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AB-2754 Income taxes: credits: electronic filing: charitable remainder trusts.(2013-2014)



Current Version: 09/19/14 - Chaptered         Compare Versions information image


AB2754:v94#DOCUMENT

Assembly Bill No. 2754
CHAPTER 478

An act to amend Sections 17039, 17054, and 23036 of, to add Sections 18621.10 and 19171 to, and to repeal and add Section 17755 of, the Revenue and Taxation Code, relating to taxation.

[ Approved by Governor  September 19, 2014. Filed with Secretary of State  September 19, 2014. ]

LEGISLATIVE COUNSEL'S DIGEST


AB 2754, Committee on Revenue and Taxation. Income taxes: credits: electronic filing: charitable remainder trusts.
The Personal Income Tax Law allows for the computation of, and the order of allowance of, various credits against the “net tax,” as defined. The Corporation Tax Law provides for a tentative minimum tax and further provides that, except for specified credits, no other credit shall reduce the tax imposed below the tentative minimum tax.
This bill would, for taxable years beginning on or after January 1, 2014, include the specified tax credit allocated by GO-Biz in the order of credits allowed against the “net tax.” This bill would also, for taxable years beginning on or after January 1, 2014, additionally allow the specified credit under the Corporation Tax Law allocated by GO-Biz to reduce the tentative minimum tax.
The Personal Income Tax Law allows a credit for each dependent of a taxpayer and does not require a tax identification number of the dependent to be included on the return filed with the Franchise Board.
This bill would require, for taxable years beginning on or after January 1, 2015, the tax identification number of a dependent to be included on the taxpayer’s return and would allow the taxpayer who did not provide the taxpayer identification number on the return to thereafter claim a credit or refund of that amount, as provided.
Existing law requires every taxpayer subject to the Personal Income Tax Law or the Corporation Tax Law to timely file a return with the Franchise Tax Board, unless exempt, on a form prescribed by the Franchise Tax Board.
This bill, for taxable years beginning on or after January 1, 2014, would require an acceptable return, as defined, of a business entity, as defined, that was prepared using a tax preparation software to be filed using electronic technology in a form and manner prescribed by the Franchise Tax Board. This bill would require a business entity that fails to comply with that filing requirement for returns filed for taxable years beginning on or after January 1, 2017, to pay specified penalties for each failure unless the failure is due to reasonable cause, and not willful neglect. This bill would require the Franchise Tax Board to conduct programs to educate business entities on these requirements and liberally interpret and grant waivers of the penalty, as specified.
The Personal Income Tax Law does not conform to specified provisions of federal law relating to the taxation of specified trusts. Existing law exempts from tax for the taxable year any charitable remainder annuity trust or charitable remainder unitrust unless that trust has unrelated business taxable income for the taxable year, in which case that trust shall be subject to tax, as provided.
This bill, for taxable years beginning on or after January 1, 2014, would conform, as modified, to the federal provisions for a charitable remainder annuity trust and a charitable remainder unitrust by providing that a trust shall remain tax-exempt, even if that trust has unrelated business taxable income, in which case that income shall be taxed as provided.
This bill would incorporate additional changes in Section 23036 of the Revenue and Taxation Code, proposed by AB 1839, to be operative only if AB 1839 and this bill are both chaptered and become effective on or before January 1, 2015, and this bill is chaptered last.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 Section 17039 of the Revenue and Taxation Code is amended to read:

