1 of the Government Code.

(4) Manufacturing enhancement area expiration date meansthe date the manufacturing enhancement area designation expires,is no longer binding, or becomes inoperative.

(5) Qualifed disadvantaged individual means an individualwho satisfes all of the following requirements:

(A) (i) At least 90 percent of whose services for the qualifedtaxpayer during the taxable year are directly related to the conductof the qualifed taxpayers trade or business located in a

manufacturing enhancement area.(ii) Who performs at least 50 percent of his or her services for

the qualifed taxpayer during the taxable year in the manufacturingenhancement area.

(B) Who is hired by the qualifed taxpayer after the designationof the area as a manufacturing enhancement area in which theindividuals services were primarily performed.

(C) Who is any of the following immediately preceding theindividuals commencement of employment with the qualifedtaxpayer:

(i) An individual who has been determined eligible for servicesunder the federal Job Training Partnership Act (29 U.S.C. Sec.1501 et seq.), or its successor.

(ii) Any voluntary or mandatory registrant under the GreaterAvenues for Independence Act of 1985, or its successor, asprovided pursuant to Article 3.2 (commencing with Section 11320)of Chapter 2 of Part 3 of Division 9 of the Welfare and InstitutionsCode.

(iii) Any individual who has been certifed eligible by theEmployment Development Department under the federal TargetedJobs Tax Credit Program, or its successor, whether or not thisprogram is in effect.

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(6) Qualifed taxpayer means any taxpayer engaged in a tradeor business within a manufacturing enhancement area designatedpursuant to Section 7073.8 of the Government Code and who meetsall of the following requirements:

(A) Is engaged in those lines of business described in Codes0211 to 0291, inclusive, Code 0723, or in Codes 2011 to 3999,

inclusive, of the Standard Industrial Classifcation (SIC) Manualpublished by the United States Offce of Management and Budget,1987 edition.

(B) At least 50 percent of the qualifed taxpayers workforcehired after the designation of the manufacturing enhancement areais composed of individuals who, at the time of hire, are residentsof the county in which the manufacturing enhancement area islocated.

(C) Of this percentage of local hires, at least 30 percent shallbe qualifed disadvantaged individuals.

(7) Seasonal employment means employment by a qualifedtaxpayer that has regular and predictable substantial reductions in

trade or business operations.(c) (1) For purposes of this section, all of the following apply:(A) All employees of trades or businesses that are under

common control shall be treated as employed by a single qualifedtaxpayer.

(B) The credit (if any) allowable by this section with respect toeach trade or business shall be determined by reference to itsproportionate share of the expense of the qualifed wages givingrise to the credit and shall be allocated in that manner.

(C) Principles that apply in the case of controlled groups ofcorporations, as specifed in subdivision (d) of Section 23622.7,shall apply with respect to determining employment.

(2) If a qualifed taxpayer acquires the major portion of a tradeor business of another employer (hereinafter in this paragraphreferred to as the predecessor) or the major portion of a separateunit of a trade or business of a predecessor, then, for purposes ofapplying this section (other than subdivision (d)) for any calendaryear ending after that acquisition, the employment relationshipbetween a qualifed disadvantaged individual and a qualifedtaxpayer shall not be treated as terminated if the qualifeddisadvantaged individual continues to be employed in that tradeor business.

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(d) (1) (A) If the employment, other than seasonal employment,of any qualifed disadvantaged individual, with respect to whomqualifed wages are taken into account under subdivision (b) isterminated by the qualifed taxpayer at any time during the frst270 days of that employment (whether or not consecutive) or beforethe close of the 270th calendar day after the day in which that

qualifed disadvantaged individual completes 90 days ofemployment with the qualifed taxpayer, the tax imposed by thispart for the taxable year in which that employment is terminatedshall be increased by an amount equal to the credit allowed undersubdivision (a) for that taxable year and all prior taxable yearsattributable to qualifed wages paid or incurred with respect to thatqualifed disadvantaged individual.

(B) If the seasonal employment of any qualifed disadvantagedindividual, with respect to whom qualifed wages are taken intoaccount under subdivision (a) is not continued by the qualifedtaxpayer for a period of 270 days of employment during the60-month period beginning with the day the qualifed

disadvantaged individual commences seasonal employment withthe qualifed taxpayer, the tax imposed by this part, for the taxableyear that includes the 60th month following the month in whichthe qualifed disadvantaged individual commences seasonalemployment with the qualifed taxpayer, shall be increased by anamount equal to the credit allowed under subdivision (a) for thattaxable year and all prior taxable years attributable to qualifedwages paid or incurred with respect to that qualifed disadvantagedindividual.

