BILL NUMBER: SB 98 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JULY 20, 2007
AMENDED IN ASSEMBLY JULY 16, 2007
INTRODUCED BY Committee on Budget and Fiscal Review
JANUARY 17, 2007
An act relating to the Budget Act of 2007.
An act to amend Section 23036 of, to amend, repeal, and add
Sections 17052.12, 23609, and 25128 of, and to add and repeal
Sections 6357.7, 6357.8, 6357.9, 17053.85, 17053.86, 23685, and 23686
of, the Revenue and Taxation Code, relating to taxation.
LEGISLATIVE COUNSEL'S DIGEST
SB 98, as amended, Committee on Budget and Fiscal Review.
Budget Act of 2007. Taxation.
(1) The Sales and Use Tax Law imposes a tax on the gross receipts
from the sale in this state of, or the storage, use, or other
consumption in this state of, tangible personal property. That law
provides various exemptions from that tax, including an exemption for
the gross receipts from the sale of, and the storage, use, or other
consumption of, fuel and petroleum products sold to an air common
carrier for immediate consumption or shipment in the conduct of its
business on an international flight. .
This bill, for calendar years beginning on and after July 1, 2008,
would exempt from those state taxes the gross receipts derived from
the sale in this state of, and the storage, use, or other consumption
in this state of, low-sulfur fuel products for use in a vessel's
auxiliary or main engine sold to a water common carrier for use in
California's territorial or internal waters, as provided. This
exemption would continue until June 30, 2013, with respect to the
exemption for products used in a vessel's auxiliary engine. With
respect to exemption for products used in a vessel's main engine, the
exemption would continue until June 30, 2013, or for 6 months
following the publication of a specified finding, whichever occurs
first.
This bill would, from July 1, 2008, until July 1, 2013, also
exempt from those state taxes gross receipts in excess of specified
amounts per gallon derived from the sale in this state of, and the
storage, use, or other consumption in this state of, fuel and
petroleum products sold to or purchased by an air common carrier on a
domestic flight, as specified.
Counties and cities are authorized to impose local sales and use
taxes in conformity with state sales and use taxes. Exemptions from
state sales and use taxes enacted by the Legislature are incorporated
into the local taxes.
Section 2230 of the Revenue and Taxation Code provides that the
state will reimburse counties and cities for revenue losses caused by
the enactment of sales and use tax exemptions.
This bill would provide that, notwithstanding Section 2230 of the
Revenue and Taxation Code, no appropriation is made and the state
shall not reimburse local agencies for sales and use tax revenues
lost by them pursuant to this bill.
(2) The Personal Income Tax Law and the Corporation Tax Law, by
reference to a specified federal statute, allow a credit against
taxes imposed by those laws for increasing research expenses, as
defined. In general, the amount of the credit under both laws is
equal to 15% of the excess of the qualified research expenses, as
defined, for the taxable year over the base amount, as defined, and,
in addition, for purposes of the Corporation Tax Law, 24% of the
basic research payments, as defined. The term "base amount" means the
product of the average annual gross receipts of the taxpayer for
each of the specified years preceding the taxable year and the
fixed-base percentage, as defined, but in no event less than 50% of
the qualified research expenses for the taxable year. A taxpayer may
elect an alternative incremental credit for increasing research
expenses in modified conformity to federal income tax laws.
This bill would modify those provisions beginning on or after
January 1, 2007, and before January 1, 2013, to increase the credit
for increasing research expenses to 20% of the excess of the
qualified research expenses. This bill would also provide complete
conformity to the alternative incremental credit provided under those
federal income tax laws.
(3) The Personal Income Tax Law and the Corporation Tax Law
authorize various credits against the taxes imposed by those laws.
This bill would authorize a credit against those taxes, until January
1, 2014, for taxable years beginning on or after January 1, 2008,
subject to specified limitations, in an amount equal to 12% of the
qualified amount for qualified wages paid or incurred with respect to
the production of each qualified motion picture with an additional
3% for specific qualified motion pictures. This bill would authorize
$70,000,000 for credits beginning in the 2008 calendar year, and each
calendar year thereafter, subject to specified provisions.
Additionally, this bill would authorize a credit against those
taxes, until January 1, 2014, for taxable years beginning on or after
January 1, 2008, subject to specified limitations, in an amount
equal to 12% of the incremental qualified production costs paid or
incurred with respect to the production of qualified commercials, as
defined. This bill would authorize $5,000,000 for credits beginning
in the 2008 calendar year, and each calendar year thereafter, subject
to specified provisions.
This bill would authorize the sale of these credits to an
unrelated party as specified.
The Corporation Tax Law defines the term "tax" for those purposes,
and provides that credits shall be allowed against the tax in a
specified order.
This bill would add to that list of credits, credits that contain
refundable provisions, but do not contain carryover provisions.
This bill would impose specified duties on the California Film
Commission and the Franchise Tax Board in administering the credits,
including a requirement that the commission report to the
Legislature, on or before June 1, 2011, and annually thereafter, on
the diversity of the workforce employed in the production of the
qualified motion pictures and qualified commercials.
This bill would require the Business, Transportation and Housing
Agency to report to the Legislature regarding the economic impact of
the tax incentives created by the bill.
The bill would require a taxpayer to certify under penalty of
perjury that he or she is the taxpayer entitled to claim certain
deductions with respect to a qualified motion picture, thus imposing
a state-mandated local program by expanding the scope of an existing
crime.
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.
This bill would provide that no reimbursement shall be made
pursuant to these statutory provisions for costs mandated by the
state pursuant to this act, but would recognize that local agencies
and school districts may pursue any available remedies to seek
reimbursement for these costs.
(4) The Corporation Tax Law imposes taxes measured by income and,
in the case of a business with income derived from, or attributable
to, sources both within and without this state, apportions the income
between this state and other states and foreign countries in
accordance with a specified 4-factor formula, except as otherwise
provided.
This bill, for taxable years beginning on or after January 1, 2008
and before January 1, 2011, would allow a taxpayer that is a member
of the apportioning trade or business to elect, as provided, to
apportion its business income to this state by utilizing one of the
revised apportionment formulas, as specified.
This bill would express the intent of the Legislature to make
statutory changes relating to the Budget Act of 2007.
Vote: majority. Appropriation: no. Fiscal committee: no
yes . State-mandated local program: no
yes .
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 6357.7 is added to the
Revenue and Taxation Code , to read:
6357.7. (a) Effective July 1, 2008, through and including June
30, 2013, there are exempted from the taxes imposed by this part, the
gross receipts from the sale in this state of, and the storage, use,
or other consumption in this state of, low-sulfur fuel products for
use in a vessel's auxiliary engine, sold to a water common carrier
inside this state for immediate consumption in the conduct of its
business as a water common carrier in California's territorial or
internal waters.
(b) To qualify for the exemption, the water common carrier shall
furnish to the seller an exemption certificate, in the form
prescribed by the board, stating the quantity of low-sulfur fuel
products for use in a vessel's auxiliary engines claimed as exempt
that are to be consumed within California's territorial or internal
waters. The certificate shall bear the purchaser's valid seller's
permit number or valid fuel exemption registration number. Acceptance
in good faith of that certificate shall relieve the seller from
liability for the sales tax exempted under this section.
(c) For purposes of this section:
(1) "Immediate consumption" means that the delivery of the
low-sulfur fuel products for use in a vessel's auxiliary engine by
the seller is directly into a vessel for consumption by that vessel
while in California's territorial or internal waters, and is not used
for storage by the purchaser or any third party.
(2) "Low-sulfur fuel products" means any fuel, including heavy
fuel oil, marine distillate fuels, marine gas oil, marine diesel oil,
or any other diesel fuel, with a sulfur content of no greater than
0.05 percent, or 500 parts per million.
(3) "Auxiliary engine" means an engine on a vessel that provides
power for a use other than propulsion.
(4) "Territorial or internal waters" means waters within a seaward
boundary three geographical miles into the Pacific Ocean measured
from the mean low-water mark of the California coast, all interior
navigable waterways, and the Monterey Bay, subject to definitions of
the United Nations Convention on the Law of the Sea.
(5) "Water common carrier" has the same meaning as "common carrier"
as set forth in Section 6385.
(d) (1) Any water common carrier claiming exemption under this
section that is not required to hold a valid seller's permit, shall
be required to register with the board and obtain a fuel exemption
registration number, and shall be required to file returns as the
board may prescribe, either if the board notifies the carrier that
returns must be filed or if the carrier is liable for taxes based
upon consumption of fuel products erroneously claimed as exempt under
this section.
(2) A water common carrier required to hold a fuel exemption
registration number shall be subject to all applicable provisions of
this part, Part 1.5 (commencing with Section 7200), and Part 1.6
(commencing with Section 7251).
(3) Upon approval of the board, a water common carrier may utilize
a single fuel exemption registration number for all exemptions
claimed under this article.
(e) (1) A water common carrier claiming an exemption under this
section, upon request shall make available to the board records,
documenting its consumption of low-sulfur fuel products for use in a
vessel's auxiliary engine while in California's territorial and
internal waters, the amount claimed as exempt, and any additional
information related to a vessel's engines, fuel tanks, and sailing
schedules. If the carrier fails to provide the records upon request,
the board may revoke the carrier's fuel exemption registration
number.
(2) Records required by the board pursuant to this subdivision may
include, but are not limited to:
(A) A description of the types of low-sulfur fuel products that
meet the requirements of this section and that are used in each
auxiliary engine.
(B) A description of the use of the low-sulfur fuel products.
(C) A description of the vessel that used the low-sulfur fuel
product, including the type of vessel, whether the vessel is
mono-fueled or dual-fueled, and the number of auxiliary engines used
by the vessel.
(D) A description of the vessel's locations and destinations for
the period the vessel was in California's territorial or internal
waters.
(3) A supplier or retailer, upon request by the board, shall
confirm the sulfur content of fuels sold to a water common carrier
and claimed as exempt under this section.
(f) The board may require any water common carrier claiming an
exemption under this section and required to obtain a fuel exemption
registration number, to place with it such security as the board may
determine pursuant to Section 6701.
(g) Pursuant to this section, any use of the fuel products by the
purchasing carrier, other than that incident to the delivery of the
fuel products to the carrier and the immediate consumption of the
fuel products by the carrier for use in an auxiliary engine in
California's territorial or internal waters in the conduct of its
business as a water common carrier, or a failure of the carrier to
document its consumption of the fuel products in an auxiliary engine
in California's territorial or internal waters, shall subject the
carrier to liability for payment of sales tax as if it were a
retailer making a retail sale of the property at the time of that use
or failure, and the sales price of the property to it shall be
deemed to be the gross receipts from the retail sale.
(h) No exemption may be claimed under this section for which an
exemption under Section 6357.8 may be claimed.
(i) On or before January 1, 2012, the Legislative Analyst's
Office, in consultation with the Department of Finance, the board,
and the State Air Resources Board, shall submit a report to the
Legislature on the economic and health impacts of the exemption
authorized under this section. The report shall include, but is not
limited to, a recommendation as to whether the exemption should be
extended, and if so, any recommended modifications of the exemption.
(j) This section shall remain in effect only until June 30, 2013,
and as of that date is repealed, unless a later enacted statute,
which is enacted before June 30, 2013, deletes or extends that date.
SEC. 2. Section 6357.8 is added to the
Revenue and Taxation Code , to read:
6357.8. (a) Effective July 1, 2008, there are exempted from the
taxes imposed by this part, the gross receipts from the sale in this
state of, and the storage, use, or other consumption of, low-sulfur
fuel products for use in a vessel's main engine, sold to a water
common carrier for immediate consumption in the conduct of its
business as a water common carrier until the first out-of-state
destination or 500 nautical miles beyond California's territorial
waters, whichever is less.
(b) To qualify for the exemption, the water common carrier shall
furnish to the seller an exemption certificate, in the form
prescribed by the board, stating the quantity of low-sulfur fuel
products for use in a vessel's main engines claimed as exempt. The
certificate shall bear the purchaser's valid seller's permit number
or valid fuel exemption registration number. Acceptance in good faith
of that certificate shall relieve the seller from liability for the
sales tax exempted under this section.
(c) For purposes of this section:
(1) "Immediate consumption" means that the delivery of the
low-sulfur fuel products for use in a vessel's main engine by the
seller is directly into a vessel for consumption by that vessel alone
until the first out-of-state destination or 500 miles beyond
California's territorial waters and not used for storage by the
purchaser or any third party.
(2) "First out-of-state destination" has the same meaning as set
forth in Section 6385.
(3) "Low-sulfur fuel products" means any fuel, including heavy
fuel oil, marine distillate fuels, marine gas oil, marine diesel oil,
or any other diesel fuel, with a sulfur content of no greater than
1.5 percent, or 15,000 parts per million.
(4) "Main engine" means any propulsion engine, including, but not
limited to, an engine whose main purpose is to provide power for
propulsion, regardless of other uses, including a diesel-electric
engine.
(5) "Territorial waters" means waters within a seaward boundary
three geographical miles into the Pacific Ocean measured from the
mean low-water mark of the California coast, and the Monterey Bay,
subject to definitions of the United Nations Convention on the Law of
the Sea.
(6) "Water common carrier" has the same meaning as "common carrier"
as set forth in Section 6385.
(d) (1) Any water common carrier claiming exemption under this
section that is not required to hold a valid seller's permit, shall
be required to register with the board and obtain a fuel exemption
registration number, and shall be required to file returns as the
board may prescribe, either if the board notifies the carrier that
returns must be filed or if the carrier is liable for taxes based
upon consumption of fuel products erroneously claimed as exempt under
this section.