17039.
 (a) Notwithstanding any provision in this part to the contrary, for the purposes of computing tax credits, the term “net tax” means the tax imposed under either Section 17041 or 17048 plus the tax imposed under Section 17504 (relating to lump-sum distributions) less the credits allowed by Section 17054 (relating to personal exemption credits) and any amount imposed under paragraph (1) of subdivision (d) and paragraph (1) of subdivision (e) of Section 17560. Notwithstanding the preceding sentence, the “net tax” shall not be less than the tax imposed under Section 17504 (relating to the separate tax on lump-sum distributions), if any. Credits shall be allowed against “net tax” in the following order:
(1) Credits that do not contain carryover or refundable provisions, except those described in paragraphs (4) and (5).
(2) Credits that contain carryover provisions but do not contain refundable provisions, except for those that are allowed to reduce “net tax” below the tentative minimum tax, as defined by Section 17062.
(3) Credits that contain both carryover and refundable provisions.
(4) The minimum tax credit allowed by Section 17063 (relating to the alternative minimum tax).
(5) Credits that are allowed to reduce “net tax” below the tentative minimum tax, as defined by Section 17062.
(6) Credits for taxes paid to other states allowed by Chapter 12 (commencing with Section 18001).
(7) Credits that contain refundable provisions but do not contain carryover provisions.
The order within each paragraph shall be determined by the Franchise Tax Board.
(b) Notwithstanding the provisions of Sections 17061 (relating to refunds pursuant to the Unemployment Insurance Code) and 19002 (relating to tax withholding), the credits provided in those sections shall be allowed in the order provided in paragraph (6) of subdivision (a).
(c) (1) Notwithstanding any other provision of this part, no tax credit shall reduce the tax imposed under Section 17041 or 17048 plus the tax imposed under Section 17504 (relating to the separate tax on lump-sum distributions) below the tentative minimum tax, as defined by Section 17062, except the following credits:
(A) The credit allowed by Section 17052.2 (relating to teacher retention tax credit).
(B) The credit allowed by former Section 17052.4 (relating to solar energy).
(C) The credit allowed by former Section 17052.5 (relating to solar energy, repealed on January 1, 1987).
(D) The credit allowed by former Section 17052.5 (relating to solar energy, repealed on December 1, 1994).
(E) The credit allowed by Section 17052.12 (relating to research expenses).
(F) The credit allowed by former Section 17052.13 (relating to sales and use tax credit).
(G) The credit allowed by former Section 17052.15 (relating to Los Angeles Revitalization Zone sales tax credit).
(H) The credit allowed by Section 17052.25 (relating to the adoption costs credit).
(I) The credit allowed by Section 17053.5 (relating to the renter’s credit).
(J) The credit allowed by former Section 17053.8 (relating to enterprise zone hiring credit).
(K) The credit allowed by former Section 17053.10 (relating to Los Angeles Revitalization Zone hiring credit).
(L) The credit allowed by former Section 17053.11 (relating to program area hiring credit).
(M) For each taxable year beginning on or after January 1, 1994, the credit allowed by former Section 17053.17 (relating to Los Angeles Revitalization Zone hiring credit).
(N) The credit allowed by Section 17053.33 (relating to targeted tax area sales or use tax credit).
(O) The credit allowed by Section 17053.34 (relating to targeted tax area hiring credit).
(P) The credit allowed by Section 17053.49 (relating to qualified property).
(Q) The credit allowed by Section 17053.70 (relating to enterprise zone sales or use tax credit).
(R) The credit allowed by Section 17053.74 (relating to enterprise zone hiring credit).
(S) The credit allowed by Section 17054 (relating to credits for personal exemption).
(T) The credit allowed by Section 17054.5 (relating to the credits for a qualified joint custody head of household and a qualified taxpayer with a dependent parent).
(U) The credit allowed by Section 17054.7 (relating to the credit for a senior head of household).
(V) The credit allowed by former Section 17057 (relating to clinical testing expenses).
(W) The credit allowed by Section 17058 (relating to low-income housing).
(X) For taxable years beginning on or after January 1, 2014, the credit allowed by Section 17059.2 (relating to GO-Biz California Competes Credit).
(Y) The credit allowed by Section 17061 (relating to refunds pursuant to the Unemployment Insurance Code).
(Z) Credits for taxes paid to other states allowed by Chapter 12 (commencing with Section 18001).
(AA) The credit allowed by Section 19002 (relating to tax withholding).
(2) Any credit that is partially or totally denied under paragraph (1) shall be allowed to be carried over and applied to the net tax in succeeding taxable years, if the provisions relating to that credit include a provision to allow a carryover when that credit exceeds the net tax.
(d) Unless otherwise provided, any remaining carryover of a credit allowed by a section that has been repealed or made inoperative shall continue to be allowed to be carried over under the provisions of that section as it read immediately prior to being repealed or becoming inoperative.
(e) (1) Unless otherwise provided, if two or more taxpayers (other than husband and wife) share in costs that would be eligible for a tax credit allowed under this part, each taxpayer shall be eligible to receive the tax credit in proportion to his or her respective share of the costs paid or incurred.
(2) In the case of a partnership, the credit shall be allocated among the partners pursuant to a written partnership agreement in accordance with Section 704 of the Internal Revenue Code, relating to partner’s distributive share.
(3) In the case of a husband and wife who file separate returns, the credit may be taken by either or equally divided between them.
(f) Unless otherwise provided, in the case of a partnership, any credit allowed by this part shall be computed at the partnership level, and any limitation on the expenses qualifying for the credit or limitation upon the amount of the credit shall be applied to the partnership and to each partner.
(g) (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 shall be 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 “net tax,” as defined in subdivision (a), for the taxable year shall be limited to an amount equal to the excess of the taxpayer’s regular tax (as defined in Section 17062), 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 17062), determined by excluding the income attributable to that disregarded business entity. No credit shall be allowed if the taxpayer’s regular tax (as defined in Section 17062), determined by including the income attributable to the disregarded business entity, is less than the taxpayer’s regular tax (as defined in Section 17062), 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 (c) and (d).
(h) (1) Unless otherwise specifically provided, in the case of a taxpayer that is a partner or shareholder of an eligible pass-thru 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-thru entity” means any partnership or “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 the credit is operative.
(3) This subdivision shall apply to credits that become inoperative on or after the operative date of the act adding this subdivision.

