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SB-635 Taxation: gross income exclusions: opportunity zones.(2019-2020)



Current Version: 03/27/19 - Amended Senate         Compare Versions information image


SB635:v98#DOCUMENT

Amended  IN  Senate  March 27, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill
No. 635


Introduced by Senator Hueso

February 22, 2019


An act relating to taxation. to amend Sections 18036 and 24916 of, and to add Sections 18190, 19183.5, and 24996 to, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


SB 635, as amended, Hueso. Employment tax credit. Taxation: gross income exclusions: opportunity zones.
The Personal Income Tax Law and the Corporation Tax Law impose taxes upon taxable income, as specified. Additionally, various provisions of the Personal Income Tax Law and the Corporation Tax law conform, or conform as modified, to provisions of the Internal Revenue Code.
This bill would conform the Personal Income Tax Law and the Corporation Tax Law to provisions of the Internal Revenue Code that allow for specified tax treatment for income derived from activities within a qualified opportunity zone, including the deferral of recognition of a capital gain, and would provide that the provisions are limited to designated opportunity zones located in the state.
This bill would take effect immediately as a tax levy.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill would state the intent of the Legislature to enact legislation that would allow a credit against the taxes imposed by the Personal Income Tax Law and the Corporation Tax Law in an amount equal to 35% of the qualified wages paid to employees that are 18 to 25 years of age, inclusive, who complete a work readiness program, not to exceed $15,000 per taxpayer per taxable year.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NOYES   Local Program: NO  

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


SECTION 1.

 Section 18036 of the Revenue and Taxation Code is amended to read:

18036.
 (a) In addition to the adjustments to basis provided by Section 1016(a) of the Internal Revenue Code, a proper adjustment shall also be made for amounts allowed as deductions as deferred expenses under subdivision (b) of former Section 17689 or former Section 17689.5 (relating to certain exploration expenditures) and resulting in a reduction of the taxpayer’s taxes under this part, but not less than the amounts allowable under those sections for the taxable year and prior years. A proper adjustment shall also be made for amounts deducted under Section 17252.5, 17265, or 17266.
(b) Notwithstanding the provisions of Sections 164(a) and 1016(a) of the Internal Revenue Code, no adjustment to basis shall be made for any of the following:
(1) Abandonment fees paid in respect of property on which the open-space easement is terminated under Section 51061 or 51093 of the Government Code.
(2) Tax recoupment fees paid under Section 51142 of the Government Code.
(3) Sales or use tax which is paid or incurred by the taxpayer in connection with the acquisition of property for which a tax credit is claimed pursuant to Section 17052.13.
(c) The provisions of Section 1016(c) of the Internal Revenue Code, relating to increase in basis of property on which additional estate tax is imposed, shall be applicable.
(d) The amendments made to Section 1016 of the Internal Revenue Code by Section 1913(a) of Public Law 102-486, relating to deduction for clean-fuel vehicles and certain refueling property, shall apply to property placed in service after June 30, 1993, without respect to taxable year.
(e) For taxable years beginning on or after January 1, 2019, the amendments made by Section 13823(b) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 1016(a) of the Internal Revenue Code, relating to adjustments to basis, shall apply, except as otherwise provided.

SEC. 2.

 Section 18190 is added to the Revenue and Taxation Code, to read:

18190.
 (a) For taxable years beginning on or after January 1, 2019, the amendments made by Section 13823(a) of the Tax Cuts and Jobs Act (Public Law 115-97) to add Subchapter Z of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to opportunity zones, shall apply, except as otherwise provided.
(b) For purposes of this section:
(1) “California qualified opportunity zone” means a qualified opportunity zone under Section 1400Z-1 of the Internal Revenue Code, relating to designation, which is located within the State of California.
(2) “California qualified opportunity zone business property” means property that is qualified opportunity zone business property under Section 1400Z-2(d)(2)(D) of the Internal Revenue Code that is located in a California qualified opportunity zone.
(c) (1) Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the Franchise Tax Board pursuant to this section.
(2) The Franchise Tax Board may prescribe regulations as necessary or appropriate to implement the purposes of this section, including regulations to properly determine the direct or indirect investment by a qualified opportunity fund in qualified opportunity zone business property.

SEC. 3.

 Section 19183.5 is added to the Revenue and Taxation Code, to read:

19183.5.
 (a) Section 1400Z-2(f)(1) of the Internal Revenue Code, relating to in general, is modified by substituting “(d)(1)” in place of “(c)(1).”
(b) Section 1400Z-2(f)(1)(A)(i) of the Internal Revenue Code is modified by substituting the phrase “90 percent of its aggregate assets located in California” in lieu of “90 percent of its aggregate assets.”
(c) Section 1400Z-2(f)(1)(A)(ii) of the Internal Revenue Code is modified by substituting the phrase “the aggregate amount of California qualified opportunity zone property” in lieu of “the aggregate amount of qualified opportunity zone property.”

SEC. 4.