(2) A water common carrier required to hold a fuel exemption
registration number shall be subject to all applicable provisions of
this part, Part 1.5 (commencing with Section 7200), and Part 1.6
(commencing with Section 7251).
(3) Upon approval of the board, a water common carrier may utilize
a single fuel exemption registration number for all exemptions
claimed under this article.
(e) (1) A water common carrier claiming an exemption under this
section, upon request shall make available to the board records,
documenting its consumption of low-sulfur fuel products for use in a
vessel's main engine, the amount claimed as exempt, and any
additional information related to a vessel's engines, fuel tanks, and
sailing schedules. If the carrier fails to provide the records upon
request, the board may revoke the carrier's fuel exemption
registration number.
(2) Records required by the board pursuant to this subdivision may
include, but are not limited to:
(A) A description of the types of low-sulfur fuel products that
meet the requirements of this section and that are used in each main
engine.
(B) A description of the use of the low-sulfur fuel products.
(C) A description of the vessel that used the low-sulfur fuel
product, including the type of vessel, whether the vessel is
mono-fueled or dual-fueled, and the number of auxiliary engines used
by the vessel.
(D) A description of the vessel's locations and destinations for
the period the vessel was in California's territorial or internal
waters.
(3) A supplier or retailer, upon request by the board, shall
confirm the sulfur content of fuels sold to a water common carrier
and claimed as exempt under this section.
(f) The board may require any water common carrier claiming an
exemption under this section and required to obtain a fuel exemption
registration number, to place with it such security as the board may
determine pursuant to Section 6701.
(g) Pursuant to this section, any use of the fuel products by the
purchasing carrier, other than that incident to the delivery of the
fuel products to the carrier and the immediate consumption of the
fuel products by the carrier for use in the conduct of its business
as a water common carrier, or a failure of the carrier to document
its consumption of the fuel products in a main engine until the first
out-of-state destination or 500 nautical miles beyond California's
territorial waters, shall subject the carrier to liability for
payment of sales tax as if it were a retailer making a retail sale of
the property at the time of that use or failure, and the sales price
of the property to it shall be deemed to be the gross receipts from
the retail sale.
(h) On or before January 1, 2012, the Legislative Analyst's
Office, in consultation with the Department of Finance, the board,
and the State Air Resources Board, shall submit a report to the
Legislature on the economic and health impacts of the exemption
authorized under this section. The report shall include, but is not
limited to, a recommendation as to whether the exemption should be
extended, and if so, any recommended modifications of the exemption.
(i) This section is repealed on the earlier of any of the
following:
(1) Six months from the date the board submits a finding to the
Legislature and the Office of Administrative Law, for publication in
the state register, that the United States Environmental Protection
Agency established a Sulfur Emission Control Area under the
provisions of Annex VI of the International Convention for the
Prevention of Pollution from Ships, 1973, as amended at London in
February 1978.
(2) Six months from the date the board submits a finding to the
Legislature and the Office of Administrative Law, for publication in
the state register, that the United States Environmental Protection
Agency established vessel air emissions standards consistent with any
amendments made by the International Maritime Organization to Annex
VI of the International Convention for the Prevention of Pollution
from Ships after the enactment date of the act that added this
section, provided that the air quality benefits in California are at
least as great as those from a Sulfur Emission Control Area and the
standards are not applied exclusively to United States flagged
vessels.
(3) June 30, 2013.
SEC. 3. Section 6357.9 is added to the
Revenue and Taxation Code , to read:
6357.9. (a) (1) Except as provided in paragraph (2), from July 1,
2008, to June 1, 2013, inclusive, there are exempted from the taxes
imposed by this part, those gross receipts in excess of one dollar
ninety-three cents ($1.93) per gallon derived from the sale in this
state of, or the storage, use, or other consumption in this state of,
fuel and petroleum products sold to or purchased by an air common
carrier for consumption or shipment in the conduct of its business as
an air common carrier, on a domestic flight.
(2) Notwithstanding paragraph (1), for any year commencing on July
1, 2009, and for each year commencing on each July 1 thereafter to
July 1, 2012, inclusive, the "one dollar ninety-three cents ($1.93)"
amount under paragraph (1) shall be modified, as follows:
(A) Except as provided in subparagraphs (B), (C), or (D), the
amount shall be one dollar eighty-eight cents ($1.88) for the year
commencing on July 1, 2009, and for any year thereafter, in which the
total amount of fuel and petroleum products to be sold, stored, or
otherwise consumed in this state, as estimated by the board, exceeds
by 5 percent the total amount of fuel and petroleum products to be
sold, stored, or otherwise consumed in this state, as estimated by
the board, during the year commencing on July 1, 2008.
(B) Except as provided in subparagraph (C) or (D), the amount
shall be one dollar eighty-three cents ($1.83) for the year
commencing on July 1, 2010, and for any year thereafter, in which the
total amount of fuel and petroleum products to be sold, stored, or
otherwise consumed in this state, as estimated by the board, exceeds
by 5 percent the total amount of fuel and petroleum products to be
sold, stored, or otherwise consumed in this state, as estimated by
the board, during the year commencing on July 1, 2009.
(C) Except as provided in subparagraph (D), the amount shall be
one dollar seventy-eight cents ($1.78) for any year commencing on
July, 1, 2011, and on each July 1 thereafter, in which the total
amount of fuel and petroleum products to be sold, stored, or
otherwise consumed in this state, as estimated by the board, exceeds
by 5 percent the total amount of fuel and petroleum products to be
sold, stored, or otherwise consumed in this state during the year
commencing on July 1, 2010.
(D) Notwithstanding subparagraph (A), the amount shall be one
dollar seventy-three cents ($1.73) for any year commencing on July,
1, 2012, and on each July 1 thereafter, in which the total amount of
fuel and petroleum products to be sold, stored, or otherwise consumed
in this state, as estimated by the board, exceeds by 5 percent the
total amount of fuel and petroleum products to be sold, stored, or
otherwise consumed in this state during the year commencing on July
1, 2011.
(b) To qualify for the exemption, the air common carrier shall
furnish to the seller an exemption certificate in the form prescribed
by the board. Acceptance in good faith of that certificate shall
relieve the seller from liability for the sales tax exempted under
this section.
(c) For purposes of this section, "domestic flight" means a flight
whose final destination is a point inside of the United States.
(d) Any air common carrier claiming exemption under this section,
that is not required to hold a valid seller's permit, shall be
required to register with the board and obtain a fuel exemption
registration number, and shall be required to file returns as the
board may prescribe, either if the board notifies the carrier that
returns must be filed or if the carrier is liable for taxes based
upon consumption or transportation of fuel or petroleum products
erroneously claimed as exempt under this section.
(e) An air common carrier claiming an exemption under this
section, upon request, shall make available to the board records,
including, but not limited to, a copy of a log abstract, an air
waybill, or a cargo manifest, documenting its consumption or
transportation of the fuel or petroleum products on a domestic flight
and the amount claimed as exempt. If the carrier fails to provide
these records upon request, the board may revoke the carrier's fuel
exemption registration number.
(f) The board may require any air common carrier claiming an
exemption under this section and required to obtain a fuel exemption
registration number, to place with it such security as the board may
determine pursuant to Section 6701.
(g) Pursuant to this section, any use of the fuel and petroleum
products by the purchasing carrier, other than that incident to the
delivery of the fuel and petroleum products to the carrier and the
consumption or transportation of the fuel and petroleum products by
the carrier on a domestic flight for use in the conduct of its
business as a common carrier, or a failure of the carrier to document
its consumption or transportation of the fuel and petroleum products
on a domestic flight, shall subject the carrier to liability for
payment of sales tax as if it were a retailer making a retail sale of
the property at the time of that use or failure, and the sales price
of the property to it shall be deemed to be the gross receipts from
the retail sale.
(h) Notwithstanding any provision of the Bradley-Burns Uniform
Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200))
or the Transactions and Use Tax Law (Part 1.6 (commencing with
Section 7251)), the exemption established by this section shall not
apply with respect to any tax levied by a county, city, city and
county, or district pursuant to, or in accordance with, either of
those laws, unless approved on or before March 1, 2008, by the local
government that would otherwise receive the revenues derived from the
taxes imposed under those laws. Any governing body of any county,
city, city and county, or district that votes to allow the exemption
established by this section shall so notify the State Board of
Equalization on or before March 1, 2008.
(i) This section shall remain in effect only until July 1, 2013,
and as of that date is repealed.
SEC. 4. Section 17052.12 of the Revenue
and Taxation Code is amended to read:
17052.12. For each taxable year beginning on or after January 1,
1987, there shall be allowed as a credit against the "net tax" (as
defined by Section 17039) for the taxable year an amount determined
in accordance with Section 41 of the Internal Revenue Code, except as
follows:
(a) For each taxable year beginning before January 1, 1997, the
reference to "20 percent" in Section 41(a)(1) of the Internal Revenue
Code is modified to read "8 percent."
(b) (1) For each taxable year beginning on or after January 1,
1997, and before January 1, 1999, the reference to "20 percent" in
Section 41(a)(1) of the Internal Revenue Code is modified to read "11
percent."
(2) For each taxable year beginning on or after January 1, 1999,
and before January 1, 2000, the reference to "20 percent" in Section
41(a)(1) of the Internal Revenue Code is modified to read "12
percent."
(3) For each taxable year beginning on or after January 1, 2000,
the reference to "20 percent" in Section 41(a)(1) of the Internal
Revenue Code is modified to read "15 percent."
(c) Section 41(a)(2) of the Internal Revenue Code, relating to
basic research payments, shall not apply.
(d) "Qualified research" shall include only research conducted in
California.
(e) In the case where the credit allowed under this section
exceeds the "net tax," the excess may be carried over to reduce the
"net tax" in the following year, and succeeding years if necessary,
until the credit has been exhausted.
(f) (1) With respect to any expense paid or incurred after the
operative date of Section 6378, Section 41(b)(1) of the Internal
Revenue Code is modified to exclude from the definition of "qualified
research expense" any amount paid or incurred for tangible personal
property that is eligible for the exemption from sales or use tax
provided by Section 6378.
(2) For each taxable year beginning on or after January 1, 1998,
the reference to "Section 501(a)" in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read "this part or Part 11 (commencing with Section
23001)."
(g) (1) For each taxable year beginning on or after January 1,
2000 , and before January 1, 2008 :
(A) The reference to "2.65 percent" in Section 41(c)(4)(A)(i) of
the Internal Revenue Code is modified to read "one and forty-nine
hundredths of one percent."
(B) The reference to "3.2 percent" in Section 41(c)(4)(A)(ii) of
the Internal Revenue Code is modified to read "one and ninety-eight
hundredths of one percent."
(C) The reference to "3.75 percent" in Section 41(c)(4)(A)(iii) of
the Internal Revenue Code is modified to read "two and forty-eight
hundredths of one percent."
(2) Section 41(c)(4)(B) shall not apply and in lieu thereof an
election under Section 41(c)(4)(A) of the Internal Revenue Code may
be made for any taxable year of the taxpayer beginning on or after
January 1, 1998. That election shall apply to the taxable year for
which made and all ea ch
succeeding taxable years year unless
revoked with the consent of the Franchise Tax Board.
(3) Section 41(c)(6) of the Internal Revenue Code, relating to
gross receipts, is modified to take into account only those gross
receipts from the sale of property held primarily for sale to
customers in the ordinary course of the taxpayer's trade or business
that is delivered or shipped to a purchaser within this state,
regardless of f.o.b. point or any other condition of the sale.
(h) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.
(i) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough of credit, is modified by each of the
following:
(1) The last sentence shall not apply.
(2) If the amount determined under Section 41(a) of the Internal
Revenue Code for any taxable year exceeds the limitation of Section
41(g) of the Internal Revenue Code, that amount may be carried over
to other taxable years under the rules of subdivision (e); except
that the limitation of Section 41(g) of the Internal Revenue Code
shall be taken into account in each subsequent taxable year.
(3) This section shall remain in effect only until and including
December 31, 2013, and as of that date is repealed, unless a later
enacted statute that is enacted before January 1, 2014 extends that
date.
SEC. 5. Section 17053.85 is added to the
Revenue and Taxation Code , to read:
17053.85. (a) (1) For taxable years beginning on or after January
1, 2008, and before January 1, 2014, subject to the limitation in
paragraph (2), there shall be allowed to a qualified taxpayer, as
designated by the California Film Commission pursuant to subdivision
(h), as a credit against the "net tax," as defined in Section 17039,
an amount equal to 12 percent of the qualified amount. A movie of the
week and a miniseries, for which an executed licensing agreement
from a network or basic cable entity is provided, shall be entitled
to an additional 3 percent of the qualified amount.
(2) The credit allowed by paragraph (1) shall not exceed the
lesser of:
(A) The amount of the credit allocated to the qualified taxpayer
by the California Film Commission based on the initial application.
(B) The amount of the credit calculated based on actual allowable
expenditures on the qualified motion picture.
(C) Three million dollars ($3,000,000) per qualified motion
picture.
(b) For purposes of this section:
(1) "Ancillary product" means any article for sale to the public
that contains a portion of, or any element of, the motion picture.
(2) "Budget" means an estimate of all expenses paid or incurred
during the production period of a motion picture. It shall be the
same budget used by the qualified taxpayer and production company for
all qualified motion picture purposes.
(3) "Clip use" means a use of any portion of a motion picture,
other than the qualified motion picture, used in the qualified motion
picture.
(4) (A) "Employee fringe benefits" means the amount allowable as a
deduction under this part to the qualified taxpayer involved in the
production of the qualified motion picture for any year during the
production period with respect to any of the following:
(i) Employer contributions under any pension, profit-sharing,
annuity, or similar plan.
