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AB-2758 Income taxes: credits: qualified small businesses.(2017-2018)

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Date Published: 04/18/2018 09:00 PM
AB2758:v98#DOCUMENT

Amended  IN  Assembly  April 18, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill No. 2758


Introduced by Assembly Member Burke

February 16, 2018


An act to add and repeal Sections 17053.60 and 23660 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 2758, as amended, Burke. Income taxes: credits: qualified small businesses.
The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.
This bill would allow a credit against those taxes for each taxable year beginning on or after January 1, 2020, and before January 1, 2030, in an amount equal to 5% of the amount paid or incurred by an angel investor, as defined, for investing in a qualified small business, as defined, for the taxable year in which the Franchise Tax Board issues a credit certificate.
This bill would take effect immediately as a tax levy.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 Section 17053.60 is added to the Revenue and Taxation Code, to read:

17053.60.
 (a) For each taxable year beginning on or after January 1, 2020, and before January 1, 2030, there shall be allowed as a credit against the “net tax,” as defined in Section 17039, an amount equal to 5 percent of the amount paid or incurred from January 1, 2020, to January 1, 2030, by an angel investor for investing in a qualified small business for the taxable year in which the Franchise Tax Board issues a credit certificate.
(b) For purposes of this section:
(1) (A)“Angel investor” means an accredited investor who that comes within any of the following categories described in Section 230.501(a) of Title 17 of the Code of Federal Regulations, as it read on the effective date of this act, January 1, 2018, that is organized as a general partnership, limited partnership, corporation that has in effect a valid election to be taxed as an “S” corporation under the Internal Revenue Code, or a limited liability company that has elected to be taxed as a partnership under the Internal Revenue Code, that was established and is operated for the sole purpose of making investments in other entities, and who that seeks returns through private investments in start-up companies and may seek active involvement in the business, including consulting and mentoring the entrepreneur.

(B)“Angel investor” does not include a person who serves as an executive, officer, employee, vendor, or independent contractor of the business in which an otherwise qualified cash investment is made.

(2)“Permitted entity investor” means (A) any general partnership, limited partnership, corporation that has in effect a valid election to be taxed as an “S” corporation under the Internal Revenue Code, or a limited liability company that has elected to be taxed as a partnership under the Internal Revenue Code, and (B) that was established and is operated for the sole purpose of making investments in other entities.

(3)

(2) “Qualified small business” means a business that has two million dollars ($2,000,000) or less in gross receipts annually averaged over five years and that has 51 percent or more of the business owned by individuals who are members of a group that has been underrepresented in securing investor dollars. is certified under Part 124 (commencing with Section 124.1) of Title 13 of the Code of Federal Regulations.
(c) In the case where the credit allowed by this section exceeds the “net tax,” the excess may be carried over to reduce the “net tax” in the following taxable year, and the succeeding four years if necessary, until the credit is exhausted.
(d) To receive a credit, an angel investor shall apply to the Franchise Tax Board for a credit. The Franchise Tax Board shall give the angel investor a reservation for the credit if the annual aggregate amount of the credit described in subdivision (e) has not been met. After the angel investor has invested the money in a qualified small business, the angel investor shall apply for a credit certificate from the Franchise Tax Board. The Franchise Tax Board shall grant a certificate to an angel investor that provides information and evidence that the money has been invested in a qualified small business that meets the definition of qualified small business.
(e) The aggregate amount of credits that may be allocated for a fiscal year pursuant to this section and Section 23660 shall be fifteen million dollars ($15,000,000) annually.

(f)Section 41 does not apply to the credit allowed by this section.

(g)

(f) This section shall remain in effect only until December 1, 2030, and as of that date is repealed.

SEC. 2.

 Section 23660 is added to the Revenue and Taxation Code, to read:

23660.
 (a) For each taxable year beginning on or after January 1, 2020, and before January 1, 2030, there shall be allowed as a credit against the “tax,” as defined in Section 23036, an amount equal to 5 percent of the amount paid or incurred from January 1, 2020, to January 1, 2030, by an angel investor for investing in a qualified small business for the taxable year in which the Franchise Tax Board issues a credit certificate.
(b) For purposes of this section:
(1) (A)“Angel investor” means an accredited investor who that comes within any of the following categories described in Section 230.501(a) of Title 17 of the Code of Federal Regulations, as it read on the effective date of this act, January 1, 2018, that is organized as a general partnership, limited partnership, corporation that has in effect a valid election to be taxed as an “S” corporation under the Internal Revenue Code, or a limited liability company that has elected to be taxed as a partnership under the Internal Revenue Code, that was established and is operated for the sole purpose of making investments in other entities, and who that seeks returns through private investments in start-up companies and may seek active involvement in the business, including consulting and mentoring the entrepreneur.

(B)“Angel investor” does not include a person who serves as an executive, officer, employee, vendor, or independent contractor of the business in which an otherwise qualified cash investment is made.

(2)“Permitted entity investor” means (A) any general partnership, limited partnership, corporation that has in effect a valid election to be taxed as an “S” corporation under the Internal Revenue Code, or a limited liability company that has elected to be taxed as a partnership under the Internal Revenue Code, and (B) that was established and is operated for the sole purpose of making investments in other entities.

(3)

(2) “Qualified small business” means a business that has two million dollars ($2,000,000) or less in gross receipts annually averaged over five years and that has 51 percent or more of the business owned by individuals who are members of a group that has been underrepresented in securing investor dollars. is certified under Part 124 (commencing with Section 124.1) of Title 13 of the Code of Federal Regulations.
(c) 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 taxable year, and the succeeding four years if necessary, until the credit is exhausted.
(d) To receive a credit, an angel investor shall apply to the Franchise Tax Board for a credit. The Franchise Tax Board shall give the angel investor a reservation for the credit if the annual aggregate amount of the credit described in subdivision (e) has not been met. After the angel investor has invested the money in a qualified small business, the angel investor shall apply for a credit certificate from the Franchise Tax Board. The Franchise Tax Board shall grant a certificate to an angel investor that provides information and evidence that the money has been invested in a qualified small business that meets the definition of qualified small business.
(e) The aggregate amount of credits that may be allocated for a fiscal year pursuant to this section and Section 17053.60 shall be fifteen million dollars ($15,000,000) annually.

(f)Section 41 does not apply to the credit allowed by this section.

(g)

(f) This section shall remain in effect only until December 1, 2030, and as of that date is repealed.

SEC. 3.

 For the purposes of complying with Section 41 of the Revenue and Taxation Code, with respect to Sections 17053.60 and 23660 of the Revenue and Taxation Code, as added by this act, the Franchise Tax Board shall collect data related to the amount of the return on investment made from investments in qualified small businesses.

SEC. 3.SEC. 4.

 This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.