(2) (A) Subparagraph (A) of paragraph (1) does not apply toany of the following:

(i) A termination of employment of a qualifed disadvantagedindividual who voluntarily leaves the employment of the qualifedtaxpayer.

(ii) A termination of employment of a qualifed disadvantagedindividual who, before the close of the period referred to insubparagraph (A) of paragraph (1), becomes disabled to performthe services of that employment, unless that disability is removedbefore the close of that period and the taxpayer fails to offerreemployment to that individual.

(iii) A termination of employment of a qualifed disadvantagedindividual, if it is determined that the termination was due to the

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misconduct (as defned in Sections 1256-30 to 1256-43, inclusive,of Title 22 of the California Code of Regulations) of that individual.

(iv) A termination of employment of a qualifed disadvantagedindividual due to a substantial reduction in the trade or businessoperations of the qualifed taxpayer.

(v) A termination of employment of a qualifed disadvantaged

individual, if that individual is replaced by other qualifeddisadvantaged individuals so as to create a net increase in both thenumber of employees and the hours of employment.

(B) Subparagraph (B) of paragraph (1) shall not apply to anyof the following:

(i) A failure to continue the seasonal employment of a qualifeddisadvantaged individual who voluntarily fails to return to theseasonal employment of the qualifed taxpayer.

(ii) A failure to continue the seasonal employment of a qualifeddisadvantaged individual who, before the close of the periodreferred to in subparagraph (B) of paragraph (1), becomes disabledand unable to perform the services of that seasonal employment,

unless that disability is removed before the close of that periodand the qualifed taxpayer fails to offer seasonal employment tothat qualifed disadvantaged individual.

(iii) A failure to continue the seasonal employment of a qualifeddisadvantaged individual, if it is determined that the failure tocontinue the seasonal employment was due to the misconduct (asdefned in Sections 1256-30 to 1256-43, inclusive, of Title 22 ofthe California Code of Regulations) of that qualifed disadvantagedindividual.

(iv) A failure to continue seasonal employment of a qualifeddisadvantaged individual due to a substantial reduction in theregular seasonal trade or business operations of the qualifedtaxpayer.

(v) A failure to continue the seasonal employment of a qualifeddisadvantaged individual, if that qualifed disadvantaged individualis replaced by other qualifed disadvantaged individuals so as tocreate a net increase in both the number of seasonal employeesand the hours of seasonal employment.

(C) For purposes of paragraph (1), the employment relationshipbetween the qualifed taxpayer and a qualifed disadvantagedindividual shall not be treated as terminated by reason of a merechange in the form of conducting the trade or business of the

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qualifed taxpayer, if the qualifed disadvantaged individualcontinues to be employed in that trade or business and the qualifedtaxpayer retains a substantial interest in that trade or business.

(3) Any increase in tax under paragraph (1) shall not be treatedas tax imposed by this part for purposes of determining the amountof any credit allowable under this part.

(e) In the case of an estate or trust, both of the following apply:(1) The qualifed wages for any taxable year shall be apportioned

between the estate or trust and the benefciaries on the basis of theincome of the estate or trust allocable to each.

(2) Any benefciary to whom any qualifed wages have beenapportioned under paragraph (1) shall be treated (for purposes ofthis part) as the employer with respect to those wages.

(f) The credit shall be reduced by the credit allowed underSection 17053.7. The credit shall also be reduced by the federalcredit allowed under Section 51 of the Internal Revenue Code.

In addition, any deduction otherwise allowed under this part forthe wages or salaries paid or incurred by the qualifed taxpayer

upon which the credit is based shall be reduced by the amount ofthe credit, prior to any reduction required by subdivision (g) or(h).

(g) In the case where the credit otherwise allowed under thissection exceeds the net tax for the taxable year, that portion ofthe credit that exceeds the net tax may be carried over and addedto the credit, if any, in succeeding years, until the credit isexhausted. The credit shall be applied frst to the earliest taxableyears possible.

(h) (1) The amount of credit otherwise allowed under thissection, including prior year credit carryovers, that may reducethe net tax for the taxable year shall not exceed the amount oftax that would be imposed on the qualifed taxpayers businessincome attributed to a manufacturing enhancement area determinedas if that attributed income represented all of the net income of thequalifed taxpayer subject to tax under this part.