(ii) Employer-provided coverage under any accident or health plan
for employees.
(iii) The employer's cost of life or disability insurance provided
to employees.
(B) Any amount treated as wages under clause (i) of subparagraph
(A) of paragraph (21) shall not be taken into account under this
paragraph.
(5) "Licensing" means any grant of rights to distribute the
qualified motion picture, in whole or in part.
(6) "Movie of the week" and "miniseries" both mean a motion
picture, produced for initial exploitation on television, which
contains a scripted storyline requiring two or more consecutive hours
of programming.
(7) "New to California" means a television series that has not
previously engaged in principal photography in this state, other than
for a production that is a pilot or presentation.
(8) "New use" means any use of a motion picture in a medium other
than the medium for which it was initially created.
(9) (A) "Postproduction" means the final activities in a qualified
motion picture's production, including editing, foley recording,
automatic dialogue replacement, sound editing, scoring and music
editing, beginning and end credits, negative cutting, negative
processing and duplication, the addition of sound and visual effects,
soundmixing, film to tape transfers, encoding, and color correction.
(B) "Postproduction" does not include the manufacture or shipping
of release prints.
(10) "Preproduction" means the process of preparation for actual
physical production which begins after a qualified motion picture has
received a firm agreement of financial commitment, or is greenlit,
with, for example, the establishment of a dedicated production
office, the hiring of key crew members, and includes, but is not
limited to, activities that include location scouting and execution
of contracts with vendors of equipment and stage space.
(11) "Principal photography" means the phase of production during
which the motion picture is actually shot, as distinguished from
preproduction and postproduction.
(12) "Production accountant" means an employee of the production
company whose duties include some or all of the following activities:
oversight of production budgets, cost reporting, order management,
payment of expenses, and the review of financial reports for accuracy
and completeness.
(13) "Production company" means a company primarily engaged in
qualified production activities that have been approved by the
California Film Commission.
(14) "Production period" means the period of time in which the
preproduction, principal photography, and postproduction occurs until
the qualified motion picture is completed, as described in clause
(v) of subparagraph (C) of paragraph (18).
(15) (A) "Qualified amount" means all of the following:
(i) The total amount paid or incurred during the production period
for qualified wages with respect to the production of each qualified
motion picture.
(ii) The total amount paid or incurred during the production
period for qualified property.
(iii) Amounts paid or incurred for qualified wages and qualified
property related to the qualified motion picture for preproduction
costs that include set design and construction, props, wardrobe,
prosthetics, testing, and location scouting that are paid or
incurred. In the case of a television series described in clause (ii)
of subparagraph (C) of paragraph (18), the amounts paid or incurred
for the items described in this subparagraph shall be ratably
allocated amongst the episodes produced in the first season.
(B) Notwithstanding subparagraph (A), the term "qualified amount"
shall not include any qualified wages paid or incurred for services
performed nor any qualified property purchased or leased before
January 1, 2008.
(16) "Qualified entity" means a personal service corporation as
defined in Section 269A(b)(1) of the Internal Revenue Code, a payroll
services corporation, or any entity receiving qualified wages with
respect to services performed by a qualified individual.
(17) (A) "Qualified individual" means any individual who performs
services during the production period in an activity related to the
production of a qualified motion picture.
(B) "Qualified individual" shall not include either of the
following:
(i) Any individual related to the qualified taxpayer as described
in subparagraph (A), (B), or (C) of Section 51(i)(1) of the Internal
Revenue Code.
(ii) Any 5 percent owner, as defined in Section 416(i)(1)(B) of
the Internal Revenue Code, of the qualified taxpayer.
(18) (A) "Qualified motion picture" means any motion picture that
is produced, adapted, or altered for exploitation in, on, or through
any medium or by any device, including, but not limited to, a motion
picture produced for exploitation in movie theaters, through any form
of television, videotapes, videodiscs, DVDs, or any other digital
format or on commercial carriers. "Qualified motion picture" shall
also include, but shall not be limited to, all adapted versions
thereof, whether adapted for exploitation in any language, for any
media, or otherwise.
(B) (i) "Qualified motion picture" shall not include any motion
picture produced for private noncommercial use, such as weddings or
graduations, by students made as part of any educational course, or
any motion picture produced for industrial purposes.
(ii) "Qualified motion picture" shall not include a news program,
current events or public events program, talk show, game show,
sporting event or activity, awards show, telethon or other production
that solicits funds, reality television program, a feature where 80
percent or more of the content consists of computer-generated images,
clip-based programming if more than 50 percent of the content is
comprised of licensed footage, documentaries, variety programs,
daytime dramas, strip shows, one-half-hour (air time) episodic
television shows, or any production that falls within the
recordkeeping requirements of Section 2257 of Title 18 of the United
States Code.
(C) To qualify as a "qualified motion picture," all of the
following additional conditions shall be satisfied:
(i) The qualified motion picture shall be a feature with a minimum
budget of one million dollars ($1,000,000) and a maximum budget of
seventy-five million dollars ($75,000,000), or a movie of the week or
miniseries with a minimum budget of one million dollars ($1,000,000)
and a maximum budget of seventy-five million dollars ($75,000,000).
(ii) A qualified motion picture shall also include a single
episode in a single season, not to exceed 22 episodes per season, of
a television series new to California with a minimum budget of five
hundred thousand dollars ($500,000) and a maximum budget of one
million eight hundred thousand dollars ($1,800,000) per episode. This
clause shall only apply to the first three seasons of a television
series that is new to California.
(iii) The actual expenses totaled at the completion of the
qualified motion picture must fall within the fiscal ranges
established in clause (i) or (ii) at the time of application to the
California Film Commission.
(iv) At least 75 percent of the total days spent in principal
photography of a qualified motion picture occur wholly in California.
(v) Production of the qualified motion picture is completed within
30 months of the date on which the qualified taxpayer's application
was approved by the California Film Commission. For the purposes of
this section, a qualified motion picture is "completed" when the
process of postproduction has been finished, and a final answer print
or broadcast delivery air master of the qualified motion picture is
produced.
(vi) Principal photography of the qualified motion picture begins
within 180 days of the designation of the taxpayer as a qualified
taxpayer by the California Film Commission.
(D) For the purposes of clauses (i) and (ii) of subparagraph (C),
the following additional rules apply:
(i) In computing the total amounts paid or incurred for the
production of a qualified motion picture, all amounts paid or
incurred by all persons or entities that share in the costs of the
qualified motion picture shall be aggregated.
(ii) In the case of a television series, described in clause (ii)
of subparagraph (C), each episode shall be treated as a separate
qualified motion picture.
(E) For purposes of computing the limitations under this
paragraph, "wages" means all amounts described in subparagraph (A) of
paragraph (21), provided that these amounts are paid for services
performed or rendered within this state.
(19) (A) "Qualified property" means tangible personal property
purchased or leased in California and is used primarily in the
production of a qualified motion picture.
(B) "Qualified property" shall not include a story, script, or
scenario to be used for a qualified motion picture, or the literary,
dramatic, or musical material upon which the qualified motion picture
is based or may be adapted, or any rights related to the foregoing.
(20) (A) "Qualified taxpayer" means an applicant who has a
reservation of an allocation of tax credits pursuant to subdivision
(h).
(B) (i) In the case of any passthrough entity, the determination
of whether a taxpayer is a qualified taxpayer under this section
shall be made at the entity level and any credit under this section
is not allowed to the passthrough entity, but shall be passed through
to the partners or shareholders in accordance with applicable
provisions of Part 10 (commencing with Section 17001) or Part 11
(commencing with Section 23001). For purposes of this paragraph,
"passthrough entity" means any entity taxed as a partnership or "S"
corporation.
(ii) In the case of an "S" corporation, the credit allowed under
this section shall not be used by an "S" corporation as a credit
against a tax imposed under Chapter 4.5 (commencing with Section
23800) of Part 11 of Division 2.
(21) (A) "Qualified wages" means all of the following:
(i) Any wages reported under Section 13050 of the Unemployment
Insurance Code that were paid or incurred by the production company
involved in the production of a qualified motion picture with respect
to a qualified individual for services performed on the qualified
motion picture production within this state.
(ii) The portion of any employee fringe benefits paid or incurred
by the production company involved in the production of the qualified
motion picture that are properly allocable to qualified wage amounts
described in clause (i).
(iii) Any payments made to a qualified entity for services
performed on a qualified motion picture in this state by qualified
individuals within the meaning of paragraph (17).
(iv) Remuneration paid to an independent contractor, as described
in Section 2750.5 of the Labor Code, who is a qualified individual
for services performed within this state by that qualified
individual.
(B) "Qualified wages" shall not include any of the following:
(i) Expenses, including wages, for legal or accounting services
except production accountants.
(ii) Expenses, including wages, in excess of the first twenty-five
thousand dollars ($25,000) paid per person per qualified motion
picture for writers, directors, music directors, music composers,
music supervisors, producers, and performers, other than background
actors with no scripted lines.
(iii) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or residual compensation, or the
creation of any ancillary product, including, but not limited to, a
soundtrack album, toy, game, trailer, or teaser.
(iv) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.
(v) Expenses, including wages, related to financing, overhead,
marketing, promotion, or distribution of a qualified motion picture.
(22) "Residual compensation" means supplemental compensation paid
at the time that a motion picture is exhibited through new use,
reuse, clip use, or in secondary markets, as distinguished from
payments made during production.
(23) "Reuse" means any use of a qualified motion picture in the
same medium for which it was created, following the initial use in
that medium.
(24) "Secondary markets" means media in which a qualified motion
picture is exhibited following the initial media in which it is
exhibited.
(c) (1) Notwithstanding any other provision of law, a qualified
taxpayer may sell any credit allowed under this section that is
attributable to an independent film to an unrelated party.
(2) For purposes of this subdivision "independent film" means a
motion picture with a minimum budget of one million dollars
($1,000,000) and a maximum budget of ten million dollars
($10,000,000) that is produced by a company that is not publicly
traded and publicly traded companies do not own, directly or
indirectly, more that 25 percent of the producing company.
(3) The qualified taxpayer shall report to the Franchise Tax Board
prior to the sale of the credit, in the form and manner specified by
the Franchise Tax Board, all required information regarding the
purchase and sale of the credit.
(4) The party acquiring tax credits under this paragraph shall be
subject to the requirements of this subdivision.
(5) In the case where the credit allowed under this section
exceeds the "net tax," the excess credit may be carried over to
reduce the "net tax" in the following taxable year, and succeeding
five taxable years, if necessary, until the credit has been
exhausted.
(6) A credit shall not be assigned or sold pursuant to this
subdivision to more than two successive taxpayers.
(d) The amount of any credit allowed under this section to the
qualified taxpayer shall be treated as a separate item of income of
the qualified taxpayer from a source wholly within this state for the
taxable year in which the credit is allowed.
(e) No credit shall be allowed pursuant to this section unless the
qualified taxpayer substantiates, by adequate books and records or
by sufficient evidence corroborating his or her own statement, that:
(1) The qualified wages and the qualified property on which the
credit was calculated were actually paid or incurred in the amount
claimed. Substantiation of this item shall include proof that the
services were performed in California and the qualified property was
purchased or leased in California.
(2) The motion picture was a qualified motion picture.
Substantiation of this item shall include, but is not limited to, the
following:
(A) Identification of each qualified individual.
(B) The specific start and end dates of production.
(C) The total wages paid and amount and type of qualified property
purchased.
(D) The amount of qualified wages paid to each qualified
individual.
(E) Certification from the Director of the California Film
Commission that identifies the motion picture as a qualified motion
picture.
(f) Subdivision (c) of Section 19341, relating to interest on
overpayments, shall not apply to any return claiming a credit under
this section.
(g) If the qualified taxpayer fails to attach the certification
issued by the California Film Commission in accordance with
subdivision (h), the credit shall be disallowed and assessed and
collected under Section 19051.
(h) For purposes of this section, the Director of the California
Film Commission shall do all of the following:
(1) With respect to the reservation and allocation of tax credits:
(A) Reserve allocations of tax credits for applicants.
(B) Establish a procedure for qualified taxpayers to file with the
California Film Commission a written application, on a form jointly
prescribed by the California Film Commission and the Franchise Tax
Board, for allocation of tax credits. The application shall be filed
under penalty of perjury and include, but not be limited to, the
following information:
(i) The budget for the motion picture production.
(ii) A one-line shooting schedule.
(iii) A financing plan for the production.
(iv) An application fee.
(v) The copyright registration number for the screenplay, as
reflected on the certificate of registration issued under the
authority of Section 410 of Title 17 of the United States Code,
relating to registration of claim and issuance of certificate.
(vi) The diversity of the workforce employed by the qualified
taxpayer, including, but not limited to, the ethnic and racial makeup
of the individuals employed by the qualified taxpayer during the
production of the qualified motion picture, to the extent possible.
(vii) Any other information deemed relevant by the California Film
Commission.
(C) (i) Determine and designate who is a qualified taxpayer
meeting the requirements of this section.
(ii) The State Board of Equalization and the Franchise Tax Board
shall not be involved in making this determination or designation
unless authorized by the Director of the California Film Commission.
(D) Process and approve, or reject, all applications on a
first-come, first-served basis.
(E) Provide for the cancellation of the reservation of allocation
credits, if principal photography on the qualified motion picture
does not begin within 180 days after notification of the reservation
of allocated credits by the California Film Commission, in accordance
with subdivision (i).
(2) With respect to the certification of allowed tax credits:
(A) Certify tax credits allowed to taxpayers with an existing and
noncanceled reservation of allocation of tax credits.