SEC. 2.

 Section 17054 of the Revenue and Taxation Code is amended to read:

17054.
 In the case of individuals, the following credits for personal exemption may be deducted from the tax imposed under Section 17041 or 17048, less any increases imposed under paragraph (1) of subdivision (d) or paragraph (1) of subdivision (e), or both, of Section 17560.
(a) In the case of a single individual, a head of household, or a married individual making a separate return, a credit of fifty-two dollars ($52).
(b) In the case of a surviving spouse (as defined in Section 17046), or a husband and wife making a joint return, a credit of one hundred four dollars ($104). If one spouse was a resident for the entire taxable year and the other spouse was a nonresident for all or any portion of the taxable year, the personal exemption shall be divided equally.
(c) In addition to any other credit provided in this section, in the case of an individual who is 65 years of age or over by the end of the taxable year, a credit of fifty-two dollars ($52).
(d) (1) A credit of two hundred twenty-seven dollars ($227) for each dependent (as defined in Section 17056) for whom an exemption is allowable under Section 151(c) of the Internal Revenue Code, relating to additional exemption for dependents. The credit allowed under this subdivision for taxable years beginning on or after January 1, 1999, shall not be adjusted pursuant to subdivision (i) for any taxable year beginning before January 1, 2000.
(2) (A) For taxable years beginning on or after January 1, 2015, a credit shall not be allowed under paragraph (1) with respect to any individual unless the identification number, as defined in Section 6109 of the Internal Revenue Code, of that individual is included on the return claiming the credit.
(B) A disallowance of a credit due to the omission of a correct identification number required under this paragraph, may be assessed by the Franchise Tax Board in the same manner as is provided by Section 19051 in the case of a mathematical error appearing on the return. A claimant shall have the right to claim a credit or refund of adjusted amounts within the period provided in Section 19306, 19307, 19308, or 19311, whichever period expires later.
(3) (A) For taxable years beginning on or after January 1, 2009, the credit allowed under paragraph (1) for each dependent shall be equal to the credit allowed under subdivision (a). This subparagraph shall cease to be operative for taxable years beginning on or after January 1, 2011, unless the Director of Finance makes the notification pursuant to Section 99040 of the Government Code, in which case this subparagraph shall cease to be operative for taxable years beginning on or after January 1, 2013.
(B) For taxable years that subparagraph (A) ceases to be operative, the credit allowed under paragraph (1) for each dependent shall be equal to the amount that would be allowed if subparagraph (A) had never been operative.
(e) A credit for personal exemption of fifty-two dollars ($52) for the taxpayer if he or she is blind at the end of his or her taxable year.
(f) A credit for personal exemption of fifty-two dollars ($52) for the spouse of the taxpayer if a separate return is made by the taxpayer, and if the spouse is blind and, for the calendar year in which the taxable year of the taxpayer begins, has no gross income and is not the dependent of another taxpayer.
(g) For the purposes of this section, an individual is blind only if either (1) his or her central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or (2) his or her visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle no greater than 20 degrees.
(h) In the case of an individual with respect to whom a credit under this section is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, the credit amount applicable to that individual for that individual’s taxable year is zero.
(i) For each taxable year beginning on or after January 1, 1989, the Franchise Tax Board shall compute the credits prescribed in this section. That computation shall be made as follows:
(1) The California Department of Industrial Relations shall transmit annually to the Franchise Tax Board the percentage change in the California Consumer Price Index for all items from June of the prior calendar year to June of the current calendar year, no later than August 1 of the current calendar year.
(2) The Franchise Tax Board shall add 100 percent to the percentage change figure which is furnished to them pursuant to paragraph (1), and divide the result by 100.
(3) The Franchise Tax Board shall multiply the immediately preceding taxable year credits by the inflation adjustment factor determined in paragraph (2), and round off the resulting products to the nearest one dollar ($1).
(4) In computing the credits pursuant to this subdivision, the credit provided in subdivision (b) shall be twice the credit provided in subdivision (a).

SEC. 3.

 Section 17755 of the Revenue and Taxation Code is repealed.

SEC. 4.

 Section 17755 is added to the Revenue and Taxation Code, to read:

17755.
 For taxable years beginning on or after January 1, 2014, Section 664(c)(2) of the Internal Revenue Code, relating to excise tax, shall not apply and, in lieu thereof, the unrelated business taxable income, as defined in Section 23732, of every charitable remainder annuity trust or charitable remainder unitrust shall be subject to tax under Section 17651.

SEC. 5.