(2) Attributable income shall be that portion of the taxpayersCalifornia source business income that is apportioned to themanufacturing enhancement area. For that purpose, the taxpayersbusiness income that is attributable to sources in this state frstshall be determined in accordance with Chapter 17 (commencingwith Section 25101) of Part 11. That business income shall be

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further apportioned to the manufacturing enhancement area inaccordance with Article 2 (commencing with Section 25120) ofChapter 17 of Part 11, modifed for purposes of this section inaccordance with paragraph (3).

(3) Income shall be apportioned to a manufacturing enhancementarea by multiplying the total California business income of the

taxpayer by a fraction, the numerator of which is the propertyfactor plus the payroll factor, and the denominator of which is two.For purposes of this paragraph:

(A) The property factor is a fraction, the numerator of which isthe average value of the taxpayers real and tangible personalproperty owned or rented and used in the manufacturingenhancement area during the taxable year, and the denominatorof which is the average value of all the taxpayers real and tangiblepersonal property owned or rented and used in this state duringthe taxable year.

(B) The payroll factor is a fraction, the numerator of which isthe total amount paid by the taxpayer in the manufacturing

enhancement area during the taxable year for compensation, andthe denominator of which is the total compensation paid by thetaxpayer in this state during the taxable year.

(4) The portion of any credit remaining, if any, after applicationof this subdivision, shall be carried over to succeeding taxableyears, as if it were an amount exceeding the net tax for thetaxable year, as provided in subdivision (g).

(i) If the taxpayer is allowed a credit pursuant to this section forqualifed wages paid or incurred, only one credit shall be allowedto the taxpayer under this part with respect to any wage consistingin whole or in part of those qualifed wages.

(j) The qualifed taxpayer shall do both of the following:(1) Obtain from the Employment Development Department, as

permitted by federal law, the local county or city Job TrainingPartnership Act administrative entity, the local county GAIN offceor social services agency, or the local government administeringthe manufacturing enhancement area, a certifcation that providesthat a qualifed disadvantaged individual meets the eligibilityrequirements specifed in paragraph (5) of subdivision (b). TheEmployment Development Department may provide preliminaryscreening and referral to a certifying agency. The Department ofHousing and Community Development shall develop regulations

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governing the issuance of certifcates pursuant to subdivision (d)of Section 7086 of the Government Code and shall develop formsfor this purpose.

(2) Retain a copy of the certifcation and provide it upon requestto the Franchise Tax Board.

(k) (1) This section shall cease to be operative for taxable years

beginning on or after January 1, 2011.(2) In the case of any portion of a credit available for carryover

to a taxable year beginning on or after January 1, 2011, undersubdivision (g), as that subdivision read prior to the amendmentsmade by the act adding this subdivision, neither that subdivisionnor subdivision (d) of Section 17039 shall apply, and those unusedcredit amounts shall not be carried over to any taxable yearbeginning on or after January 1, 2011.

(l) This section shall be repealed as of December 1, 2011.SEC. 7. Section 17053.70 of the Revenue and Taxation Code

is amended to read:17053.70. (a) There shall be allowed as a credit against the

net tax (as defned in Section 17039) for the taxable year anamount equal to the sales or use tax paid or incurred during thetaxable year by the taxpayer in connection with the taxpayerspurchase of qualifed property.

(b) For purposes of this section:(1) Taxpayer means a person or entity engaged in a trade or

business within an enterprise zone.(2) Qualifed property means:(A) Any of the following:(i) Machinery and machinery parts used for fabricating,

processing, assembling, and manufacturing.(ii) Machinery and machinery parts used for the production of

renewable energy resources.(iii) Machinery and machinery parts used for either of the

following:(I) Air pollution control mechanisms.(II) Water pollution control mechanisms.(iv) Data processing and communications equipment, including,

but not limited, to computers, computer-automated draftingsystems, copy machines, telephone systems, and faxes.

(v) Motion picture manufacturing equipment central toproduction and postproduction, including, but not limited to,

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cameras, audio recorders, and digital image and sound processingequipment.

(B) The total cost of qualifed property purchased and placedin service in any taxable year that may be taken into account byany taxpayer for purposes of claiming this credit shall not exceedone million dollars ($1,000,000).

(C) The qualifed property is used by the taxpayer exclusivelyin an enterprise zone.

(D) The qualifed property is purchased and placed in servicebefore the date the enterprise zone designation expires, is no longerbinding, or becomes inoperative.

(3) Enterprise zone means the area designated as an enterprisezone pursuant to Chapter 12.8 (commencing with Section 7070)of Division 7 of Title 1 of the Government Code.