(B) Establish specific audit requirements, in addition to those
provided under current law, that must be complied with prior to the
issuance of a certificate by the California Film Commission, and
provide for the reallocation of previously reserved allocations of
tax credits, in accordance with subdivision (i), that are disallowed
pursuant to the audit requirements.
(C) Issue a certificate to the qualified taxpayer setting forth
the name of the qualified taxpayer, identification of the qualified
motion picture, and the total amount of the tax credit allocated.
(D) Establish an appeals procedure with the California Film
Commission regarding the amount of the certified tax credit allowed.
(3) No later than March 1, 2008, the California Film Commission
shall promulgate rules and regulations necessary to establish
procedures, processes, requirements, and rules identified in or
required to implement this section. Rules and regulations may be
adopted on an emergency basis if necessary to meet the March 1, 2008,
deadline. The California Film Commission may amend these rules and
regulations as necessary. The California Film Commission may adopt
rules and regulations to more narrowly define the terms listed in
subdivision (b) to limit their meaning, but may not expand the
definition of any terms defined in subdivision (b).
(i) The aggregate amount of credits that may be allocated in any
calendar year pursuant to this section and Section 23685, and shall
be an amount equal to the sum of all of the following:
(1) Seventy million dollars ($70,000,000) for the 2008 calendar
year, and each calendar year thereafter.
(2) The unused credit ceiling, if any, for the preceding calendar
year.
(3) The amount of previously allocated credit cancelled or
disallowed in the preceding calendar year by reason of subparagraph
(E) of paragraph (1) or subparagraph (B) of paragraph (2) of
subdivision (h).
(j) The California Film Commission shall provide a list, at least
annually, to the Franchise Tax Board, in the form and manner as shall
be determined by the California Film Commission and the Franchise
Tax Board, of the names, taxpayer identification numbers, including
taxpayer identification numbers of each partner or shareholder, as
applicable, the qualified motion pictures for which tax credit was
allocated, and the total amount of the tax credit allocated to each
qualified taxpayer.
(k) This section shall remain in effect only until January 1,
2014, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2014, deletes or extends
that date.
SEC. 6. Section 17053.86 is added to the
Revenue and Taxation Code , to read:
17053.86. (a) (1) For taxable years beginning on or after January
1, 2008, and before January 1, 2014, subject to the limitation in
paragraph (2), there shall be allowed to a qualified commercial
production company, as designated by the California Film Commission
pursuant to subdivision
(h), as a credit against the "net tax," as defined in Section 17039,
an amount equal to 12 percent of the incremental qualified
production costs.
(2) The credit allowed by paragraph (1) shall not exceed the
lesser of:
(A) Five hundred thousand dollars ($500,000) per qualified
production company per calendar year.
(B) The amount of the credit allocated by the California Film
Commission to the qualified commercial production company pursuant to
subdivision (h).
(b) For the purposes of this section:
(1) "Base year" is the taxable year preceding the taxable year for
which the credit is claimed.
(2) (A) "Employee fringe benefits" means the amount allowable as a
deduction under this part to the qualified commercial production
company involved in the production of the qualified commercial for
any year during the production period with respect to any of the
following:
(i) Employer contributions under any pension, profit-sharing,
annuity, or similar plan.
(ii) Employer-provided coverage under any accident or health plan
for employees.
(iii) The employer's cost of life or disability insurance provided
to employees.
(B) Any amount treated as wages under clause (i) of subparagraph
(A) of paragraph (10) shall not be taken in account under this
paragraph.
(3) "Incremental qualified production costs" are any qualified
production costs for the taxable year greater than the qualified
production costs for the base year.
(4) "Principal photography" means the phase of production during
which the qualified commercial is actually shot.
(5) "Postproduction" means the final activities in a qualified
commercial's production, including, but not limited to, offline
editorial, online editorial, dailies, color correction, compositing,
CGI, graphics, sound editorial, sound mixing, sound design, automated
dialogue replacement, foley recording, music composition and
scoring, and duplication associated with the above process.
(6) (A) "Qualified commercial" means a commercial or advertisement
composed of moving images and sounds that is recorded on film,
videotape, or other digital medium, created for display on a network,
regional channel, or cable where 75 percent of the total production
days spent in principal photography occur wholly in California.
(B) "Qualified commercial" shall not include any program length
production with an advertising component including a documentary
length commercial, an infomercial, news, or current affairs program,
interview or talk program, network promotion (short form content
intended to promote other programming), feature film promotion
(trailers and teasers), sporting event, game show, award ceremony,
daytime drama, reality entertainment programming or program intended
primarily for industrial, corporate, or institutional end users,
fundraising or commercial promoting political candidates or political
issues, a program consisting primarily of stock footage, a program
produced by an organization organized under Section 527 of the
Internal Revenue Code, or any production that falls within the
recordkeeping requirements of Section 2257 of Title 18 of the United
States Code.
(7) (A) "Qualified commercial production company" means a
taxpayer, allocated tax credits by the California Film Commission
pursuant to subdivision (h), that is principally engaged in the
production of a qualified commercial and has control over the
selection of production location, deployment, or management of the
production equipment, and directly employs the production crew on the
qualified commercial, or is a taxpayer who provides postproduction
services on a qualified commercial. All members of a commonly
controlled group, as defined by subdivision (b) of Section 25105,
shall be treated as a single qualified commercial production company
for the purposes of computing qualified production costs pursuant to
paragraph (9).
(B) (i) In the case of any passthrough entity, the determination
of whether a taxpayer is a qualified commercial production company
under this section shall be made at the entity level and any credit
under this section is not allowed to the passthrough entity, but
shall be passed through to the partners or shareholders in accordance
with applicable provisions of Part 10 (commencing with Section
17001) or Part 11 (commencing with Section 23001). For the purposes
of this paragraph, "passthrough entity" means any entity taxed as a
partnership or "S" corporation.
(ii) In the case of an "S" corporation, the credit allowed under
this section shall not be used by an "S" corporation as a credit
against a tax imposed under Chapter 4.5 (commencing with Section
23800) of Part 11 of Division 2.
(8) (A) "Qualified individual" means any individual who performs
services during the production period in an activity related to the
production of a qualified commercial.
(B) "Qualified individual" shall not include either of the
following:
(i) Any individual related to the qualified commercial production
company as described in subparagraph (A), (B), (C), or Section 51(i)
(1) of the Internal Revenue Code.
(ii) Any 5 percent owner, as defined in Section 416(i)(1)(B) of
the Internal Revenue Code, of the qualified commercial production
company.
(9) "Qualified production costs" means all of the following:
(A) Costs for tangible property used and services performed
directly and predominately in the production of a qualified
commercial.
(B) Costs for qualified wages, technical and crew production
costs, allocable portions of depreciation on equipment directly used
in production, rental or other expenditures for commercial production
facilities, props, makeup, wardrobe, film processing, camera rental,
sound recording, set construction, lighting, on-location meals, and
lodging.
(C) Costs for equipment and services required to complete
postproduction of the qualified commercial.
(D) "Qualified production costs" does not include costs for story,
script, or scenario to be used for a qualified commercial, or any
qualified wages paid or incurred before January 1, 2008.
(10) (A) "Qualified wages" means all of the following:
(i) Any wages reported under Section 13050 of the Unemployment
Insurance Code that were paid or incurred by the qualified commercial
production company involved in the production of a qualified
commercial with respect to a qualified individual for services
performed on the qualified commercial production within this state.
(ii) The portion of any employee fringe benefits paid or incurred
by the qualified commercial production company involved in the
production of a qualified commercial that are properly allocated to
qualified wage amounts described in clause (i).
(iii) Remuneration paid to a qualified individual for services
performed within this state by that qualified individual.
(iv) Remuneration paid to an independent contractor, as described
in Section 2750.5 of the Labor Code, who is a qualified individual
for services performed in this state by that qualified individual.
(B) "Qualified wages" shall not include wages, salaries, or other
compensation for writers, directors, music directors, producers, and
performers, other than background actors with no scripted lines who
are employed by a qualified commercial production company.
(c) (1) Notwithstanding any other provision of law, a qualified
taxpayer may sell any credit allowed under this section that is
attributable to an independent production to an unrelated party.
(2) For purposes of this subdivision "independent production"
means a commercial production with a minimum budget of one million
dollars ($1,000,000) and a maximum budget of ten million dollars
($10,000,000) that is produced by a company that is not publicly
traded and publicly traded companies do not own, directly or
indirectly, more that 25 percent of the producing company.
(3) The qualified taxpayer shall report to the Franchise Tax Board
prior to the sale of the credit, in the form and manner specified by
the Franchise Tax Board, all required information regarding the
purchase and sale of the credit.
(4) The party acquiring tax credits under this paragraph shall be
subject to the requirements of this subdivision.
(5) In the case where the credit allowed under this section
exceeds the "net tax," the excess credit may be carried over to
reduce the "net tax" in the following taxable year, and succeeding
five taxable years, if necessary, until the credit has been
exhausted.
(6) A credit shall not be assigned or sold pursuant to this
subdivision to more than two successive taxpayers.
(d) The amount of any credit allowed under this section to the
qualified taxpayer shall be treated as a separate item of income of
the qualified taxpayer from a source wholly within this state for the
taxable year in which the credit is allowed.
(e) No credit shall be allowed pursuant to this section unless the
qualified commercial production company substantiates, by adequate
books and records or by sufficient evidence corroborating his or her
own statement, that:
(1) The incremental qualified production costs upon which the
credit was calculated were actually paid or incurred in the amount
claimed.
(2) The commercial was a qualified commercial. Substantiation of
this item shall include, but is not limited to, the following:
(A) Identification of each qualified individual.
(B) The specific start and end dates of production.
(C) The total wages paid.
(D) The amount of qualified wages paid to each qualified
individual.
(E) Certification from the Director of the California Film
Commission as required in subdivision (h).
(f) Subdivision (c) of Section 19341, relating to interest on
overpayments, shall not apply to any return claiming a credit under
this section.
(g) If the qualified commercial production company fails to attach
the certification issued by the Director of the California Film
Commission, in accordance with subdivision (h), the credit shall be
disallowed and assessed and collected under Section 19051.
(h) (1) For purposes of this section, the Director of the
California Film Commission shall do all of the following:
(A) Allocate tax credits to applicants, including establishing a
procedure to allocate tax credits among qualified commercial
production companies pursuant to paragraph (2) of subdivision (i).
(B) Establish a procedure for qualified commercial production
companies to file with the California Film Commission a written
application, on a form jointly prescribed by the California Film
Commission and the Franchise Tax Board, for allocation of tax
credits. The application shall be filed under penalty of perjury and
include, but not be limited to, the following information:
(i) The qualified production costs for the base year.
(ii) The qualified production costs for the taxable year in which
the credit is claimed.
(iii) An application fee.
(iv) The diversity of the workforce employed by the qualified
commercial production company, including, but not limited to, the
ethnic and racial makeup of the individuals employed by the qualified
commercial production company during the production of the qualified
commercial, to the extent possible.
(v) Any other information deemed relevant by the California Film
Commission.
(C) Determine and designate who is a qualified commercial
production company meeting the requirements of this section.
(D) Process and approve, or reject, all applications.
(E) Establish specific audit requirements, in addition to those
provided under current law, that must be complied with prior to the
issuance of the certificate required by subparagraph (F), and provide
for the reallocation of previously approved credits that are
disallowed pursuant to the audit requirements, in accordance with
subdivision (i).
(F) Issue a certificate to the qualified taxpayer setting forth
the name of the qualified taxpayer and the total amount of the tax
credit allocated.
(2) No later than March 1, 2008, the California Film Commission
shall promulgate rules and regulations necessary to establish
procedures, processes, requirements, and rules identified in or
required to implement this section. Rules and regulations may be
adopted on an emergency basis if necessary to meet the March 1, 2008,
deadline. The California Film Commission may amend these rules and
regulations as necessary. The California Film Commission may adopt
rules and regulations to more narrowly define the terms listed in
subdivision (b) to limit their meaning, but may not expand the
definition of any terms defined in subdivision (b).
(i) (1) The aggregate amount of credits that may be allocated in
any calendar year pursuant to this section and Section 23686 shall be
an amount equal to the sum of all of the following:
(A) Five million dollars ($5,000,000) for the 2008 calendar year,
and each calendar year thereafter.
(B) The unused credit ceiling, if any, for the preceding calendar
years.
(C) The amount of previously allocated credit canceled or
disallowed in the calendar year by reason of subparagraph (E) of
paragraph (1) of subdivision (h).
(2) If the amount allocable to qualified commercial production
companies exceeds the aggregate amount of credits that may be
allocated in any calendar year, the credits shall be distributed to
qualified commercial production companies as follows:
(A) The California Film Commission shall allocate the credits on a
pro rata basis to qualified commercial production companies for the
designated period.
(B) The California Film Commission will compute the pro rata
allocation based on submitted applications from all qualified
commercial production companies within 120 days of the application
due date.
(j) The California Film Commission shall provide a list, at least
annually, to the Franchise Tax Board, in the form and manner as shall
be determined by the California Film Commission and the Franchise
Tax Board, of the names, taxpayer identification numbers, including
taxpayer identification numbers of each partner or shareholder, as
applicable, the qualified commercials for which tax credit was
allocated, and the total amount of the tax credit allocated to each
qualified taxpayer.
(k) This section shall remain in effect only until January 1,
2014, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2014, deletes or extends
that date.
SEC. 7. Section 23036 of the Revenue
and Taxation Code is amended to read:
23036. (a) (1) The term "tax" includes any of the following:
(A) The tax imposed under Chapter 2 (commencing with Section
23101).