 Section 24916 of the Revenue and Taxation Code is amended to read:

24916.
 Proper adjustment with regard to the property shall in all cases be made as follows:
(a) For expenditures, receipts, losses, or other items properly chargeable to capital account. However, no adjustment shall be made for any of the following:
(1) Sales or use tax paid or incurred in connection with the acquisition of property for which a tax credit is claimed pursuant to Section 23612.2.
(2) Taxes or other carrying charges described in Section 24426, or for expenditures described in Sections 24364 and 24369 for which deductions have been taken in determining net income for the taxable year or any prior taxable year.
(b) For exhaustion, wear and tear, obsolescence, amortization, and depletion:
(1) In the case of corporations subject to the tax imposed by Chapter 2 (commencing with Section 23101), to the extent sustained prior to January 1, 1928, and to the extent allowed (but not less than the amount allowable) under this part, except that no deduction shall be made for amounts in excess of the amount which would have been allowable had depreciation not been computed on the basis of January 1, 1928, value and amounts in excess of the adjustments required by Section 113(b)(1)(B) of the Federal Revenue Act of 1938 for depletion prior to January 1, 1932.
(2) In the case of a taxpayer subject to the tax imposed by Chapter 3 (commencing with Section 23501), to the extent sustained prior to January 1, 1937, and for periods thereafter to the extent allowed (but not less than the amount allowable) under the provisions of this part.
(3) If a taxpayer has not claimed an amortization deduction for an emergency facility, the adjustment under paragraph (1) shall be made only to the extent ordinarily provided under Sections 24349 and 24372.
(c) In the case of stock (to the extent not provided for in the foregoing subdivisions) for the amount of distributions previously made which, under the law applicable to the year in which the distribution was made, either were tax free or were applicable in reduction of basis (not including distributions made by a corporation, which was classified as a personal service corporation under the provisions of the Federal Revenue Act of 1918 or 1921, out of its earnings or profits which were taxable in accordance with the provisions of Section 218 of the Federal Revenue Act of 1918 or 1921).
(d) (1) In the case of corporations subject to the tax imposed by Chapter 2 (commencing with Section 23101), in the case of any bond, as defined in Section 24363, to the extent of the deductions allowable pursuant to Section 24360 with respect thereto.
(2) In the case of taxpayers subject to the tax imposed by Chapter 3 (commencing with Section 23501), in the case of any bond, as defined in Section 24363, the interest on which is wholly exempt from the tax imposed by this part, to the extent of the amortizable bond premium disallowable as a deduction pursuant to subdivision (b) of Section 24360, and in the case of any other bond, as defined in Section 24363, to the extent of the deductions allowable pursuant to subdivision (a) of Section 24360 (or the amount applied to reduce interest payments under paragraph (2) of subdivision (a) of Section 24363.5) with respect thereto.
(3) In the case of property pledged to the Commodity Credit Corporation, to the extent of the amount received as a loan from the Commodity Credit Corporation and treated by the taxpayer as income for the year in which received pursuant to Section 24273, and to the extent of any deficiency on that loan with respect to which the taxpayer has been relieved from liability.
(e) For amounts allowed as deductions as deferred expenses under Section 616(b) of the Internal Revenue Code, relating to certain expenditures in the development of mines, and resulting in a reduction of the taxpayer’s tax, but not less than the amounts allowable under that section for the taxable year and prior years.
(f) For amounts allowable as deductions as deferred expenses under Section 617(a) of the Internal Revenue Code, relating to certain exploration expenditures, and resulting in a reduction of the taxpayer’s tax, but not less than the amounts allowable under that section for the taxable year and prior years.
(g) For amounts allowed as deductions as deferred expenses under subdivision (a) of Section 24366, relating to research and experimental expenditures, and resulting in a reduction of the corporation’s taxes under this part, but not less than the amounts allowable under that section for the taxable year and prior years.
(h) For amounts allowed as deductions under Sections 24356.2, 24356.3, and 24356.4.
(i) (1) To the extent provided in Section 179A(e)(6)(A) of the Internal Revenue Code, relating to basis reduction for clean-fuel vehicles and certain refueling property.
(2) This subdivision shall apply to property placed in service after June 30, 1993, without regard to taxable year.
(j) For taxable years beginning on or after January 1, 2019, the amendments made by Section 13823(b) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 1016(a) of the Internal Revenue Code, relating to adjustments to basis, shall apply, except as otherwise provided.

(j)

(k) In the case of property the acquisition of which resulted under Section 1044 of the Internal Revenue Code, relating to rollover of publicly traded securities gain into specialized small business investment companies, in the nonrecognition of any part of the gain realized on the sale of other property, to the extent provided in Section 1044(d) of the Internal Revenue Code, relating to basis adjustments.

SEC. 5.

 Section 24996 is added to the Revenue and Taxation Code, to read:

24996.
 (a) For taxable years beginning on or after January 1, 2019, the amendments made by Section 13823(a) of the Tax Cuts and Jobs Act (Public Law 115-97) to add Subchapter Z of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to opportunity zones, shall apply, except as otherwise provided.
(b) For purposes of this section:
(1) “California qualified opportunity zone” means a qualified opportunity zone under Section 1400Z-1 of the Internal Revenue Code, relating to designation, which is located within the State of California.
(2) “California qualified opportunity zone business property” means property that is qualified opportunity zone business property under Section 1400Z-2(d)(2)(D) of the Internal Revenue Code that is located in a California qualified opportunity zone.
(c) (1) Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the Franchise Tax Board pursuant to this section.
(2) The Franchise Tax Board may prescribe regulations as necessary or appropriate to implement the purposes of this section, including regulations to properly determine the direct or indirect investment by a qualified opportunity fund in qualified opportunity zone business property.

SEC. 6.

 This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
SECTION 1.

It is the intent of the Legislature to enact legislation that would allow a credit against the taxes imposed by the Personal Income Tax Law and the Corporation Tax Law in an amount equal to 35 percent of the qualified wages paid by a taxpayer to employees that are 18 to 25 years of age, inclusive, who complete a work readiness program, not to exceed fifteen thousand dollars ($15,000) per taxpayer per taxable year.