(c) If the taxpayer has purchased property upon which a use taxhas been paid or incurred, the credit provided by this section shallbe allowed only if qualifed property of a comparable quality andprice is not timely available for purchase in this state.

(d) In the case where the credit otherwise allowed under thissection exceeds the net tax for the taxable year, that portion ofthe credit that exceeds the net tax may be carried over and addedto the credit, if any, in succeeding taxable years, until the credit isexhausted. The credit shall be applied frst to the earliest taxableyears possible.

(e) Any taxpayer who elects to be subject to this section shallnot be entitled to increase the basis of the qualifed property asotherwise required by Section 164(a) of the Internal Revenue Codewith respect to sales or use tax paid or incurred in connection withthe taxpayers purchase of qualifed property.

(f) (1) The amount of the credit otherwise allowed under thissection and Section 17053.74, including any credit carryover fromprior years, that may reduce the net tax for the taxable year shallnot exceed the amount of tax that would be imposed on thetaxpayers business income attributable to the enterprise zonedetermined as if that attributable income represented all of theincome of the taxpayer subject to tax under this part.

(2) Attributable income shall be that portion of the taxpayersCalifornia source business income that is apportioned to theenterprise zone. For that purpose, the taxpayers business incomeattributable to sources in this state frst shall be determined in

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accordance with Chapter 17 (commencing with Section 25101) ofPart 11. That business income shall be further apportioned to theenterprise zone in accordance with Article 2 (commencing withSection 25120) of Chapter 17 of Part 11, modifed for purposesof this section in accordance with paragraph (3).

(3) Business income shall be apportioned to the enterprise zone

by multiplying the total California business income of the taxpayerby a fraction, the numerator of which is the property factor plusthe payroll factor, and the denominator of which is two. Forpurposes of this paragraph:

(A) The property factor is a fraction, the numerator of which isthe average value of the taxpayers real and tangible personalproperty owned or rented and used in the enterprise zone duringthe taxable year, and the denominator of which is the average valueof all the taxpayers real and tangible personal property owned orrented and used in this state during the taxable year.

(B) The payroll factor is a fraction, the numerator of which isthe total amount paid by the taxpayer in the enterprise zone during

the taxable year for compensation, and the denominator of whichis the total compensation paid by the taxpayer in this state duringthe taxable year.

(4) The portion of any credit remaining, if any, after applicationof this subdivision, shall be carried over to succeeding taxableyears, as if it were an amount exceeding the net tax for thetaxable year, as provided in subdivision (d).

(g) The amendments made to this section by the act adding thissubdivision shall apply to taxable years beginning on or afterJanuary 1, 1998.

(h) (1) This section shall cease to be operative for taxable yearsbeginning on or after January 1, 2011.

(2) In the case of any portion of a credit available for carryoverto a taxable year beginning on or after January 1, 2011, undersubdivision (d), as that subdivision read prior to the amendmentsmade by the act adding this subdivision, neither that subdivisionnor subdivision (d) of Section 17039 shall apply, and those unusedcredit amounts shall not be carried over to any taxable yearbeginning on or after January 1, 2011.

(i) This section shall be repealed as of December 1, 2011.SEC. 8. Section 17053.74 of the Revenue and Taxation Code

is amended to read:

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17053.74. (a) There shall be allowed a credit against the nettax (as defned in Section 17039) to a taxpayer who employs aqualifed employee in an enterprise zone during the taxable year.The credit shall be equal to the sum of each of the following:

(1) Fifty percent of qualifed wages in the frst year ofemployment.

(2) Forty percent of qualifed wages in the second year ofemployment.

(3) Thirty percent of qualifed wages in the third year ofemployment.

(4) Twenty percent of qualifed wages in the fourth year ofemployment.

(5) Ten percent of qualifed wages in the ffth year ofemployment.

(b) For purposes of this section:(1) Qualifed wages means:(A) (i) Except as provided in clause (ii), that portion of wages

paid or incurred by the taxpayer during the taxable year to qualifed

employees that does not exceed 150 percent of the minimum wage.(ii) For up to 1,350 qualifed employees who are employed by

the taxpayer in the Long Beach Enterprise Zone in aircraftmanufacturing activities described in Codes 3721 to 3728,inclusive, and Code 3812 of the Standard Industrial Classifcation(SIC) Manual published by the United States Offce ofManagement and Budget, 1987 edition, qualifed wages meansthat portion of hourly wage

ab_103_taxation_personal income and corportation taxes

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