(B) The tax imposed under Chapter 3 (commencing with Section
23501).
(C) The tax on unrelated business taxable income, imposed under
Section 23731.
(D) The tax on S "S" corporations
imposed under Section 23802.
(2) The term "tax" does not include any amount imposed under
paragraph (1) of subdivision (e) of Section 24667 or paragraph (2) of
subdivision (f) of Section 24667.
(b) For purposes of Article 5 (commencing with Section 18661) of
Chapter 2, Article 3 (commencing with Section 19031) of Chapter 4,
Article 6 (commencing with Section 19101) of Chapter 4, and Chapter 7
(commencing with Section 19501) of Part 10.2, and for purposes of
Sections 18601, 19001, and 19005, the term "tax" also includes all of
the following:
(1) The tax on limited partnerships, imposed under Section 17935,
the tax on limited liability companies, imposed under Section 17941,
and the tax on registered limited liability partnerships and foreign
limited liability partnerships imposed under Section 17948.
(2) The alternative minimum tax imposed under Chapter 2.5
(commencing with Section 23400).
(3) The tax on built-in gains of S "S"
corporations, imposed under Section 23809.
(4) The tax on excess passive investment income of S
"S" corporations, imposed under Section 23811.
(c) Notwithstanding any other provision of this part, credits are
allowed against the "tax" in the following order:
(1) Credits that do not contain carryover provisions.
(2) Credits that, when the credit exceeds the "tax," allow the
excess to be carried over to offset the "tax" in succeeding taxable
years, except for those credits that are allowed to reduce the "tax"
below the tentative minimum tax, as defined by Section 23455. The
order of credits within this paragraph shall be determined by the
Franchise Tax Board.
(3) The minimum tax credit allowed by Section 23453.
(4) Credits that are allowed to reduce the "tax" below the
tentative minimum tax, as defined by Section 23455.
(5) Credits for taxes withheld under Section 18662.
(6) Credits that contain refundable provisions, but do not contain
carryover provisions.
(d) Notwithstanding any other provision of this part, each of the
following applies:
(1) No credit may reduce the "tax" below the tentative minimum tax
(as defined by paragraph (1) of subdivision (a) of Section 23455),
except the following credits:
(A) The credit allowed by former Section 23601 (relating to solar
energy).
(B) The credit allowed by former Section 23601.4 (relating to
solar energy).
(C) The credit allowed by former Section 23601.5 (relating to
solar energy).
(D) The credit allowed by Section 23609 (relating to research
expenditures).
(E) The credit allowed by former Section 23609.5 (relating to
clinical testing expenses).
(F) The credit allowed by Section 23610.5 (relating to low-income
housing).
(G) The credit allowed by former Section 23612 (relating to sales
and use tax credit).
(H) The credit allowed by Section 23612.2 (relating to enterprise
zone sales or use tax credit).
(I) The credit allowed by former Section 23612.6 (relating to Los
Angeles Revitalization Zone sales tax credit).
(J) The credit allowed by former Section 23622 (relating to
enterprise zone hiring credit).
(K) The credit allowed by Section 23622.7 (relating to enterprise
zone hiring credit).
(L) The credit allowed by former Section 23623 (relating to
program area hiring credit).
(M) The credit allowed by former Section 23623.5 (relating to Los
Angeles Revitalization Zone hiring credit).
(N) The credit allowed by former Section 23625 (relating to Los
Angeles Revitalization Zone hiring credit).
(O) The credit allowed by Section 23633 (relating to targeted tax
area sales or use tax credit).
(P) The credit allowed by Section 23634 (relating to targeted tax
area hiring credit).
(Q) The credit allowed by Section 23649 (relating to qualified
property).
(2) No credit against the tax may reduce the minimum franchise tax
imposed under Chapter 2 (commencing with Section 23101).
(e) Any credit which is partially or totally denied under
subdivision (d) is allowed to be carried over to reduce the "tax" in
the following year, and succeeding years if necessary, if the
provisions relating to that credit include a provision to allow a
carryover of the unused portion of that credit.
(f) Unless otherwise provided, any remaining carryover from a
credit that has been repealed or made inoperative is allowed to be
carried over under the provisions of that section as it read
immediately prior to being repealed or becoming inoperative.
(g) Unless otherwise provided, if two or more taxpayers share in
costs that would be eligible for a tax credit allowed under this
part, each taxpayer is eligible to receive the tax credit in
proportion to his or her respective share of the costs paid or
incurred.
(h) Unless otherwise provided, in the case of an S
"S" corporation, any credit allowed by this part
is computed at the S "S" corporation
level, and any limitation on the expenses qualifying for the credit
or limitation upon the amount of the credit applies to the S
"S" corporation and to each shareholder.
(i) (1) With respect to any taxpayer that directly or indirectly
owns an interest in a business entity that is disregarded for tax
purposes pursuant to Section 23038 and any regulations thereunder,
the amount of any credit or credit carryforward allowable for any
taxable year attributable to the disregarded business entity is
limited in accordance with paragraphs (2) and (3).
(2) The amount of any credit otherwise allowed under this part,
including any credit carryover from prior years, that may be applied
to reduce the taxpayer's "tax," as defined in subdivision (a), for
the taxable year is limited to an amount equal to the excess of the
taxpayer's regular tax (as defined in Section 23455), determined by
including income attributable to the disregarded business entity that
generated the credit or credit carryover, over the taxpayer's
regular tax (as defined in Section 23455), determined by excluding
the income attributable to that disregarded business entity. No
credit is allowed if the taxpayer's regular tax (as defined in
Section 23455), determined by including the income attributable to
the disregarded business entity is less than the taxpayer's regular
tax (as defined in Section 23455), determined by excluding the income
attributable to the disregarded business entity.
(3) If the amount of a credit allowed pursuant to the section
establishing the credit exceeds the amount allowable under this
subdivision in any taxable year, the excess amount may be carried
over to subsequent taxable years pursuant to subdivisions (d), (e),
and (f).
(j) (1) Unless otherwise specifically provided, in the case of a
taxpayer that is a partner or shareholder of an eligible pass-through
entity described in paragraph (2), any credit passed through to the
taxpayer in the taxpayer's first taxable year beginning on or after
the date the credit is no longer operative may be claimed by the
taxpayer in that taxable year, notwithstanding the repeal of the
statute authorizing the credit prior to the close of that taxable
year.
(2) For purposes of this subdivision, "eligible pass-through
entity" means any partnership or S "S"
corporation that files its return on a fiscal year basis pursuant to
Section 18566, and that is entitled to a credit pursuant to this part
for the taxable year that begins during the last year a credit is
operative.
(3) This subdivision applies to credits that become inoperative on
or after the operative date of the act adding this subdivision.
SEC. 8. Section 23609 of the Revenue
and Taxation Code is amended to read:
23609. For each taxable year beginning on or after January 1,
1987, there shall be allowed as a credit against the "tax" (as
defined by Section 23036) an amount determined in accordance with
Section 41 of the Internal Revenue Code, except as follows:
(a) For each taxable year beginning before January 1, 1997, both
of the following modifications shall apply:
(1) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "8 percent."
(2) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "12 percent."
(b) (1) For each taxable year beginning on or after January 1,
1997, and before January 1, 1999, both of the following modifications
shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "11 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(2) For each taxable year beginning on or after January 1, 1999,
and before January 1, 2000, both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "12 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(3) For each taxable year beginning on or after January 1, 2000,
both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "15 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(c) (1) With respect to any expense paid or incurred after the
operative date of Section 6378, Section 41(b)(1) of the Internal
Revenue Code is modified to exclude from the definition of "qualified
research expense" any amount paid or incurred for tangible personal
property that is eligible
for the exemption from sales or use tax provided by Section 6378.
(2) "Qualified research" and "basic research" shall include only
research conducted in California.
(d) The provisions of Section 41(e)(7)(A) of the Internal Revenue
Code, shall be modified so that "basic research," for purposes of
this section, includes any basic or applied research including
scientific inquiry or original investigation for the advancement of
scientific or engineering knowledge or the improved effectiveness of
commercial products, except that the term does not include any of the
following:
(1) Basic research conducted outside California.
(2) Basic research in the social sciences, arts, or humanities.
(3) Basic research for the purpose of improving a commercial
product if the improvements relate to style, taste, cosmetic, or
seasonal design factors.
(4) Any expenditure paid or incurred for the purpose of
ascertaining the existence, location, extent, or quality of any
deposit of ore or other mineral (including oil and gas).
(e) (1) In the case of a taxpayer engaged in any biopharmaceutical
research activities that are described in codes 2833 to 2836,
inclusive, or any research activities that are described in codes
3826, 3829, or 3841 to 3845, inclusive, of the Standard Industrial
Classification (SIC) Manual published by the United States Office of
Management and Budget, 1987 edition, or any other biotechnology
research and development activities, the provisions of Section 41(e)
(6) of the Internal Revenue Code shall be modified to include both of
the following:
(A) A qualified organization as described in Section 170(b)(1)(A)
(iii) of the Internal Revenue Code and owned by an institution of
higher education as described in Section 3304(f) of the Internal
Revenue Code.
(B) A charitable research hospital owned by an organization that
is described in Section 501(c)(3) of the Internal Revenue Code, is
exempt from taxation under Section 501(a) of the Internal Revenue
Code, is not a private foundation, is designated a "specialized
laboratory cancer center," and has received Clinical Cancer Research
Center status from the National Cancer Institute.
(2) For purposes of this subdivision:
(A) "Biopharmaceutical research 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.
(B) "Other biotechnology research and development activities"
means research and development activities consisting of the
application of recombinant DNA technology to produce commercial
products, as well as research and development activities regarding
pharmaceutical delivery systems designed to provide a measure of
control over the rate, duration, and site of pharmaceutical delivery.
(f) In the case where the credit allowed by this section exceeds
the "tax," the excess may be carried over to reduce the "tax" in the
following year, and succeeding years if necessary, until the credit
has been exhausted.
(g) For each taxable year beginning on or after January 1, 1998,
the reference to "Section 501(a)" in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read "this part or Part 10 (commencing with Section
17001)."
(h) (1) For each taxable year beginning on or after January 1,
2000 , and before January 1, 2008 :
(A) The reference to "2.65 percent" in Section 41(c)(4)(A)(i) of
the Internal Revenue Code is modified to read "one and forty-nine
hundredths of one percent."
(B) The reference to "3.2 percent" in Section 41(c)(4)(A)(ii) of
the Internal Revenue Code is modified to read "one and ninety-eight
hundredths of one percent."
(C) The reference to "3.75 percent" in Section 41(c)(4)(A)(iii) of
the Internal Revenue Code is modified to read "two and forty-eight
hundredths of one percent."
(2) Section 41(c)(4)(B) shall not apply and in lieu thereof an
election under Section 41(c)(4)(A) of the Internal Revenue Code may
be made for any taxable year of the taxpayer beginning on or after
January 1, 1998. That election shall apply to the taxable year for
which made and all each succeeding
taxable years year unless revoked with
the consent of the Franchise Tax Board.
(3) Section 41(c)(6) of the Internal Revenue Code, relating to
gross receipts, is modified to take into account only those gross
receipts from the sale of property held primarily for sale to
customers in the ordinary course of the taxpayer's trade or business
that is delivered or shipped to a purchaser within this state,
regardless of f.o.b. point or any other condition of the sale.
(i) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.
(j) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough of credit, is modified by each of the
following:
(1) The last sentence shall not apply.
(2) If the amount determined under Section 41(a) of the Internal
Revenue Code for any taxable year exceeds the limitation of Section
41(g) of the Internal Revenue Code, that amount may be carried over
to other taxable years under the rules of subdivision (f), except
that the limitation of Section 41(g) of the Internal Revenue Code
shall be taken into account in each subsequent taxable year.
(k) This section shall remain in effect only until and including
December 31, 2013, and as of that date is repealed, unless a later
enacted statute that is enacted before January 1, 2014 extends that
date.
SEC. 9. Section 23685 is added to the
Revenue and Taxation Code , to read:
23685. (a) (1) For taxable years beginning on or after January 1,
2008, and before January 1, 2014, subject to the limitation in
paragraph (2), there shall be allowed to a qualified taxpayer, as
designated by the California Film Commission pursuant to subdivision
(g), as a credit against the "tax," as defined in Section 23036, an
amount equal to 12 percent of the qualified amount. A movie of the
week and a miniseries, for which an executed licensing agreement from
a network or basic cable entity is provided, shall be entitled to an
additional 3 percent of the qualified amount.
(2) The credit allowed by paragraph (1) shall not exceed the
lesser of:
(A) The amount of the credit allocated to the qualified taxpayer
by the California Film Commission based on the initial application.
(B) The amount of the credit calculated based on actual allowable
expenditures on the qualified motion picture.
(C) Three million dollars ($3,000,000) per qualified motion
picture.
(b) For purposes of this section:
(1) "Ancillary product" means any article for sale to the public
that contains a portion of, or any element of, the motion picture.
(2) "Budget" means an estimate of all expenses paid or incurred
during the production period of a motion picture. It shall be the
same budget used by the qualified taxpayer and production company for
all qualified motion picture purposes.
(3) "Clip use" means a use of any portion of a motion picture,
other than the qualified motion picture, used in the qualified motion
picture.
(4) (A) "Employee fringe benefits" means the amount allowable as a
deduction under this part to the qualified taxpayer involved in the
production of the qualified motion picture for any year during the
production period with respect to any of the following:
(i) Employer contributions under any pension, profit-sharing,
annuity, or similar plan.
(ii) Employer-provided coverage under any accident or health plan
for employees.
(iii) The employer's cost of life or disability insurance provided
to employees.