 Section 18621.10 is added to the Revenue and Taxation Code, to read:

18621.10.
 (a) For taxable years beginning on or after January 1, 2014, if an acceptable return of a business entity was prepared using a tax preparation software, that return shall be filed using electronic technology in a form and manner prescribed by the Franchise Tax Board.
(b) For purposes of this section:
(1) “Acceptable return” means any original or amended return that is required to be filed pursuant to Article 2 (commencing with Section 18601), Section 18633, Section 18633.5, or Article 3 (commencing with Section 23771) of Chapter 4 of Part 11, other than the return for unrelated business taxable income required by Section 23771.
(2) “Business entity” means a corporation, including an “S” corporation, an organization exempt from tax pursuant to Chapter 4 (commencing with Section 23701) of Part 11, a partnership, or a limited liability company.
(3) “Tax preparation software” means any computer software program used to prepare an acceptable return or for use in tax compliance.
(4) “Electronic technology” includes, but is not limited to, the Internet, cloud computing, or an electronic information delivery system.
(5) “Technology constraints” means an inability of the tax preparation software used by a business entity to electronically file the acceptable return as required by this section as a result of the complex nature of the return or inadequacy of the software.
(c) Any business entity required to file a return electronically under this section may annually request a waiver of the requirements of this section from the Franchise Tax Board with respect to an acceptable return filed for a taxable year. The Franchise Tax Board may grant a waiver if it determines the business entity is unable to comply with the requirements of this section due to, but not limited to, technology constraints, where compliance would result in undue financial burden, or due to circumstances that constitute reasonable cause, and not willful neglect, as applicable with respect to the penalty imposed under Section 19171.
(d) This section applies to an acceptable return required to be filed on or after January 1, 2015.

SEC. 6.

 Section 19171 is added to the Revenue and Taxation Code, to read:

19171.
 (a) A business entity required to electronically file a return pursuant to Section 18621.10 that files a return in a manner that fails to comply with Section 18621.10, shall be subject to a penalty in the amount of one hundred dollars ($100) for an initial failure and a penalty in the amount of five hundred dollars ($500) for each subsequent failure unless the failure is due to reasonable cause, and not willful neglect.
(b) If a group return is filed on behalf of eligible electing taxpayer members of a combined reporting group, the penalties described in subdivision (a) shall apply to the combined reporting group and not to a taxpayer member of the combined reporting group.
(c) This section shall apply to returns filed for taxable years beginning on or after January 1, 2017.

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” 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” corporations, imposed under Section 23809.
(4) The tax on excess passive investment income of “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.
(d) Notwithstanding any other provision of this part, each of the following applies:
(1) A credit may not 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 former Section 23649 (relating to qualified property).
(R) For taxable years beginning on or after January 1, 2011, the credit allowed by Section 23685 (relating to qualified motion pictures).
(S) For taxable years beginning on or after January 1, 2014, the credit allowed by Section 23689 (relating to GO-Biz California Competes Credit).
(2) A credit against the tax may not 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” corporation, any credit allowed by this part is computed at the “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” 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. A credit is not 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-thru 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-thru entity” means any partnership or “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. 7.5.

 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” 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” corporations, imposed under Section 23809.
(4) The tax on excess passive investment income of “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.
(d) Notwithstanding any other provision of this part, each of the following applies:
(1) A credit may not 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 former Section 23649 (relating to qualified property).
(R) For taxable years beginning on or after January 1, 2011, the credit allowed by Section 23685 (relating to qualified motion pictures).
(S) For taxable years beginning on or after January 1, 2014, the credit allowed by Section 23689 (relating to GO-Biz California Competes Credit).
(T) For taxable years beginning on or after January 1, 2016, the credit allowed by Section 23695 (relating to qualified motion pictures).
(2) A credit against the tax may not 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” corporation, any credit allowed by this part is computed at the “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” 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. A credit is not 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-thru 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-thru entity” means any partnership or “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.

 The Franchise Tax Board shall conduct a robust education program advising business entities affected by Section 18621.10 of the Revenue and Taxation Code of the requirements of that section and liberally interpret and grant waivers of the penalty imposed under Section 19171 of the Revenue and Taxation Code to minimize any unnecessary adverse impacts to business entities that experience difficulty complying with these new requirements.

SEC. 9.

 Section 7.5 of this bill incorporates amendments to Section 23036 of the Revenue and Taxation Code proposed by this bill and Assembly Bill 1839. It shall only become operative if (1) both bills are enacted and become effective on or before January 1, 2015, (2) each bill amends Section 23036 of the Revenue and Taxation Code, and (3) this bill is enacted after Assembly Bill 1839, in which case Section 23036 of the Revenue and Taxation Code, as amended by Assembly Bill 1839, shall remain operative only until the operative date of this bill, at which time Section 7.5 of this bill shall become operative, and Section 7 of this bill shall not become operative.