(B) Any amount treated as wages under clause (i) of subparagraph
(A) of paragraph (21) shall not be taken into account under this
paragraph.
(5) "Licensing" means any grant of rights to distribute the
qualified motion picture, in whole or in part.
(6) "Movie of the week" and "miniseries" both mean a motion
picture, produced for initial exploitation on television, which
contains a scripted storyline requiring two or more consecutive hours
of programming.
(7) "New to California" means a television series that has not
previously engaged in principal photography in this state, other than
for a production that is a pilot or presentation.
(8) "New use" means any use of a motion picture in a medium other
than the medium for which it was initially created.
(9) (A) "Postproduction" means the final activities in a qualified
motion picture's production, including editing, foley recording,
automatic dialogue replacement, sound editing, scoring and music
editing, beginning and end credits, negative cutting, negative
processing and duplication, the addition of sound and visual effects,
soundmixing, film to tape transfers, encoding, and color correction.
(B) "Postproduction" does not include the manufacture or shipping
of release prints.
(10) "Preproduction" means the process of preparation for actual
physical production which begins after a qualified motion picture has
received a firm agreement of financial commitment, or is greenlit,
with, for example, the establishment of a dedicated production
office, the hiring of key crew members, and includes, but is not
limited to, activities that include location scouting and execution
of contracts with vendors of equipment and stage space.
(11) "Principal photography" means the phase of production during
which the motion picture is actually shot, as distinguished from
preproduction and postproduction.
(12) "Production accountant" means an employee of the production
company whose duties include some or all of the following activities:
oversight of production budgets, cost reporting, order management,
payment of expenses, and the review of financial reports for accuracy
and completeness.
(13) "Production company" means a company primarily engaged in
qualified production activities that have been approved by the
California Film Commission.
(14) "Production period" means the period of time in which the
preproduction, principal photography, and postproduction occurs until
the qualified motion picture is completed, as described in clause
(v) of subparagraph (C) of paragraph (18).
(15) (A) "Qualified amount" means all of the following:
(i) The total amount paid or incurred during the production period
for qualified wages with respect to the production of each qualified
motion picture.
(ii) The total amount paid or incurred during the production
period for qualified property.
(iii) Amounts paid or incurred for qualified wages and qualified
property related to the qualified motion picture for preproduction
costs that include set design and construction, props, wardrobe,
prosthetics, testing, and location scouting that are paid or
incurred. In the case of a television series described in clause (ii)
of subparagraph (C) of paragraph (18), the amounts paid or incurred
for the items described in this subparagraph shall be ratably
allocated amongst the episodes produced in the first season of
production.
(B) Notwithstanding subparagraph (A), the term "qualified amount"
shall not include any qualified wages paid or incurred for services
performed nor any qualified property purchased or leased before
January 1, 2008.
(16) "Qualified entity" means a personal service corporation as
defined in Section 269A(b)(1) of the Internal Revenue Code, a payroll
services corporation, or any entity receiving qualified wages with
respect to services performed by a qualified individual.
(17) (A) "Qualified individual" means any individual who performs
services during the production period in an activity related to the
production of a qualified motion picture.
(B) "Qualified individual" shall not include either of the
following:
(i) Any individual related to the qualified taxpayer as described
in subparagraph (A), (B), or (C) of Section 51(i)(1) of the Internal
Revenue Code.
(ii) Any 5 percent owner, as defined in Section 416(i)(1)(B) of
the Internal Revenue Code, of the qualified taxpayer.
(18) (A) "Qualified motion picture" means any motion picture that
is produced, adapted, or altered for exploitation in, on, or through
any medium or by any device, including, but not limited to, a motion
picture produced for exploitation in movie theaters, through any form
of television, videotapes, videodiscs, DVDs, or any other digital
format or on commercial carriers. "Qualified motion picture" shall
also include, but shall not be limited to, all adapted versions
thereof, whether adapted for exploitation in any language, for any
media, or otherwise.
(B) (i) "Qualified motion picture" shall not include any motion
picture produced for private noncommercial use, such as weddings or
graduations, made by students as part of any educational course, or
any motion picture produced for industrial purposes.
(ii) "Qualified motion picture" shall not include a news program,
current events or public events program, talk show, game show,
sporting event or activity, awards show, telethon or other production
that solicits funds, reality television program, a feature where 80
percent or more of the content consists of computer-generated images,
clip-based programming if more than 50 percent of the content is
comprised of licensed footage, documentaries, variety programs,
daytime dramas, strip shows, one-half-hour (air time) episodic
television shows, or any production that falls within the
recordkeeping requirements of Section 2257 of Title 18 of the United
States Code.
(C) To qualify as a "qualified motion picture," all of the
following additional conditions shall be satisfied:
(i) The qualified motion picture shall be a feature with a minimum
budget of one million dollars ($1,000,000) and a maximum budget of
seventy-five million dollars ($75,000,000), or a movie of the week or
miniseries with a minimum budget of one million dollars ($1,000,000)
and a maximum budget of seventy-five million dollars ($75,000,000).
(ii) A qualified motion picture shall also include a single
episode in a single season, not to exceed 22 episodes per season, of
a television series new to California with a minimum budget of five
hundred thousand dollars ($500,000) and a maximum budget of one
million eight hundred thousand dollars ($1,800,000). This clause
shall only apply to the first three seasons of a television series
that is new to California.
(iii) The actual expenses totaled at the completion of the
qualified motion picture must fall within the fiscal ranges
established in clause (i) or (ii) at the time of application to the
California Film Commission.
(iv) At least 75 percent of the total days spent in principal
photography of a qualified motion picture occur wholly in California.
(v) Production of the motion picture is completed within 30 months
of the date on which the qualified taxpayer's application was
approved by the California Film Commission. For purposes of this
section, a qualified motion picture is "completed" when the process
of postproduction has been finished, and a final answer print or
broadcast delivery air master of the qualified motion picture is
produced.
(vi) Principal photography of the qualified motion picture begins
within 180 days of the designation of the taxpayer as a qualified
taxpayer by the California Film Commission.
(D) For the purposes of clauses (i) and (ii) of subparagraph (C)
the following additional rules apply:
(i) In computing the total amounts paid or incurred for the
production of a qualified motion picture, all amounts paid or
incurred by all persons or entities that share in the costs of the
qualified motion picture shall be aggregated.
(ii) In the case of a television series, described in clause (ii)
of subparagraph (C), each episode shall be treated as a separate
qualified motion picture.
(E) For purposes of computing the limitations under this
paragraph, "wages" means all amounts described in subparagraph (A) of
paragraph (21), provided that these amounts are paid or services
performed or rendered within this state.
(19) (A) "Qualified property" means tangible personal property
purchased or leased in California and is used primarily in the
production of a qualified motion picture.
(B) "Qualified property" shall not include a story, script, or
scenario to be used for a qualified motion picture, or the literary,
dramatic, or musical material upon which the qualified motion picture
is based or may be adapted, or any rights related to the foregoing.
(20) (A) "Qualified taxpayer" means an applicant who has a
reservation of an allocation of tax credits pursuant to subdivision
(g).
(B) (i) In the case of any passthrough entity, the determination
of whether a taxpayer is a qualified taxpayer under this section
shall be made at the entity level and any credit under this section
is not allowed to the passthrough entity, but shall be passed through
to the partners or shareholders in accordance with applicable
provisions of Part 10 (commencing with Section 17001) or Part 11
(commencing with Section 23001). For purposes of this paragraph,
"passthrough entity" means any entity taxed as a partnership or "S"
corporation.
(ii) In the case of an "S" corporation, the credit allowed under
this section shall not be used by an "S" corporation as a credit
against a tax imposed under Chapter 4.5 (commencing with Section
23800) of Part 11 of Division 2.
(21) (A) "Qualified wages" means all of the following:
(i) Any wages reported under Section 13050 of the Unemployment
Insurance Code that were paid or incurred by the production company
involved in the production of a qualified motion picture with respect
to a qualified individual for services performed on the qualified
motion picture within this state.
(ii) The portion of any employee fringe benefits paid or incurred
by the production company involved in the production of the qualified
motion picture that are properly allocable to qualified wage amounts
described in clause (i).
(iii) Any payments made to qualified entity for services performed
on a qualified motion picture in this state by qualified individuals
within the meaning of paragraph (17).
(iv) Remuneration paid to an independent contractor, as described
in Section 2750.5 of the Labor Code, who is a qualified individual
for services performed within this state by that qualified
individual.
(B) "Qualified wages" shall not include any of the following:
(i) Expenses, including wages, for legal or accounting services,
except production accountants.
(ii) Expenses, including wages, in excess of the first twenty-five
thousand dollars ($25,000) paid per person per qualified motion
picture for writers, directors, music directors, music composers,
music supervisors, producers, and performers, other than background
actors with no scripted lines.
(iii) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or residual compensation, or the
creation of any ancillary product, including, but not limited to, a
soundtrack album, toy, game, trailer, or teaser.
(iv) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.
(v) Expenses, including wages, related to financing, overhead,
marketing, promotion, or distribution of a qualified motion picture.
(22) "Residual compensation" means supplemental compensation paid
at the time that a motion picture is exhibited through new use,
reuse, clip use, or in secondary markets, as distinguished from
payments made during production.
(23) "Reuse" means any use of a qualified motion picture in the
same medium for which it was created, following the initial use in
that medium.
(24) "Secondary markets" means media in which a qualified motion
picture is exhibited following the initial media in which it is
exhibited.
(c) (1) Notwithstanding any other provision of law, a qualified
taxpayer may sell any credit allowed under this section that is
attributable to an independent film to an unrelated party.
(2) For purposes of this subdivision "independent film" means a
motion picture with a minimum budget of one million dollars
($1,000,000) and a maximum budget of ten million dollars
($10,000,000) that is produced by a company that is not publicly
traded and publicly traded companies do not own, directly or
indirectly, more that 25 percent of the producing company.
(3) The qualified taxpayer shall report to the Franchise Tax Board
prior to the sale of the credit, in the form and manner specified by
the Franchise Tax Board, all required information regarding the
purchase and sale of the credit.
(4) The party acquiring tax credits under this paragraph shall be
subject to the requirements of this subdivision.
(5) In the case where the credit allowed under this section
exceeds the "net tax," the excess credit may be carried over to
reduce the "net tax" in the following taxable year, and succeeding
five taxable years, if necessary, until the credit has been
exhausted.
(6) A credit shall not be assigned or sold pursuant to this
subdivision to more than two successive taxpayers.
(7) No portion of the credit allowed by this section shall be
refunded to a "S" corporation.
(8) Notwithstanding Section 23803, the amount of credit claimed by
an "S" corporation pursuant to this section shall be reduced by an
amount equal to the amount of credit claimed by the shareholders of
the "S" corporation.
(d) The amount of any credit allowed under this section to the
qualified taxpayer shall be treated as an item of income of the
qualified taxpayer from a separate trade or business conducted wholly
within this state for the taxable year in which the credit is
allowed.
(e) No credit shall be allowed pursuant to this section unless the
qualified taxpayer substantiates, by adequate books and records or
by sufficient evidence corroborating his or her own statement, that:
(1) The qualified wages and the qualified property on which the
credit was calculated were actually paid or incurred in the amount
claimed. Substantiation of this item shall include proof that the
services were performed in California and the qualified property was
purchased or leased in California.
(2) The motion picture was a qualified motion picture.
Substantiation of this item shall include, but not limited to, the
following:
(A) Identification of each qualified individual.
(B) The specific start and end dates of production.
(C) The total wages paid and the amount and type of qualified
property purchased.
(D) The amount of qualified wages paid to each qualified
individual.
(E) Certification from the Director of the California Film
Commission that identifies the motion picture as a qualified motion
picture.
(f) If the qualified taxpayer fails to attach the certification
issued by the California Film Commission, in accordance with
subdivision (g), the credit shall be disallowed and assessed and
collected under Section 19051.
(g) For purposes of this section, the Director of the California
Film Commission shall do all of the following:
(1) With respect to the reservation and allocation of tax credits.
(A) Reserve allocations of tax credits for applicants.
(B) Establish a procedure for qualified taxpayers to file with the
California Film Commission a written application, on a form jointly
prescribed by the California Film Commission and the Franchise Tax
Board, for allocation of tax credits. The application shall be filed
under penalty of perjury and include, but
not be limited to, the following information:
(i) The budget for the motion picture production.
(ii) A one-line shooting schedule.
(iii) A financing plan for the production.
(iv) An application fee.
(v) The copyright registration number for the screenplay, as
reflected on the certificate of registration issued under the
authority of Section 410 of Title 17 of the United States Code,
relating to registration of claim and issuance of certificate.
(vi) The diversity of the workforce employed by the qualified
taxpayer, including, but not limited to, the ethnic and racial makeup
of the individuals employed by the qualified taxpayer during the
production of the qualified motion picture, to the extent possible.
(C) (i) Determine and designate who is a qualified taxpayer
meeting the requirements of this section.
(ii) The State Board of Equalization and the Franchise Tax Board
shall not be involved in making this determination or designation
unless authorized by the Director of the California Film Commission.
(D) Process and approve, or reject, all applications on a
first-come, first-served basis.
(E) Provide for the cancellation of the reservation of allocation
of tax credits if principal photography on the qualified motion
picture does not begin within 180 days after notification of the
reservation of allocation of tax credits by the California Film
Commission, in accordance with subdivision (h).
(2) With respect to the certification of allowed tax credits:
(A) Certify tax credits allowed to taxpayers with an existing and
noncanceled reservation of allocation of tax credits.
(B) Establish specific audit requirements, in addition to those
provided under current law, that must be complied with prior to the
issuance of a certificate by the California Film Commission, and
provide for the reallocation of previously reserved allocations of
tax credits, in accordance with subdivision (h), that are disallowed
pursuant to the audit requirements.
(C) Issue a certificate to the qualified taxpayer setting forth
the name of the qualified taxpayer, identification of the qualified
motion picture, and the total amount of the tax credit allocated.
(D) Establish an appeals procedure with the California Film
Commission regarding the amount of the certified tax credit allowed.
(3) No later than March 1, 2008, the California Film Commission
shall promulgate rules and regulations necessary to establish
procedures, processes, requirements, and rules identified in or
required to implement this section. Rules and regulations may be
adopted on an emergency basis if necessary to meet the March 1, 2008,
deadline. The California Film Commission may amend these rules and
regulations as necessary. The California Film Commission may adopt
rules and regulations to more narrowly define the terms listed in
subdivision (b) to limit their meaning, but may not expand the
definition of any terms defined in subdivision (b).
(h) The aggregate amount of credits that may be allocated in any
calendar year pursuant to this section and Section 17053.85 shall be
an amount equal to the sum of all the following:
(1) Seventy million dollars ($70,000,000) for the 2008 calendar
year, and each calendar year thereafter.
(2) The unused credit ceiling, if any, for the preceding calendar
year.
(3) The amount of previously allocated credit canceled or
disallowed in the preceding calendar year by reason of subparagraph
(E) of paragraph (1) or subparagraph (B) of paragraph (2) of
subdivision (g).
(i) The California Film Commission shall provide a list, at least
annually, to the Franchise Tax Board, in the form and manner as shall
be determined by the California Film Commission and the Franchise
Tax Board, of the names, taxpayer identification numbers, including
taxpayer identification numbers of each partner or shareholder, as
applicable, the qualified motion pictures for which tax credit was
allocated, and the total amount of the tax credit allocated to each
qualified taxpayer.
(j) This section shall remain in effect only until January 1,
2014, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2014, deletes or extends
that date.
SEC. 10. Section 23686 is added to the
Revenue and Taxation Code , to read:
23686. (a) (1) For taxable years beginning on or after January 1,
2008, and before January 1, 2014, subject to the limitation in
paragraph (2), there shall be allowed to a qualified commercial
production company, as designated by the California Film Commission
pursuant to subdivision (g), as a credit against the "tax," as
defined in Section 23036, an amount equal to 12 percent of the
incremental qualified production costs.
(2) The credit allowed by paragraph (1) shall not exceed the
lesser of:
(A) Five hundred thousand dollars ($500,000) per qualified
production company per calendar year.
(B) The amount of the credit allocated by the California Film
Commission to the qualified commercial production company pursuant to
subdivision (g).
(b) For the purposes of this section:
(1) "Base year" is the taxable year preceding the taxable year for
which the credit is claimed.
(2) (A) "Employee fringe benefits" means the amount allowable as a
deduction under this part to the qualified commercial production
company involved in the production of the qualified commercial for
any year during the production period with respect to any of the
following:
(i) Employer contributions under any pension, profit-sharing,
annuity, or similar plan.
(ii) Employer-provided coverage under any accident or health plan
for employees.
(iii) The employer's cost of life or disability insurance provide
to employees.
(B) Any amount treated as wages under clause (i) of subparagraph
(A) of paragraph (10) shall not be taken in account under this
paragraph.
(3) "Incremental qualified production costs" are any qualified
production costs for the taxable year greater than the qualified
production costs for the base year.
(4) "Principal photography" means the phase of production during
which the qualified commercial is actually shot.
(5) "Postproduction" means the final activities in a qualified
commercial's production, including, but not limited to, offline
editorial, online editorial, dailies, color correction, compositing,
CGI, graphics, sound editorial, sound mixing, sound design, automated
dialogue replacement, foley recording, music composition and
scoring, and duplication associated with the above process.
(6) (A) "Qualified commercial" means a commercial or advertisement
composed of moving images and sounds that is recorded on film,
videotape, or other digital medium, created for display on a network,
regional channel, or cable where 75 percent of the total production
days spent in principal photography occur wholly in California.
(B) "Qualified commercial" shall not include any program length
production with an advertising component including a documentary
length commercial, an infomercial, news, or current affairs program,
interview or talk program, network promotion (short form content
intended to promote other programming), feature film promotion
(trailers and teasers), sporting event, game show, award ceremony,
daytime drama, reality entertainment programming or program intended
primarily for industrial, corporate, or institutional end users,
fundraising or commercial promoting political candidates or political
issues, a program consisting of primarily of stock footage, a
program produced by organization organized under Section 527 of the
Internal Revenue Code, or any production that falls within the
recordkeeping requirements of Section 2257 of Title 18 of the United
States Code.
(7) (A) "Qualified commercial production company" means a
taxpayer, allocated tax credits by the California Film Commission
pursuant to subdivision (g), that is principally engaged in the
production of a qualified commercial and has control over the
selection of production location, deployment, or management of the
production equipment, and directly employs the production crew on the
qualified commercial, or is a taxpayer who provides qualified
postproduction services. All members of a commonly controlled group,
as defined by subdivision (b) of Section 25105, shall treated as a
single qualified commercial production company for the purpose of
computing qualified production costs pursuant to paragraph (9).
(B) (i) In the case of any passthrough entity, the determination
of whether a taxpayer is a qualified commercial production company
under this section shall be made at the entity level and any credit
under this section is not allowed to the passthrough entity, but
shall be passed through to the partners or shareholders in accordance
with applicable provisions of Part 10 (commencing with Section
17001) or Part 11 (commencing with Section 23001). For the purposes
of this paragraph, "passthrough entity" means any entity taxed as a
partnership or "S" corporation.
(ii) In the case of an "S" corporation, the credit allowed under
this section shall not be used by an "S" corporation as a credit
against a tax imposed under Chapter 4.5 (commencing with Section
23800) of Part 11 of Division 2.
(8) (A) "Qualified individual" means any individual who performs
services during the production period in an activity related to the
production of a qualified commercial.
(B) "Qualified individual" shall not include either of the
following:
(i) Any individual related to the qualified commercial production
company as described in subparagraph (A), (B), (C), or Section 51(i)
(1) of the Internal Revenue Code.
(ii) Any 5 percent owner, as defined in Section 416(i)(1)(B) of
the Internal Revenue Code, of the qualified commercial production
company.
(9) "Qualified production costs" means all of the following:
(A) Costs for tangible property used and services performed
directly and predominately in the production of a qualified
commercial.
(B) Costs for qualified wages, technical and crew production
costs, allocable portions of depreciation on equipment directly used
in production, rental or other expenditures for commercial production
facilities, props, makeup, wardrobe, film processing, camera rental,
sound recording, set construction, lighting, on-location meals, and
lodging.
(C) Costs for equipment and services required to complete
postproduction of the qualified commercial.
(D) "Qualified production costs" does not include costs for story,
script, or scenario to be used for a qualified commercial, or any
qualified wages paid or incurred before January 1, 2008.
(10) (A) "Qualified wages" means all of the following:
(i) Any wages reported under Section 13050 of the Unemployment
Insurance Code that were paid or incurred by the qualified commercial
production company involved in the production of a qualified
commercial with respect to a qualified individual for services
performed on the qualified commercial production within this state.
(ii) The portion of any employee fringe benefits paid or incurred
by the qualified commercial production company involved in the
production of a qualified commercial that are properly allocation to
qualified wage amounts described in clause (i).
(iii) Remuneration paid to a qualified individual for services
performed within this state by that qualified individual.
(iv) Remuneration paid to an independent contractor, as described
in Section 2750.5 of the Labor Code, who is a qualified individual
for services performed in this state by that qualified individual.
(B) "Qualified wages" shall not include wages, salaries, or other
compensation for writers, directors, music directors, producers and
performers (other than background actors with no scripted lines who
are employed by a qualified commercial production company.
(c) (1) Notwithstanding any other provision of law, a qualified
taxpayer may sell any credit allowed under this section that is
attributable to an independent production to an unrelated party.
(2) For purposes of this subdivision "independent production"
means a commercial production with a minimum budget of one million
dollars ($1,000,000) and a maximum budget of ten million dollars
($10,000,000) that is produced by a company that is not publicly
traded and publicly traded companies do not own, directly or
indirectly, more that 25 percent of the producing company.
(3) The qualified taxpayer shall report to the Franchise Tax Board
prior to the sale of the credit, in the form and manner specified by
the Franchise Tax Board, all required information regarding the
purchase and sale of the credit.
(4) The party acquiring tax credits under this paragraph shall be
subject to the requirements of this subdivision.
(5) In the case where the credit allowed under this section
exceeds the "net tax," the excess credit may be carried over to
reduce the "net tax" in the following taxable year, and succeeding
five taxable years, if necessary, until the credit has been
exhausted.
(6) A credit shall not be assigned or sold pursuant to this
subdivision to more than two successive taxpayers.
(7) No portion of the credit allowed by this section shall be
refunded to a "S" corporation.
(3) Notwithstanding Section 23803, the amount of credit claimed by
an "S" corporation pursuant to this section shall be reduced by an
amount equal to the amount of credit claimed by the shareholders of
the "S" corporation.
(8) The amount of any credit allowed under this section to the
qualified commercial production company shall be treated as an item
of income of the qualified commercial production company from a
separate trade or business conducted wholly within this state for the
taxable year in which the credit is allowed.
(e) No credit shall be allowed pursuant to this section unless the
qualified commercial production company substantiates, by adequate
books and records or by sufficient evidence corroborating his or her
own statement, that:
(1) The incremental qualified production costs upon which the
credit was calculated were actually paid or incurred in the amount
claimed.
(2) The commercial was a qualified commercial. Substantiation of
this item shall include, but is not limited to, the following:
(A) Identification of each qualified individual.
(B) The specific start and end dates of production.
(C) The total wages paid.
(D) The amount of qualified wages paid to each qualified
individual.
(E) Certification from the Director of the California Film
Commission as required in subdivision (g).
(f) If the qualified commercial production company fails to attach
the certification issued by the California Film Commission, in
accordance with subdivision (g), the credit shall be disallowed and
assessed under Section 19051.
(g) (1) For purposes of this section, the Director of the
California Film Commission shall do all of the following:
(A) Allocate tax credits to applicants, including establishing a
procedure to allocate tax credits among qualified commercial
production companies pursuant to paragraph (2) of subdivision (h).
(B) Establish a procedure for qualified commercial production
companies to file with the commission a written application, on a
form jointly prescribed by the commission and the Franchise Tax
Board, for allocation of tax credits. The application shall be filed
under penalty of perjury and include, but not be limited to, the
following information:
(i) The qualified production costs for the base year.
(ii) The qualified production costs for the taxable year in which
the credit is claimed.
(iii) An application fee.
(iv) The diversity of the workforce employed by the qualified
commercial production company, including, but not limited to, the
ethnic and racial makeup of the individuals employed by the qualified
commercial production company during the production of the qualified
commercial, to the extent possible.
(v) Any other information deemed relevant by the commission.
(C) Determine and designate who is a qualified commercial
production company meeting the requirements of this section.
(D) Process and approve, or reject, all applications.
(E) Establish specific audit requirements, in addition to those
provided under current law that must be complied with prior to the
issuance of the certificate required by subparagraph (F), and to
provide for the reallocation of previously approved credits that are
disallowed pursuant to the audit requirements, in accordance with
subdivision (h).
(F) Issue a certificate to the qualified taxpayer setting forth
the name of the qualified taxpayer and the total amount of the tax
credit allocated.
(2) No later than March 1, 2008, the California Film Commission
shall promulgate rules and regulations necessary to establish
procedures, processes, requirements, and rules identified in or
required to implement this section. Rules and regulations may be
adopted on an emergency basis if necessary to meet the March 1, 2008,
deadline. The California Film Commission may amend these rules and
regulations as necessary. The California Film Commission may adopt
rules and regulations to more narrowly define the terms listed in
subdivision (b) to limit their meaning, but may not expand the
definition of any terms defined in subdivision (b).
(h) (1) The aggregate amount of credits that may be allocated in
any calendar year pursuant to this section and Section 17053.86 shall
be an amount equal to the sum of all of the following:
(A) Five million dollars ($5,000,000) for the 2008 calendar year,
and each calendar year thereafter.
(B) The unused credit ceiling, if any, for the preceding calendar
years.
(C) The amount of previously allocated credit cancelled or
disallowed in the calendar year by reason of subparagraph (E) of
paragraph (1) of subdivision (g).
(2) If the amount allocable to qualified commercial production
companies exceeds the aggregate amount of credits that may be
allocated in any calendar year, the credits shall be distributed to
qualified commercial production companies as follows:
(A) The California Film Commission shall allocate the credits on a
pro rata basis to qualified commercial production companies for the
designated period.
(B) The California Film Commission will compute the pro rata
allocation based on submitted applications from all qualified
commercial production companies within 120 days of the application
due date.
(i) The California Film Commission shall provide a list, at least
annually, to the Franchise Tax Board, in the form and manner as shall
be determined by the California Film Commission and the Franchise
Tax Board, of the names, taxpayer identification numbers, including
taxpayer identification numbers of each partner or shareholder, as
applicable, the qualified commercials for which tax credit was
allocated, and the total amount of the tax credit allocated to each
qualified taxpayer.
(j) This section shall remain in effect only until January 1,
2014, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2014, deletes or extends
that date.
SEC. 11. Section 25128 of the Revenue
and Taxation Code is amended to read:
25128. (a) Notwithstanding Section 38006, all business income
shall be apportioned to this state by multiplying the business income
by a fraction, the numerator of which is the property factor plus
the payroll factor plus twice the sales factor, and the denominator
of which is four, except as provided in subdivision (b) or (c).
(b) (1) If an apportioning trade or business
derives more than 50 percent of its "gross business receipts" from
conducting one or more qualified business activities, all business
income of the apportioning trade or business shall be apportioned to
this state by multiplying business income by a fraction, the
numerator of which is the property factor plus the payroll factor
plus the sales factor, and the denominator of which is three.
(c)
(2) For purposes of this section
subdivision , a "qualified business activity" means the
following:
(1)
(A) An agricultural business activity.
(2)
(B) An extractive business activity.
(3)
(C) A savings and loan activity.
(4)
(D) A banking or financial business activity.
(c) (1) Notwithstanding any other provision of law, for taxable
years beginning on or after January 1, 2009, and before January 1,
2014, a qualified taxpayer may, on behalf of the apportioning trade
or business of which it is a member, elect, as provided in paragraph
(2), to adjust the fraction described in subdivision (a) or (b), as
applicable, by utilizing the following alternative method:
(A) In calculating its business income apportioned to this state,
the apportioning trade or business may add an additional sales factor
to the numerator of the fraction described in subdivision (a) or
(b), whichever is applicable, and may increase the denominator of
that fraction by one for every two hundred fifty million dollars
($250,000,000) of qualified expenditures incurred by the apportioning
trade or business during a taxable year beginning on or after
January 1, 2008.
(B) In any one taxable year, in adjusting the fraction as
described in clause (i) of this subparagraph, the apportioning trade
or business may add to the numerator of that fraction not more than
two additional sales factors as compared to the number of sales
factors added to the numerator of that fraction by the apportioning
trade or business in the immediately preceding taxable year. Any
remaining additional sales factors shall be used by the apportioning
trade or business in the following taxable year in which the
apportioning trade or business incurs qualified expenditures that
will qualify the apportioning trade or business for fewer than two
additional sales factors, until the additional sales factors are
fully utilized.
(2) (A) On or after January 1, 2009, an apportioning trade or
business may elect to adjust the fraction described in subdivision
(a) or (b), whichever is applicable, in accordance with this
subdivision. The election shall be made by attaching a statement to
the original, timely filed return of the apportioning trade or
business specifying which method of adjusting the apportionment
factor under this subdivision the apportioning trade or business will
utilize and designating the member of the apportioning trade or
business that will be required to submit the aggregate information to
substantiate the qualifications for the adjustments authorized under
this subdivision.
(B) If the apportioning trade or business chooses to elect the
method authorized by this subdivision, all changes made to the sales
factor in subsequent years will remain in effect for all subsequent
taxable years for which the election authorized by this subdivision
is operative.
(C) If a new affiliate member is formed or acquired by an
apportioning trade or business, or the apportioning trade or business
is acquired, then the election made by the apportioning trade or
business, pursuant to this paragraph, shall remain in effect unless
the value of the new affiliate member's total business assets exceeds
the value of the electing member's
total business assets.
(D) If the election is terminated as a result of either a
formation or an acquisition, as described in subparagraph (C), a new
election may be made.
(d) For purposes of this section:
(1) "Gross business receipts" means gross receipts described in
subdivision (e) of Section 25120 (other than gross receipts from
sales or other transactions within an apportioning trade or business
between members of a group of corporations whose income and
apportionment factors are required to be included in a combined
report under Section 25101, limited, if applicable, by Section
25110), whether or not the receipts are excluded from the sales
factor by operation of Section 25137.
(2) "Agricultural business activity" means activities relating to
any stock, dairy, poultry, fruit, furbearing animal, or truck farm,
plantation, ranch, nursery, or range. "Agricultural business activity"
also includes activities relating to cultivating the soil or raising
or harvesting any agricultural or horticultural commodity,
including, but not limited to, the raising, shearing, feeding, caring
for, training, or management of animals on a farm as well as the
handling, drying, packing, grading, or storing on a farm any
agricultural or horticultural commodity in its unmanufactured state,
but only if the owner, tenant, or operator of the farm regularly
produces more than one-half of the commodity so treated.
(3) "Extractive business activity" means activities relating to
the production, refining, or processing of oil, natural gas, or
mineral ore.
(4) "Savings and loan activity" means any activities performed by
savings and loan associations or savings banks which have been
chartered by federal or state law.
(5) "Banking or financial business activity" means activities
attributable to dealings in money or moneyed capital in substantial
competition with the business of national banks.
(6) "Apportioning trade or business" means a distinct trade or
business whose business income is required to be apportioned under
Sections 25101 and 25120, limited, if applicable, by Section 25110,
using the same denominator for each of the applicable payroll,
property, and sales factors.
(7) Paragraph (4) of subdivision (c) shall apply only if the
Franchise Tax Board adopts the Proposed Multistate Tax Commission
Formula for the Uniform Apportionment of Net Income from Financial
Institutions, or its substantial equivalent, and shall become
operative upon the same operative date as the adopted formula.
(8) In any case where the income and apportionment factors of two
or more savings associations or corporations are required to be
included in a combined report under Section 25101, limited, if
applicable, by Section 25110, both of the following shall apply:
(A)The application of the more than 50 percent test of subdivision
(b) shall be made with respect to the "gross business receipts" of
the entire apportioning trade or business of the group.
(B) The entire business income of the group shall be apportioned
in accordance with either subdivision (a) or (b), as applicable.
(7) (A) "Qualified expenditures" means any of the following
expenditures that are incurred on or after January 1, 2009:
(i) Capital expenditures for real and tangible personal property
located in this state.
(ii) Expenses incurred to acquire, develop, or license
intellectual property in this state.
(iii) Research and experimental expenditures, within the meaning
of Section 174 of the Internal Revenue Code, incurred in this state.
(iv) Capitalized rent paid in this state in excess of the prior
year.
(v) The total amount of compensation and benefits paid to
employees in this state, as defined in Section 25132 and the
regulations pursuant thereto, in excess of the amount paid during the
prior taxable year. "Total amount of compensation and benefits" also
includes any modifications to the payroll factors contained in the
regulations promulgated under Section 25137.
(B) An expense that qualifies as an eligible expenditure under two
or more categories of qualified expenditures, as listed in
subparagraph (A), may be taken into account only under one category
of qualified expenditures for purposes of satisfying the two hundred
fifty million dollars ($250,000,000) requirement described in
subparagraph (A) of paragraph (1) of subdivision (c).
(C) Sales, transfers, or other transactions between members of the
apportioning trade or business shall not be taken into account for
purposes of determining the amount of qualified expenditures made in
this state.
(8) "Qualified taxpayer" means a taxpayer that is a member of an
apportioning trade or business, other than a trade or business that
derives more than 50 percent of its "gross business receipts" from a
savings and loan activity, a banking or financial business activity,
a real estate activity classified in Subsector 531 of the North
American Industry Classification System (NAICS) 2002 Edition, or an
insurance activity that is subject to tax under this part.
(e) For purposes of paragraph (1) of subdivision (c), qualified
expenditures do not include purchased or otherwise acquired stock or
other equity interest in a corporation or other business entity. In
addition, in any case where a member 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 purchased assets
shall not be treated as a qualified expenditure for purposes of
paragraph (1) of subdivision (c).
(f) The provisions of this section are severable. If any provision
of this section 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.
(g) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 2009.
(h) The Franchise Tax Board may prescribe any regulations that may
be necessary or appropriate to implement the provisions of this
section.
(i) A taxpayer that makes the election authorized by subdivision
(c) shall not be eligible to utilize any credit authorized by this
part with respect to any qualified expenditure.
(j) The Franchise Tax Board shall report to the Legislature no
later than December 1 of each year beginning with 2010 the following
information from the preceding taxable year: the fiscal impact of the
apportionment factors revised pursuant to subdivision (c) and the
aggregate qualified investments for the taxable year.
(k) The Legislative Analyst, in consultation with the Franchise
Tax Board and the Department of Finance, shall report to the
Legislature by February 1, 2014 on the revenue and economic impact of
the apportionment factors revised pursuant to subdivision (c) for
taxable years 2009-2012, inclusive as well as recommendations as to
whether these provisions should be continued or modified.
(l) This section shall remain in effect until December 1, 2014,
and as of that date is repealed. Any adjustments made pursuant to
subdivision (c) shall remain in effect for all subsequent taxable
years for which the election authorized by subdivision (c) is
operative.
SEC. 12. Section 25128 is added to the
Revenue and Taxation Code , to read:
25128. (a) Notwithstanding Section 38006, for taxable years
beginning on or after January 1, 2014, all business income shall be
apportioned to this state by multiplying the business income by a
fraction, the numerator of which is the property factor plus the
payroll factor plus twice the sales factor, and the denominator of
which is four, except as provided in subdivision (b) or (c).
(b) If an apportioning trade or business derives more than 50
percent of its "gross business receipts" from conducting one or more
qualified business activities, all business income of the
apportioning trade or business shall be apportioned to this state by
multiplying business income by a fraction, the numerator of which is
the property factor plus the payroll factor plus the sales factor,
and the denominator of which is three.
(c) For purposes of this section, a "qualified business activity"
means the following:
(1) An agricultural business activity.
(2) An extractive business activity.
(3) A savings and loan activity.
(4) A banking or financial business activity.
(d) For purposes of this section:
(1) "Gross business receipts" means gross receipts described in
subdivision (e) of Section 25120 (other than gross receipts from
sales or other transactions within an apportioning trade or business
between members of a group of corporations whose income and
apportionment factors are required to be included in a combined
report under Section 25101, limited, if applicable, by Section
25110), whether or not the receipts are excluded from the sales
factor by operation of Section 25137.
(2) "Agricultural business activity" means activities relating to
any stock, dairy, poultry, fruit, furbearing animal, or truck farm,
plantation, ranch, nursery, or range. "Agricultural business activity"
also includes activities relating to cultivating the soil or raising
or harvesting any agricultural or horticultural commodity,
including, but not limited to, the raising, shearing, feeding, caring
for, training, or management of animals on a farm as well as the
handling, drying, packing, grading, or storing on a farm any
agricultural or horticultural commodity in its unmanufactured state,
but only if the owner, tenant, or operator of the farm regularly
produces more than one-half of the commodity so treated.
(3) "Extractive business activity" means activities relating to
the production, refining, or processing of oil, natural gas, or
mineral ore.
(4) "Savings and loan activity" means any activities performed by
savings and loan associations or savings banks which have been
chartered by federal or state law.
(5) "Banking or financial business activity" means activities
attributable to dealings in money or moneyed capital in substantial
competition with the business of national banks.
(6) "Apportioning trade or business" means a distinct trade or
business whose business income is required to be apportioned under
Sections 25101 and 25120, limited, if applicable, by Section 25110,
using the same denominator for each of the applicable payroll,
property, and sales factors.
(7) Paragraph (4) of subdivision (c) shall apply only if the
Franchise Tax Board adopts the Proposed Multistate Tax Commission
Formula for the Uniform Apportionment of Net Income from Financial
Institutions, or its substantial equivalent, and shall become
operative upon the same operative date as the adopted formula.
(8) In any case where the income and apportionment factors of two
or more savings associations or corporations are required to be
included in a combined report under Section 25101, limited, if
applicable, by Section 25110, both of the following shall apply:
(A) The application of the more than 50 percent test of
subdivision (b) shall be made with respect to the "gross business
receipts" of the entire apportioning trade or business of the group.
(B) The entire business income of the group shall be apportioned
in accordance with either subdivision (a) or (b), as applicable.
(e) This section shall become operative on and after January 1,
2014.
SEC. 13. The California Film Commission shall
report to the Legislature on or before June 1, 2011, and annually
thereafter, on the diversity of the workforce employed for a
qualified motion picture or a qualified commercial by the qualified
taxpayers and qualified commercial production companies that received
a credit under Section 17053.85, 17053.86, 23685, or 23686 of the
Revenue and Taxation Code. The report shall include, but shall not be
limited to, information regarding the ethnic and racial makeup of
the workforce, as provided by the qualified taxpayers and qualified
commercial production companies.
SEC. 14. (a) On or before December 31, 2011, the
Business, Transportation and Housing Agency shall report to the
Legislature on the economic impact of the tax incentives created by
Sections 17053.85, 17053.86, 23685, and 23686. In preparing the
report, the agency shall consider, but is not limited to considering,
all of the following:
(1) The number and increase or decrease of qualified motion
pictures and qualified commercials produced in California.
(2) The amount of total qualified wages paid or incurred in
California.
(3) The level of employment in the production industry in
California.
(4) The demographics and geographic distribution of the workforce
involved in productions that benefit from the tax incentives created
by this act.
(b) The agency may consult with the Employment Development
Department, the Franchise Tax Board, the State Board of Equalization,
representatives of industry and labor organizations
SEC. 15. The provisions of this act are severable.
If any provision of this act 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.
SEC. 16. No reimbursement is required by this act
pursuant to Section 6 of Article XIII B 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 XIII B of the
California Constitution.
SEC. 17. Notwithstanding Section 2230 of the
Revenue and Taxation Code, no appropriation is made by this act and
the state shall not reimburse any local agency for any sales and use
tax revenues lost by it under this act.
SEC. 18. It is the intent of the Legislature that
Section 8 of this act does not modify the sales factor, as defined in
Section 25134 of the Revenue and Taxation Code, used in any special
apportionment formulas contained in the regulations promulgated by
the Franchise Tax Board pursuant to Section 25137 of the Revenue and
Taxation Code.
SECTION 1. It is the intent of the Legislature
to make statutory changes relating to the Budget Act of 2007.